As filed with the Securities and Exchange Commission on May 18, 2010
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-11
FOR REGISTRATION
UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES
LIGHTSTONE VALUE PLUS REAL ESTATE
INVESTMENT TRUST, INC.
(Exact Name of Registrant As Specified in Its Governing Instruments)
1985 Cedar Bridge Ave., Suite 1
Lakewood, New Jersey 08701
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrants Principal Executive Offices)
Joseph E. Teichman, Esq.
c/o The Lightstone Group
1985 Cedar Bridge Ave., Suite 1
Lakewood, New Jersey 08701
(732) 367-0129
(Name and Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)
With Copies to:
Peter M. Fass, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Tel: (212) 969-3000
Fax: (212) 969-2900
Approximate date of commencement of proposed sale to the public:
as soon as practicable after the registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:
x
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
If delivery of this prospectus is expected to be made pursuant to Rule 434, check the following box.
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
x
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Smaller reporting company
o
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to Be Registered
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Amount to Be
Registered
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Proposed Maximum
Offering Price
per Share*
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Proposed Maximum
Aggregate
Offering Price
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Amount of
Registration Fee
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Common Stock, $.01 par value
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10,000,000
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$
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9.50
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$
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95,000,000
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$
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6,773.50
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*
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The proposed maximum offering price per share will equal $9.50 until adjusted by our board of directors. The initial share price is $9.50 per share.
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
TABLE OF CONTENTS
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell the securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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PRELIMINARY PROSPECTUS DATED MAY 18, 2010
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SUBJECT TO COMPLETION
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10,000,000 shares of common stock
LIGHTSTONE VALUE PLUS REAL ESTATE
INVESTMENT TRUST, INC.
$9.50 PER SHARE Initial Purchase Price
We are Lightstone Value Plus Real Estate Investment Trust, Inc., a real estate investment trust that acquires and manages a diversified (by geographical location and by type and size of retail centers) portfolio of commercial and residential properties, principally in the United States. With this prospectus we are offering participation in our Distribution Reinvestment Program to record holders of our outstanding shares of common stock. Only our existing stockholders may participate in this offering. We refer to our Distribution Reinvestment Program as the Program in this prospectus.
PROGRAM HIGHLIGHTS
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You may invest all of your cash distributions that we pay to you in additional shares of our common stock without paying any fees or commissions.
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Once you are enrolled in the Program, any cash distributions paid on the shares of your common stock will be automatically reinvested in additional shares of our common stock until you terminate your participation in the Program or your participation is terminated by us. No minimum amount of shares is required to participate in the Program.
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The purchase price for shares under the Program will be determined by our board of directors and will initially be $9.50 per share.
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Your participation in the Program is entirely voluntary and you may terminate your participation at any time. If you do not elect to participate in the Program, you will continue to receive any cash distributions paid on your shares of common stock.
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You should read this prospectus carefully so you will know how the Program works and then retain it for future reference.
Investing in us involves a high degree of risk. See Risk Factors beginning on page
23
for a discussion of the risks which should be considered in connection with your investment in our common stock. Some of these risks include:
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No public market currently exists for our shares of common stock, no public market for those shares may ever exist and our shares are illiquid;
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The price of our common stock is subjective and may not bear any relationship to what a stockholder could receive if it was sold.
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There are substantial conflicts between the interests of our investors, our interests and the interests of our advisor, sponsor (including its other public program, Lightstone Value Plus Real Estate Investment Trust II, Inc.) and our respective affiliates regarding affiliate compensation, investment opportunities and management resources because David Lichtenstein, the Chairman of our Board of Directors and our Chief Executive Officer, is the sole owner of our sponsor, our advisor and our property manager. The sponsor and advisor may compete with us and acquire properties that suit our investment objectives; we have no employees that do not also work for our sponsor or advisor and the advisor is not obligated to devote any fixed, minimum amount of time or effort to management of our operations;
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We may maintain a level of leverage as high as 300% of our net assets, as permitted under our charter;
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There are limitations on ownership and transferability of our shares that prohibit five or fewer individuals from beneficially owning more than 50% of our outstanding shares during the last half of each taxable year and, subject to exceptions, restrict any person from beneficially owning more than 9.8% in value of our aggregate outstanding shares of capital stock;
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Recent disruptions in the financial markets and deteriorating economic conditions have adversely affected the value of some of our investments and our ongoing results of operations;
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If lenders are not willing to make loans to our sponsor because of recent defaults on some of the sponsors properties, lenders may be less inclined to make loans to us and we may not be able to obtain financing for any future acquisitions;
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Our investment policies and strategies may be changed without stockholder consent;
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If our advisor loses or is unable to obtain key personnel, our ability to implement our investment strategies could be hindered, which could adversely affect our ability to make distributions and the value of your investment;
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We are obligated to pay substantial fees to our advisor and its affiliates, including fees payable upon the investment in and sale of properties, and our incentive advisor fee structure may result in our advisor recommending riskier or more speculative investments;
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We may make distributions that include a return of principal and may need to borrow to make these distributions and;
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These are speculative securities and this investment involves a high degree of risk.
You should purchase these securities only if you can afford a complete loss of your investment.
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Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The use of forecasts in this offering is prohibited. Any representation to the contrary and any predictions, written or oral, as to the amount or certainty of any present or future cash benefit or tax consequence which may flow from an investment in us is not permitted.
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Per Share
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Max. Offering
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Public offering price
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$
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9.50
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(1)
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$
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95,000,000
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Proceeds, before expenses, to us
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$
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9.50
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$
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95,000,000
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(1)
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The offering price per share of common stock issuable pursuant to the Program is initially $9.50.
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Prospectus dated , 2010
TABLE OF CONTENTS
SUITABILITY STANDARDS
Because an investment in our common stock is risky and is a long-term investment, it is suitable and appropriate for you only if you have adequate financial means to make this investment, you have no immediate need for liquidity in your investment and you can bear the loss of your investment.
Therefore, we have established financial suitability standards for investors who purchase shares of our common stock, which we sometimes refer to as the shares. In addition, residents of some states must meet higher suitability standards under state law. These standards require you to meet the applicable criteria below. In determining your net worth, do not include your home, home furnishings or your automobile.
General Standards for all Investors
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The investor has either (i) a net worth of at least $250,000, or, (ii) an annual gross income of $70,000 and a minimum net worth of $70,000.
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Standards for Investors from Kentucky
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Investors must have either (a) a net worth of at least $250,000 or (b) an annual gross income of at least $70,000 and a minimum net worth of at least $70,000, with the amount invested in us not to exceed 10% of the Kentucky investors liquid net worth.
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Standards for Investors from Massachusetts, Michigan, Oregon, Pennsylvania and Washington
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Investors must have either (a) a net worth of at least $250,000 or (b) an annual gross income of at least $70,000 and a minimum net worth of at least $70,000. The investors maximum investment in us and our affiliates cannot exceed 10% of the Massachusetts, Michigan, Oregon, Pennsylvania or Washington residents net worth.
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Standards for Investors from Kansas, Missouri, and California
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In addition to the general suitability requirements described above, it is recommended that investors should invest no more than 10% of their liquid net worth in our shares and securities of other real estate investment trusts. Liquid net worth is defined as that portion of net worth (total assets minus total liabilities) that is comprised of cash, cash equivalents and readily marketable securities.
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Standards for Investors from Alabama
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Investors must have either (a) a net worth of at least $250,000 or (b) an annual gross income of $70,000 and a minimum net worth of $70,000, and shares will only be sold to Alabama residents that represent that they have a liquid net worth of at least 10 times the amount of their investment in this real estate investment program and other similar programs.
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Standards for Investors from Tennessee
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Investors must have either (a) a net worth of at least $250,000 or (b) an annual gross income of $70,000 and a minimum net worth of $70,000, and Tennessee residents maximum investment in us and our affiliates must not exceed ten percent (10%) of their liquid net worth. The foregoing suitability standards must be met by the investor who purchases the shares. In the case of sales to fiduciary accounts, these minimum standards must be met by the beneficiary, the fiduciary account, or by the donor or grantor who directly or indirectly supplies the funds to purchase the common stock if the donor or the grantor is the fiduciary.
Investors with investment discretion over assets of an employee benefit plan covered by ERISA should carefully review the information in the section entitled ERISA Considerations.
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In the case of gifts to minors, the suitability standards must be met by the custodian of the account or by the donor.
Each investor should notify us or the reinvestment agent in the event that there is a change in the investors financial condition, an inaccuracy of any representation under the subscription agreement for the individual purchase of shares, or if the investor believes that it is unable to satisfy the suitability standards set forth above.
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RESTRICTIONS IMPOSED BY THE USA PATRIOT ACT AND RELATED ACTS
In accordance with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended (the USA PATRIOT Act), the units offered hereby may not be offered, sold, transferred or delivered, directly or indirectly, to any Prohibited Shareholder, which means anyone who is:
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a designated national, specially designated national, specially designated terrorist, specially designated global terrorist, foreign terrorist organization, or blocked person within the definitions set forth in the Foreign Assets Control Regulations of the U.S. Treasury Department;
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acting on behalf of, or an entity owned or controlled by, any government against whom the U.S. maintains economic sanctions or embargoes under the Regulations of the U.S. Treasury Department;
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within the scope of Executive Order 13224 Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism, effective September 24, 2001;
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subject to additional restrictions imposed by the following statutes or regulations, and executive orders issued thereunder: the Trading with the Enemy Act, the Iraq Sanctions Act, the National Emergencies Act, the Antiterrorism and Effective Death Penalty Act of 1996, the International Emergency Economic Powers Act, the United Nations Participation Act, the International Security and Development Cooperation Act, the Nuclear Proliferation Prevention Act of 1994, the Foreign Narcotics Kingpin Designation Act, the Iran and Libya Sanctions Act of 1996, the Cuban Democracy Act, the Cuban Liberty and Democratic Solidarity Act and the Foreign Operations, Export Financing and Related Programs Appropriation Act or any other law of similar import as to any non-U.S. country, as each such act or law has been or may be amended, adjusted, modified or reviewed from time to time; or
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designated or blocked, associated or involved in terrorism, or subject to restrictions under laws, regulations, or executive orders as may apply in the future similar to those set forth above.
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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.
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PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. Because this is a summary, it does not contain all the information that may be important to you. You should read this entire prospectus and its appendices carefully before you decide to invest in our shares of common stock.
Summary of This Offering
The following summary below describes the principal terms of this offering and the Program. You should carefully read the entire text of the Program in Appendix A to this prospectus before you decide to participate in the Program.
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Number of Shares Offered
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10,000,000 shares of common stock, par value $0.01 per share.
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Enrollment
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Subject to the suitability standards discussed below, you can participate if you currently own shares of our common stock by completing and submitting the enclosed Authorization Form. If you are already enrolled in the Program, then no further action is required. No minimum amount of shares is required to participate in the Program.
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Reinvestment of Distributions
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You will be able to purchase additional shares of our common stock by reinvesting any cash distributions paid on your shares of common stock.
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Administration
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ACS Securities Services, Inc. will serve as the administrator of the Program.
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Price per Share
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The initial price per share is $9.50. The price of shares purchased under the Program will be equal to at our option, either (i) 95% of the then current net asset value per share as determined by our board of directors in good faith or (ii) $9.50 per share; provided that any discount on the purchase will not exceed 5%.
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Tracking Your Investment
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You will receive periodic statements of the transactions made in your Program account. These statements will provide you with details of the transactions and will indicate the share balance in your Program account.
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Amendment and Termination of the Program
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We may terminate the Program for any reason by providing 30 days written notice. We may amend the Program for any reason by providing 10 days written notice.
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Use of Proceeds
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The proceeds from this offering will be used for general corporate purposes, including, but not limited to, investment in properties, payment of fees and other costs, and to fund distributions to stockholders and to fund our share redemption program.
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Program Restrictions
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A participant will not be able to acquire common stock under the Program if the purchase would cause it to exceed the 9.8% ownership limit or would violate any of the other share ownership restrictions imposed by our charter.
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Suitability Standards
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Participants must have either (a) a net worth of at least $250,000 or (b) an annual gross income of $70,000 and a minimum net worth of $70,000. You must notify us or the reinvestment agent if there is a change in your financial condition that would cause you to fail to meet the suitability standards set forth in the prospectus. See the section of this prospectus titled Suitability Standards.
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Lightstone Value Plus Real Estate Investment Trust, Inc.
We are a Maryland corporation formed on June 8, 2004 primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States and Puerto Rico. We are structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of our current and future business is and will be conducted through our operating partnership, which we, as the general partner, held 98.4% interest of at March 31, 2010.
Our principal executive offices are located at 1985 Cedar Bridge Ave., Suite 1, Lakewood, New Jersey 08701, our telephone number is (732) 367-0129 and our website address is
www.lightstonereit.com.
Our website is not a part of this prospectus.
The Types of Real Estate that We Acquire and Manage
We acquire and manage a diversified (by geographical location and by type and size of retail centers) portfolio of commercial and residential properties located throughout the United States and Puerto Rico. We have acquired and continue to seek to acquire fee interests in multi-tenant, community, power and lifestyle shopping centers, and in malls located in highly trafficked retail corridors, high-barrier to entry markets, and sub-markets with constraints on the amount of additional property supply. Additionally, we have acquired and will continue to seek to acquire fee interests in lodging properties located near major transportation arteries in
urban and suburban areas; multi-tenant industrial properties located near major transportation arteries and distribution corridors; multi-tenant office properties located near major transportation arteries; and market-rate, middle market multifamily properties at a discount to replacement cost.
Since our formation, we have acquired portfolios and individual properties, with our commercial holdings consisting of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial and office properties, and our residential properties consisting of Class B multi-family complexes. Building classifications in most markets refer to Class A, B, C and sometimes D properties. Class A, AA and AAA properties are typically newer buildings with superior construction and finish in excellent locations with easy access are
attractive to creditworthy tenants and offer valuable amenities such as on-site management or covered parking. These buildings command the highest rental rates in their market. As the classification of a building decreases (e.g., Class A to Class B), one building attribute or another becomes less desirable.
As of March 31, 2010 on a collective basis, we either wholly owned or owned interests in 23 retail properties containing a total of approximately 7.9 million square feet of retail space, 15 industrial properties containing a total of approximately 1.3 million square feet of industrial space, 9 multi-family properties containing a total of 2,593 units, 2 hotel properties containing a total of 290 rooms and 1 office property containing a total of approximately 1.1 million square feet of office space. All of our properties are located within the United States. As of March 31, 2010, the retail properties, the industrial properties, the multi-family
properties and the office property were 93%, 63%, 90% and 75% occupied based on a weighted average basis, respectively. Our hotel properties average revenue per available room was $22 and occupancy was 60% for the three months ended March 31, 2010. See Investment Objectives and Policies Real Estate Investments for detailed descriptions.
Significant Pending Transactions
On December 8, 2009, we, together with our sponsor as described in
Our Sponsor, Advisor, Property Manager, Promoters and Operating Partnership
below, signed a definitive agreement (the Contribution Agreement) to dispose of a substantial portion of our retail properties including our St. Augustine Outlet center plus our interests in our investments in Prime Outlets Acquisitions Company (POAC), which includes 18 retail properties and Mill Run, LLC (Mill Run), which includes 2 of our retail properties. Upon closing of the transaction, we are expecting to receive $245.7 million in total consideration
before transaction expenses, of which approximately $200.0 million will be in the form of cash and the remaining in the form of equity which may not be available for sale until July 2013. The equity will be common units of the operating partnership of Simon Property Group.
We expect the transaction to be completed during mid to late 2010. At a meeting on May 13, 2010, our board of directors made the decision to distribute proceeds to the shareholders equal to the estimated tax liability, if any, they would accrue from the transaction. Subject to change based on market conditions that
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may prevail when the transaction closes and the proceeds are received, the board further determined to direct the reinvestment of the balance of the cash proceeds. In reaching its determination, the board considered that, in the event all proceeds were distributed, we would need to substantially reduce or eliminate our dividend to shareholders. The board concluded that reinvesting a significant portion of the proceeds will allow us to take advantage of the current real estate environment and is consistent with our shareholders original expectation of being invested in our shares for seven to ten years.
In addition, during 2009, we decided to not make our required debt service payments of $0.2 million in the month of October on two loans within our multifamily segment, which had an outstanding principal balance of $42.3 million as of December 31, 2009. We determined that future debt service payments on these two loans would no longer be economically beneficial to us based upon the current and expected future performance of the properties associated with these two loans. During the first quarter of 2010, we have been notified by the lender that it will be foreclosing on these two properties. One of the foreclosure sales was completed on April 13,
2010 and the other one was completed May 12, 2010. The principal balance of these two loans of $42.3 million has been accelerated from its original maturity date of December 2014 to due current. In addition, during 2009, we recorded an impairment charge on long lived assets of $43.2 million associated with the two properties connected to these two loans as well as three other properties within our multi-family segment.
Our Sponsor, Advisor, Property Manager, and Operating Partnership
Sponsor
Our sponsor, David Lichtenstein, who does business as The Lightstone Group and wholly owns the limited liability company of that name, is one of the largest private residential and commercial real estate owners and operators in the United States today. Our sponsor has a portfolio of over 170 properties containing approximately 10,620 multifamily units, 5.2 million square feet of office space, 2.8 million square feet of industrial space, and 12.5 million square feet of retail space. These residential, office, industrial and retail properties are located in 25 states, the District of Columbia and Puerto Rico. Based in New York, and supported by
regional offices in New Jersey, Illinois and Maryland, our sponsor employs approximately 1,050 staff and professionals including a senior management team with approximately 24 years on average of industry experience. Our Sponsor has extensive experience in the areas of investment selection, underwriting, due diligence, portfolio management, asset management, property management, leasing, disposition, finance, accounting and investor relations. Our sponsor is also the sponsor of Lightstone Value Plus Real Estate Investment Trust II, Inc. (referred to in this prospectus as Lightstone II), a newly formed program with similar investment objectives to ours. For a description of the recent adverse developments that have affected and may continue to affect some of our sponsors properties, see the section of this prospectus captioned Prior Performance of Affiliates of Our Sponsor Adverse Business Developments.
On December 8, 2009, our sponsor entered into a definitive agreement to dispose its outlet center interests, which comprise of approximately 8 million square feet of the 12.5 million square feet of retail space owned. The transaction is expected to close during calendar 2010.
Our Advisor and our Property Manager
Lightstone Value Plus REIT LLC, our advisor, is wholly owned indirectly by David Lichtenstein as the sole owner of The Lightstone Group, our sponsor. Our advisor, together with our board of directors, will be primarily responsible for making investment decisions and managing our day-to-day operations. Through his ownership and control of The Lightstone Group, Mr. Lichtenstein is the sole owner of our advisor, the sole owner and manager of Lightstone SLP LLC, the special general partner of our operating partnership, and acts as our Chairman and Chief Executive Officer. As a result, he controls both the general partner and associate general partner of
our operating partnership and is the sole decision-maker of our operating partnership. Lightstone Value Plus REIT Management LLC, our property manager, is also wholly owned by The Lightstone Group.
We do not have and will not have any employees that are not also employed by our sponsor or its affiliates. We depend substantially on our advisor, which generally has responsibility for our day-to-day operations. Under the terms of the advisory agreement, the advisor also undertakes to use its commercially
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reasonable best efforts to present to us investment opportunities consistent with our investment policies and objectives as adopted by our board of directors.
Our Operating Partnership
Our structure is generally referred to as an umbrella partnership real estate investment trust (UPREIT) structure. Substantially all of our assets are held through Lightstone Value Plus REIT LP, a Delaware limited partnership, which we sometimes refer to as the operating partnership. This structure enables us to acquire assets from other partnerships and individual owners in a manner that defers the recognition of gain to the partners of the acquired partnerships or the individual owners, assuming certain conditions are met. We provide our stockholders with appropriate tax information including a Form 1099.
Our Structure
The following chart depicts the services that affiliates or the sponsor render to us, and our structure:
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Summary Risk Factors
Investment in shares of our common stock involves risks which are described in detail under Risk Factors. If we are unable to effectively manage the impact of these risks, we may not meet our investment objectives and, therefore, you may lose some or all of your investment. The most significant risks relating to this offering and an investment in our shares include:
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You may not have the opportunity to evaluate all of our investments before you make your purchase of our common stock, which makes your investment more speculative;
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There are numerous conflicts of interest between the interests of investors and our interests or the interests of our advisor, our sponsor, and their respective affiliates;
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The special general partner interests entitle a wholly owned subsidiary of our sponsor to certain payments and distributions that will significantly reduce the distributions available to stockholders after they receive a 7% cumulative return on their net investment;
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We may not be able to continue to make distributions and we may borrow to make distributions, which could reduce the cash available to us, and these distributions made with borrowed funds may constitute a return of capital to stockholders;
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The profitability of our acquisitions is uncertain;
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The bankruptcy or insolvency of a major tenant would adversely impact us;
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There are limitations on ownership and transferability of our shares;
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Our sponsors other public program, Lightstone Value Plus Real Estate Investment Trust II, Inc. (Lightstone II), may be engaged in competitive activities;
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Our investment policies and strategies may be changed without stockholder consent;
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If our advisor loses or is unable to obtain key personnel, our ability to implement our investment strategies could be hindered, which could adversely affect our ability to make distributions and the value of your investment;
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We are obligated to pay substantial fees to our advisor and its affiliates, including fees payable upon the sale of properties;
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The incentive advisor fee structure may result in our advisor recommending riskier or more speculative investments;
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The price of our common stock is subjective and may not bear any relationship to what a stockholder could receive if it was sold. Our board of directors determined the current net asset value of the common stock at $9.97 per share. This value is based upon an estimated amount we determined would be received if our properties and other assets were sold as of the close of our fiscal year and if such proceeds, together with our other funds, were distributed pursuant to liquidation. Because this is only an estimate, we may subsequently revise any annual valuation that is provided.
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No public market currently exists for our shares of common stock, no public market for our shares may ever exist and our shares are illiquid;
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We are subject to risks associated with the significant dislocations and liquidity disruptions currently occurring in the United States credit markets;
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If lenders are not willing to make loans to our sponsor because of recent defaults on some of the sponsors properties, lenders may be less inclined to make loans to us and we may not be able to obtain financing for any future acquisitions.
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There are significant risks associated with maintaining as high level of leverage as permitted under our charter (which permits leverage of up to 300% of our net assets);
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Our advisor may have an incentive to incur high levels of leverage due to the fact that asset management fees payable to our advisor are based on total assets, including assets purchased with indebtedness;
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Our property manager has no direct experience as a property manager and relies on affiliated and unaffiliated, fully established management companies to provide all property management services to our properties;
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We may fail to continue to qualify as a REIT for taxation purposes;
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Our share repurchase program is subject to numerous restrictions, may be cancelled at any time and should not be relied upon as a means of liquidity;
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Our operations could be restricted if we become subject to the Investment Company Act of 1940 and;
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Changes in applicable laws may adversely affect the income and value of our properties
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Investment Company Act of 1940 Considerations
We conduct our operations so that the Company and each of its subsidiaries are exempt from registration as an investment company under the Investment Company Act of 1940 (the Investment Company Act). Under Section 3(a)(1)(A) of the Investment Company Act, a company is an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of
investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets on an unconsolidated basis (the 40% test). Investment securities excludes U.S. Government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
We acquire real estate and real-estate related assets directly, for example, by acquiring fee interests in real property, or by purchasing interests, including controlling interests, in REITs or other real estate operating companies, such as real estate management companies and real estate development companies, that own real property. We also acquire real estate assets through investments in joint venture entities, including joint venture entities in which we may not own a controlling interest. Our assets generally are held in wholly and majority-owned subsidiaries of the Company, each formed to hold a particular asset.
We intend to continue conducting our operations so that the Company and most, if not all, of its wholly owned and majority-owned subsidiaries will comply with the 40% test. We will continuously monitor our holdings on an ongoing basis to determine the compliance of the Company and each wholly owned and majority-owned subsidiary with this test. We expect that most, if not all, of the Companys wholly owned and majority-owned subsidiaries will not be relying on exemptions under either Section 3(c)(1) or 3(c)(7) of the Investment Company Act. Consequently, interests in these subsidiaries (which are expected to constitute most, if not all, of our
assets) generally will not constitute investment securities. Accordingly, we believe that the Company and most, if not all, of its wholly owned and majority-owned subsidiaries will not be considered investment companies under Section 3(a)(1)(C) of the Investment Company Act.
In addition, we believe that neither the Company nor any of its wholly or majority-owned subsidiaries are or will be considered investment companies under Section 3(a)(1)(A) of the Investment Company Act because they do not and will not engage primarily or hold themselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, the Company and its subsidiaries are and will continue to be primarily engaged in non-investment company businesses related to real estate. Consequently, the Company and its subsidiaries expect to be able to conduct their respective operations such that none of them will be
required to register as an investment company under the Investment Company Act.
The determination of whether an entity is a majority-owned subsidiary of our company is made by us. The Investment Company Act defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding voting securities of which are owned by such person, or by another company which is a
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TABLE OF CONTENTS
majority-owned subsidiary of such person. The Investment Company Act further defines voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company. We treat companies in which we own at least a majority of the outstanding voting securities as majority owned subsidiaries for purposes of the 40% test. We have not requested that the SEC staff approve our treatment of any entity as a majority-owned subsidiary and the SEC staff has not done so. If the SEC staff were to disagree with our treatment of one or more companies as majority-owned subsidiaries, we would need to adjust our
strategy and our assets in order to continue to comply with the 40% test. Any such adjustment in our strategy could have a material adverse effect on us.
We intend to continue conducting our operations so that neither we nor any of our wholly or majority-owned subsidiaries fall within the definition of investment company under the Investment Company Act. If the Company or any of its wholly or majority-owned subsidiaries inadvertently falls within one of the definitions of investment company, we intend to rely on the exclusion provided by Section 3(c)(5)(C) of the Investment Company Act, which is available for entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. In addition to
prohibiting the issuance of certain types of securities, this exclusion generally requires that at least 55% of an entitys assets must be comprised of mortgages and other liens on and interests in real estate, also known as qualifying assets, and at least 80% of the entitys assets must be comprised of qualifying assets and a broader category of assets that we refer to as real estate related assets under the Investment Company Act. Additionally, no more than 20% of the entitys assets may be comprised of miscellaneous assets.
Qualification for exemption from the definition of investment company under the Investment Company Act will limit our ability to make certain investments. For example, these restrictions may limit the ability of the Company and its subsidiaries to invest directly in mortgage-related securities that represent less than the entire ownership in a pool of mortgage loans, debt and equity tranches of securitizations and certain asset-backed securities and real estate companies or in assets not related to real estate. Although we intend to monitor our portfolio, there can be no assurance that we will be able to maintain this exemption from
registration for our company or each of our subsidiaries.
Based upon changes in the valuation of our portfolio of investments as of September 30, 2009, including with respect to certain investment securities we currently hold, we may be deemed to have inadvertently become an investment company under the Investment Company Act of 1940. We are currently evaluating our response to this development, including the availability of exemptive or other relief under the Investment Company Act of 1940, and we intend to take affirmative steps to comply with applicable regulatory requirements. However, if an examination of our investments by the SEC or a court should deem us to hold investment securities in excess of
the amount that would require us to register under the Investment Company Act of 1940, we could be deemed to be an investment company and be subject to additional restrictions.
To the extent that the SEC staff provides more specific guidance regarding any of the matters bearing upon the definition of investment company and the exceptions to that definition, we may be required to adjust our investment strategy accordingly. Additional guidance from the SEC staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the investment strategy we have chosen.
Conflicts of Interest
Conflicts of interest may exist between us and some of our affiliates, including our advisor. Some of these potential conflicts include:
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the possibility that our affiliates, including Lightstone II, may be engaged in competitive activities such as investing in properties that meet our investment profile;
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competition for the time and services of personnel that work for us and our affiliates;
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substantial compensation payable by us to our advisor, property manager and affiliates for their various services, which may not be on market terms and is payable, in some cases, whether or not our stockholders receive distributions;
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the possibility that we may acquire or consolidate with our advisor; and
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TABLE OF CONTENTS
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the possibility that we may do business with entities that have pre-existing relationships with our affiliates which may result in a conflict between our business and the ongoing business relationships our affiliates have with each other.
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Conflicts of interest may also arise in connection with the potential sale or refinancing of our properties or the enforcement of agreements.
See Conflicts of Interest for more details of these and other conflicts of interest.
Estimated Use of Proceeds
We intend to use the net proceeds from the sale of shares under the Program for general corporate purposes, including investment in properties, payment of fees and other costs, funding operating or capital expenses associated with our existing properties, for future distributions to our stockholders or for funding the share redemption program. We have no basis for estimating the number of shares that will be sold.
Primary Business Objectives and Strategies
Our primary objective is to achieve capital appreciation with a secondary objective of income without subjecting principal to undue risk. We intend to achieve this goal primarily through investments in real estate properties.
Unlike other REITs, which typically specialize in one sector of the real estate market, we invest in both residential and commercial properties to provide a more general risk profile and take advantage of our sponsors expertise in acquiring larger properties and portfolios of both residential and commercial properties.
The following is descriptive of our investment objectives and policies:
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Reflecting a
flexible operating style
, our portfolio is diverse and includes properties of different types (such as retail, lodging, office, industrial and residential properties); both passive and active investments; and joint venture transactions.
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Our investments may include properties that are not sold through conventional marketing and auction processes. Our investments may be at a dollar cost level lower than levels that attract those funds that hold investments of a single type.
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We may be more likely to make investments that are in need of rehabilitation, redirection, remarketing and/or additional capital investment.
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We may place major emphasis on a
bargain element
in our purchases, and often on the individual circumstances and motivations of the sellers. We search for bargains that become available due to circumstances that occur when real estate cannot support the mortgages securing the property.
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We intend to pursue returns in excess of the returns targeted by real estate investors who target a single type of property investment.
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We cannot assure you that we will attain these objectives.
If we have not provided some form of liquidity for our stockholders or if our company is not liquidated, generally within seven to ten years after August 2009 when the proceeds from our initial public offering were fully invested, we will cease reinvesting our capital and sell the properties and other assets, either on a portfolio basis or individually, or engage in another transaction approved by our board of directors, market conditions permitting, unless the directors (including a majority of the independent directors) determine that, in light of our expected life at any given time, it is deemed to be in the best interest of the stockholders to
reinvest proceeds from property sales or refinancings. Alternatively, we may merge with, or otherwise be acquired by, our sponsor or its affiliates. We expect that in connection with such merger or acquisition transaction, our stockholders would receive cash or shares of a publicly traded company. The terms of any such transaction must be approved by a majority of our board of directors which includes a majority of our independent directors. Such merger or acquisition transaction would also require the affirmative vote of a majority of the shares of our common stock. To assist with this process, the board of directors or a special committee of the board of directors established to consider the transaction will retain a recognized financial advisor or institution providing valuation services to serve as its financial advisor. The financial advisor will
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be required to render an opinion to the board of directors or special committee with respect to the fairness to our stockholders from a financial point of view of the consideration to be paid in the merger or acquisition transaction.
We have provided and intend to continue to provide stockholders with regular quarterly distributions. Our ability to pay regular distributions will depend upon a variety of factors, and we cannot assure that distributions will be made. As such, we are unable to determine the maximum time from the closing date that an investor may have to wait to receive distributions. Upon the closing of the disposition of our retail outlet assets in connection with the aforementioned Contribution Agreement, we will have additional funds from the disposition proceeds to invest in other properties in the future.
Acquisition Strategy
We acquire residential and commercial properties principally, all of which are located in the continental United States. Our acquisitions include both portfolios and individual properties. Our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial and office properties and that our residential properties are principally comprised of Class B multi-family complexes.
We may acquire the following types of real estate interests:
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In market-rate, middle market multifamily properties at a discount to replacement cost located either in emerging markets or near major metropolitan areas. We will attempt to identify those sub-markets with job growth opportunities and demand demographics which support potential long-term value appreciation for multifamily properties.
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In well-located, multi-tenant, community, power and lifestyle shopping centers and malls located in highly trafficked retail corridors, in selected high-barrier to entry markets and submarkets. We will attempt to identify those sub-markets with constraints on the amount of additional property supply will make future competition less likely.
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In improved, multi-tenant, industrial properties located near major transportation arteries and distribution corridors with limited management responsibilities.
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In improved, multi-tenant, office properties located near major transportation arteries in urban and suburban areas.
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In lodging properties located near major transportation arteries in urban and suburban areas.
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9
TABLE OF CONTENTS
Summary of Current Portfolio
The following table summarizes the real estate investments acquired by us as of the date of this prospectus, for further information regarding the properties; see Real Property Investments, beginning on page
112
:
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|
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|
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|
|
|
|
|
|
Location
|
|
Year Built
(Range of
years built)
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|
Leasable
Square
Feet
|
|
Percentage
Occupied as
of March 31,
2010
|
|
Annualized
Revenues
based on rents
at March 31,
2010
|
Wholly-Owned Real Estate Properties:
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Wholly-owned:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St. Augustine Outlet Mall
(1)
|
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|
St. Augustine, FL
|
|
|
|
1998
|
|
|
|
337,732
|
|
|
|
82.7
|
%
|
|
$
|
4.1 million
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|
Oakview Power Center
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Omaha, NE
|
|
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|
1999 2005
|
|
|
|
177,103
|
|
|
|
99.3
|
%
|
|
$
|
2.3 million
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|
Brazos Crossing Power Center
|
|
|
Lake Jackson, TX
|
|
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|
2007 2008
|
|
|
|
61,213
|
|
|
|
100.0
|
%
|
|
$
|
0.8 million
|
|
|
|
|
Subtotal wholly-owned
|
|
|
|
|
|
|
|
576,048
|
|
|
|
89.7%
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|
|
|
|
|
Unconsolidated Affiliated Real Estate Entities:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Orlando Outlet & Design Center
(1)
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Orlando, FL
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|
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|
1991 2008
|
|
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|
978,741
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|
|
|
94.6
|
%
|
|
$
|
28.1 million
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|
Prime Outlets Acquisition Company
(1)
(18 retail outlet malls)
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|
Various
|
|
|
|
|
|
|
|
6,393,833
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|
|
|
92.5
|
%
|
|
$
|
118.9 million
|
|
|
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|
Subtotal unconsolidated
affiliated real estate
entities
|
|
|
|
|
|
|
|
7,372,574
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|
|
|
92.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Total
|
|
|
|
7,948,622
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|
|
|
92.6%
|
|
|
|
|
|
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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7 Flex/Office/Industrial Bldgs from the Gulf Coast Industrial Portfolio
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New Orleans, LA
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|
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1980 2000
|
|
|
|
339,700
|
|
|
|
80.7
|
%
|
|
$
|
3.0 million
|
|
4 Flex/Industrial Bldgs from the Gulf Coast Industrial Portfolio
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|
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San Antonio, TX
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|
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|
1982 1986
|
|
|
|
484,255
|
|
|
|
60.4
|
%
|
|
$
|
1.4 million
|
|
3 Flex/Industrial Buildings from the Gulf Coast Industrial Portfolio
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Baton Rouge, LA
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|
1985 1987
|
|
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|
182,792
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|
|
|
94.4
|
%
|
|
$
|
1.2 million
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|
Sarasota Industrial Property
|
|
|
Sarasota, FL
|
|
|
|
1992
|
|
|
|
276,987
|
|
|
|
26.3
|
%
|
|
$
|
0.1 million
|
|
|
|
|
|
|
|
|
Industrial
Total
|
|
|
|
1,283,734
|
|
|
|
63.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
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|
Location
|
|
Year Built
(Range of
years built)
|
|
Leasable
Units
|
|
Percentage
Occupied as
of March 31,
2010
|
|
Annualized
Revenues
based on rents
at March 31,
2010
|
Michigan Apts
(Four Multi-Family
Apartment Buildings)
|
|
|
Southeast MI
|
|
|
|
1965 1972
|
|
|
|
1,017
|
|
|
|
86.6
|
%
|
|
$
|
7.4 million
|
|
Southeast Apts
(Three Multi-Family
Apartment Buildings)
|
|
|
Greensboro/Charlotte, NC
|
|
|
|
1980 1987
|
|
|
|
788
|
|
|
|
91.2
|
%
|
|
$
|
5.2 million
|
|
|
|
|
Residential Total before buildings in
foreclosure
|
|
|
|
|
|
|
|
1,805
|
|
|
|
88.6%
|
|
|
|
|
|
Southeast Apts
(Two Multi-Family Apartment Buildings)- in foreclosure
(2)
|
|
|
Greensboro, NC &
Tampa, FL
|
|
|
|
1980 1987
|
|
|
|
788
|
|
|
|
91.8
|
%
|
|
$
|
5.8 million
|
|
|
|
|
|
|
|
|
Residential
Total
|
|
|
|
2,593
|
|
|
|
89.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Year Built
|
|
Year to date
Available Rooms
|
|
Percentage
Occupied for the
Period Ended
March 31, 2010
|
|
Revenue per
Available Room
through March 31,
2010
|
Wholly-Owned Operating Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugarland and Katy Highway Extended Stay Hotels
|
|
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Houston, TX
|
|
|
|
1998
|
|
|
|
26,190
|
|
|
|
59.8
|
%
|
|
$
|
22.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Year Built
|
|
Leasable
Square Feet
|
|
Percentage Occupied as of March 31, 2010
|
|
Annualized
Revenues based
on rents at
March 31, 2010
|
Unconsolidated Affiliated Real Estate Entities-Office:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1407 Broadway
|
|
|
New York, NY
|
|
|
|
1952
|
|
|
|
1,114,695
|
|
|
|
75.2
|
%
|
|
$
|
30.7 million
|
|
|
(1)
|
St. Augustine as of December 31, 2009 has been classified as assets held for sale and discontinued operations as the Company has signed a definitive agreement to dispose of St. Augustine along with its investments in POAC and Mill Run in connection with the aforementioned Contribution Agreement.
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10
TABLE OF CONTENTS
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(2)
|
Foreclosure sale on one of the properties located in Greensboro, NC was completed on April 13, 2010 and another property located in Tampa, FL is in default and the foreclosure sale was completed on May 12, 2010.
|
Financing Strategy
We utilize leverage when acquiring properties. The number of different properties we acquire is affected by numerous factors, including, the amount of funds available to us. When interest rates on mortgage loans are high or financing is otherwise unavailable on terms that are satisfactory to us, we may purchase certain properties for cash with the intention of obtaining a mortgage loan for a portion of the purchase price at a later time. We intend to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all of our properties unless any excess borrowing is approved by a majority of the independent directors
and is disclosed to our stockholders. We financed our property acquisitions through a variety of means, including but not limited to individual non-recourse mortgages and through the exchange of an interest in the property for limited partnership units of the Operating Partnership. Our aggregate borrowings, secured and unsecured, will be reasonable in relation to our net assets and will be reviewed by our board of directors at least quarterly. The maximum amount of these borrowings in relation to net assets will not exceed 300% of net assets in the absence of a satisfactory showing that a higher level of borrowing is appropriate, approval by a majority of the independent directors and disclosure to our stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over this 300% level will be
approved by a majority of independent directors and disclosed to our stockholders in our next quarterly report, along with justification for such excess. As of March 31, 2010, our borrowing in relation to our net assets was 134.9%.
Shares Currently Outstanding
As of March 31, 2010, there were approximately 31.8 million shares of our common stock outstanding. The number of shares of our common stock outstanding prior to this date does not include shares issuable upon exercise of options which have been and may be granted in the future under our stock option plan.
Distributions
U.S. federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income (excluding net capital gain), determined without regard to the deduction for dividends paid. In order to qualify for REIT status, we may be required to make distributions in excess of cash available. For a discussion of the tax treatment of distributions to you, see Material U.S. Federal Income Tax Considerations.
Distributions are at the discretion of the board of directors and depend upon our distributable funds, current and projected cash requirements, tax considerations and other factors. We declare distributions to our stockholders as of daily record dates and aggregate and pay such distributions quarterly. Our ability to pay regular distributions and the size of these distributions depends upon a variety of factors. For example, our borrowing policy permits us to incur short-term indebtedness, having a maturity of two years or less, and we may have to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve
the tax benefits associated with qualifying as a REIT. We cannot assure that regular distributions will continue to be made or that we will maintain any particular level of distributions that we may establish.
We are an accrual basis taxpayer, and as such our REIT taxable income could be higher than the cash available to us. We may therefore borrow to make distributions, which could reduce the cash available to us, in order to distribute 90% of our REIT taxable income as a condition to our election to be taxed as a REIT. These distributions made with borrowed funds may constitute a return of capital to stockholders. To the extent that distributions to stockholders (and not designated as capital gain dividends or, for taxable years beginning before January 1, 2011, qualified dividend income) exceed our current and accumulated earnings and profits (as
determined for U.S. federal income tax purposes), such amounts constitute a return of capital for U.S. federal income tax purposes to the extent of a stockholders tax basis in our stock, although such distributions might not reduce stockholders aggregate invested capital. Because our earnings and profits are reduced for depreciation and other non-cash items, it is likely that a portion of each distribution will constitute a tax-deferred return of capital for federal income tax purposes.
11
TABLE OF CONTENTS
Since the period beginning February 1, 2006, the Board of Directors has declared quarterly dividends in the amount of $0.0019178 per share per day payable to stockholders of record at the close of business each day during the applicable period. The annualized rate declared was equal to 7%, which represents the annualized rate of return on an investment of $10.00 per share attributable to these daily amounts, if paid for each day for a 365 day period. Through March 31, 2010, we have paid aggregate distribution in the amount of $50.9 million, which includes cash distributions paid to stockholders and common stock issued under our distribution
reinvestment program.
Total dividends declared during the year ended December 31, 2009, 2008 and 2007 were $27.3 million, $9.9 million and $7.1 million, respectively. On March 2, 2010, the Company declared a dividend for the three-month period ending March 31, 2010 of $5.5 million. The dividend was paid in full on March 30, 2010.
Source of Distribution
The following table provides a summary of the quarterly dividends declared and the source of distribution based upon cash flows provided by/(used in) operations for the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Year ended
December 31,
|
|
Quarter ended
December 31,
|
|
Quarter ended
September 30,
|
|
Quarter ended
June 30,
|
|
Quarter ended
March 31,
|
Dividend period
|
|
|
2009 Year
|
|
|
|
Q4 2009
|
|
|
|
Q3 2009
|
|
|
|
Q2 2009
|
|
|
|
Q1 2009
|
|
Date dividend declared
|
|
|
|
|
|
|
November 3, 2009
|
|
|
|
September 17, 2009
|
|
|
|
May 13, 2009
|
|
|
|
March 30, 2009
|
|
Date dividend paid
|
|
|
|
|
|
|
January 15, 2010
|
|
|
|
October 15, 2009
|
|
|
|
July 15, 2009
|
|
|
|
April 15, 2009
|
|
Dividend Paid
|
|
$
|
12,492,168
|
|
|
$
|
3,237,141
|
|
|
$
|
3,151,937
|
|
|
$
|
3,050,200
|
|
|
$
|
3,052,890
|
|
Dividend Reinvested
|
|
|
9,394,853
|
|
|
|
2,320,529
|
|
|
|
2,367,469
|
|
|
|
2,394,520
|
|
|
|
2,312,335
|
|
Total Dividends
|
|
$
|
21,887,021
|
|
|
$
|
5,557,670
|
|
|
$
|
5,519,406
|
|
|
$
|
5,444,720
|
|
|
$
|
5,365,225
|
|
Source of distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by/(used in) operations
|
|
$
|
1,377,643
|
|
|
$
|
(1,520,621
|
)
|
|
$
|
1,169,895
|
|
|
$
|
1,006,312
|
|
|
$
|
722,057
|
|
Proceeds from issuance of common stock
|
|
|
20,509,378
|
|
|
|
7,078,291
|
|
|
|
4,349,511
|
|
|
|
4,438,408
|
|
|
|
4,643,168
|
|
Total Sources
|
|
$
|
21,887,021
|
|
|
$
|
5,557,670
|
|
|
$
|
5,519,406
|
|
|
$
|
5,444,720
|
|
|
$
|
5,365,225
|
|
The cash flows provided/(used in) operations include an adjustment to remove the income from investments in unconsolidated affiliated real estate entities as any cash distributions from these investments are recorded through cash flows from investing activities.
Management also evaluates the source of distribution funding based upon modified funds from operations (MFFO) (Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations for additional information and calculation of MFFO). Based upon MFFO, for the year ended December 31, 2009, approximately 90% of our distributions were funded or will be funded from MFFO and approximately 10% were funded or will be funded for with uninvested proceeds from the sale of shares from our offering.
On March 2, 2010, the Companys Board of Directors declared the quarterly dividend for the three-month period ended March 31, 2010 in the amount of $0.0019178 per share per day, $5.5 million in aggregate, payable to stockholders of record on the close of business each day during the quarter, which was paid, on March 30, 2010.
The following table provides a summary of the quarterly dividends declared and the source of distribution based upon cash flows provided by operations for the three months ended March 31, 2010.
|
|
|
|
|
Quarter ended March 31,
|
Distribution period
|
|
|
Q1 2010
|
|
Date distribution declared
|
|
|
March 2, 2010
|
|
Date distribution paid
|
|
|
March 30, 2010
|
|
Distributions Paid
|
|
$
|
3,332,903
|
|
Distributions Reinvested
|
|
|
2,127,482
|
|
Total Distributions
|
|
$
|
5,460,385
|
|
Source of distributions
|
|
|
|
|
Cash flows provided by operations
|
|
$
|
1,238,035
|
|
Proceeds from investment in affiliates and excess cash
|
|
|
2,094,868
|
|
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|
|
|
|
|
Quarter ended March 31,
|
Proceeds from issuance of common stock
|
|
|
2,127,482
|
|
Total Sources
|
|
$
|
5,460,385
|
|
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Compensation Table
The following table discloses the compensation which we may pay to our advisor, property manager. The Lightstone Group and their affiliates. For methods of calculation and definitions of terms used in this table, see Compensation Table.
For a description of an undertaking that we have made to limit compensation paid to our affiliates, see Compensation Restrictions and Reports to Stockholders.
Non-subordinated Payments
The following aggregate amounts of compensation, allowances and fees we may pay to our affiliates are not subordinated to the returns on initial investments that we are required to pay to our stockholders.
|
|
|
|
|
Type of Compensation and Recipient
|
|
Method of Compensation
|
|
Estimated Maximum/
Actual Payment Amount
|
|
|
Acquisition Stage
|
|
|
Acquisition fee and expenses paid to our advisor.
|
|
Our advisor is paid an amount, equal to 2.75% of the gross contract purchase price (including any mortgage assumed) of the property purchased, as an acquisition fee. Our advisor is also reimbursed for expenses that it incurs in connection with purchase of the property.
The acquisition fee and expenses for any particular property, including amounts payable to affiliates, will not exceed, in the aggregate, 5% of the gross contract purchase price (including any mortgage assumed) of the property.
If we request additional services, the compensation will be provided on separate agreed-upon terms and the rate will be approved by a majority of disinterested directors, including a majority of the disinterested independent directors, as fair and reasonable for us. No such compensation had been incurred and paid since our inception through March 31, 2010.
|
|
The following amounts may be paid as an acquisition fee and for the reimbursement of acquisition expenses:
From June 8, 2004 (date of inception) through March 31, 2010, we have paid approximately $28.3 million acquisition fees and $2.8 million expense reimbursement to our advisor.
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TABLE OF CONTENTS
|
|
|
|
|
Type of Compensation and Recipient
|
|
Method of Compensation
|
|
Estimated Maximum/
Actual Payment Amount
|
|
|
Operational Stage
|
|
|
Property management fee paid to our property manager, Lightstone Value Plus REIT Management LLC. This fee will be paid for services in connection with the rental, leasing, operation and management of the properties and the supervision of any third parties that are engaged by our property manager to provide such services.
|
|
Residential and Retail Properties:
Our property manager is paid a monthly management fee of 5% of the gross revenues from our residential and retail properties.
Office and Industrial Properties:
For the management and leasing of our office and industrial properties, we pay to our property manager, property management and leasing fees of up to 4.5% of gross revenues from our office and industrial properties. In addition, we may pay our property manager a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area.
Notwithstanding the foregoing, our property manager may be entitled to receive higher fees in the
event our property manager demonstrates to the satisfaction of a majority of the directors (including a majority of the independent directors) that a higher competitive fee is justified for the services rendered. No such higher property management fees had been incurred and paid since our inception through March 31, 2010.
The property manager may subcontract its duties for a fee that may be less than the fee provided for in the management services agreements. In the event that the property manager subcontracts its duties with respect to some or all of our properties, the fees payable to such parties for such services will be deducted from the monthly management fee payable to our property manager by us or paid directly by our property manager. Since our inception through March 31, 2010, the property manager has not subcontracted any management services.
|
|
From June 8, 2004 (date of inception) through March 31, 2010, we have paid approximately $5.4 million property management fees to our property manager.
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TABLE OF CONTENTS
|
|
|
|
|
Type of Compensation and Recipient
|
|
Method of Compensation
|
|
Estimated Maximum/
Actual Payment Amount
|
Asset management fee paid to our advisor.
|
|
Our advisor is paid an advisor asset management fee of 0.55% of our average invested assets. Average invested assets means the average of the aggregate book value of our assets invested in equity interests in, and loans secured by, real estate before reserves for depreciation or bad debt or other similar non-cash reserves. We compute the average invested assets by taking the average of these values at the end of each month during the quarter for which we are calculating the fee. The fee is payable quarterly in an amount equal to 0.1375 of 1% of average invested assets as of the last day of the immediately preceding quarter.
Our advisor must reimburse us for the amounts, if any, by which our total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of:
|
|
From June 8, 2004 (date of inception) through March 31, 2010, we have paid approximately $9.5 million asset management fees to advisor.
|
|
|
(1)
2% of our average invested assets for that fiscal year, or
|
|
|
(2)
25% of our net income for that fiscal year;
|
|
|
Items such as interest payments, taxes, non-cash expenditures, the special liquidation distribution, organization and Offering expenses, and acquisition fees and expenses are excluded from the definition of total operating expenses, which otherwise includes the aggregate expenses of any kind paid or incurred by us. See Management Our Advisory Agreement for an explanation of circumstances where the excess amount specified in clause (1) may not need to be reimbursed.
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|
|
|
|
|
Type of Compensation and Recipient
|
|
Method of Compensation
|
|
Estimated Maximum/
Actual Payment Amount
|
Reimbursable expenses to our advisor. These may include costs of goods and services, administrative services and non-supervisory services performed directly for us by independent parties.
|
|
We reimburse some expenses of the advisor. The compensation and reimbursements to our advisor will be approved by a majority of our directors and a majority of our independent directors as fair and reasonable for us.
|
|
The reimbursable expenses are subject to aggregate limitations on our operating expenses referred to under Non-Subordinating Payments Operational Stage Asset Management Fee above. We reimbursed our advisor acquisition related expenses of $902,753, $1,265,528 and $635,848, respectively, for the years ended December 2009, 2008 and 2007 and $0 for the three months ended March 31, 2010.
|
Subordinated Payments
|
|
Operational Stage
|
|
|
Note:
We structure the allocation of distributions and other subordinated payments differently than most REITs. In order to facilitate a complete understanding of our allocation structure, please see Subordinated Distribution Chart below for a basic table that illustrates how we will allocate these subordinated payments.
|
|
We cannot assure investors of the cumulative non-compounded returns discussed below, which we disclose solely as a measure for the incentive compensation of our sponsor, advisor and affiliates.
|
|
|
Distributions with respect to the special general partner interests, payable to Lightstone SLP, LLC, which is controlled by our sponsor.
|
|
This section describes the apportionment of any regular distributions that the operating partnership may make. At each stage of distributions, a different apportionment method commences or terminates, as applicable, when a particular party or parties have received a specific amount of distributions. The return calculations described below take into account all regular distributions received and not the specific distribution being made.
|
|
From June 8, 2004 (date of inception) through March 31, 2010, we have paid approximately $4.4 million distributions to the special general partner interests.
|
|
|
Achievement of a particular threshold, therefore, is determined with reference to all prior distributions made by our operating partnership to Lightstone SLP, LLC and to us, which distributions we will distribute to holders of our common stock. Once a threshold is reached, the operating partnership will make all subsequent regular distributions pursuant to the allocation method triggered by that or later thresholds.
|
|
|
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TABLE OF CONTENTS
|
|
|
|
|
Type of Compensation and Recipient
|
|
Method of Compensation
|
|
Estimated Maximum/
Actual Payment Amount
|
|
|
(i)
Before Achieving the 7% Stockholder Return Threshold
Regular distributions will be made initially to us, which we will then distribute to the holders of our common stock, until these holders have received dividends equal to a cumulative non-compounded return of 7% per year on their net investment. Net investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of properties. Until this 7% threshold is reached, our operating partnership will not pay to Lightstone SLP, LLC, which is controlled by our sponsor, any distributions with respect to the purchase price of the special general partner interests that it received in exchange for agreeing to pay the costs and expenses of our initial public offering, including dealer manager fees and selling commissions.
|
|
|
|
|
(ii)
After Achieving the 7% Stockholder Return Threshold
After the first 7% threshold is reached, our operating partnership will make all of its distributions to Lightstone SLP, LLC until that entity receives an amount equal to a cumulative non-compounded return of 7% per year on the purchase price of the special general partner interests.
|
|
|
|
|
(iii)
Before Achieving the 12% Stockholder Return Threshold
After this second 7% threshold is reached and until the holders of our common stock have received dividends in an amount equal to a cumulative non-compounded return of 12% per year on their net investment (including, for the purpose of the calculation of such amount, the amounts equaling a 7% return on their net investment described in paragraph (i) of this section), 70% of the aggregate amount of any additional distributions by our operating partnership will be payable to us (and the limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), which we will distribute to the holders of our common stock, and 30% of such amount will be payable by our operating partnership to Lightstone SLP, LLC. Net investment refers to $10 per share, less a pro rata share of any proceeds received from the
sale or refinancing of properties.
|
|
|
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TABLE OF CONTENTS
|
|
|
|
|
Type of Compensation and Recipient
|
|
Method of Compensation
|
|
Estimated Maximum/
Actual Payment Amount
|
|
|
(iv)
After Achieving the 12% Stockholder Return Threshold
After this 12% threshold is reached, 60% of the aggregate amount of any additional distributions by our operating partnership will be payable to us (and the limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), which we will distribute to the holders of our common stock, and 40% of such amount will be payable by our operating partnership to Lightstone SLP, LLC.
|
|
|
|
|
Liquidation Stage
|
|
|
|
|
We cannot assure investors of the cumulative non-compounded returns discussed below, which we disclose solely as a measure for the incentive compensation of our sponsor, advisor and affiliates.
|
|
|
Special liquidation distribution, payable to Lightstone SLP, LLC, which is controlled by our sponsor.
|
|
This section describes the apportionment of any liquidation distributions that we make. At each stage of distributions, a different apportionment method commences or terminates, as applicable, when a particular party or parties have received a specific amount of distributions. The return calculations described below take into account all regular and liquidation distributions received and not just distributions made upon liquidation. Achievement of a particular threshold, therefore, is determined with reference to all prior distributions made by our operating partnership to Lightstone SLP, LLC and to us, which we will distribute to our stockholders.
|
|
The actual amounts to be received depend upon the net sale proceeds upon our liquidation and, therefore, cannot be determined at the present time.
|
19
20
TABLE OF CONTENTS
|
|
|
|
|
Type of Compensation and Recipient
|
|
Method of Compensation
|
|
Estimated Maximum/
Actual Payment Amount
|
|
|
(iii.)
Before Achieving the 12% Stockholder Return Threshold
After this second 7% threshold is reached and until the holders of our common stock have received an amount equal to their initial investment plus a cumulative non-compounded return of 12% per year on their net investment (net investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of properties) (including, for the purpose of the calculation of such amount, the amounts described in paragraph (i) of this section), 70% of the aggregate amount of any additional distributions by our operating partnership will be payable to us (and the limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), which we will distribute to the holders of our common stock, and 30% of such amount will be payable by our operating partnership to Lightstone
SLP, LLC; and
|
|
|
(iv.)
After Achieving the 12% Stockholder Return Threshold
After this 12% threshold is reached, 60% of the aggregate amount of any additional distributions by our operating partnership will be payable to us (and the limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), which we will distribute to the holders of our common stock, and 40% of such amount will be payable by our operating partnership to Lightstone SLP, LLC.
|
|
|
If the advisory agreement is terminated, the special general partner interests will be converted into cash equal to the purchase price of the special general partner interest.
|
|
|
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TABLE OF CONTENTS
|
|
|
|
|
Type of Compensation and Recipient
|
|
Method of Compensation
|
|
Estimated Maximum/
Actual Payment Amount
|
Compensation to Officers and Directors
|
|
|
|
|
Independent Director fees.
|
|
Each of our independent directors receives an annual fee of $30,000 and reimbursement of out-of-pocket expenses incurred. Our officers who are also our directors do not receive director fees. These fees are subject to change from time to time.
|
|
We started paying our independent directors during the third quarter of 2005, and have paid our independent directors, annually, $90,000 in the aggregate for each of the years ended December 31, 2009, 2008, 2007, and 2006, $22,500 for the three months ended March 31, 2010, and $45,000 for the third and fourth quarter of 2005.
|
Stock options to our independent directors.
|
|
Each of our independent directors receives each year on the date of the stockholders annual meeting, an option to purchase 3,000 shares of common stock at an exercise price equal to the then fair market value per share. For additional information on this option plan, see Management Stock Option Plan.
|
|
This form of compensation is not paid in cash. As of March 31, 2010, options to purchase 27,000 shares of stock were granted and outstanding at an exercise price of $10.00 per share; 9,000 of these option shares are fully vested.
|
Distribution Chart
We have and intend to continue to make distributions to our stockholders. Since the period beginning February 1, 2006, our Board of Directors has declared quarterly dividends in the amount of $0.0019178 per share per day payable to stockholders of record at the close of business each day during the applicable period. The annualized rate declared was equal to 7%, which represents the annualized rate of return on an investment of $10.00 per share attributable to these daily amounts, if paid for each day for a 365 day period. Total dividends declared during the three-month period ended March 31, 2010 and the year ended December 31, 2009, 2008 and 2007
were $5.5 million, $27.3 million, $9.9 million and $7.1 million, respectively.
In addition, the special general partner interests entitle Lightstone SLP, LLC, which is controlled by our sponsor, to certain distributions from our operating partnership, but only after our stockholders have received a stated preferred return. Since inception through March 31, 2010, cumulative distributions declared were $4.9 million, all of which have been paid through April 2010. Such distributions, paid current at a 7% annualized rate of return to Lightstone SLP, LLC.
The following table sets forth information with respect to the apportionment of any regular and liquidation distributions that the operating partnership may make among Lightstone SLP, LLC and us, which we will distribute to our stockholders. The return calculations outlined below account for all regular and liquidation distributions that our operating partnership has made to Lightstone SLP, LLC and to us, which we will distribute to our stockholders. For a more detailed discussion of distribution apportionment, see Operating Partnership Agreement.
Note that the chart reads chronologically from top to bottom, so that all distributions are initially made to stockholders in accordance with row (i), until the stockholders have received a return of 7% on their net investment. For purposes of the preceding sentence, net investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of properties. Then, all distributions will be made to Lightstone SLP, LLC in accordance with row (ii) until that entity has received 7% on its net investment. Row (iii) will then apply, and after that row (iv).
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TABLE OF CONTENTS
We cannot assure investors of the cumulative non-compounded returns discussed below, which we disclose solely as a measure for the incentive compensation of our sponsor, advisor and affiliates.
|
|
|
|
|
Recipient(s) of Distribution
(Listed Chronologically)
|
|
Apportionment of
Distributions
|
|
Cumulative Non-Compounded
Return Threshold
(That Initiates Next Level of Distributions)
|
(i) Stockholders
|
|
100%
|
|
7% per year on stockholders net investment (and, in the case of liquidation, an amount equal to the stockholders initial investment)
|
(ii) Lightstone SLP, LLC
|
|
100%
|
|
7% per year on special general partner purchase price (and, in the case of liquidation, an amount equal to the purchase price of the special general partner interest)
|
(iii) Stockholders/ Lightstone SLP, LLC
|
|
70% to stockholders;
30% to Lightstone SLP, LLC
|
|
Until 12% per year on stockholders net investment
|
(iv) Stockholders/ Lightstone SLP, LLC
|
|
60% to stockholders;
40% to Lightstone SLP, LLC
|
|
Above 12% on stockholders net investment (remainder of regular distributions apportioned in this manner)
|
The principal executive offices of our advisor are located at 1985 Cedar Bridge Ave., Suite 1, Lakewood, New Jersey 08701 and their telephone number is (732) 367-0129.
23
TABLE OF CONTENTS
RISK FACTORS
An investment in our shares involves significant risks and therefore is suitable only for persons who understand those risks and their consequences, and are able to bear the risk of loss of their investment. While we believe that all material risks are presented in this section, you should consider the following risks as well as the other information set forth in this prospectus before making your investment decisions.
Risks Related to the Common Stock
Distributions to stockholders may be reduced or not made at all.
Distributions are based principally on cash available from our properties. The amount of cash available for distributions is affected by many factors, such as the operating performance of the properties we acquire, our ability to buy properties with proceeds from the pending disposition of our retail outlet assets, if consummated (see Note 1 of notes to consolidated financial statements), and many other variables. We may not be able to pay or maintain distributions or increase distributions over time. Therefore, we cannot determine what amount of cash will be
available for distributions. Some of the following factors, which we believe are the material factors that can affect our ability to make distributions, are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions:
|
|
Cash available for distributions may be reduced if we are required to make capital improvements to properties.
|
|
|
Cash available to make distributions may decrease if the assets we acquire have lower cash flows than expected.
|
|
|
If the pending disposition of our retail outlet assets is consummated, until we invest these proceeds from the disposition in new real properties, we may invest in lower yielding short-term instruments, which could result in a lower yield on stockholders investment.
|
|
|
In connection with future property acquisitions, we may issue additional shares of common stock and/or operating partnership units or interests in the entities that own our properties. We cannot predict the number of shares of common stock, units or interests that we may issue, or the effect that these additional shares might have on cash available for distributions to stockholders. If we issue additional shares, that issuance could reduce the cash available for distributions to stockholders.
|
|
|
We make distributions to our stockholders to comply with the distribution requirements of the Internal Revenue Code and to eliminate, or at least minimize, exposure to federal income taxes and the nondeductible REIT excise tax. Differences in timing between the receipt of income and the payment of expenses, and the effect of required debt payments, could require us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.
|
Our operations could be restricted if we become subject to the Investment Company Act of 1940.
We are not registered, and do not intend to register ourselves or any of our subsidiaries, as an investment company under the Investment Company Act. If we or any of our subsidiaries become obligated to register as an investment company, the registered entity would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:
|
|
limitations on capital structure;
|
|
|
restrictions on specified investments;
|
|
|
prohibitions on transactions with affiliates; and
|
|
|
compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.
|
We intends to conduct our operations, directly and through wholly or majority-owned subsidiaries, so that we and each of its subsidiaries are exempt from registration as an investment company under the Investment Company Act. Under Section 3(a)(1)(A) of the Investment Company Act, a company is deemed to be an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage
23
TABLE OF CONTENTS
primarily, in the business of investing, reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment Company Act, a Company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or propose to acquire investment securities having a value exceeding 40% of the value of its total assets on an unconsolidated basis, which we refer to as the 40% test.
Since we will be primarily engaged in the business of acquiring real estate, we believe that the company and most, if not all, of its wholly and majority-owned subsidiaries will not be considered investment companies under either Section 3(a)(1)(A) or Section 3(a)(1)(C) of the Investment Company Act. If we or any of our wholly or majority-owned subsidiaries would ever inadvertently fall within one of the definitions of investment company, we intend to rely on the exception provided by Section 3(c)(5)(C) of the Investment Company Act.
Under Section 3(c)(5)(C), the SEC staff generally requires us to maintain at least 55% of its assets directly in qualifying assets and at least 80% of the entitys assets in qualifying assets and in a broader category of real estate related assets to qualify for this exception. Mortgage-related securities may or may not constitute such qualifying assets, depending on the characteristics of the mortgage-related securities, including the rights that we have with respect to the underlying loans. Our ownership of mortgage-related securities, therefore, is limited by provisions of the Investment Company Act and SEC staff interpretations.
The method we use to classify our assets for purposes of the Investment Company Act will be based in large measure upon no-action positions taken by the SEC staff in the past. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than ten years ago. No assurance can be given that the SEC staff will concur with our classification of our assets. In addition, the SEC staff may, in the future, issue further guidance that may require us to re-classify our assets for purposes of qualifying for an
exclusion from regulation under the Investment Company Act. If we are required to re-classify our assets, we may no longer be in compliance with the exclusion from the definition of an investment company provided by Section 3(c)(5)(C) of the Investment Company Act.
A change in the value of any of our assets could cause us or one or more of our wholly or majority-owned subsidiaries to fall within the definition of investment company and negatively affect our ability to maintain our exemption from regulation under the Investment Company Act. To avoid being required to register the company or any of its subsidiaries as an investment company under the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income- or loss-generating assets that we might not
otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy.
Based upon changes in the valuation of our portfolio of investments as of September 30, 2009, including with respect to certain investment securities we currently hold, we may be deemed to have inadvertently become an investment company under the Investment Company Act of 1940. We are currently evaluating our response to this development, including the availability of exemptive or other relief under the Investment Company Act of 1940, and we intend to take affirmative steps to comply with applicable regulatory requirements. However, if an examination of our investments by the SEC or a court should deem us to hold investment securities in excess of
the amount that would require us to register under the Investment Company Act of 1940, we could be deemed to be an investment company and be subject to additional restrictions.
If we were required to register the company as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business.
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TABLE OF CONTENTS
The price of our common stock is subjective and may not bear any relationship to what a stockholder could receive if it was sold.
Our board of directors determined the current net asset value of the common stock at $9.97 per share. The board of directors, in part, relied upon a third party source and advice in arriving at this estimated value, which reflects, among other things, the impact of the recent adverse trends in the economy and the real estate industry. This value is based upon an estimated amount we determined would be received if our properties and other assets were sold as of the close of our fiscal year and if
such proceeds, together with our other funds, were distributed pursuant to liquidation. Because this is only an estimate, we may subsequently revise any annual valuation that is provided. It is possible that:
|
|
This value may not actually be realized by us or by our stockholders upon liquidation;
|
|
|
Stockholders may not realize this value if they were to attempt to sell their common stock; or
|
|
|
This value may not reflect the price at which our common stock would or could trade if it were listed on a national stock exchange or included for quotation on a national market system.
|
Our common stock is not currently listed on an exchange or trading market and is illiquid.
There is currently no public trading market for the shares. Subsequent to the close of our initial public offering in October 2008, our common stock has not been listed on a stock exchange. Accordingly, we do not expect a public trading market for our shares to develop. We may never list the shares for trading on a national stock exchange or include the shares for quotation on a national market system. The absence of an active public market for our shares could impair your ability to sell our stock at a profit or at all. Therefore, our
shares should be purchased as a long term investment only.
Your percentage of ownership may become diluted if we issue new shares of stock.
Stockholders have no rights to buy additional shares of stock in the event we issue new shares of stock. We may issue common stock, convertible debt or preferred stock pursuant to a subsequent public offering or a private placement, upon exercise of options, pursuant to our distribution reinvestment program or to sellers of properties we directly or indirectly acquire instead of, or in addition to, cash consideration. We may also issue common stock upon the exercise of the warrants issued and to be issued to participating broker-dealers.
Stockholders who do not participate in any future stock issues will experience dilution in the percentage of the issued and outstanding stock they own.
The special general partner interests entitle Lightstone SLP, LLC, which is directly owned and controlled by our Sponsor, to certain payments and distributions that will significantly reduce the distributions available to stockholders after a 7% return.
Lightstone SLP, LLC receives returns on its special general partner interests that are subordinated to stockholders 7% return on their net investment. Distributions to stockholders will be reduced after they have received this 7% return because of the payments and distributions to Lightstone SLP, LLC in connection with its special general partner interests. In addition,
we may eventually repay Lightstone SLP, LLC up to $30,000,000 for its investment in the special general partner interests, which will result in a smaller pool of assets available for distribution to stockholders.
Conflicts of Interest
There are conflicts of interest between advisor, property managers and their affiliates and us.
David Lichtenstein, our sponsor, is the founder of The Lightstone Group, LLC which he wholly owns and does business in his individual capacity under that name. Through The Lightstone Group, Mr. Lichtenstein controls and indirectly owns our advisor, our property managers, our operating partnership, our dealer manager and affiliates, except for us. Our advisor does not advise any entity other than us. However, employees of our advisor are also employed by Lightstone Value Plus REIT II LLC, the advisor to Lightstone II. Mr.
Lichtenstein is one of our directors and The Lightstone Group or an affiliated entity controlled by Mr. Lichtenstein employs Bruno de Vinck, our other non-independent director, and each of our officers. As a result, our operation and management may be influenced or affected by conflicts of interest arising out of our relationship with our affiliates.
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There is competition for the time and services of the personnel of our advisor and its affiliates.
Our sponsor and its affiliates may compete with us for the time and services of the personnel of our advisor and its other affiliates in connection with our operation and the management of our assets. Specifically, employees of our sponsor, the advisor and our property managers will face conflicts of interest relating to time management and the allocation of resources and investment opportunities.
We do not have employees.
Likewise, our advisor will rely on the employees of the sponsor and its affiliates to manage and operate our business. The sponsor is not restricted from acquiring, developing, operating, managing, leasing or selling real estate through entities other than us and will continue to be actively involved in operations and activities other than our operations and activities. The sponsor currently controls and/or operates other entities that own properties in many of the markets in which we may seek to invest. The sponsor spends a material amount of time managing these properties and other assets unrelated
to our business. Our business may suffer as a result because we lack the ability to manage it without the time and attention of our sponsors employees.
Our sponsor and its affiliates are general partners and sponsors of other real estate programs having investment objectives and legal and financial obligations similar to ours. Because the sponsor and its affiliates have interests in other real estate programs and also engage in other business activities, they may have conflicts of interest in allocating their time and resources among our business and these other activities. Our officers and directors, as well as those of the advisor, may own equity interests in entities affiliated with our sponsor from which we may buy properties. These individuals may make substantial profits in connection with
such transactions, which could result in conflicts of interest. Likewise, such individuals could make substantial profits as the result of investment opportunities allocated to entities affiliated with the sponsor other than us. As a result of these interests, they could pursue transactions that may not be in our best interest. Also, if our sponsor suffers financial or operational problems as the result of any of its activities, whether or not related to our business, the ability of our sponsor and its affiliates, our advisor and property manager to operate our business could be adversely impacted.
Certain of our affiliates who provide services to us may be engaged in competitive activities.
Our advisor, property managers and their respective affiliates may, in the future, be engaged in other activities that could result in potential conflicts of interest with the services that they will provide to us. In addition, the sponsor may compete with us for both the acquisition and/or refinancing of properties of a type suitable for our investment after 75% of the total gross proceeds from our initial public offering have been invested or committed for investment in real properties.
Our sponsors other public program, Lightstone II, may be engaged in competitive activities.
Our advisor, property managers and their respective affiliates through activities of Lightstone II may be engaged in other activities that could result in potential conflicts of interest with the services that they will provide to us, including Lightstone II may compete with us for both the acquisition and/or refinancing of properties of a type suitable for our investment.
If we invest in joint ventures, the objectives of our partners may conflict with our objectives.
In accordance with one of our acquisition strategies, we may make investments in joint ventures or other partnership arrangements between us and affiliates of our sponsor or with unaffiliated third parties. Investments in joint ventures which own real properties may involve risks otherwise not present when we purchase real properties directly. For example, our co-venturer may file for bankruptcy protection, may have economic or business interests or goals which are inconsistent with our interests or goals, or may take actions
contrary to our instructions, requests, policies or objectives. Among other things, actions by a co-venturer might subject real properties owned by the joint venture to liabilities greater than those contemplated by the terms of the joint venture or other adverse consequences.
These diverging interests could result in, among other things, exposing us to liabilities of the joint venture in excess of our proportionate share of these liabilities. The partition rights of each owner in a jointly owned property could reduce the value of each portion of the divided property. Moreover, there is an additional risk that the co-venturers may not be able to agree on matters relating to the property they jointly own. In addition, the fiduciary obligation that our sponsor or our board of directors may owe to our partner in an affiliated transaction may make it more difficult for us to enforce our rights.
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We may purchase real properties from persons with whom affiliates of our advisor have prior business relationships.
If we purchase properties from third parties who have sold, or may sell, properties to our advisors or its affiliates, our advisor will experience a conflict between our current interests and its interest in preserving any ongoing business relationship with these sellers.
Property management services are being provided by an affiliated party.
Our property managers are owned by our sponsor, and are thus subject to an inherent conflict of interest. In addition, our advisor may face a conflict of interest when determining whether we should dispose of any property we own that is managed by one of our property managers because the property manager may lose fees associated with the management of the property. Specifically, because the property managers will receive significant fees for managing our properties, our advisor may face a conflict of interest when determining whether we should sell
properties under circumstances where the property managers would no longer manage the property after the transaction. As a result of this conflict of interest, we may not dispose of properties when it would be in our best interests to do so.
Our advisor and its affiliates receive commissions, fees and other compensation based upon our investments.
Some compensation is payable to our advisor whether or not there is cash available to make distributions to our stockholders. To the extent this occurs, our advisor and its affiliates benefit from us retaining ownership of our assets and leveraging our assets, while our stockholders may be better served by sale or disposition or not leveraging the assets. In addition, the advisors ability to receive fees and reimbursements depends on our continued investment in real properties. Therefore, the interest of the
advisor and its affiliates in receiving fees may conflict with the interest of our stockholders in earning income on their investment in our common stock. Because asset management fees payable to our advisor are based on total assets under management, including assets purchased using debt; our advisor may have an incentive to incur a high level of leverage in order to increase the total amount of assets under management.
Our sponsor may face conflicts of interest in connection with the management of our day-to-day operations and in the enforcement of agreements between our sponsor and its affiliates.
The property managers and the advisor will manage our day-to-day operations and properties pursuant to management agreements and an advisory agreement. These agreements were not negotiated at arms length and certain fees payable by us under such agreements are paid regardless of our performance. Our sponsor and its affiliates may be in a conflict of interest position as to matters relating to these agreements. Examples include the
computation of fees and reimbursements under such agreements, the enforcement and/or termination of the agreements and the priority of payments to third parties as opposed to amounts paid to our sponsors affiliates. These fees may be higher than fees charged by third parties in an arms length transaction as a result of these conflicts.
Title insurance services are being provided by an affiliated party. From time to time, Lightstone purchases title insurance from an agent in which our sponsor owns a fifty percent limited partnership interest. Because this title insurance agent receives significant fees for providing title insurance, our advisor may face a conflict of interest when considering the terms of purchasing title insurance from this agent. However, prior to the purchase by Lightstone of any title insurance, an independent title consultant with more than 25 years of experience in the title insurance industry reviews the transaction, and performs market research and
competitive analysis on our behalf. This process results in terms similar to those that would be negotiated at an arms-length basis.
We may compete with other entities affiliated with our sponsor for tenants.
The sponsor and its affiliates, as well as Lightstone II, are not prohibited from engaging, directly or indirectly, in any other business or from possessing interests in any other business venture or ventures, including businesses and ventures involved in the acquisition, development, ownership, management, leasing or sale of real estate projects. The sponsor, its affiliates or Lightstone II may own and/or manage properties in most if not all geographical areas in which we expect to acquire real estate assets. Therefore, our properties may compete for
tenants with other properties owned and/or managed by the sponsor and its affiliates. The sponsor may face conflicts of interest when evaluating tenant opportunities for our properties and other properties owned and/or managed by the sponsor, its affiliates and Lightstone II and these conflicts of interest may have a negative impact on our ability to attract and retain tenants.
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We have the same legal counsel as our sponsor and its affiliates.
Proskauer Rose LLP serves as our general legal counsel, as well as special counsel to our sponsor and various affiliates including, our advisor. The interests of our sponsor and its affiliates, including our sponsor, may become adverse to ours in the future. Under legal ethics rules, Proskauer Rose LLP may be precluded from representing us due to any conflict of interest between us and our sponsor and its affiliates, including our advisor.
Each member of our Board of Directors is also on the Board of Directors of Lightstone Value Plus Real Estate Investment II, Inc.
Each of our directors is also a director of Lightstone II. Accordingly, our Board of Directors will owe fiduciary duties and duties of loyalty to Lightstone II and its stockholders. The loyalties of our directors to Lightstone II may influence the judgment of our Board of Directors when considering issues that may affect us. For example, we are permitted to enter into a joint venture or preferred equity investment with Lightstone II for the acquisition of property or real estate-related investments.
Decisions of our Board of Directors regarding the terms of those transactions may be influenced by its loyalties to Lightstone II and its stockholders. In addition, decisions of our Board of Directors regarding the timing of our property sales could be influenced by concerns that the sales would compete with those of Lightstone II.
Risks Related to our Organization, Structure and Management
Limitations on Changes in Control (Anti-Takeover Provisions).
Our organizational structure makes us a difficult takeover target. Certain provisions in our charter, bylaws, operating partnership agreement, advisory agreement and Maryland law may have the effect of discouraging a third party from making an acquisition proposal and could thereby depress the price of our stock and inhibit a management change. Provisions that may have an anti-takeover effect and inhibit a change in our management include:
There are ownership limits and restrictions on transferability and ownership in our charter.
In order for us to qualify as a REIT, no more than 50% of the outstanding shares of our stock may be beneficially owned, directly or indirectly, by five or fewer individuals at any time during the last half of each taxable year. To make sure that we will not fail to qualify as a REIT under this closely held test, our charter provides that, subject to some exceptions, no person may beneficially or constructively own, or be deemed to beneficially or constructively own by virtue of attribution provisions of the Code, (i) more
than 9.8% in value of our aggregate outstanding shares of capital stock or (ii) capital stock to the extent that such ownership would result in us being closely held within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year). Our board of directors may exempt a person from the 9.8% ownership limit upon such conditions as the board of directors may direct. However, our board of directors may not grant an exemption from the 9.8% ownership limit to any proposed transferee if it would result in the termination of our status as a REIT.
This restriction may:
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have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock; or
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compel a stockholder who had acquired more than 9.8% of our stock to dispose of the additional shares and, as a result, to forfeit the benefits of owning the additional shares.
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Our charter permits our board of directors to issue preferred stock with terms that may discourage a third party from acquiring us. Our charter authorizes us to issue additional authorized but unissued shares of common stock or preferred stock. In addition, our board of directors may classify or reclassify any unissued shares of common stock or preferred stock and may set the preferences, rights and other terms of the classified or reclassified shares. Our board of directors could establish a series of Preferred Stock that could delay or prevent a transaction or a change in control that might involve a premium price for the Common Stock or otherwise
be in the best interest of our stockholders.
If our advisor loses or is unable to obtain key personnel, our ability to implement our investment strategies could be hindered, which could adversely affect our ability to make distributions and the value of your investment.
Our success depends to a significant degree upon the contributions of certain of our executive officers and other key personnel of our advisor. In particular, we depend on the skills and expertise
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of David Lichtenstein, the architect of our investment strategies. We cannot guarantee that all, or any particular one, of our employees will remain affiliated with us or our advisor. If any of our key personnel were to cease their affiliation with our advisor, our operating results could suffer.
Further, we do not intend to separately maintain key person life insurance that would provide us with proceeds in the event of death or disability of Mr. Lichtenstein or any of our key personnel. We believe our future success depends upon our advisors ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure you that our advisor will be successful in attracting and retaining such skilled personnel. If our advisor loses or is unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or
hindered, and the value of your investment may decline.
The operating partnership agreement contains provisions that may discourage a third party from acquiring us.
A limited partner in the Operating Partnership has the option to exchange his or her limited partnership units for cash or, at our option, shares of our common stock. Those exchange rights are generally not exercisable until the limited partner has held those limited partnership units for more than one year. However, if we or the Operating Partnership propose to engage in any merger, consolidation or other combination with or into another person or a sale of all or substantially all of our assets, or a liquidation, or
any reclassification, recapitalization or change of common and preferred stock into which a limited partnership common unit may be exchanged, each holder of a limited partnership unit will have the right to exchange the partnership unit into cash or, at our option, shares of common stock, prior to the stockholder vote on the transaction. As a result, limited partnership unit holders who timely exchange their units prior to the record date for the stockholder vote on any transaction will be entitled to vote their shares of common stock with respect to the transaction. The additional shares that might be outstanding as a result of these exchanges of limited partnership units may deter an acquisition proposal.
Maryland law may discourage a third party from acquiring us.
Maryland law restricts mergers and other business combinations and provides that control shares of a Maryland corporation acquired in a control share acquisition have limited voting rights. The business combination statute could have the effect of discouraging offers from third parties to acquire us, and increasing the difficulty of successfully completing this type of offer. The control share statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Our bylaws contain a provision exempting from the
control share acquisition statute any and all acquisitions by our Sponsor and its affiliates of shares of our stock; however, this provision may be amended or eliminated at any time in the future.
Management and Policy Changes
Our rights and the rights of our stockholders to take action against the directors and our Advisor are limited.
Maryland law provides that a director has no liability in that capacity if he or she performs his duties in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Subject to the restrictions discussed below, our charter, in the case of our directors, officers, employees and agents, and the advisory agreement, in the case of our Advisor, require us to indemnify
our directors, officers, employees and agents and our Advisor for actions taken on our behalf, in good faith and in our best interest and without negligence or misconduct or, in the case of independent directors, without gross negligence or willful misconduct. As a result, the stockholders and we may have more limited rights against our directors, officers, employees and agents, and our Advisor than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents or our Advisor in some cases.
Stockholders have limited control over changes in our policies.
Our board of directors determines our major policies, including our investment objectives, financing, growth, debt capitalization, REIT qualification and distributions. Subject to the investment objections and limitations set forth in our charter, our board of directors may amend or revise these and other policies. Although stockholders will have limited control over changes in our policies, our charter requires the concurrence of a majority of our outstanding stock in order for the board of directors to amend our charter (except for amendments that do not
adversely affect stockholders rights, preferences and privileges), sell all or substantially all of our assets other than in the
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ordinary course of business or in connection with our liquidation or dissolution, cause our merger or other reorganization, or dissolve or liquidate us, other than before our initial investment in property.
Certain of our affiliates will receive substantial fees prior to the payment of dividends to our stockholders.
We have paid and will continue to pay substantial compensation to our Advisor, Property Manager, management and affiliates and their employees. We have paid and will continue to pay various types of compensation to affiliates of our Sponsor and such affiliates employees, including salaries, and other cash compensation. In addition, our Advisor and Property Manager receive compensation for acting, respectively, as our Advisor and Property Manager. In general, this compensation is dependent on our success or
profitability. These payments are payable before the payment of dividends to the stockholders and none of these payments are subordinated to a specified return to the stockholders. Also, our Property Manager receives compensation under the Management Agreement though, in general, this compensation would be dependent on our gross revenues. In addition, other affiliates may from time to time provide services to us if and as approved by the disinterested directors. It is possible that we could obtain such goods and services from unrelated persons at a lesser price.
We may not be reimbursed by our advisor for certain operational stage expenses.
Our Advisor may be required to reimburse us for certain operational stage expenses. In the event our Advisors net worth or cash flow is not sufficient to cover these expenses, we will not be reimbursed. This may adversely affect our financial condition and our ability to pay distributions.
Limitations on Liability and Indemnification
The liability of directors and officers is limited.
Our directors and officers will not be liable to us or our stockholders for monetary damages unless the director or officer actually received an improper benefit or profit in money, property or services, or is adjudged to be liable to us or our stockholders based on a finding that his or her action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.
Our directors are also required to act in good faith in a manner believed by them to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. A director who performs his or her duties in accordance with the foregoing standards should not be liable to us or any other person for failure to discharge his obligations as a director. We are permitted to purchase and maintain insurance or provide similar protection on behalf of any directors, officers, employees and agents, including our Advisor and its affiliates, against any liability asserted which was incurred in any such
capacity with us or arising out of such status, except as limited by our charter. This may result in us having to expend significant funds, which will reduce the available cash for distribution to our stockholders.
We may indemnify our directors, officers and agents against loss.
Under our charter, we will, under specified conditions, indemnify and pay or reimburse reasonable expenses to our directors, officers, employees and other agents, including our Advisor and its affiliates, against all liabilities incurred in connection with their serving in such capacities, subject to the limitations set forth in our charter. We may also enter into any contract for indemnity and advancement of expenses in this regard. This may result in us having to expend significant funds, which will reduce the available cash for distribution to our
stockholders.
Risks Associated with our Properties and the Market
Real Estate Investment Risks
Operating risks.
Our cash flows from real estate investments may become insufficient to pay our operating expenses and to cover the dividends we have paid and/or declared.
We intend to rely primarily on our cash flow from our investments to pay our operating expenses and to make distributions to our stockholders. The cash flow from equity investments in commercial and residential properties depends on the amount of revenue generated and expenses incurred in operating the properties. If the properties we invest in fail to generate revenue that is sufficient to meet operating expenses, debt service, and capital expenditures, our income and
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ability to make distributions to stockholders will be adversely affected. We cannot assure you that we will be able to maintain sufficient cash flows to fund operating expenses and debt service payments and dividend at any particular level, if at all. The sufficiency of cash flow to fund future dividend payments will depend on the performance of our real property investments.
Economic conditions may adversely affect our income.
U.S. and international markets are currently experiencing increased levels of volatility due to a combination of many factors, including decreasing values of home prices, limited access to credit markets, higher fuel prices, higher unemployment, less consumer spending and a national and global recession. The effects of the current market dislocation may persist as financial institutions continue to take the necessary steps to restructure their business and capital structures. As a result, this economic downturn has reduced the demand for space and removed support for rents
and property values. We cannot predict when the real estate markets will recover. As a result, the value of our properties has declined resulting in an impairment charge of $45.2 million during 2009 (see Note 14 of notes to consolidated financial statements) and these values may decline further if the current market conditions persist or worsen. In addition, for two of our multifamily properties which were impaired, we stopped future debt service payments on the respective mortgage loans, as we had determined that such debt service payments would no longer be economically beneficial to us based upon the current and expected future performance of the locations associated with these two loans. We are in default on these two loans and these properties are going through foreclosure. One of the foreclosures was completed on April 13, 2010 and the other one was completed May 12, 2010.
A commercial or residential propertys income and value may be adversely affected by national and regional economic conditions, local real estate conditions such as an oversupply of properties or a reduction in demand for properties, availability of for sale properties, competition from other similar properties, our ability to provide adequate maintenance, insurance and management services, increased operating costs (including real estate taxes), the attractiveness and location of the property and changes in market rental rates. Our income would be adversely affected if the properties we invest in cannot be rented on favorable terms
or if a significant number of tenants in such properties are unable to pay rent. Our performance is linked to economic conditions in the regions where the properties we invest in are located and in the market for residential, office, retail and industrial space generally. Therefore, to the extent that there are adverse economic conditions in those regions and in these markets generally, that impact the applicable market rents, such conditions could result in a reduction of our income and cash available for distributions and thus affect the amount of distributions we can make to stockholders.
The profitability of our acquisitions is uncertain.
We have acquired properties selectively. Acquisition of properties entails risks that investments will fail to perform in accordance with expectations. In undertaking these acquisitions, we will incur certain risks, including the expenditure of funds on, and the devotion of managements time to, transactions that may not come to fruition. Additional risks inherent in acquisitions include risks that the properties will not achieve anticipated occupancy levels and that estimates of the costs of improvements to bring an acquired property up to standards established for the
market position intended for that property may prove inaccurate.
Real estate investments are illiquid.
Because real estate investments are relatively illiquid, our ability to vary our portfolio promptly in response to economic or other conditions will be limited. In addition, certain significant expenditures, such as debt service, real estate taxes, and operating and maintenance costs generally are not reduced in circumstances resulting in a reduction in income from the investment. The foregoing and any other factor or event that would impede our ability to respond to adverse changes in the performance of our investments could have an adverse effect on our financial condition and results
of operations.
Rising expenses could reduce cash flow and funds available for future acquisitions.
Properties we invest in are subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance, administrative and other expenses. While some of our properties are leased on a triple-net basis or require the tenants to pay a portion of the expenses, renewals of leases or future leases may not be negotiated on that basis, in which event we will have to pay those costs. If we are unable to lease properties
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on a triple-net basis or on a basis requiring the tenants to pay all or some of the expenses, we would be required to pay those costs, which could adversely affect funds available for future acquisitions or cash available for distributions.
We will depend on tenants who lease from us on a triple-net basis to pay the appropriate portion of expenses.
If the tenants lease on a triple-net basis fail to pay required tax, utility and other impositions, we could be required to pay those costs for properties we invest in, which would adversely affect funds available for future acquisitions or cash available for distributions. If we lease properties on a triple-net basis, we run the risk of tenant default or downgrade in the tenants credit, which could lead to default and foreclosure on the underlying property.
If we purchase assets at a time when the commercial and residential real estate market is experiencing substantial influxes of capital investment and competition for properties, the real estate we purchase may not appreciate or may decrease in value.
The commercial and residential real estate markets from time to time experience a substantial influx of capital from investors. This substantial flow of capital, combined with significant competition for real estate, may result in inflated purchase prices for such assets. To the extent we purchase real estate in such an environment, we are subject to the risk that if the real
estate market ceases to attract the same level of capital investment in the future as it is currently attracting, or if the number of companies seeking to acquire such assets decreases, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets.
The bankruptcy or insolvency of a major commercial tenant would adversely impact us.
Any or all of the commercial tenants in a property we invest in, or a guarantor of a commercial tenants lease obligations, could be subject to a bankruptcy proceeding. The bankruptcy or insolvency of a significant commercial tenant or a number of smaller commercial tenants would have an adverse impact on our income and our ability to pay dividends because a tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. Such an
event could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the amount available for distributions to stockholders.
Generally, under bankruptcy law, a tenant has the option of continuing or terminating any un-expired lease. In the event of a bankruptcy, there is no assurance that the tenant or its trustee will continue our lease. If a given lease, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distributions to stockholders may be adversely affected. If the tenant continues its current lease, the tenant must cure all defaults under the lease and provide adequate assurance of its future performance under the lease. If the tenant terminates the lease, we will lose future rent under the lease and our claim for past due amounts
owing under the lease will be treated as a general unsecured claim and may be subject to certain limitations. General unsecured claims are the last claims paid in a bankruptcy and therefore this claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims. While the bankruptcy of any tenant and the rejection of its lease may provide us with an opportunity to lease the vacant space to another more desirable tenant on better terms, there can be no assurance that we would be able to do so.
The terms of new leases may adversely impact our income.
Even if the tenants of the properties we invest in do renew their leases, or we relet the units to new tenants, the terms of renewal or reletting may be less favorable than current lease terms. If the lease rates upon renewal or reletting are significantly lower than expected rates, then our results of operations and financial condition will be adversely affected. As noted above, certain significant expenditures associated with each equity investment in real estate (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced when
circumstances result in a reduction in rental income.
We may depend on commercial tenants for our revenue and therefore our revenue may depend on the success and economic viability of our commercial tenants. Our reliance on single or significant commercial tenants in certain buildings may decrease our ability to lease vacated space.
Our financial results will depend in part on leasing space in the properties we acquire to tenants on economically favorable terms. A default by a commercial tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a commercial tenants election not to extend a lease upon its expiration could
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an adverse effect on our income, general financial condition and ability to pay distributions. Therefore, our financial success is indirectly dependent on the success of the businesses operated by the commercial tenants of our properties.
In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting our property. A default by a significant commercial tenant or a substantial number of commercial tenants at any one time on lease payments to us would cause us to lose the revenue associated with such lease(s) and cause us to have to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage. As a result, lease payment defaults by tenants could reduce our profitability and may cause us to reduce the amount of
distributions to stockholders.
Even if the tenants of our properties do renew their leases or we relet the units to new tenants, the terms of renewal or reletting may be less favorable than current lease terms. If the lease rates upon renewal or reletting are significantly lower than expected rates, then our results of operations and financial condition will be adversely affected. Commercial tenants may have the right to terminate their leases upon the occurrence of certain customary events of default and, in other circumstances, may not renew their leases or, because of market conditions, may be able to renew their leases on terms that are less favorable to us than the terms of
the current leases. If a lease is terminated, there is no assurance that we will be able to lease the property for the rent previously received or sell the property without incurring a loss. Therefore, the weakening of the financial condition of a significant commercial tenant or a number of smaller commercial tenants and vacancies caused by defaults of tenants or the expiration of leases may adversely affect our operations.
A property that incurs a vacancy could be difficult to re-lease.
A property may incur a vacancy either by the continued default of a tenant under its lease or the expiration of one of our leases. If we terminate any lease following a default by a lessee, we will have to re-lease the affected property in order to maintain our qualification as a REIT. If a tenant vacates a property, we may be unable either to re-lease the property for the rent due under the prior lease or to re-lease the property without incurring additional expenditures relating to the property. In addition, we could experience delays in enforcing our rights
against, and collecting rents (and, in some cases, real estate taxes and insurance costs) due from a defaulting tenant. Any delay we experience in re-leasing a property or difficulty in re-leasing at acceptable rates may reduce cash available to make distributions to our stockholders.
In many cases, tenant leases contain provisions giving the tenant the exclusive right to sell particular types of merchandise or provide specific types of services within the particular retail center, or limit the ability of other tenants to sell such merchandise or provide such services. When re-leasing space after a vacancy is necessary, these provisions may limit the number and types of prospective tenants for the vacant space.
We also may have to incur substantial expenditures in connection with any re-leasing. A number of the properties we invest in may be specifically suited to the particular needs of our tenants. Therefore, we may have difficulty obtaining a new tenant for any vacant space we have in our properties, particularly if the floor plan of the vacant space limits the types of businesses that can use the space without major renovation. If the vacancy continues for a long period of time, we may suffer reduced revenues resulting in less cash dividends to be distributed to stockholders. As noted above, certain significant expenditures associated with each equity
investment (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced when circumstances cause a reduction in income from the investment. The failure to re-lease or to re-lease on satisfactory terms could result in a reduction of our income, funds from operations and cash available for distributions and thus affect the amount of distributions to stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.
We may be unable to sell a property if or when we decide to do so.
We may give some commercial tenants the right, but not the obligation, to purchase their properties from us beginning a specified number of years after the date of the lease. Some of our leases also generally provide the tenant with a right of first refusal on any proposed sale provisions. These policies may lessen the ability of our advisor and our board of directors to freely control the sale of the property.
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Although we may grant a lessee a right of first offer or option to purchase a property, there is no assurance that the lessee will exercise that right or that the price offered by the lessee in the case of a right of first offer will be adequate. In connection with the acquisition of a property, we may agree on restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. Even absent such restrictions, the real estate market is affected by many factors, such as general economic conditions, availability of financing,
interest rates and other factors, including supply and demand, that are beyond our control. We may not be able to sell any property for the price or on the terms set by us, and prices or other terms offered by a prospective purchaser may not be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. We may be required to expend funds to correct defects or to make improvements before a property can be sold, and if funds are unavailable to us, then we may be unable to sell the property.
We may not make a profit if we sell a property.
The prices that we can obtain when we determine to sell a property will depend on many factors that are presently unknown, including the operating history, tax treatment of real estate investments, demographic trends in the area and available financing. There is a risk that we will not realize any significant appreciation on our investment in a property. Accordingly, stockholders ability to recover all or any portion of stockholders investment under such circumstances will depend on the amount of funds so realized and claims to be satisfied there from.
We may incur liabilities in connection with properties we acquire.
Our anticipated acquisition activities are subject to many risks. We may acquire properties or entities that are subject to liabilities or that have problems relating to environmental condition, state of title, physical condition or compliance with zoning laws, building codes, or other legal requirements. In each case, our acquisition may be without any recourse, or with only limited recourse, with respect to unknown liabilities or conditions. As a result, if any liability were asserted against us relating to those properties or entities, or if any adverse
condition existed with respect to the properties or entities, we might have to pay substantial sums to settle or cure it, which could adversely affect our cash flow and operating results. However, some of these liabilities may be covered by insurance. In addition, we intend to perform customary due diligence regarding each property or entity we acquire. We also will attempt to obtain appropriate representations and indemnities from the sellers of the properties or entities we acquire, although it is possible that the sellers may not have the resources to satisfy their indemnification obligations if a liability arises. Unknown liabilities to third parties with respect to properties or entities acquired might include:
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liabilities for clean-up of undisclosed environmental contamination;
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claims by tenants, vendors or other persons dealing with the former owners of the properties;
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liabilities incurred in the ordinary course of business; and
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claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
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Competition with third parties in acquiring and operating properties may reduce our profitability and the return on stockholders investment.
We compete with many other entities engaged in real estate investment activities, many of which have greater resources than we do. Specifically, there are numerous commercial developers, real estate companies, real estate investment trusts and U.S. institutional and foreign investors that operate in the markets in which we may operate, that will compete with us in acquiring residential, office, retail, industrial and other properties that will be seeking investments and tenants for
these properties. Many of these entities have significant financial and other resources, including operating experience, allowing them to compete effectively with us.
Competitors with substantially greater financial resources than us may generally be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of entities in which investments may be made or risks attendant to a geographic concentration of investments. In addition, those competitors that are not REITs may be at an advantage to the extent they can utilize working capital to finance projects, while we (and our competitors that are REITs) will be required by the annual distribution provisions under the Internal Revenue Code to distribute significant amounts of cash from operations to our stockholders.
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Demand from third parties for properties that meet our investment objectives could result in an increase of the price of such properties. If we pay higher prices for properties, our profitability may be reduced and stockholders may experience a lower return on stockholders investment. In addition, our properties may be located in close proximity to other properties that will compete against our properties for tenants. Many of these competing properties may be better located and/or appointed than the properties that we will acquire, giving these properties a competitive advantage over our properties, and we may, in the future, face additional
competition from properties not yet constructed or even planned. This competition could adversely affect our business. The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents charged.
We could be adversely affected if additional competitive properties are built in locations competitive with our properties, causing increased competition for residential renters, retail customer traffic and creditworthy commercial tenants. In addition, our ability to charge premium rental rates to tenants may be negatively impacted. This increased competition may increase our costs of acquisitions or lower the occupancies and the rent we may charge tenants. This could result in decreased cash flow from tenants and may require us to make capital improvements to properties, which we would not have otherwise made, thus affecting cash available for
distributions to stockholders.
We may not have control over costs arising from rehabilitation of properties.
We may elect to acquire properties, which may require rehabilitation. In particular, we may acquire affordable properties that we will rehabilitate and convert to market rate properties. Consequently, we intend to retain independent general contractors to perform the actual physical rehabilitation work and will be subject to risks in connection with a contractors ability to control rehabilitation costs, the timing of completion of rehabilitation, and a contractors ability to build in conformity with plans and specifications.
We may incur losses as result of defaults by the purchasers of properties we sell in certain circumstances.
If we decide to sell any of our properties, we will use our best efforts to sell them for cash. However, we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk of default by the purchaser and will be subject to remedies provided by law. There are no limitations or restrictions on our ability to take purchase money obligations. We may incur losses as a result of such defaults, which may adversely affect our available cash and our ability to make
distributions to stockholders.
We may experience energy shortages and allocations.
There may be shortages or increased costs of fuel, natural gas, water, electric power or allocations thereof by suppliers or governmental regulatory bodies in the areas where we purchase properties, in which event the operation of our properties may be adversely affected.
We may acquire properties with lockout provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.
We may acquire properties in exchange for operating partnership units and agree to restrictions on sales or refinancing, called lock-out provisions that are intended to preserve favorable tax treatment for the owners of such properties who sell them to us. Lockout provisions may restrict sales or refinancings for a certain period in order to comply with the applicable government regulations. Lockout provisions could
materially restrict us from selling or otherwise disposing of or refinancing properties. This would affect our ability to turn our investments into cash and thus affect cash available to return capital to stockholders. Lockout provisions could impair our ability to take actions during the lockout period that would otherwise be in the best interests of our stockholders and, therefore, might have an adverse impact on the value of the shares, relative to the value that would result if the lockout provisions did not exist. In particular, lockout provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.
Changes in applicable laws may adversely affect the income and value of our properties.
The income and value of a property may be affected by such factors as environmental, rent control and other laws and regulations, changes in applicable general and real estate tax laws (including the possibility of changes in the federal income tax laws or the lengthening of the depreciation period for real estate) and interest rates, the availability of financing, acts of nature (such as hurricanes and floods) and other factors beyond our control.
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Retail Industry Risks.
Our retail properties are subject to the various risks discussed above. In addition, they are subject to the risks discussed below.
Retail conditions may adversely affect our income.
A retail propertys revenues and value may be adversely affected by a number of factors, many of which apply to real estate investment generally, but which also include trends in the retail industry and perceptions by retailers or shoppers of the safety, convenience and attractiveness of the retail property. In addition, to the extent that the investing public has a negative perception of the retail sector, the value of our common stock may be negatively impacted.
Some of our leases provide for base rent plus contractual base rent increases. A number of our retail leases also include a percentage rent clause for additional rent above the base amount based upon a specified percentage of the sales our tenants generate. Under those leases that contain percentage rent clauses, our revenue from tenants may increase as the sales of our tenants increase. Generally, retailers face declining revenues during downturns in the economy. As a result, the portion of our revenue that we may derive from percentage rent leases could decline upon a general economic downturn.
Our revenue will be impacted by the success and economic viability of our anchor retail tenants. Our reliance on single or significant tenants in certain buildings may decrease our ability to lease vacated space.
In the retail sector, any tenant occupying a large portion of the gross leasable area of a retail center, a tenant of any of the triple-net single-user retail properties outside the primary geographical area of investment, commonly referred to as an anchor tenant, or a tenant that is our anchor tenant at more than one retail center, may become insolvent, may suffer a downturn in business, or may decide not to renew
its lease. Any of these events would result in a reduction or cessation in rental payments to us and would adversely affect our financial condition.
A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases permit cancellation or rent reduction if another tenants lease is terminated. We may own properties where the tenants may have rights to terminate their leases if certain other tenants are no longer open for business. These co-tenancy provisions may also exist in some leases where we own a portion of a retail property and one or more of the anchor tenants leases space in that portion of the center not owned or controlled by us. If such tenants were to vacate their space, tenants with co-tenancy provisions
would have the right to terminate their leases with us or seek a rent reduction from us. In such event, we may be unable to re-lease the vacated space.
Similarly, the leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer. The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. A lease transfer to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases at the retail center. In the event that we are unable to re-lease the vacated space to a new anchor tenant, we may incur additional expenses in order to re-model the space to be able to re-lease the space to more than one tenant.
Competition with other retail channels may reduce our profitability and the return on stockholders investment.
Retail tenants will face potentially changing consumer preferences and increasing competition from other forms of retailing, such as discount shopping centers, outlet centers, upscale neighborhood strip centers, catalogues, discount shopping clubs, internet and telemarketing. Other retail centers within the market area of properties we invest in will compete with our properties for customers, affecting their tenants cash flows and thus affecting their ability to pay rent. In addition, tenants rent
payments may be based on the amount of sales revenue that they generate. If these tenants experience competition, the amount of their rent may decrease and our cash flow will decrease.
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Residential Industry Risks.
Our residential properties are subject to the various risks discussed above. In addition, they are subject to the risks discussed below.
The short-term nature of our residential leases may adversely impact our income.
If residents of properties we invest in decide not to renew their leases upon expiration, we may not be able to relet their units. Because substantially all of our residential leases are for apartments, they generally are for terms of no more than one or two years. If we are unable to promptly renew the leases or relet the units then our results of operations and financial condition will be adversely affected. Certain significant expenditures associated with each equity investment in real estate (such as mortgage payments, real estate taxes and
maintenance costs) are generally not reduced when circumstances result in a reduction in rental income.
An economic downturn could adversely affect the residential industry and may affect operations for the residential properties that we acquire.
As a result of the effects of an economic downturn, including increased unemployment rates, the residential industry may experience a significant decline in business caused by a reduction in overall renters. Moreover, low residential mortgage interest rates could result from an economic downturn and encourage potential renters to purchase residences rather than lease them. Our residential properties may experience declines in occupancy rate or rent per unit due to any such decline in
residential mortgage interest rates. During 2009, the impact of the economic downturn on the residential properties resulted in a decline in value of one of our residential portfolios of $43.2 million. See Note 14 of notes to consolidated financial statements.
Lodging Industry Risks.
We may be subject to the risks common to the lodging industry.
Our hotels are subject to all of the risks common to the hotel industry and subject to market conditions that affect all hotel properties. These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms as well as hotel operating expenses, and generally include:
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increases in supply of hotel rooms that exceed increases in demand;
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increases in energy costs and other travel expenses that reduce business and leisure travel;
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reduced business and leisure travel due to continued geo-political uncertainty, including terrorism;
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adverse effects of declines in general and local economic activity;
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adverse effects of a downturn in the hotel industry; and
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risks generally associated with the ownership of hotels and real estate, as discussed below.
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We do not have control over the market and business conditions that affect the value of our lodging properties, and adverse changes with respect to such conditions could have an adverse effect on our results of operations, financial condition and cash flows. Hotel properties, including extended stay hotels, are subject to varying degrees of risk generally common to the ownership of hotels, many of which are beyond our control, including the following:
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increased competition from other existing hotels in our markets;
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new hotels entering our markets, which may adversely affect the occupancy levels and average daily rates of our lodging properties;
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declines in business and leisure travel;
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increases in energy costs, increased threat of terrorism, terrorist events, airline strikes or other factors that may affect travel patterns and reduce the number of business and leisure travelers;
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increases in operating costs due to inflation and other factors that may not be offset by increased room rates;
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changes in, and the related costs of compliance with, governmental laws and regulations, fiscal policies and zoning ordinances; and
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adverse effects of international, national, regional and local economic and market conditions.
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Adverse changes in any or all of these factors could have an adverse effect on our results of operations, financial condition and cash flows, thereby adversely impacting our ability to service debt and to make distributions to our stockholders.
Third-Party management of lodging properties can adversely affect our properties.
Our lodging properties are operated by a third-party management company and could be adversely affected if that third-party management company, or its affiliated brands, experiences negative publicity or other adverse developments. Any lodging properties we acquire are expected to be operated under brands owned by an affiliate of our sponsor and managed by a management company that is affiliated with such brands. Because of this concentration, negative publicity or other adverse developments that affect that operator and/or its affiliated
brands generally may adversely affect our results of operations, financial condition, and consequently cash flows thereby impacting our ability to service debt, and to make distributions to our stockholders.
As a REIT, we cannot directly operate our lodging properties.
We cannot and will not directly operate our lodging properties and, as a result, our results of operations, financial position, and ability to service debt and our ability to make distributions to stockholders are dependent on the ability of our third-party management companies and our tenants to operate our extended stay hotel properties successfully. In order for us to satisfy certain REIT qualification rules, we cannot directly operate any lodging properties we may acquire or actively participate in the decisions affecting their daily operations. Instead,
through a taxable REIT subsidiary, or taxable REIT subsidiary (TRS) lessee, we must enter into management agreements with a third-party management company, or we must lease our lodging properties to third-party tenants on a triple-net lease basis. We cannot and will not control this third-party management company or the tenants who operate and are responsible for maintenance and other day-to-day management of our lodging properties, including, but not limited to, the implementation of significant operating decisions. Thus, even if we believe our lodging properties are being operated inefficiently or in a manner that does not result in satisfactory operating results, we may not be able to require the third-party management company or the tenants to change their method of operation of our lodging properties. Our results of operations, financial position, cash flows and our ability to service debt and to make distributions to stockholders are, therefore, dependent on the
ability of our third-party management company and tenants to operate our lodging properties successfully.
We will rely on a third-party hotel management company to establish and maintain adequate internal controls over financial reporting at our lodging properties. In doing this, the property manager should have policies and procedures in place which allows them to effectively monitor and report to us the operating results of our lodging properties which ultimately are included in our consolidated financial statements. Because the operations of our lodging properties ultimately become a component of our consolidated financial statements, we evaluate the effectiveness of the internal controls over financial reporting at all of our properties, including
our lodging properties, in connection with the certifications we provide in our quarterly and annual reports on Form 10-Q and Form 10-K, respectively, pursuant to the Sarbanes Oxley Act of 2002. However, we will not control the design or implementation of or changes to internal controls at any of our lodging properties. Thus, even if we believe that our lodging properties are being operated without effective internal controls, we may not be able to require the third-party management company to change its internal control structure. This could require us to implement extensive and possibly inefficient controls at a parent level in an attempt to mitigate such deficiencies. If such controls are not effective, the accuracy of the results of our operations that we report could be affected. Accordingly, our ability to conclude that, as a company, our internal controls are effective is significantly dependent upon the effectiveness of internal controls that our third-party management company
will implement at our lodging properties. Our lodging operations were not significant to our overall results in 2009, and while we do not consider it likely, it is possible that we could have a significant deficiency or material weakness as a result of the ineffectiveness of the internal controls at one or more of our lodging properties.
If we replace a third-party management company or tenant, we may be required by the terms of the relevant management agreement or lease to pay substantial termination fees, and we may experience significant disruptions at the affected lodging properties. While it is our intent to enter into management agreements with a third-party management company or tenants with substantial prior lodging experience, we may not be able to make such arrangements in the future. If we experience such disruptions, it may adversely
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affect our results of operations, financial condition and our cash flows, including our ability to service debt and to make distributions to our stockholders.
Our use of the taxable REIT subsidiary structure will increase our expenses.
A TRS structure subjects us to the risk of increased lodging operating expenses. The performance of our TRS lessees is based on the operations of our lodging properties. Our operating risks include not only changes in hotel revenues and changes to our TRS lessees ability to pay the rent due to us under the leases, but also increased hotel operating expenses, including, but not limited to, the following cost elements:
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wage and benefit costs;
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repair and maintenance expenses;
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other operating expenses.
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Any increases in one or more these operating expenses could have a significant adverse impact on our results of operations, cash flows and financial position.
Failure to properly structure our TRS leases could cause us to incur tax penalties.
A TRS structure subjects us to the risk that the leases with our TRS lessees do not qualify for tax purposes as arms-length which would expose us to potentially significant tax penalties. Our TRS lessees will incur taxes or accrue tax benefits consistent with a C corporation. If the leases between us and our TRS lessees were deemed by the Internal Revenue Service to not reflect an arms-length transaction as that term is defined by tax law, we may be subject to tax penalties as the lessor that would adversely impact our
profitability and our cash flows.
Failure to maintain franchise licenses could decrease our revenues.
Our inability or that of our third-party management company or our third-party tenants to maintain franchise licenses could decrease our revenues. Maintenance of franchise licenses for our lodging properties is subject to maintaining our franchisors operating standards and other terms and conditions. Franchisors periodically inspect lodging properties to ensure that we, our third-party tenants or our third-party management company maintain their standards. Failure by us or one of our third-party tenants or our third-party management company to
maintain these standards or comply with other terms and conditions of the applicable franchise agreement could result in a franchise license being canceled. If a franchise license terminates due to our failure to make required improvements or to otherwise comply with its terms, we may also be liable to the franchisor for a termination fee. As a condition to the maintenance of a franchise license, our franchisor could also require us to make capital expenditures, even if we do not believe the capital improvements are necessary, desirable, or likely to result in an acceptable return on our investment. We may risk losing a franchise license if we do not make franchisor-required capital expenditures.
If our franchisor terminates the franchise license, we may try either to obtain a suitable replacement franchise or to operate the lodging property without a franchise license. The loss of a franchise license could materially and adversely affect the operations or the underlying value of the lodging property because of the loss associated with the brand recognition and/or the marketing support and centralized reservation systems provided by the franchisor. A loss of a franchise license for one or more lodging properties could materially and adversely affect our results of operations, financial condition and our cash flows, including our ability to
service debt and make distributions to our stockholders.
Risks associated with employing hotel employees.
We will generally be subject to risks associated with the employment of hotel employees. Any lodging properties we acquire will be leased to a wholly-owned TRS entity and be subject to management agreements with a third-party manager to operate the properties that we do not lease to a third party under a net lease. Hotel operating revenues and expenses for these properties will be included in our consolidated results of operations. As a result, although we do not directly employ or manage the labor force at our lodging properties, we are subject to many of the costs and risks
generally associated with the hotel labor force. Our third-party manager will be responsible for hiring and maintaining
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the labor force at each of our lodging properties and for establishing and maintaining the appropriate processes and controls over such activities. From time to time, the operations of our lodging properties may be disrupted through strikes, public demonstrations or other labor actions and related publicity. We may also incur increased legal costs and indirect labor costs as a result of the aforementioned disruptions, or contract disputes or other events. Our third-party manager may be targeted by union actions or adversely impacted by the disruption caused by organizing activities. Significant adverse disruptions caused by union activities and/or
increased costs affiliated with such activities could materially and adversely affect our results of operations, financial condition and our cash flows, including our ability to service debt and make distributions to our stockholders.
Travel and hotel industries have been affected by economic slowdowns, terrorist attacks and other world events.
The most recent economic slowdown, terrorist attacks, military activity in the Middle East, natural disasters and other world events impacting the global economy had adversely affected the travel and hotel industries, including extended stay hotel properties, in the past and these adverse effects may continue or occur in the future. As a result of events such as terrorist attacks around the world, the war in Iraq and the effects of the economic recession, the lodging industry experienced a significant decline in
business caused by a reduction in both business and leisure travel. We cannot presently determine the impact that future events such as military or police activities in the U.S. or foreign countries, future terrorist activities or threats of such activities, natural disasters or health epidemics could have on our business. Our business and lodging properties may continue to be affected by such events, including our hotel occupancy levels and average daily rates, and, as a result, our revenues may decrease or not increase to levels we expect. In addition, other terrorist attacks, natural disasters, health epidemics, acts of war, prolonged U.S. involvement in Iraq or other significant military activity could have additional adverse effects on the economy in general, and the travel and lodging industry in particular. These factors could have a material adverse effect on our results of operations, financial condition, and cash flows, thereby impacting our ability to service debt and
ability to make distributions to our stockholders.
Hotel industry is very competitive.
The hotel industry is intensely competitive, and, as a result, if our third-party management company and our third-party tenants are unable to compete successfully or if our competitors marketing strategies are more effective, our results of operations, financial condition, and cash flows including our ability to service debt and to make distributions to our stockholders, may be adversely affected. The hotel industry is intensely competitive. Our lodging properties compete with other existing and new hotels in their geographic markets. Since we do not operate our lodging properties,
our revenues depend on the ability of our third-party management company and our-third party tenants to compete successfully with other hotels in their respective markets. Some of our competitors have substantially greater marketing and financial resources than we do. If our third-party management company and our third-party tenants are unable to compete successfully or if our competitors marketing strategies are effective, our results of operations, financial condition, ability to service debt and ability to make distributions to our stockholders may be adversely affected.
Hotel industry is seasonal which can adversely affect our hotel properties.
The hotel industry is seasonal in nature, and, as a result, our lodging properties may be adversely affected. The seasonality of the hotel industry can be expected to cause quarterly fluctuations in our revenues. In addition, our quarterly earnings may be adversely affected by factors outside our control, such as extreme or unexpectedly mild weather conditions or natural disasters, terrorist attacks or alerts, outbreaks of contagious diseases, airline strikes, economic factors and other considerations affecting travel. To the extent that cash flows
from operations are insufficient during any quarter, due to temporary or seasonal fluctuations in revenues, we may attempt to borrow in order to make distributions to our stockholders or be required to reduce other expenditures or distributions to stockholders.
Expanding use of internet travel websites by customers can adversely affect our profitability.
The increasing use of internet travel intermediaries by consumers may cause fluctuations in operating performance during the year and otherwise adversely affect our profitability and cash flows. Our third party hotel management company will rely upon Internet travel intermediaries such as Travelocity.com, Expedia.com, Orbitz.com, Hotels.com and Priceline.com to generate demand for our lodging properties. As Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or
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other significant contract concessions from our third-party management company. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality (such as three-star downtown hotel) at the expense of brand identification. Consumers may eventually develop brand loyalties to their reservations system rather than to our third-party management company and/or our brands, which could have an adverse effect on our business because we will rely heavily on brand identification. If the amount of sales made through Internet intermediaries
increases significantly and our third-party management company and our third-party tenants fail to appropriately price room inventory in a manner that maximizes the opportunity for enhanced profit margins, room revenues may flatten or decrease and our profitability may be adversely affected.
Industrial Industry Risks
Potential liability as the result of, and the cost of compliance with, environmental matters is greater if we invest in industrial properties or lease our properties to tenants that engage in industrial activities.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on such property. 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.
We may invest in properties historically used for industrial, manufacturing and commercial purposes. Some of these properties are more likely to contain, or may have contained, underground storage tanks for the storage of petroleum products and other hazardous or toxic substances. All of these operations create a potential for the release of petroleum products or other hazardous or toxic substances.
Leasing properties to tenants that engage in industrial, manufacturing, and commercial activities will cause us to be subject to increased risk of liabilities under environmental laws and regulations. The presence of hazardous or toxic substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings.
Our industrial properties are subject to fluctuations in manufacturing activity in the United States.
Our industrial properties may be adversely affected if manufacturing activity decreases in the United States. Trade agreements with foreign countries have given employers the option to utilize less expensive non-US manufacturing workers. The outsourcing of manufacturing functions could lower the demand for our industrial properties. Moreover, an increase in the cost of raw materials or decrease in the demand of housing could cause a slowdown in manufacturing activity, such as furniture, textiles, machinery and chemical
products, and our profitability may be adversely affected.
Office Industry Risks
The loss of anchor tenants for our office properties could adversely affect our profitability.
We may acquire office properties and, as with our retail properties, we are subject to the risk that tenants may be unable to make their lease payments or may decline to extend a lease upon its expiration. A lease termination by a tenant that occupies a large area of space in one of our office properties (commonly referred to as an anchor tenant) could impact leases of other tenants. Other tenants may be entitled to modify the terms of their existing leases in the event of a lease termination by an anchor tenant or the closure of
the business of an anchor tenant that leaves its space vacant, even if the anchor tenant continues to pay rent. Any such modifications or conditions could be unfavorable to us as the property owner and could decrease rents or expense recoveries. In the event of default by an anchor tenant, we may experience delays and costs in enforcing our rights as landlord to recover amounts due to us under the terms of our agreements with those parties.
Declines in overall activity in our markets may adversely affect the performance of our office properties.
Rental income from office properties fluctuates with general market and economic conditions. Our office properties may be adversely affected during periods of diminished economic growth and a decline in white-collar employment. We may experience a decrease in occupancy and rental rates accompanied by increases in the cost of re-leasing space (including for tenant improvements) and in uncollectible receivables. Early lease terminations may significantly contribute to a decline in occupancy of our office properties and may
adversely affect our profitability. While lease termination fees increase current period income, future
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rental income may be diminished because, during periods in which market rents decline, it is unlikely that we will collect from replacement tenants the full contracted amount which had been payable under the terminated leases.
Real Estate Financing Risks
General Financing Risks
We have incurred mortgage indebtedness and other borrowings, which may increase our business risks.
We acquired and intend to continue to acquire properties subject to existing financing or by borrowing new funds. In addition, we incur or increase our mortgage debt by obtaining loans secured by selected or all of the real properties to obtain funds to acquire additional real properties. We may also borrow funds if necessary to satisfy the requirement that we distribute to stockholders as dividends at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable to assure that we maintain our
qualification as a REIT for federal income tax purposes.
We incur mortgage debt on a particular real property if we believe the propertys projected cash flow is sufficient to service the mortgage debt. However, if there is a shortfall in cash flow, requiring us to use cash from other sources to make the mortgage payments on the property, then the amount available for distributions to stockholders may be affected. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and our loss of the property securing the loan, which is in default.
For tax purposes, a foreclosure of any of our properties 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. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. We may, in some circumstances, give a guaranty on behalf of an entity that owns one of our properties. In these cases, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or
cross-default provisions, there is a risk that more than one real property may be affected by a default.
Our mortgage debt contains clauses providing for prepayment penalties. If a lender invokes these penalties upon the sale of a property or the prepayment of a mortgage on a property, the cost to us to sell the property could increase substantially, and may even be prohibitive. This could lead to a reduction in our income, which would reduce cash available for distribution to stockholders and may prevent us from borrowing more money. Moreover, our financing arrangements involving balloon payment obligations involve greater risks than financing arrangements whose principal amount is amortized over the term of the loan. At the time the balloon payment is
due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment.
If we have insufficient working capital reserves, we will have to obtain financing from other sources.
We have established working capital reserves that we believe are adequate to cover our cash needs. However, if these reserves are insufficient to meet our cash needs, we may have to obtain financing to fund our cash requirements. Sufficient financing may not be available or, if available, may not be available on economically feasible terms or on terms acceptable to us. If mortgage debt is unavailable at reasonable rates, we will not be able to place financing on the properties, which could reduce the number of properties we
can acquire and the amount of distributions per share.
If we place mortgage debt on the properties, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when the properties are refinanced, our income could be reduced, which would reduce cash available for distribution to stockholders and may prevent us from borrowing more money. Additional borrowing for working capital purposes will increase our interest expense, and therefore our financial condition and our ability to pay distributions may be adversely affected.
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We may not have funding or capital resources for future improvements.
When a commercial tenant at a property we invest in does not renew its lease or otherwise vacates its space in such properties, it is likely that, in order to attract one or more new tenants, we will be required to expend substantial funds for leasing costs, tenant improvements and tenant refurbishments to the vacated space. We will incur certain fixed operating costs during the time the space is vacant as well as leasing commissions and related costs to re-lease the vacated space. We may also have similar future capital needs in order to renovate or
refurbish any of our properties for other reasons.
Also, in the event we need to secure funding sources in the future but are unable to secure such sources or are unable to secure funding on terms we feel are acceptable, we may be required to defer capital improvements or refurbishment to a property. This may cause such property to suffer from a greater risk of obsolescence or a decline in value and/or produce decreased cash flow as the result of our inability to attract tenants to the property. If this happens, we may not be able to maintain projected rental rates for affected properties, and our results of operations may be negatively impacted. Or, we may be required to secure funding on
unfavorable terms.
We may be adversely affected by limitations in our charter on the aggregate amount we may borrow.
Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our board of directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net
assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess.
That limitation could have adverse business consequences such as:
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limiting our ability to purchase additional properties;
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causing us to lose our REIT status if additional borrowing was necessary to pay the required minimum amount of cash distributions to our stockholders to maintain our status as a REIT;
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causing operational problems if there are cash flow shortfalls for working capital purposes; and
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resulting in the loss of a property if, for example, financing was necessary to repay a default on a mortgage.
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Our debt financing for acquisitions is frequently determined from appraised values in lieu of acquisition cost. As appraisal values are typically greater than acquisition cost for the type of value assets we seek to acquire, our debt can be expected to exceed certain leverage limitations of the Lightstone REIT. Our Board, including all of its independent directors, has approved and will continue to approve any leverage exceptions as required by the Lightstone REITs Articles of Incorporation.
Any excess borrowing over the 300% level will be disclosed to stockholders in our next quarterly report, along with justification for such excess. As of March 31, 2010, our total borrowings represented 134.9% of net assets.
Lenders may require us to enter into restrictive covenants relating to our operations.
In connection with obtaining financing, a bank or other lender could impose restrictions on us affecting our ability to incur additional debt and our distribution and operating policies. Loan documents we enter into may contain negative covenants limiting our ability to, among other things, further mortgage our properties, discontinue insurance coverage or replace Lightstone Value Plus REIT, LLC as our advisor. In addition, prepayment penalties imposed by banks or other lenders could affect our ability to sell properties when we want.
If lenders are not willing to make loans to our sponsor because of recent defaults on some of the sponsors properties, lenders may be less inclined to make loans to us and we may not be able to obtain financing for any future acquisitions.
U.S. and international markets are currently experiencing increased levels of volatility due to a combination of factors, including decreasing values of residential and commercial real estate, limited access to credit, the collapse or near collapse of certain financial institutions, higher energy
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costs, decreased consumer spending and fears of a national and global recession. Certain of our sponsors program and non-program properties have been adversely affected by recent market conditions and their impact on the real estate market. After an analysis of these factors and other factors, taking into account the increased costs of borrowing, the dislocation in the credit markets and that certain properties are not generating sufficient cash flow to cover their fixed costs, the sponsor has elected to stop paying payments on the non-recourse debt obligations for certain program and non-program properties. As a result, lenders may be less
willing to make loans to our sponsor or its affiliates. If lenders are unwilling to make loans to us, we may be unable to purchase certain properties or may be required to defer capital improvements or refurbishments to our properties. Additionally, sellers of real property may be less inclined to enter into negotiations with us if they believe that we may be unable to obtain financing. The inability to purchase certain properties may increase the time it takes for us to generate funds from operations. Additionally, the inability to improve our properties may cause such property to suffer from a greater risk of obsolescence or a decline in value, which could result in a decrease in our cash flow from the inability to attract tenants.
Financing Risks on the Property Level
Some of our mortgage loans may have due on sale provisions.
In purchasing properties subject to financing, we may obtain financing with due-on-sale and/or due-on-encumbrance clauses. Due-on-sale clauses in mortgages allow a mortgage lender to demand full repayment of the mortgage loan if the borrower sells the mortgaged property. Similarly, due-on-encumbrance clauses allow a mortgage lender to demand full repayment if the borrower uses the real estate securing the mortgage loan as security for another loan.
These clauses may cause the maturity date of such mortgage loans to be accelerated and such financing to become due. In such event, we may be required to sell our properties on an all-cash basis, to acquire new financing in connection with the sale, or to provide seller financing. It is not our intent to provide seller financing, although it may be necessary or advisable for us to do so in order to facilitate the sale of a property. It is unknown whether the holders of mortgages encumbering our properties will require such acceleration or whether other mortgage financing will be available. Such factors will depend on the mortgage market and on
financial and economic conditions existing at the time of such sale or refinancing.
Lenders may be able to recover against our other properties under our mortgage loans.
We will seek secured loans (which are nonrecourse) to acquire properties. However, only recourse financing may be available, in which event, in addition to the property securing the loan, the lender may look to our other assets for satisfaction of the debt. Thus, should we be unable to repay a recourse loan with the proceeds from the sale or other disposition of the property securing the loan, the lender could look to one or more of our other properties for repayment. Also, in order to facilitate the sale of a property, we may allow the
buyer to purchase the property subject to an existing loan whereby we remain responsible for the debt.
Our mortgage loans may charge variable interest.
Some of our mortgage loans may be subject to fluctuating interest rates based on certain index rates, such as the prime rate. Future increases in the index rates would result in increases in debt service on variable rate loans and thus reduce funds available for acquisitions of properties and dividends to the stockholders.
Insurance Risks
We may suffer losses that are not covered by insurance.
If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits. We intend to cause comprehensive insurance to be obtained for our properties, including casualty, liability, fire, extended coverage and rental loss customarily obtained for similar properties in amounts which our Advisor determines are sufficient to cover reasonably foreseeable losses, with policy specifications and insured limits that we believe are adequate and appropriate under the circumstances.
Material losses may occur in excess of insurance proceeds with respect to any property, as insurance proceeds may not provide sufficient resources to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, earthquakes, floods, hurricanes, pollution, environmental matters, mold or, in the future, terrorism which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments.
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Insurance companies have recently begun to exclude acts of terrorism from standard coverage. Terrorism insurance is currently available at an increased premium, and it is possible that the premium will increase in the future or that terrorism coverage will become unavailable. However, mortgage lenders in some cases have begun to insist that commercial owners purchase specific coverage against terrorism as a condition for providing loans. We intend to obtain terrorism insurance if required by our lenders, but the terrorism insurance that we obtain may not be sufficient to cover loss for damages to our properties as a result of terrorist attacks. In
addition, we may not be able to obtain insurance against the risk of terrorism because it may not be available or may not be available on terms that are economically feasible. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses.
There is no assurance that we will have adequate coverage for such losses. If such an event occurred to, or caused the destruction of, one or more of our properties, we could lose both our invested capital and anticipated profits from such property. In addition, certain losses resulting from these types of events are uninsurable and others may not be covered by our terrorism insurance. Terrorism insurance may not be available at a reasonable price or at all.
In December 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) was enacted into law. TRIPRA extends the federal terrorism insurance backstop through 2014. The government backstop the extension provides, contributes to the continued stabilization of the terrorism insurance market place allowing us the opportunity to secure coverage at commercially reasonable rates, and thus mitigate certain of the risks described above.
In addition, many insurance carriers are excluding asbestos-related claims from standard policies, pricing asbestos endorsements at prohibitively high rates or adding significant restrictions to this coverage. Because of our inability to obtain specialized coverage at rates that correspond to the perceived level of risk, we may not obtain insurance for acts of terrorism or asbestos-related claims. We will continue to evaluate the availability and cost of additional insurance coverage from the insurance market. If we decide in the future to purchase insurance for terrorism or asbestos, the cost could have a negative impact on our results of
operations. If an uninsured loss or a loss in excess of insured limits occurs on a property, we could lose our capital invested in the property, as well as the anticipated future revenues from the property and, in the case of debt that is recourse to us, would remain obligated for any mortgage debt or other financial obligations related to the property. Any loss of this nature would adversely affect us. Although we intend to adequately insure our properties, there is no assurance that we will successfully do so.
Compliance with Laws
The costs of compliance with environmental laws and regulations may adversely affect our income and the cash available for any distributions.
All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and aboveground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with
disposals. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal.
Under various federal, state and local laws, ordinances and regulations, a current or previous owner, developer or operator of real estate may be liable for the costs of removal or remediation of hazardous or toxic substances at, on, under or in its property. The costs of removal or remediation could be substantial. In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent such property or to use the property as collateral for future borrowing.
Environmental laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous or toxic materials. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages and costs resulting from environmental contamination arising from that site. The presence of
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hazardous or toxic materials, or the failure to address conditions relating to their presence properly, may adversely affect the ability to rent or sell the property or to borrow using the property as collateral.
Persons who dispose of or arrange for the disposal or treatment of hazardous or toxic materials may also be liable for the costs of removal or remediation of such materials, or for related natural resource damages, at or from an off-site disposal or treatment facility, whether or not the facility is or ever was owned or operated by those persons. In addition, environmental laws today can impose liability on a previous owner or operator of a property that owned or operated the property at a time when hazardous or toxic substances were disposed on, or released from, the property. A conveyance of the property, therefore, does not relieve the owner or
operator from liability.
There may be potential liability associated with lead-based paint arising from lawsuits alleging personal injury and related claims. Typically, the existence of lead paint is more of a concern in residential units than in commercial properties. Although a structure built prior to 1978 may contain lead-based paint and may present a potential for exposure to lead, structures built after 1978 are not likely to contain lead-based paint.
Property values may also be affected by the proximity of such properties to electric transmission lines. Electric transmission lines are one of many sources of electro-magnetic fields (EMFs) to which people may be exposed. Research completed regarding potential health concerns associated with exposure to EMFs has produced inconclusive results. Notwithstanding the lack of conclusive scientific evidence, some states now regulate the strength of electric and magnetic fields emanating from electric transmission lines and other states have required transmission facilities to measure for levels of EMFs.
On occasion, lawsuits have been filed (primarily against electric utilities) that allege personal injuries from exposure to transmission lines and EMFs, as well as from fear of adverse health effects due to such exposure. This fear of adverse health effects from transmission lines has been considered both when property values have been determined to obtain financing and in condemnation proceedings. We may not, in certain circumstances, search for electric transmission lines near our properties, but are aware of the potential exposure to damage claims by persons exposed to EMFs.
Recently, indoor air quality issues, including mold, have been highlighted in the media and the industry is seeing mold claims from lessees rising. To date, we have not incurred any material costs or liabilities relating to claims of mold exposure or abating mold conditions. However, due to the recent increase in mold claims and given that the law relating to mold is unsettled and subject to change, we could incur losses from claims relating to the presence of, or exposure to, mold or other microbial organisms, particularly if we are unable to maintain adequate insurance to cover such losses. We may also incur unexpected expenses relating to the
abatement of mold on properties that we may acquire.
Limited quantities of asbestos-containing materials are present in various building materials such as floor coverings, ceiling texture material, acoustical tiles and decorative treatments. Environmental laws govern the presence, maintenance and removal of asbestos. These laws could be used to impose liability for release of, and exposure to, hazardous substances, including asbestos-containing materials, into the air. Such laws require that owners or operators of buildings containing asbestos (1) properly manage and maintain the asbestos, (2) notify and train those who may come into contact with asbestos and (3) undertake special precautions,
including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building. Such laws may impose fines and penalties on building owners or operators who fail to comply with these requirements. These laws may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to asbestos fibers. As the owner of our properties, we may be potentially liable for any such costs.
There is no assurance that properties, which we acquire in the future, will not have any material environmental conditions, liabilities or compliance concerns. Accordingly, we have no way of determining at this time the magnitude of any potential liability to which we may be subject arising out of environmental conditions or violations with respect to the properties we own.
The costs of compliance with laws and regulations relating to our residential properties may adversely affect our income and the cash available for any distributions.
Various laws, ordinances, and regulations affect multi-family residential properties, including regulations relating to recreational facilities, such as
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activity centers and other common areas. We intend for our properties to have all material permits and approvals to operate. In addition, rent control laws may also be applicable to any of the properties.
Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations, stricter interpretation of existing laws or the future discovery of environmental contamination may require material expenditures by us. Future laws, ordinances or regulations may impose material environmental liabilities, and the current environmental condition of our properties might be affected by the operations of the tenants, by the existing condition of the land, by operations in the vicinity of the properties, such as the presence of underground
storage tanks, or by the activities of unrelated third parties.
These laws typically allow liens to be placed on the affected property. In addition, there are various local, state and federal fire, health, life-safety and similar regulations which we may be required to comply with, and which may subject us to liability in the form of fines or damages for noncompliance.
Any newly acquired or developed multi-family residential properties must comply with Title II of the Americans with Disabilities Act (the ADA) to the extent that such properties are public accommodations and/or commercial facilities as defined by the ADA. Compliance with the ADA requires removal of structural barriers to handicapped access in certain public areas of the properties where such removal is readily achievable. We intend for our properties to comply in all material respects with all present requirements under the ADA and applicable state laws.
We will attempt to acquire properties, which comply with the ADA or place the burden on the seller to ensure compliance with the ADA. We may not be able to acquire properties or allocate responsibilities in this manner. Noncompliance with the ADA could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages to private litigants. The cost of defending against any claims of liability under the ADA or the payment of any fines or damages could adversely affect our financial condition and affect cash available to return capital and the amount of distributions to stockholders.
The Fair Housing Act (the FHA) requires, as part of the Fair Housing Amendments Act of 1988, apartment communities first occupied after March 13, 1990 to be accessible to the handicapped. Noncompliance with the FHA could result in the imposition of fines or an award of damages to private litigants. We intend for any of our properties that are subject to the FHA to be in compliance with such law. The cost of defending against any claims of liability under the FHA or the payment of any fines or damages could adversely affect our financial condition.
Changes in applicable laws and regulations may adversely affect the income and value of our properties.
The income and value of a property may be affected by such factors as environmental, rent control and other laws and regulations and changes in applicable general and real estate tax laws (including the possibility of changes in the federal income tax laws or the lengthening of the depreciation period for real estate). For example, the properties we will acquire will be subject to real and personal property taxes that may increase as property tax rates change and as the properties are assessed or reassessed by taxing
authorities. We anticipate that most of our leases will generally provide that the property taxes or increases therein, are charged to the lessees as an expense related to the properties that they occupy. As the owner of the properties, however, we are ultimately responsible for payment of the taxes to the government. If property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes. In addition, we will generally be responsible for property taxes related to any vacant space. If we purchase residential properties, the leases for such properties typically will not allow us to pass through real estate taxes and other taxes to residents of such properties. Consequently, any tax increases may adversely affect our results of operations at such properties.
Failure to comply with applicable laws and regulations where we invest could result in fines, suspension of personnel of our advisor, or other sanctions. Compliance with new laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures, which could reduce the available cash flow for distributions to our stockholders. Additionally, future laws, ordinances or regulations may impose material environmental liability, which may have a material adverse effect on our results of operations.
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Risks Related to General Economic Conditions and Terrorism
If we invest our capital in marketable securities of real estate related companies pending an acquisition of real estate, our profits may be adversely affected by the performance of the specific investments we make.
A resolution passed by our Board of Directors allows us from time to time to invest up to 30% of our available cash in marketable securities of real estate related companies. Issuers of real estate securities generally invest in real estate or real estate related assets and are subject to the inherent risks associated with real estate related investments discussed below, including risks relating to rising interest
rates or volatility in the credit markets. Our investments in marketable securities of real estate related companies will involve special risks relating to the particular issuer of securities, including the financial condition and business outlook of the issuer. As of March 31, 2010, the adjusted cost basis of our marketable securities of real estate related companies was approximately $0.5 million, and we included approximately $0.3 million of unrealized gains related to such securities in accumulated other comprehensive gain/(loss). Substantial market price volatility caused by general economic or market conditions, including disruptions in the credit markets, may require us to mark down the value of these investments, and our profits and results of operations may be adversely affected.
Adverse economic conditions have negatively affected our returns and profitability.
The timing, length and severity of any economic slowdown that the nation experiences, including the current economic slowdown, cannot be predicted with certainty. Since we may liquidate within seven to ten years after August 2009, when the proceeds from our initial public offering were fully invested, there is a risk that depressed economic conditions at that time could cause cash flow and appreciation upon the sale of our properties, if any, to be insufficient to allow sufficient cash remaining after payment of our expenses for a significant
return on stockholders investment.
The terrorist attacks of September 11, 2001 on the United States negatively impacted the U.S. economy and the U.S. financial markets. Any future terrorist attacks and the anticipation of any such attacks, or the consequences of the military or other response by the U.S. and its allies, may have further adverse impacts on the U.S. financial markets and the economy and may adversely affect our operations and our profitability. It is not possible to predict the severity of the effect that any of these future events would have on the U.S. financial markets and economy.
It is possible that the economic impact of the terrorist attacks may have an adverse effect on the ability of the tenants of our properties to pay rent. In addition, insurance on our real estate may become more costly and coverage may be more limited due to these events. The instability of the U.S. economy may also reduce the number of suitable investment opportunities available to us and may slow the pace at which those investments are made. In addition, armed hostilities and further acts of terrorism may directly impact our properties.
These developments may subject us to increased risks and, depending on their magnitude, could have a material adverse effect on our business and stockholders investment.
Current state of debt markets could limit our ability to obtain financing which may have a material adverse impact on our earnings and financial condition.
The commercial real estate debt markets are currently experiencing volatility as a result of certain factors including the tightening of underwriting standards by lenders and credit rating agencies and the significant inventory of unsold Collateralized Mortgage Backed Securities in the market. Credit spreads for major sources of capital have widened significantly as investors have demanded a higher risk premium. This results in lenders increasing the cost for debt
financing. Should the overall cost of borrowings increase, either by increases in the index rates or by increases in lender spreads, we will need to factor such increases into the economics of our acquisitions. This may result in our acquisitions generating lower overall economic returns and potentially reducing cash flow available for distribution.
The recent dislocations in the debt markets has reduced the amount of capital that is available to finance real estate, which, in turn, (a) will no longer allow real estate investors to rely on capitalization rate compression to generate returns and (b) has slowed real estate transaction activity, all of which may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition and
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operations of real properties and mortgage loans. Investors will need to focus on market-specific growth dynamics, operating performance, asset management and the long-term quality of the underlying real estate.
In addition, the state of the debt markets could have an impact on the overall amount of capital investing in real estate which may result in price or value decreases of real estate assets.
U.S. Federal Income Tax Risks
Stockholders investment has various federal income tax risks.
Stockholders should consult their own tax advisors concerning the effects of U.S. federal, state and local income tax law on an investment and on stockholders individual tax situation.
If we fail to maintain our qualification as a REIT, our dividends will not be deductible to us, and our income will be subject to taxation. We intend to maintain our qualification as a REIT under the Internal Revenue Code, which will afford us significant tax advantages. The requirements to maintain this qualification, however, are complex. If we fail to meet these requirements, our dividends will not be deductible to us and we will have to pay a corporate level tax on our income. This would substantially reduce our cash available to pay distributions and stockholders yield on stockholders investment. In addition, tax liability might
cause us to borrow funds, liquidate some of our investments or take other steps, which could negatively affect our operating results.
Moreover, if our REIT status is terminated because of our failure to meet a technical REIT test or if we voluntarily revoke our election, we would be disqualified from electing treatment as a REIT for the four taxable years following the year in which REIT status is lost. This could materially and negatively affect stockholders investment by causing a loss of common stock value.
Stockholders may have tax liability on distributions that they elect to reinvest in common stock but would not receive the cash from such distributions to pay such tax liability.
If stockholders participate in our distribution reinvestment program, such stockholders will be deemed to have received, and for U.S. federal income tax purposes will be taxed on, the amount reinvested in common stock to the extent the amount reinvested was not a tax-free return of capital. As a result, unless a stockholder is a tax-exempt entity, it may have to use funds from other sources to pay its tax liability on the value of the common stock
received.
The opinion of Proskauer Rose LLP regarding our status as a REIT does not guarantee our ability to remain a REIT.
We believe that we have qualified as a REIT commencing with our taxable year ending December 31, 2006. Our qualification as a REIT depends upon our ability to meet, through investments, actual operating results, distributions and satisfaction of specific stockholder rules, the various tests imposed by the Internal Revenue Code. Our legal counsel, Proskauer Rose LLP will not review these operating results or compliance with the qualification standards. We may not satisfy the REIT requirements in the future. Also,
this opinion represents Proskauer Rose LLPs legal judgment based on the law in effect as of the date of this prospectus and is not binding on the Internal Revenue Service or the courts, and could be subject to modification or withdrawal based on future legislative, judicial or administrative changes to the federal income tax laws, any of which could be applied retroactively, which could result in our disqualification as a REIT.
Failure to qualify as a REIT or to maintain such qualification could materially and negatively impact stockholders investment and its yield to stockholders by causing a loss of common share value and by substantially reducing our cash available to pay distributions.
If the Operating Partnership fails to maintain its status as a partnership, its income may be subject to taxation.
We intend to maintain the status of the Operating Partnership as a partnership for U.S. federal income tax purposes. However, if the Internal Revenue Service were to successfully challenge the status of the Operating Partnership as a partnership for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the Operating Partnership could make to us. This would also result in our failing to qualify as a REIT, and becoming subject to a corporate level tax
on our own income. This would substantially reduce our cash available to pay distributions and the yield on stockholders investment. In addition, if any of the partnerships or limited liability companies through which the Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing
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distributions to the Operating Partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our REIT qualification.
Even REITS may be subject to U.S. federal, state and local taxes.
Even if we qualify and maintain our status as a REIT, we may become subject to U.S. federal income taxes and related state and local taxes. For example, if we have net income from a prohibited transaction, such income will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain net capital gain we earn from the sale or other disposition of our property and pay income tax directly on such income. This will result in our stockholders being treated for tax
purposes as though they had received their proportionate shares of such retained income and paid the tax on it directly.
However, to the extent we have already paid income taxes directly on such income; our stockholders will also be credited with their proportionate share of such taxes already paid by us. Stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We may also be subject to state and local taxes on our income or property, either directly or at the level of the Operating Partnership or at the level of the other companies through which we indirectly own our assets such as our
TRSs, which are subject to full U.S. federal, state and local corporate-level income taxes. Any taxes we pay directly or indirectly will reduce our cash available for distribution to our stockholders
As a result, we may not be able to continue to satisfy the REIT requirements, and it may cease to be in our best interests to continue to do so in the future.
Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on your investment.
For so long as we qualify as a REIT, our ability to dispose of property during the first few years following acquisition may be restricted to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a REIT, we will be subject to a 100% penalty tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we own, directly or
through any subsidiary entity, including our operating partnership, but generally excluding our TRSs, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. While we qualify as a REIT, we avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a TRS (but such TRS will incur income taxes), (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary, will be treated as a prohibited transaction or (3) structuring certain dispositions of our properties to comply with a prohibited transaction safe harbor available under the Code for properties held for at least two
years. However, no assurance can be given that any particular property we own, directly or through any subsidiary entity, including our operating partnership, but generally excluding our TRSs, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
If we were considered to actually or constructively pay a preferential dividend to certain of our stockholders, our status as a REIT could be adversely affected.
In order to qualify as a REIT, we must distribute to our stockholders at least 90% of our annual REIT taxable income (excluding net capital gain), determined without regard to the deduction for dividends paid. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be preferential dividends. A dividend is not a
preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in our organizational documents. Currently, there is uncertainty as to the IRSs position regarding whether certain arrangements that REITs have with their stockholders could give rise to the inadvertent payment of a preferential dividend (e.g., the pricing methodology for stock purchased under a distribution reinvestment program inadvertently causing a greater than 5% discount on the price of such stock purchased). There is no de minimis exception with respect to preferential dividends; therefore, if the IRS were to take the position that we inadvertently paid a preferential dividend, we may be deemed to have failed the 90% distribution test, and our status as a REIT could be
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terminated for the year in which such determination is made if we were unable to cure such failure. While we do not believe that the terms of the Program would cause us to be treated as paying preferential dividends, we can provide no assurance to this effect.
We may choose to make distributions in our own stock, in which case you may be required to pay income taxes in excess of the cash dividends you receive.
In connection with our qualification as a REIT, we are required to distribute at least 90% of our taxable income (excluding net capital gains) to our stockholders. In order to satisfy this requirement, we may distribute taxable dividends that are payable in cash and shares of our common stock at the election of each stockholder. Generally, under IRS Revenue Procedure 2010-12, up to 90% of any such taxable dividend with respect to the taxable years 2010 and 2011 could be
payable in our common stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current or accumulated earnings and profits for U.S. federal income tax purposes. As a result, U.S. stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. Accordingly, U.S. stockholders receiving a distribution of our shares may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a U.S. stockholder sells the stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S.
stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock, by withholding or disposing of part of the shares in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, such sale may put downward pressure on the price of our common stock.
Further, while Revenue Procedure 2010-12 generally applies only to taxable dividends payable in a combination of cash and stock with respect to the taxable years 2010 and 2011, it is unclear whether and to what extent we will be able to pay taxable dividends in cash and stock in later years. Moreover, various tax aspects of such a taxable cash/stock dividend are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS will not impose additional requirements in the future with respect to taxable cash/stock dividends, including on a retroactive basis, or assert that the requirements for such taxable cash/stock
dividends have not been met.
Future changes in the income tax laws could adversely affect our profitability.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect the taxation of our stockholders. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. You are urged to
consult with your tax advisor with respect to the impact of recent legislation on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. You also should note that our counsels tax opinion is based upon existing law, applicable as of the date of its opinion, all of which will be subject to change, either prospectively or retroactively.
Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our
stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.
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Employee Benefit Plan Risks
An investment in our common stock may not satisfy the requirements of ERISA or other applicable laws.
When considering an investment in our common stock, an individual with investment discretion over assets of any pension plan, profit-sharing plan, retirement plan, IRA or other employee benefit plan covered by ERISA or other applicable laws should consider whether the investment satisfies the requirements of Section 404 of ERISA or other applicable laws. In particular, attention should be paid to the diversification requirements of Section 404(a)(1)(C) of ERISA in light of all the facts and circumstances, including the
portion of the plans portfolio of which the investment will be a part. All plan investors should also consider whether the investment is prudent and meets plan liquidity requirements as there may be only a limited market in which to sell or otherwise dispose of our common stock, and whether the investment is permissible under the plans governing instrument. We have not, and will not, evaluate whether an investment in our common stock is suitable for any particular plan. Rather, we will accept entities as stockholders if an entity otherwise meets the suitability standards.
The annual statement of value that we will be sending to stockholders subject to ERISA and stockholders is only an estimate and may not reflect the actual value of our shares. The annual statement of value will report the value of each common share as of the close of our fiscal year. The value will be based upon an estimated amount we determine would be received if our properties and other assets were sold as of the close of our fiscal year and if such proceeds, together with our other funds, were distributed pursuant to liquidation. Our Advisor or its affiliates will determine the net asset value of each share of common stock. Because this is only
an estimate, we may subsequently revise any annual valuation that is provided. It is possible that:
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a value included in the annual statement may not actually be realized by us or by our stockholders upon liquidation;
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stockholders may not realize that value if they were to attempt to sell their common stock; or
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an annual statement of value might not comply with any reporting and disclosure or annual valuation requirements under ERISA or other applicable law. We will stop providing annual statements of value if the common stock becomes listed for trading on a national stock exchange or included for quotation on a national market system.
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SUMMARY OF OUR DISTRIBUTION REINVESTMENT PROGRAM
The following questions and answers about this offering highlight material information regarding us and this offering. You should read this entire prospectus, including the section entitled Risk Factors, before deciding whether to participate in the Program.
Purpose
1. What is the purpose of the Program?
The primary purpose of the Program is to give our stockholders a convenient way to reinvest their cash distributions in additional shares of common stock.
Benefits and Disadvantages
2. What are the benefits and disadvantages of the Program?
Benefits:
Before deciding whether to participate in the Program, you should consider the following benefits of participation in the Program:
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You will realize the convenience of having all of your cash distributions automatically reinvested in additional shares of our common stock. Since the reinvestment agent will credit fractional shares of common stock to your Program account, you will receive full investment of your distributions.
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You will simplify your record keeping by receiving periodic statements which will reflect all current activity in your Program account, including purchases and latest balances.
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We, not you, will pay all costs of administering the Program.
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Disadvantages:
Before deciding whether to participate in the Program, you should consider the following disadvantages of participation in the Program:
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Your reinvestment of cash distributions will result in your being treated for U.S. federal income tax purposes as having received, on the distribution payment date, a distribution equal to the fair market value of our common stock that you received. The distribution may give rise to a liability for the payment of income tax without providing you with immediate cash to pay the tax when it becomes due. See Question 11 for a summary of the potential tax consequences.
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Because our common stock is not listed on a national securities exchange or included for quotation on an inter-dealer quotation system, the price for shares purchased under the Program will not be determined by market conditions. This price may fluctuate based on the determination of our board of directors. These fluctuations may change the number of shares of our common stock that you receive. See Question 7 for a discussion of how the price for the shares is determined.
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Your investment elections, and any changes or cancellations, must be received by the reinvestment agent within specified time limits. If these time limits are not met, a delay may occur before your investment elections can be implemented. Please see Questions 6 and 10 for information on the time limit for participation in the Program.
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You may not pledge shares of common stock deposited in your Program account unless you withdraw those shares from the Program.
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Administration
3. Who will administer the Program?
Reinvestment agent
. ACS Securities Services, Inc., or another entity we may designate, will serve as the reinvestment agent of the Program. The reinvestment agent:
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keeps records of all Program accounts;
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sends your account statements to you; and
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performs other duties relating to the Program.
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You should send all correspondence with the reinvestment agent to:
ACS Securities Services, Inc.
3988 N. Central Expressway
Building 5, Floor 2
Dallas, Texas 75024
Transfer agent
. ACS Securities Services, Inc., or another entity we may designate, will serve as the transfer agent of the Program. If you decide to transfer ownership of all or part of the shares of common stock held in your Program account through gift, private sale or otherwise to a person/entity outside the Program, you should send all correspondence to the transfer agent at:
ACS Securities Services, Inc.
3988 N. Central Expressway
Building 5, Floor 2
Dallas, Texas 75024
Successor reinvestment agent
. We may replace the reinvestment agent with a successor reinvestment agent at any time. The reinvestment agent may resign as reinvestment agent of the Program at any time. In either such case, we will appoint a successor reinvestment agent, and we will notify you of such change.
Lightstone Securities, LLC
. In addition to the reinvestment agent, Lightstone Securities, LLC (Lightstone Securities), an entity owned by our sponsor, will assist in certain aspects of the Program. A representative from Lightstone Securities will review the activities of the reinvestment agent and report such activities to us, and will be available to answer questions from investors regarding:
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eligibility for participation in the Program;
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the procedures for enrollment in the Program;
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the mechanics of how shares are purchased by the Program;
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the absence of stock certificates in the Program;
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the Programs reporting obligations;
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a shareholders ability to withdraw from participation in the Program;
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tax consequences of the reinvestment;
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the transfer of shares;
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termination of the Program;
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the risks associated with participation in the Program; and
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the state suitability requirements for participation in the Program.
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You should send all correspondence to Lightstone Securities to:
Lightstone Securities, LLC
Attn: Investor Relations
One International Boulevard, Suite 200
Mahwah, New Jersey 07430
Toll-free: (888) 808-7348
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Participation
4. Who is eligible to participate in the Program?
Except as described below, the Program is generally open to all holders of our common stock who are holders of and elect to reinvest their distributions in shares of common stock. Participants can be individuals, trusts, retirement plans, corporations or other entities. You must notify us or the reinvestment agent in the event that, at any time during your participation in the plan, there is an inaccuracy of any representation under your subscription agreement or any material change in your financial condition, such as any anticipated or actual decrease in net worth or annual gross income or any other change in circumstances that would cause you to
fail to meet the suitability standards set forth in the prospectus for the your initial purchase of our shares.
Suitability Standards
. Participants must have either (a) a net worth of at least $250,000 or (b) an annual gross income of $70,000 and a minimum net worth of $70,000. Participants should carefully review the section of this prospectus captioned Suitability Standards to determine whether they are eligible to participate in the Program.
Exclusion from Plan at Our Election
. Notwithstanding any other provision in the Program, we reserve the right to prevent you from participating in the Program for any reason.
Enrollment
5. How do I enroll in the Program?
If you meet the suitability standards, no action is required if you were a participant in our Program and would like to continue reinvesting your cash distributions under the Program described herein.
If you are eligible to participate in the Program, you may join the Program at any time. Once you enroll in the Program, you will remain enrolled until you withdraw from the Program or we terminate the Program or your participation in the Program.
The Authorization Form
. To enroll and participate in the Program, you must complete the enclosed Authorization Form and mail it to ACS Securities Services, Inc. at the address set forth in Question 3. Your form must be received no later than 10 days prior to the last day of the fiscal quarter related to a distribution. If your form is received by ACS Securities Services, Inc. after the 10th day before the end of the fiscal quarter, then you will receive a cash distribution for such quarter and your enrollment will be processed by ACS Securities Services, Inc. for the distribution declared for the following fiscal quarter.
If your shares of common stock are registered in more than one name (such as joint tenants or trustees), all such registered holders must sign the Authorization Form. If you are eligible to participate in the Program, you may sign and return the Authorization Form to participate in the Program at any time.
The reinvestment agent will automatically reinvest any cash distributions paid on all shares of common stock that you have designated for participation in the Program until you indicate otherwise or withdraw from the Program, or until we terminate the Program or your participation. If you participate in the Program, we will pay to the reinvestment agent distributions on all shares of common stock held in your Program account. The reinvestment agent will credit the common stock purchased with your reinvested distributions to your Program account.
If you are a beneficial owner of shares of common stock and wish for your broker, bank or other nominee in whose name your shares are held to participate in the Program on your behalf, such broker, bank or other nominee in whose name your shares are held must submit a completed Authorization Form on your behalf.
6. When will my participation in the Program begin?
The reinvestment agent will begin to reinvest distributions for the fiscal quarter in which your Authorization Form is received, provided we receive such Authorization Form at least 10 days before the end of the fiscal quarter. Once you enroll in the Program, you will remain enrolled in the Program until you withdraw from the Program or we terminate the Program or your participation in the Program.
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Purchases
7. How are shares purchased under the Program?
Source of the Shares of Common Stock
. Initially, shares of common stock purchased on your behalf by the reinvestment agent under the Program will come from our legally authorized but unissued shares of common stock. However, if our shares are listed on a national securities exchange or included for quotation on a national market system, the reinvestment agent may purchase shares of common stock in the open market or directly from us on your behalf through this registration statement.
Distribution Payment Dates
. We currently declare distributions quarterly and will pay distributions as and when authorized by our board of directors. We cannot assure you that we will continue to pay distributions according to this schedule, and nothing contained in the Program obligates us to do so. The Program does not represent a guarantee of future distributions. Neither we nor the reinvestment agent will be liable when conditions, including compliance with the provisions of our charter and rules and regulations of the SEC, prevent the reinvestment agent from buying shares of common stock or interfere with the timing of such
purchases.
Price of Shares of Common Stock
. The price of shares of common stock purchased by the reinvestment agent under the Program directly from us for distribution reinvestments will be determined by our board of directors from time to time. The price of shares purchased under the Program will be equal to, at our option, either (i) 95% of the then current net asset value per share as estimated by our board of directors in good faith or (ii) $9.50 per share; provided that any discount on the purchase will not exceed 5%.
Our board of directors determined that the offering price for the Program will initially be $9.50 per share which is at a discount to our current share price of $9.97 per share. Our board of directors recently determined that our share price to be $9.97 per share. This value is based upon an estimated amount we determined would be received if our properties and other assets were sold as of the close of our fiscal year and if such proceeds, together with our other funds, were distributed pursuant to liquidation. Because this is only an estimate, we may subsequently revise any annual valuation that is provided. Our shares are not publicly traded and
there is no established public trading market for the shares on which to base market value. Investors are cautioned that common stock not publicly traded is generally considered illiquid and the estimated value per share may not be realized when an investor seeks to liquidate his or her common stock or if we were to liquidate our assets.
The per share price for the Program was determined based in part upon federal income tax considerations. The United States Internal Revenue Service has ruled, that in connection with a reinvestment plan, a REIT may give a discount of up to 5% on reinvested shares, as a result of the savings to the REIT resulting from directly issuing the reinvestment plan shares, but that a discount in excess of 5% will be treated as a preferential, non-deductible dividend.
Number of Shares to be Purchased
. The reinvestment agent will invest for you the total dollar amount equal to the cash distribution on all shares of common stock, including fractional shares, held in your Program account. Subject to restrictions contained in our charter on transfer and ownership of our common stock described in Question 14; there is no limit on the number of shares of common stock you may purchase through distribution reinvestment. The reinvestment agent will purchase for your account the number of shares of common stock equal to the total dollar amount to be invested for you, as described above, divided by the
applicable purchase price, computed to the fourth decimal place. The reinvestment agent will deduct from the amount to be invested for you any amount that we are required to deduct for tax withholding purposes.
Certificates
8. Will I receive certificates for shares purchased?
Book-Entry
. Unless your shares are held by a broker, bank or other nominee, we will register shares of common stock that the reinvestment agent purchases for your account under the Program in your name. The reinvestment agent will credit such shares to your Program account in book-entry form. This service protects against the loss, theft or destruction of certificates representing shares of common stock.
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Issuance of Certificates
. Upon your written request to us, we will issue and deliver to you certificates for all whole and fractional shares of common stock credited to your Program account. The reinvestment agent will handle such requests at no cost to you.
Reports
9. How will I keep track of my investments?
Within 60 days after the end of each fiscal quarter, the reinvestment agent will send you a detailed statement that will provide the following information with respect to your Program account:
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total cash distributions received during the quarter;
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total number of shares of common stock purchased (including fractional shares);
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total administrative charge for each stockholder participating in the Program;
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price paid per share of our common stock; and
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total number of shares of common stock in your Program account.
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You should retain these statements to determine the tax cost basis of the shares purchased for your account under the Program.
Withdrawal
10. How would I withdraw from participation in the Program?
Withdrawal from the Program
. You may withdraw from the Program at any time. In order to withdraw from the Program, you must provide written notice instructing ACS Securities Services, Inc. to terminate your account. We must receive such written notice at least 10 days before the end of the fiscal quarter related to a distribution. If your request to withdraw from the Program is received by ACS Securities Services, Inc. after the 10th day before the end of the fiscal quarter, then we will process the reinvestment of your proceeds of the upcoming cash distribution in accordance with your existing instructions; your withdrawal request
will be processed by ACS Securities Services, Inc. for the distribution declared with respect to the following fiscal quarter. After the reinvestment agent terminates your account, we will pay to you all cash distributions on shares of common stock owned by you unless you rejoin the Program.
Rejoining the Program after Withdrawal
. After you withdraw from the Program, you may again participate in the Program at any time by filing a new Authorization Form with the reinvestment agent.
Tax Considerations
11. What are the income tax consequences for participants in the Program?
You are encouraged to consult your personal tax advisers with specific reference to your own tax situation and potential changes in the applicable law as to all federal, state, local, foreign and other tax matters in connection with the reinvestment of distributions under the Program, your tax basis and holding period for our common stock acquired under the Program and the character, amount and tax treatment of any gain or loss realized on the disposition of common stock. The following is a brief summary of the material U.S. federal income tax considerations applicable to the Program, is for general information only, does not purport to address all
U.S. federal income tax consequences that may be relevant to a particular participant in the Program, and is not tax advice. In particular, this summary generally does not address tax consequences to persons who are not United States persons. In general, a United States person is an individual who is a citizen or resident of the United States for U.S. federal income tax purposes, a corporation or other entity taxable as a corporation for U.S. federal income tax purposes that is created or organized in the United States or under the laws of the United States or of any state or the District of Columbia, an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source, or a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust, and one or more United States persons have the authority to control all substantial decisions of the trust or (ii) the trust was in existence on
August 20, 1996 and properly elected to continue to be treated as a United States person. Partners in partnerships that hold shares of common stock and participate in the Program should consult their own tax advisers regarding their tax consequences.
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As in the case of non-reinvested cash distributions, the distributions that are reinvested under the Program (and not designated as capital gain dividends or, for taxable years beginning before January 1, 2011, qualified dividend income) will constitute taxable distributions to you to the extent of our current and accumulated earnings and profits (as determined for U.S. federal income tax purposes) allocable to the distributions, and any excess distributions first will constitute a tax-deferred return of capital that reduces the tax basis of your common stock and then capital gain to the extent the excess distribution exceeds your tax basis in your
common stock. In addition, if we designate part or all of our distributions as capital gain distributions, you would treat those designated amounts as long-term capital gain. Distributions that we pay are not eligible for the dividends received deduction otherwise generally available to a stockholder that is a corporation.
Your tax basis in your common stock acquired under the Program will generally equal the total amount of distributions you are treated as receiving, as described above. Your holding period in your common stock generally begins on the day following the date on which the common stock is credited to your Program account.
12. What are the tax consequences of dispositions?
When you withdraw shares from the Program, you will not realize any taxable income. You may recognize a gain or loss upon your disposition of common stock you receive from the Program. The amount of any gain or loss you recognize will be the difference between your amount realized, generally the amount of cash you receive, for the common stock and your tax basis in the common stock. Generally, gain or loss recognized on the disposition of common stock acquired under the Program will be treated for U.S. federal income tax purposes as capital gain or loss if you do not hold the common stock as a dealer. The capital gain or loss will be taxed as
long-term capital gain or loss if your holding period for the common stock exceeds one year, except that, to the extent of any capital gain distributions received with respect to your common stock, capital losses on common stock you held for six months or less will be treated as long-term capital losses.
13. How are backup withholding and information reporting provisions applied to you?
In general, any distribution reinvested under the Program is not subject to U.S. federal income tax withholding, unless you are not a United States person otherwise subject to such withholding on cash dividends received from us, in which case, only the net amount of the distribution, after deduction for any such withholding, will be reinvested under the Program. The reinvestment agent or we may be required, however, to deduct as backup withholding at rates described below a portion of all distributions paid to you, regardless of whether those distributions are reinvested pursuant to the Program. Similarly, the reinvestment agent may be
required to deduct backup withholding from all proceeds of sales of common stock held in your Program account. The backup withholding rate is currently 28%. You are subject to backup withholding if (i) you fail to properly furnish the reinvestment agent and us with your correct taxpayer identification number (TIN), (ii) the Internal Revenue Service notifies the reinvestment agent or us that the TIN you furnished is incorrect, (iii) the Internal Revenue Service notifies the reinvestment agent or us that backup withholding should be commenced because you failed to report on your tax return certain amounts paid to you, or (iv) when required to do so, you fail to certify, under penalties of perjury, that you are not subject to backup withholding. Backup withholding amounts will be withheld from distributions before those distributions are reinvested under the Program. Therefore, if you are subject to backup withholding, your distributions to be reinvested under the Program will
be reduced by the backup withholding amount. The withheld amounts constitute a credit on your U.S. federal income tax return or may be refundable. Backup withholding will not apply, however, if you (i) furnish a correct TIN and certify that you are a United States person not subject to backup withholding on Internal Revenue Service Form W-9 or an appropriate substitute form, (ii) provide a certificate of foreign status on Internal Revenue Service Form W-8BEN or an appropriate substitute form or (iii) are otherwise exempt from backup withholding.
The reinvestment agent or we will send a Form 1099-DIV to you and to the Internal Revenue Service after the end of each year, reporting all distribution income you received during the year on your common stock.
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14. Is there any limit on the amount of common stock I can purchase pursuant to the Program?
In order for us to qualify as a REIT under the Internal Revenue Code (the Code), no more than 50% of the value of outstanding shares of our stock may be beneficially owned, directly or indirectly, by five or fewer individuals at any time during the last half of each taxable year. To make sure that we will not fail to qualify as a REIT under this closely held test, our charter provides that, subject to some exceptions, no person may beneficially or constructively own, or be deemed to beneficially or constructively own by virtue of the attribution provisions of the Code, (i) more than 9.8% in value of our aggregate outstanding
shares of capital stock, or (ii) our capital stock to the extent that such ownership would result in us being closely held within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year). Our board of directors may exempt a person from the 9.8% ownership limit upon such conditions as the board of directors may direct. However, our board of directors may not grant an exemption from the 9.8% ownership limit to any proposed transferee if it would result in the termination of our status as a REIT. In addition, our common stock must be beneficially owned by 100 persons or more persons during at least 335 days of a taxable year or during a proportionate part of a short taxable year.
Any acquisition of shares of common stock under the Program is subject to being voided,
ab initio
, in the event that acquisition would result in a violation of the ownership limitation, the closely held test or the 100 stockholder requirement, or certain other requirements or restrictions that could jeopardize our status as a REIT. If your acquisition is voided, you will receive in cash any distributions that were to be reinvested, without interest.
Other Provisions
15. How can I vote my shares?
We will send you proxy materials for any meeting of stockholders that will set forth matters to be voted upon and contain a proxy card or other instructions for voting your shares. You may vote your shares of common stock either by designating your vote on the proxy card, by voting in accordance with other instructions or by voting such shares in person at the meeting of stockholders.
16. What are your and the reinvestment agents responsibilities?
We, the reinvestment agent and any of our agents, in administering the Program, are not liable for any act done in good faith, or for any good faith omission to act, including, without limitation, any claims or liability: (a) arising out of failure to terminate a participants account upon such participants death prior to receipt of notice in writing of such death; and (b) with respect to the time and the prices at which shares of our common stock are purchased or sold for a participants account. We, the reinvestment agent and any of our agents will not have any duties, responsibilities or liabilities other than those expressly set
forth in the Program or as imposed by applicable law, including federal securities laws. Since we have delegated all responsibility for administering the Program to the reinvestment agent, we specifically disclaim any responsibility for any of the reinvestment agents actions or inactions in connection with the administration of the Program. None of our directors, officers, or stockholders or agents of the reinvestment agent will have any personal liability under the Program.
17. How will a stock split affect my Program account?
We will adjust your account to reflect any stock split, reverse stock split or distribution payable in shares of common stock. In such event, the reinvestment agent will receive and credit to your Program account the applicable number of full shares and the value of any fractional shares.
18. Can I pledge my shares under the Program?
You may not pledge any shares of common stock credited to your Program account. Any attempted pledge will be void. If you wish to pledge your shares of common stock, you first must withdraw the shares from the Program.
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19. How can I transfer my shares?
You may transfer ownership of all or part of the shares of common stock held in your Program account through gift, private sale or otherwise. To transfer your shares to another person or entity you will need to mail to the transfer agent, at the address in Question 3, a completed transfer form and a Form W-9 (Certification of Taxpayer Identification Number) completed by the person or entity to whom you are transferring your shares. Please contact the transfer agent if you have any questions or need additional information.
20. Can the Program be amended or terminated?
Although we expect to continue the Program indefinitely, we reserve the right to terminate the Program at any time upon 30 days written notice to all participants. We also may amend the Program by mailing an appropriate notice at least 10 days prior to the effective date of the amendment, provided that any amendment must be approved by a majority of our independent directors.
21. What happens if you terminate the Program?
If we terminate the Program, the reinvestment agent will send to each participant (i) a statement of account detailing the items listed in Question 9 and (ii) a check for the amount of any distributions in the participants account that have not been reinvested in shares. Our record books will be revised to reflect the ownership of record of the participants full shares and the value of any fractional shares standing to the credit of each participants account based on the market price of the shares. Any future distributions made after the effective date of the termination will be sent directly to the former participant.
22. Are there any risks associated with the Program?
Your investment in shares purchased under the Program is no different from any investment in shares that you hold directly. Neither we nor the reinvestment agent can assure you a profit or protect you against a loss on shares that you purchase. You bear the risk of loss and enjoy the benefits of any gain from changes in the fair market value or market price with respect to shares of common stock purchased under the Program.
23. How will you interpret and regulate the Program?
We may interpret, regulate and take any other action in connection with the Program that we deem reasonably necessary to carry out the Program. As a participant in the Program, you will be bound by any actions taken by us or the reinvestment agent.
24. What law governs the Program?
The laws of the State of Maryland will govern the terms, conditions and operation of the Program.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements.
We based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as believe, anticipate, expect, intend, plan, will, may, estimate, continue, and other similar expressions. In addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking statements. The following factors could cause our actual results to differ from those implied by the forward-looking statements in this prospectus:
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Changes in economic conditions generally and the real estate market specially;
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legislative/regulatory changes (including changes to laws governing the taxation of real estate investment trusts);
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availability of capital, changes in interest rates, interest rate spreads and foreign currency exchange rates;
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changes in generally accepted accounting principles and policies and guidelines applicable to REITs;
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the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or general downturn in their business;
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changes in governmental laws and regulations;
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the availability of suitable acquisition opportunities; and
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increases in operating costs.
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Other factors that could cause actual results to differ from those implied by the forward-looking statements in this prospectus are more fully described in the Risk Factors section and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results.
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HOW WE OPERATE
We operate as a REIT for federal and state income tax purposes. Our sponsor is David Lichtenstein, doing business as The Lightstone Group. Our sponsor is instrumental in our organization.
Our sponsor, David Lichtenstein, founded The Lightstone Group as a limited liability company and often does business in his individual capacity under that name. Our sponsor is one of the largest private residential and commercial real estate owners and operators in the United States today, with a portfolio of over 170 properties containing approximately 10,620 multifamily units, 5.2 million square feet of office space, 2.8 million square feet of industrial space, and 12.5 million square feet of retail space. These residential, office, industrial and retail properties are located in 25 states, the District of Columbia and Puerto Rico. With five
regional offices across the country, our sponsor employs approximately 1,050 employees. Our Sponsor has extensive experience in the areas of investment selection, underwriting, due diligence, portfolio management, asset management, property management, leasing, disposition, finance, accounting and investor relations.
Our Sponsor on December 8, 2009, entered into a definitive agreement with Simon Property Group, Inc. to contribute or sell all of its outlet centers interests, which comprise of approximately 8 million square feet of the 12.5 million square feet of retail space owned. The transaction is expected to close during calendar 2010.
We contract with Lightstone Value Plus REIT LLC for its services as our advisor. Our advisor is owned by The Lightstone Group and has the responsibility for our day-to-day operations and the management of our assets.
In addition to the services of our advisor, we contract with Lightstone Value Plus REIT Management LLC for its services as our property manager. Our property manager may provide the day-to-day property management services for our properties. In addition, our property manager may engage one or more third parties to provide the day-to-day property management services for some or all of our properties, in which case our property manager will supervise the services provided by such parties. Our property manager is owned by The Lightstone Group.
Through The Lightstone Group, Mr. Lichtenstein controls and indirectly owns our advisor, our property manager, our operating partnership, our dealer manager and affiliates, except for us. As of March 31, 2010, Mr. Lichtenstein owned 20,000 (less than 1%) of our shares indirectly through our advisor. Mr. Lichtenstein is one of our directors and The Lightstone Group or an affiliated entity controlled by Mr. Lichtenstein employs Bruno de Vinck, our other non-independent director, and each of our officers. Mr. de Vinck owns 5,989 of our shares and Steve Hamrick, an officer, owns 10,000 of our shares.
Our structure is generally referred to as an UPREIT structure. Substantially all of our assets are held through Lightstone Value Plus REIT LP, a Delaware limited partnership and our operating partnership. This structure enables us to acquire assets from other partnerships and individual owners that will defer the recognition of gain to the partners of the acquired partnerships or the individual owners, assuming certain conditions are met.
We are the general partner of the operating partnership. As the general partner of the operating partnership, we generally have the exclusive power under the partnership agreement to manage and conduct the business of the operating partnership, subject to the consent of the special general partner as to management decisions.
The partnership interests in the operating partnership are owned by us and any persons who transfer interests in properties to the operating partnership in exchange for units in the operating partnership. The partnership interests consist of Common Unit interests and Series A Preferred Unit interests. We own one Common Unit in the operating partnership for each outstanding share of our common stock. Our interest in the operating partnership entitles us to share in cash distributions from, and in profits and losses of, the operating partnership. Holders of limited partnership Common Units in the operating partnership have the same rights to
distributions as our holders of common stock. In addition, each limited partnership Common Unit is exchangeable by the holder for cash at the-then fair market value or, at our option, one share of common stock. During certain time period, the holders of the Series A Preferred Units may convert, in whole or in part, the Series A Preferred Units into the Common Units of the operating partnership. For a detailed
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discussion of the structure and operation of the operating partnership, including the rights and responsibilities of the partners thereof, please see the section titled Operating Partnership Agreement, below.
All of our properties are owned by subsidiary limited partnerships or limited liability companies. These subsidiaries are single-purpose entities that we created to own a single property, and each has no assets other than the single investment property it owns. These entities represent a useful means of shielding our operating partnership from liability under the state laws and will make the underlying properties easier to transfer. These subsidiary arrangements are intended to ensure that no environmental or other liabilities associated with any particular property can be attributed against other properties that the operating partnership or we will
own. The limited liability aspect of a subsidiarys form will shield parent and affiliated (but not subsidiary) companies, including the operating partnership and us, from liability assessed against it.
Tax law disregards single-member LLCs and so it will be as if the operating partnership owns the underlying properties for tax purposes. Use of single-purpose entities in this manner is customary for REITs.
Our independent directors are not required to approve all transactions involving the creation of subsidiary limited liability companies and limited partnerships that we intend to use for investment in properties on our behalf. No additional fees will be imposed upon us by the subsidiary companies managers and these subsidiaries will not affect our stockholders voting rights. Because our operating partnership is the direct parent company of these subsidiaries, it directly owns their assets. As such, their assets are subject to the structure for distributions by the operating partnership to Lightstone SLP, LLC and to us, and then by us to
our stockholders, as discussed elsewhere in this prospectus.
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CONFLICTS OF INTEREST
We are subject to conflicts of interest arising out of our relationships with our sponsor, advisor, property manager and their affiliates. All of our agreements and arrangements with such parties, including those relating to compensation, are not the result of arms-length negotiations. Some of the conflicts inherent in our transactions with our sponsor, advisor, property manager and their affiliates, and the limitations on such parties adopted to address these conflicts, are described below. Our sponsor, advisor, property manager and their affiliates try to balance our interests with their own. However, to the extent that such parties take
actions that are more favorable to other entities than to us, these actions could have a negative impact on our financial performance and, consequently, on distributions to you and the value of our stock.
There are conflicts of interest between advisor, property managers and their affiliates and us.
David Lichtenstein, our sponsor, is the founder of The Lightstone Group, LLC which he wholly owns and does business in his individual capacity under that name. Through The Lightstone Group, Mr. Lichtenstein controls and indirectly owns our advisor, our property managers, our operating partnership, our dealer manager and affiliates, except for us. Our advisor does not advise any entity other than us. However, employees of our advisor are also employed by Lightstone Value Plus REIT II LLC, the advisor to Lightstone Value Plus Real
Estate Investment Trust II, Inc. (Lightstone II), our sponsors other public program. Mr. Lichtenstein is one of our directors and The Lightstone Group or an affiliated entity controlled by Mr. Lichtenstein employs Bruno de Vinck, our other non-independent director, and each of our officers. As a result, our operation and management may be influenced or affected by conflicts of interest arising out of our relationship with our affiliates.
There is competition for the time and services of the personnel of our advisor and its affiliates.
We rely on our advisor and its affiliates for our daily operation and the management of our assets. Personnel of our advisor and its affiliates have conflicts in allocating their management time, services and functions among our sponsor, the real estate investment programs it currently services and any future real estate investment programs or other business ventures which they may organize or serve, as applicable. Specifically, employees of our sponsor, the advisor and our property managers will face conflicts of interest
relating to time management and the allocation of resources and investment opportunities. Our advisor and its affiliates believe they have enough staff to perform their responsibilities in connection with all of the real estate programs and other business ventures in which they are involved. In addition, other persons employed by the advisor may devote such time to our business as is necessary.
We do not have employees.
Likewise, our advisor will rely on the employees of the sponsor and its affiliates to manage and operate our business. The sponsor is not restricted from acquiring, developing, operating, managing, leasing or selling real estate through entities other than us and will continue to be actively involved in operations and activities other than our operations and activities. The sponsor currently controls and/or operates other entities that own properties in many of the markets in which we may seek to invest. The sponsor spends a material amount of time managing these properties and other assets unrelated
to our business. Our business may suffer as a result because we lack the ability to manage it without the time and attention of our sponsors employees. We encourage you to read the Conflicts of Interest section of this prospectus for a further discussion of these topics.
Our sponsor and its affiliates are general partners and sponsors of other real estate programs having investment objectives and legal and financial obligations similar to ours. Because the sponsor and its affiliates have interests in other real estate programs and also engage in other business activities, they may have conflicts of interest in allocating their time and resources among our business and these other activities. Our officers and directors, as well as those of the advisor, may own equity interests in entities affiliated with our sponsor from which we may buy properties. These individuals may make substantial profits in connection with
such transactions, which could result in conflicts of interest. Likewise, such individuals could make substantial profits as the result of investment opportunities allocated to entities affiliated with the sponsor other than us. As a result of these interests, they could pursue transactions that may not be in our best interest. Also, if our sponsor suffers financial or operational problems as the result of any of its activities, whether or not related to our business, the ability of our sponsor and its affiliates, our advisor and property manager to operate our business could be adversely impacted.
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Certain of our affiliates who provide services to us may be engaged in competitive activities.
Our advisor, property managers and their respective affiliates may, in the future, be engaged in other activities that could result in potential conflicts of interest with the services that they will provide to us. In addition, the sponsor may compete with us for both the acquisition and/or refinancing of properties of a type suitable for our investment after 75% of the total gross proceeds from our initial public offering have been invested or committed for investment in real properties.
Our Sponsors other public program, Lightstone II, may be engaged in competitive activities.
Our advisor, property managers and their respective affiliates through activities of Lightstone II may be engaged in other activities that could result in potential conflicts of interest with the services that they will provide to us, including Lightstone II may compete with us for both the acquisition and/or refinancing of properties of a type suitable for our investment.
If we invest in joint ventures, the objectives of our partners may conflict with our objectives.
In accordance with one of our acquisition strategies, we may make investments in joint ventures or other partnership arrangements between us and affiliates of our sponsor or with unaffiliated third parties. Investments in joint ventures which own real properties may involve risks otherwise not present when we purchase real properties directly. For example, our co-venturer may file for bankruptcy protection, may have economic or business interests or goals which are inconsistent with our interests or goals, or may take actions
contrary to our instructions, requests, policies or objectives. Among other things, actions by a co-venturer might subject real properties owned by the joint venture to liabilities greater than those contemplated by the terms of the joint venture or other adverse consequences.
These diverging interests could result in, among other things, exposing us to liabilities of the joint venture in excess of our proportionate share of these liabilities. The partition rights of each owner in a jointly owned property could reduce the value of each portion of the divided property. Moreover, there is an additional risk that the co-venturers may not be able to agree on matters relating to the property they jointly own. In addition, the fiduciary obligation that our sponsor or our board of directors may owe to our partner in an affiliated transaction may make it more difficult for us to enforce our rights.
We may purchase real properties from persons with whom affiliates of our advisor have prior business relationships.
If we purchase properties from third parties who have sold, or may sell, properties to our advisors or its affiliates, our advisor will experience a conflict between our current interests and its interest in preserving any ongoing business relationship with these sellers. Nevertheless, our advisor has a fiduciary obligation to us.
Property management services are being provided by an affiliated party.
Our property managers may provide property management services to us or may engage one or more third parties to provide such services for some or all of our properties, in which case our property manager will supervise the services provided by such parties. Our property management services agreement provides that we pay our property manager a monthly management fee of 5% of the gross revenues from our residential and retail properties. In addition, for the management and leasing of our office and industrial properties, we will pay to our property manager,
property management and leasing fees of up to 4.5% of gross revenues from our office and industrial properties. In addition, we may pay our property manager a separate fee for the one-time initial rent-up or leasing-up of newly constructed office and industrial properties in an amount not to exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area.
Notwithstanding the foregoing, our property manager may be entitled to receive higher fees in the event our property manager demonstrates to the satisfaction of a majority of the directors (including a majority of the independent directors) that a higher competitive fee is justified for the services rendered. In the event that our property manager engages one or more third parties to perform the day-to-day property management services for some or all of our properties, the fees payable to such parties for such services will be deducted from the monthly management fee payable to our property manager pursuant to the immediately preceding sentence or
paid by our property manager.
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The advisor and the property manager believe that the property manager has sufficient personnel and other required resources to discharge all responsibilities to us.
Our property managers are owned by our sponsor, and are thus subject to an inherent conflict of interest. In addition, our advisor may face a conflict of interest when determining whether we should dispose of any property we own that is managed by one of our property managers because the property manager may lose fees associated with the management of the property. Specifically, because the property managers will receive significant fees for managing our properties, our advisor may face a conflict of interest when determining whether we should sell properties under circumstances where the property managers would no longer manage the property after
the transaction. As a result of this conflict of interest, we may not dispose of properties when it would be in our best interests to do so.
Our advisor and its affiliates receive commissions, fees and other compensation based upon our investments.
We believe that the compensation we pay to our advisor and its affiliates is no more than what we would pay for similar services performed by independent firms. Some compensation is payable to our advisor whether or not there is cash available to make distributions to our stockholders. To the extent this occurs, our advisor and its affiliates benefit from us retaining ownership of our assets and leveraging our assets, while our stockholders may be better served by sale or disposition or not leveraging the assets. In
addition, the advisors ability to receive fees and reimbursements depends on our continued investment in real properties and in other assets which generate fees. Therefore, the interest of the advisor and its affiliates in receiving fees may conflict with the interest of our stockholders in earning income on their investment in our common stock. Because asset management fees payable to our advisor are based on total assets under management, including assets purchased using debt; our advisor may have an incentive to incur a high level of leverage in order to increase the total amount of assets under management. Our advisor and its affiliates recognize that they have a fiduciary duty to us and our stockholders, and have represented to us that their actions and decisions will be made in the manner taking into account our interests and those of our stockholders.
While we will not make loans to our advisor or its affiliates, we may borrow money from them for various purposes, including funding working capital requirements and funding acquisitions. If we do, the terms, such as the interest rate, security, fees and other charges, will be at least as favorable to us as those which would be charged by unaffiliated lending institutions in the same locality on comparable loans.
Our advisor and its affiliates may do business with others who also do business with us, although presently there are no instances of this. However, our advisor or its affiliates may not receive rebates or participate in any reciprocal business arrangements which would have the effect of circumventing our agreement with our advisor.
Our advisor may have conflicting fiduciary obligations if we acquire properties with its affiliates.
Our advisor may cause us to acquire an interest in a property through a joint venture with its affiliates. In these circumstances, our advisor will have a fiduciary duty to both us and its affiliates participating in the joint venture. In order to minimize the conflict between these fiduciary duties, the advisory agreement provides guidelines for investments in joint ventures with affiliates. In addition, our charter requires a majority of our disinterested directors to determine that the transaction is fair and reasonable to
us and is on terms and conditions no less favorable than from unaffiliated third parties entering into the venture.
Our sponsor may face conflicts of interest in connection with the management of our day-to-day operations and in the enforcement of agreements between our sponsor and its affiliates.
The property managers and the advisor will manage our day-to-day operations and properties pursuant to management agreements and an advisory agreement. These agreements were not negotiated at arms length and certain fees payable by us under such agreements are paid regardless of our performance. Our sponsor and its affiliates may be in a conflict of interest position as to matters relating to these agreements. Examples include the
computation of fees and reimbursements under such agreements, the enforcement and/or termination of the agreements and the priority of payments to third parties as opposed to amounts paid to our sponsors affiliates. These fees may be higher than fees charged by third parties in an arms length transaction as a result of these conflicts.
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Title insurance services are being provided by an affiliated party. From time to time, Lightstone purchases title insurance from an agent in which our sponsor owns a fifty percent limited partnership interest. Because this title insurance agent receives significant fees for providing title insurance, our advisor may face a conflict of interest when considering the terms of purchasing title insurance from this agent. However, prior to the purchase by Lightstone of any title insurance, an independent title consultant with more than 25 years of experience in the title insurance industry reviews the transaction, and performs market research and
competitive analysis on our behalf. This process results in terms similar to those that would be negotiated at an arms-length basis.
Our advisor may face a conflict of interest when determining whether we should dispose of any property.
Our advisor may face a conflict of interest when determining whether we should dispose of any property we own that is managed by the property manager because the property manager may lose fees associated with the management of the property. Specifically, because the property manager will receive significant fees for managing our properties, our advisor may face a conflict of interest when determining whether we should sell properties under circumstances where the property manager would no longer manage the property after
the transaction. As a result of this conflict of interest, we may not dispose of properties when it would be in our best interests to do so.
We may compete with other entities affiliated with our sponsor for tenants.
The sponsor and its affiliates are not prohibited from engaging, directly or indirectly, in any other business or from possessing interests in any other business venture or ventures, including businesses and ventures involved in the acquisition, development, ownership, management, leasing or sale of real estate projects. The sponsor or its affiliates may own and/or manage properties in most if not all geographical areas in which we expect to acquire real estate assets. Therefore, our properties may compete for tenants with other properties owned
and/or managed by the sponsor and its affiliates. The sponsor may face conflicts of interest when evaluating tenant opportunities for our properties and other properties owned and/or managed by the sponsor and its affiliates and these conflicts of interest may have a negative impact on our ability to attract and retain tenants.
We have the same legal counsel as our sponsor and its affiliates.
Proskauer Rose LLP serves as our general legal counsel, as well as special counsel to our sponsor and various affiliates including, our advisor. The interests of our sponsor and its affiliates, including our sponsor, may become adverse to ours in the future. Under legal ethics rules, Proskauer Rose LLP may be precluded from representing us due to any conflict of interest between us and our sponsor and its affiliates, including our advisor.
Each member of our Board of Directors is also on the Board of Directors of Lightstone Value Plus Real Estate Investment II, Inc.
Each of our directors is also a director of Lightstone II. Accordingly, our Board of Directors will owe fiduciary duties and duties of loyalty to Lightstone II and its stockholders. The loyalties of our directors to Lightstone II may influence the judgment of our Board of Directors when considering issues that may affect us. For example, we are permitted to enter into a joint venture or preferred equity investment with Lightstone II for the acquisition of property or real estate-related investments.
Decisions of our Board of Directors regarding the terms of those transactions may be influenced by its loyalties to Lightstone II and its stockholders. In addition, decisions of our Board of Directors regarding the timing of our property sales could be influenced by concerns that the sales would compete with those of Lightstone II.
We may acquire our advisor or property manager without further action by our stockholders.
During the term of our agreements with our advisor and property manager, we have the option to cause the businesses conducted by our advisor and property manager (including all assets) to be acquired by us, under certain circumstances, without any consent of our stockholders, the advisor, the property manager or their boards of directors or stockholders. We may elect to exercise such right at any time after the effectiveness of this prospectus. Our decision to exercise such right will be determined by a vote of a majority of our
directors not otherwise interested in the transaction (including a majority of our independent directors). The advisor, the property manager and their equity holders will receive shares of our common stock, in connection with such an acquisition, in exchange for the transfer of all of their stock or assets, termination of contractual relationships with us and the release or waiver of all unpaid fees payable under the provisions of any contractual arrangements until their stated termination. We will be obligated to pay any fees accrued under
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such contractual arrangements for services rendered through the closing of such acquisitions. See Management The Advisory Agreement for an explanation of how the number of shares will be determined. In the event such an acquisition transaction is structured as a purchase of assets by us or a share exchange in which we are the acquiring corporation, our articles and Maryland corporate law permit us to enter into and to consummate such a transaction without obtaining the approval of our stockholders. Any such transaction will occur, if at all, only if our board of directors obtains a fairness opinion from a recognized financial
advisor or institution providing valuation services to the effect that the consideration to be paid therefore is fair, from a financial point of view, to our stockholders.
There may be conflicting investment opportunities among us and affiliates of our advisor and The Lightstone Group.
Our advisor does not advise any entity other than us. However, our advisor may, in the future, advise entities that invest in properties that meet our investment criteria. Likewise, David Lichtenstein a principal of our sponsor, and his other public program, Lightstone II, may, in the future, invest in properties that meet our investment criteria. Therefore, our sponsor, our advisor and their affiliates could, in the future, face conflicts of interest in determining which investment programs or joint ventures
will finance or acquire real properties and other assets as they become available. Such conflicts could result in a particular property being offered to an affiliate rather than to us. If our advisor, in the future, offers our sponsor or its other affiliates the opportunity to acquire or finance such properties, they may decide not to pursue investments in such properties. In such case these investments may be offered to us.
The method for allocation of the acquisition of properties by two or more programs of our sponsor or advisor that seek to acquire similar types of assets must be reasonable. Under our charter and the advisory agreement, before our advisor may take advantage of an investment opportunity for its own account or recommend it to others, it is obligated to present such opportunity to us if (i) such opportunity is compatible with our investment objectives and policies (including our requirements relating to all pertinent factors, including diversification, size of the investment, property type and location), (ii) such opportunity is of a character which
could be taken by us, and (iii) we have the financial resources to take advantage of such opportunity.
Our sponsor and advisor will each use their respective best efforts to present suitable investments to us consistent with our investment procedures, objectives and policies. If our sponsor or advisor or any of their respective affiliates is presented with a potential investment in a property which might be made by more than one investment entity which it advises or manages, the decision as to the suitability of the property for investment by a particular entity will be based upon a review of the investment portfolio of each entity and upon factors such as:
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cash flow from the property;
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the effect of the acquisition of the property on the diversification of each entitys portfolio;
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the amount of equity required to make the investment;
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the policies of each entity relating to leverage;
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the funds of each entity available for investment; and
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the length of time the funds have been available for investment and the manner in which the potential investment can be structured by each entity.
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To the extent that a particular property might be determined to be suitable for more than one investment entity, priority generally will be given to the investment entity that has held funds available for investment for the longest period of time. In addition, our advisor currently believes that sufficient investment opportunities exist so that we and any REITs, programs and joint ventures that our sponsor may form in the future will have enough properties meeting our respective investment objectives in which to invest.
Finally, all actions that occur between us and our advisor or its affiliates that present potential conflicts with us must be approved by a majority of our independent directors.
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COMPENSATION TABLE
The compensation arrangements between us, our advisor, property manager, The Lightstone Group and their affiliates were not determined by arms-length negotiations. See Conflicts of Interest. The following table discloses the compensation which we may pay such parties. In those instances in which there are maximum amounts or ceilings on the compensation which may be received, our affiliates may not recover any excess amounts for those services by reclassifying them under a different compensation or fee category.
We define net income as total revenues less expenses other than additions to reserves for depreciation or bad debts or other similar non-cash reserves. When we use the term net income for purposes of calculating some expenses and fees, it excludes the gain from the sale of our assets. However, this net income definition is not in accordance with generally accepted accounting principles in the United States, because we do not deduct depreciation and other non-cash reserves in determining net income.
We define the term net investment to mean the original issue price paid for our common stock, reduced by distributions from the sale or financing of our properties.
For description of an undertaking that we have made to limit compensation paid to our affiliates, see Compensation Restrictions and Reports to Stockholders.
Non-subordinated Payments
The following aggregate amounts of compensation, allowances and fees we may pay to our affiliates are not subordinated to the returns on initial investments that we are required to pay to our stockholders.
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Type of Compensation and Recipient
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Method of Compensation
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Acquisition Stage
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Acquisition fee and expenses paid to our advisor.
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Our advisor is paid an amount, equal to 2.75% of the gross contract purchase price (including any mortgage assumed) of the property purchased, as an acquisition fee. Our advisor is also be reimbursed for expenses that it incurs in connection with purchase of the property.
The acquisition fee and expenses for any particular property, including amounts payable to affiliates, will not exceed, in the aggregate, 5% of the gross contract purchase price (including any mortgage assumed) of the property.
If we request additional services, the compensation will be provided on separate agreed-upon terms and the rate will be approved by a majority of disinterested directors, including a majority of the disinterested independent directors, as fair and reasonable for us. No such compensation had been incurred and paid since inception through March 31, 2010.
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The following amounts may be paid as an acquisition fee and for the reimbursement of acquisition expenses:
From June 8, 2004 (date of inception) through March 31, 2010, we have paid approximately $28.3 million acquisition fees and $2.8 million expense reimbursement to our advisor.
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Type of Compensation and Recipient
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Method of Compensation
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Estimated Maximum/
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Operational Stage
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Property management fee paid to our property manager, Lightstone Value Plus REIT Management LLC. This fee is paid for services in connection with the rental, leasing, operation and management of the properties and the supervision of any third parties that are engaged by our property manager to provide such services.
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Residential and Retail Properties:
Our property manager is paid a monthly management fee of 5% of the gross revenues from our residential and retail properties.
Office and Industrial Properties:
For the management and leasing of our office and industrial properties, we pay to our property manager, property management and leasing fees of up to 4.5% of gross revenues from our office and industrial properties. In addition, we may pay our property manager a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area.
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From June 8, 2004 (date of inception) through March 31, 2010, we have paid approximately $5.4 million property management fees to our property manager.
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Notwithstanding the foregoing, our property manager may be entitled to receive higher fees in the event our property manager demonstrates to the satisfaction of a majority of the directors (including a majority of the independent directors) that a higher competitive fee is justified for the services rendered. No such higher property management fees had been incurred and paid since our inception through March 31, 2010.
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The property manager may subcontract its duties for a fee that may be less than the fee provided for in the management services agreements. In the event that the property manager subcontracts its duties with respect to some or all of our properties, the fees payable to such parties for such services will be deducted from the monthly management fee payable to our property manager by us or paid directly by our property manager. Since our inception through March 31, 2010, the property manager has not subcontracted any management services.
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Type of Compensation and Recipient
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Method of Compensation
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Asset management fee paid to our advisor.
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Our advisor is paid an advisor asset management fee of 0.55% of our average invested assets. Average invested assets means the average of the aggregate book value of our assets invested in equity interests in, and loans secured by, real estate before reserves for depreciation or bad debt or other similar non-cash reserves. We compute the average invested assets by taking the average of these values at the end of each month during the quarter for which we are calculating the fee. The fee is payable quarterly in an amount equal to 0.1375 of 1% of average invested assets as of the last day of the immediately preceding quarter.
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From June 8, 2004 (date of inception) through March 31, 2010, we have paid approximately $9.5 million asset management fees to advisor.
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Our advisor must reimburse us for the amounts, if any, by which our total operating expenses, the sum of the advisor asset management fee plus other operating expenses, paid during the previous fiscal year exceed the greater of:
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(1)
2% of our average invested assets for that fiscal year, or
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(2)
25% of our net income for that fiscal year;
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Items such as interest payments, taxes, non-cash expenditures, the special liquidation distribution, organization and Offering expenses, and acquisition fees and expenses are excluded from the definition of total operating expenses, which otherwise includes the aggregate expenses of any kind paid or incurred by us. See Management Our Advisory Agreement for an explanation of circumstances where the excess amount specified in clause (1) may not need to be reimbursed.
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Type of Compensation and Recipient
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Method of Compensation
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Reimbursable expenses to our advisor. These may include costs of goods and services, administrative services and non-supervisory services performed directly for us by independent parties.
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We reimburse some expenses of the advisor. The compensation and reimbursements to our advisor will be approved by a majority of our directors and a majority of our independent directors as fair and reasonable for us.
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The reimbursable expenses are subject to aggregate limitations on our operating expenses referred to under Non-Subordinating Payments Operational Stage Asset Management Fee above. We reimbursed our advisor acquisition related expenses of $902,753, $1,265,528 and $635,848, respectively, for the years ended December 31, 2009, 2008 and 2007 and $0 for the three months ended March 31, 2010.
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Subordinated Payments
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Note:
We structure the allocation of distributions and other subordinated payments differently than most REITs. In order to facilitate a complete understanding of our allocation structure, please see Subordinated Distribution Chart below for a basic table that illustrates how we will allocate these subordinated payments.
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We cannot assure investors of the cumulative non-compounded returns discussed below, which we disclose solely as a measure for the incentive compensation of our sponsor, advisor and affiliates.
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Distributions with respect to the special general partner interests, payable to Lightstone SLP, LLC, which is controlled by our sponsor.
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This section describes the apportionment of any regular distributions that the operating partnership may make. At each stage of distributions, a different apportionment method commences or terminates, as applicable, when a particular party or parties have received a specific amount of distributions. The return calculations described below take into account all regular distributions received and not the specific distribution being made. Achievement of a particular threshold, therefore, is determined with reference to all prior distributions made by our operating partnership to Lightstone SLP, LLC and to us, which distributions we will distribute to holders of our common stock. Once a threshold is reached, the operating partnership will make all subsequent regular distributions pursuant to the allocation method triggered by that or later thresholds.
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From June 8, 2004 (date of inception) through March 31, 2010, we have paid approximately $4.4 million distributions to the special general partner interests.
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Type of Compensation and Recipient
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Method of Compensation
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Estimated Maximum/
Actual Payment Amount
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(i)
Before Achieving the 7% Stockholder Return Threshold
Regular distributions will be made initially to us, which we will then distribute to the holders of our common stock, until these holders have received dividends equal to a cumulative non-compounded return of 7% per year on their net investment. Net investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of properties. Until this 7% threshold is reached, our operating partnership will not pay to Lightstone SLP, LLC, which is controlled by our sponsor, any distributions with respect to the purchase price of the special general partner interests that it received in exchange for agreeing to pay the costs and expenses of our initial public offering, including dealer manager fees and selling commissions.
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(ii)
After Achieving the 7% Stockholder Return Threshold
After the first 7% threshold is reached, our operating partnership will make all of its distributions to Lightstone SLP, LLC until that entity receives an amount equal to a cumulative non-compounded return of 7% per year on the purchase price of the special general partner interests.
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(iii)
Before Achieving the 12% Stockholder Return Threshold
After this second 7% threshold is reached and until the holders of our common stock have received dividends in an amount equal to a cumulative non-compounded return of 12% per year on their net investment (including, for the purpose of the calculation of such amount, the amounts equaling a 7% return on their net investment described in paragraph (i) of this section), 70% of the aggregate amount of any additional distributions by our operating partnership will be payable to us (and the limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), which we will distribute to the holders of our common stock, and 30% of such amount will be payable by our operating partnership to Lightstone SLP, LLC.
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Type of Compensation and Recipient
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|
Method of Compensation
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|
Estimated Maximum/
Actual Payment Amount
|
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(iv)
After Achieving the 12% Stockholder Return Threshold
After this 12% threshold is reached, 60% of the aggregate amount of any additional distributions by our operating partnership will be payable to us (and the limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), which we will distribute to the holders of our common stock, and 40% of such amount will be payable by our operating partnership to Lightstone SLP, LLC.
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Liquidation Stage
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Special liquidation distribution payable to Lightstone SLP, LLC, which is controlled by our sponsor.
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This section describes the apportionment of any liquidation distributions that we make. At each stage of distributions, a different apportionment method commences or terminates, as applicable, when a particular party or parties have received a specific amount of distributions. The return calculations described below take into account all regular and liquidation distributions received and not just distributions made upon liquidation. Achievement of a particular threshold, therefore, is determined with reference to all prior distributions made by our operating partnership to Lightstone SLP, LLC and to us, which we will distribute to our stockholders.
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The actual amounts to be received depend upon the net sale proceeds upon our liquidation and, therefore, cannot be determined at the present time.
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(i.)
Before Achieving the 7% Stockholder Return Threshold
Distributions in connection with our liquidation will be made initially to us, which we will distribute to holders of our common stock, until these holders have received liquidation distributions equal to their initial investment plus a cumulative non-compounded return of 7% per year on their net investment. Net investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of properties. Until this 7% threshold is reached, our operating partnership will not pay to Lightstone SLP, LLC any special liquidation distribution in connection with our liquidation.
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Type of Compensation and Recipient
|
|
Method of Compensation
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|
Estimated Maximum/
Actual Payment Amount
|
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(ii.)
After Achieving the 7% Stockholder Return Threshold
After the first 7% threshold is reached, Lightstone SLP, LLC will receive special liquidation distributions with respect to the purchase price of the special general partner interests that it received in exchange for agreeing to pay the costs and expenses of our initial public offering, including dealer manager fees and selling commissions, until it receives an amount equal to the purchase price of the special general partner interests plus a cumulative non-compounded return of 7% per year on the purchase price of those interests;
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(iii.)
Before Achieving the 12% Stockholder Return Threshold
After this second 7% threshold is reached and until the holders of our common stock have received an amount equal to their initial investment plus a cumulative non-compounded return of 12% per year on their net investment (net investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of properties) (including, for the purpose of the calculation of such amount, the amounts described in paragraph (i) of this section), 70% of the aggregate amount of any additional distributions by our operating partnership will be payable to us (and the limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), which we will distribute to the holders of our common stock, and 30% of such amount will be payable by our operating partnership to
Lightstone SLP, LLC; and
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(iv.)
After Achieving the 12% Stockholder Return Threshold
After this 12% threshold is reached, 60% of the aggregate amount of any additional distributions by our operating partnership will be payable to us (and the limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), which we will distribute to the holders of our common stock, and 40% of such amount will be payable by our operating partnership to Lightstone SLP, LLC.
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Type of Compensation and Recipient
|
|
Method of Compensation
|
|
Estimated Maximum/
Actual Payment Amount
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|
If the advisory agreement is terminated, the special general partner interests will be converted into cash equal to the purchase price of the special general partner interest.
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We cannot assure investors of the cumulative non-compounded returns discussed above, which we disclose solely as a measure for the incentive compensation of our sponsor, advisor and affiliates.
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Ongoing
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Compensation to Officers and Directors
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Independent Director fees.
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Each of our independent directors receives an annual fee of $30,000 and reimbursement of out-of-pocket expenses incurred. Our officers who are also our directors do not receive director fees. These fees are subject to change from time to time.
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We started paying our independent directors during the third quarter of 2005, and have paid our independent directors, annually, $90,000 in the aggregate for each of the years ended December 31, 2009, 2008, 2007, and 2006, $22,500 for the three months ended March 31, 2010, and $45,000 for the third and fourth quarter of 2005.
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Stock options to our independent directors.
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Each of our independent directors receives each year on the date of the stockholders annual meeting, an option to purchase 3,000 shares of common stock at an exercise price equal to the then fair market value per share. For additional information on this option plan, see Management Stock Option Plan.
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This form of compensation is not paid in cash. As of March 31, 2010, options to purchase 27,000 shares of stock were granted and outstanding at an exercise price of $10.00 per share; 9,000 of these option shares are fully vested.
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Calculations of cumulative non-compounded returns in the above table are computed as follows: for the period for which the calculation is being made, the percentage resulting from dividing: (i) the total distributions paid on each distribution payment date during the designated period, by (ii) the product of (a) the average adjusted investor capital for such period (calculated on a daily basis), and (b) the number of years (including the fractions thereof) elapsed during the specified period.
Distribution Chart
We have and intend to continue to make distributions to our stockholders. Since the period beginning February 1, 2006, our Board of Directors has declared quarterly dividends in the amount of $0.0019178 per share per day payable to stockholders of record at the close of business each day during the applicable period. The annualized rate declared was equal to 7%, which represents the annualized rate of return on an investment of $10.00 per share attributable to these daily amounts, if paid for each day for a 365 day period. Total dividends declared during the three-month period ended March 31, 2010 and the year ended December 31, 2009, 2008 and 2007
were $5.5 million, $27.3 million, $9.9 million and $7.1 million, respectively.
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In addition, the special general partner interests entitle Lightstone SLP, LLC, which is controlled by our sponsor, to certain distributions from our operating partnership, but only after our stockholders have received a stated preferred return. Since inception through March 31, 2010, cumulative distributions declared were $4.9 million, all of which has been paid through January 2010. Such distributions, paid current at a 7% annualized rate of return to Lightstone SLP, LLC.
The following table sets forth information with respect to the apportionment of any regular and liquidation distributions that the operating partnership may make among Lightstone SLP, LLC and us, which we will distribute to our stockholders. The return calculations outlined below account for all regular and liquidation distributions that our operating partnership has made to Lightstone SLP, LLC and to us, which we will distribute to our stockholders. For a more detailed discussion of distribution apportionment, see Operating Partnership Agreement.
Note that the chart reads chronologically from top to bottom, so that all distributions are initially made to stockholders in accordance with row (i), until the stockholders have received a return of 7% on their net investment. For purposes of the preceding sentence, net investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of properties. Then, all distributions will be made to Lightstone SLP, LLC in accordance with row (ii) until that entity has received 7% on its net investment. Row (iii) will then apply, and after that row (iv).
We cannot assure investors of the cumulative non-compounded returns discussed below, which we disclose solely as a measure for the incentive compensation of our sponsor, advisor and affiliates.
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Recipient(s) of Distribution
(Listed Chronologically)
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Apportionment of Distributions
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Cumulative Non-Compounded
Return Threshold
(That Initiates Next Level of Distributions)
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(i)
Stockholders
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100%
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7% per year on stockholders net investment (and, in the case of liquidation, an amount equal to the stockholders initial investment)
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(ii)
Lightstone SLP, LLC
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100%
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7% per year on special general partner purchase price (and, in the case of liquidation, an amount equal to the purchase price of the special general partner interest)
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(iii)
Stockholders/ Lightstone SLP, LLC
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70% to stockholders;
30% to Lightstone SLP, LLC
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Until 12% per year on stockholders net investments
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(iv)
Stockholders/ Lightstone SLP, LLC
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60% to stockholders;
40% to Lightstone SLP, LLC
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Above 12% on stockholders net investment (remainder of regular distributions apportioned in this manner)
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USE OF PROCEEDS
We intend to use the net proceeds from the sale of shares under the Program for general corporate purposes, including investment in properties, payment of fees and other costs, funding operating or capital expenses associated with our existing properties or for funding the share redemption program. We have no basis for estimating the number of shares that will be sold.
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MANAGEMENT
Our Affiliated Companies
Overview
Our sponsor, David Lichtenstein, founded The Lightstone Group as a limited liability company and often does business in his individual capacity under that name. Our sponsor is one of the largest private residential and commercial real estate owners and operators in the United States today, with a portfolio of 170 properties containing approximately 10,620 multifamily units, 5.2 million square feet of office space, 2.8 million square feet of industrial space, and 12.5 million square feet of retail space. These residential, office, industrial and retail properties are located in 25 states, the District of Columbia and Puerto Rico. Based in New York,
and supported by regional offices in New Jersey, Illinois and Maryland, our sponsor employs approximately 1,050 staff and professionals including a senior management team with approximately 24 years on average of industry experience. Our Sponsor has extensive experience in the areas of investment selection, underwriting, due diligence, portfolio management, asset management, property management, leasing, disposition, finance, accounting and investor relations.
Our Sponsor on December 8, 2009, entered into a definitive agreement to contribute or sell all of its outlet centers interests, which comprise of approximately 8 million square feet of the 12.5 million square feet of retail space owned. The transaction is expected to close during calendar 2010.
Our General Management
We operate under the direction of our board of directors. Our board of directors is responsible for the overall management and control of our affairs. Investment decisions will be made either by the advisor or by the board of directors. As described in greater detail under Our Advisor, below, our advisor will be responsible for making investment decisions where the purchase price of a particular property is less than $15,000,000 and the investment does not exceed stated leverage limitations. Where such leverage limitations are exceeded, or where the purchase price is equal to or greater than $15,000,000, investment decisions will be made
by our board of directors.
During 2009, our board of directors held 7 meetings, including our annual investors meeting held on September 17, 2009, and the entire board of directors was present at all of the meetings.
Our Directors
The following table presents certain information as of April 1, 2010 concerning each of our directors serving in such capacity:
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Name
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Age
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|
Principal Occupation and Positions Held
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Term of Office Will Expire
(1)
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|
Served as a Director Since
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David Lichtenstein
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49
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|
Chief Executive Officer and Chairman of the Board of Directors
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2010
|
|
2004
|
Edwin J. Glickman
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|
78
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|
Director
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|
2010
|
|
2005
|
George R. Whittemore
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|
60
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|
Director
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2010
|
|
2006
|
Shawn R. Tominus
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51
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|
Director
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|
2010
|
|
2006
|
Bruno de Vinck
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|
64
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|
Chief Operating Officer, Senior Vice President, Secretary and Director
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|
2010
|
|
2005
|
|
(1)
|
until the occurrence of the next annual shareholders meeting in 2010.
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DAVID LICHTENSTEIN is the Chairman of our board of directors and our Chief Executive Officer. Mr. Lichtenstein has been a member of our board of directors since June 8, 2004. Mr. Lichtenstein is also the Chairman of the Board and Chief Executive Officer of Lightstone Value Plus Real Estate Investment Trust II, Inc. Mr. Lichtenstein founded both American Shelter Corporation and the Lightstone Group in 1988 and directs all aspects of the acquisition, financing and management of a diverse portfolio of multi-family, retail and industrial properties located in 27 states, the District of Columbia and Puerto Rico. Mr. Lichtenstein is a
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member of the International Council of Shopping Centers and NAREIT. Mr. Lichtenstein also serves as the Chairman of the board of trustees of Prime Group Realty Trust, a publicly registered REIT trading on the NYSE, as well as Prime Retail, a private company. Mr. Lichtenstein is the president and/or director of various subsidiaries of Extended Stay Hotels, Inc. (Extended Stay) that filed for Chapter 11 protection with Extended Stay. Mr. Lichtenstein has been selected to serve as a director due to his extensive experience and networking relationships in the real estate industry, along with his experience in acquiring and financing real
estate properties.
EDWIN J. GLICKMAN is one of our independent directors and the Chairman of our audit committee. Mr. Glickman is also an independent director of Lightstone Value Plus Real Estate Investment Trust II, Inc. In January 1995, Mr. Glickman co-founded Capital Lease Funding, a leading mortgage lender for properties net leased to investment grade tenants, where he remained as Executive Vice President until May 2003. Mr. Glickman was previously a trustee of publicly traded RPS Realty Trust from October 1980 through May 1996, and Atlantic Realty Trust from May 1996 to March 2006. Mr. Glickman graduated from Dartmouth College. Mr. Glickman has been selected to
serve as a director due to his extensive experience in mortgage lending and finance.
GEORGE R. WHITTEMORE is one of our independent directors. Mr. Whittemore is also an independent director of Lightstone Value Plus Real Estate Investment Trust II, Inc. Mr. Whittemore also serves as Audit Committee Chairman of Prime Group Realty Trust, as a Director of Village Bank Financial Corporation in Richmond, Virginia and as a Director of Supertel Hospitality, Inc. in Norfolk, Nebraska, all publicly traded companies. Mr. Whittemore previously served as President and Chief Executive Officer of Supertel Hospitality Trust, Inc. from November 2001 until August 2004 and as Senior Vice President and Director of both Anderson & Strudwick,
Incorporated, a brokerage firm based in Richmond, Virginia, and Anderson & Strudwick Investment Corporation, from October 1996 until October 2001. Mr. Whittemore has also served as a Director, President and Managing Officer of Pioneer Federal Savings Bank and its parent, Pioneer Financial Corporation, from September 1982 until August 1994, and as President of Mills Value Adviser, Inc., a registered investment advisor. Mr. Whittemore is a graduate of the University of Richmond. Mr. Whittemore has been selected to serve as a director due to his extensive experience in accounting, banking, finance and real estate.
SHAWN R. TOMINUS is one of our independent directors. Mr. Tominus is also an independent director of Lightstone Value Plus Real Estate Investment Trust II, Inc. Mr. Tominus is the founder and President of Metro Management, a real estate investment and management company founded in 1994 which specializes in the acquisition, financing, construction and redevelopment of residential, commercial and industrial properties. He also serves as a member of the audit committee of Prime Group Realty Trust, a publicly traded REIT located in Chicago. Mr. Tominus has over 25 years experience in real estate and serves as a national consultant focusing primarily on
market and feasibility analysis. Prior to his time at Metro Management, Mr. Tominus was a Senior Vice President at Kamson Corporation, where he managed a portfolio of over 5,000 residential units as well as commercial and industrial properties. Mr. Tominus has been selected to serve as a director due to his extensive experience in and networking relationships in the real estate industry, along with his experience in acquisitions, construction and redevelopment.
BRUNO DE VINCK is our Chief Operating Officer, Senior Vice President, Secretary and a Director. Mr. de Vinck is also the Senior Vice President, Secretary and director of Lightstone Value Plus Real Estate Investment Trust II, Inc. Mr. de Vinck is also a Director of the privately held Park Avenue Bank, and Prime Group Realty Trust, a publicly registered REIT. Mr. de Vinck is a Senior Vice President with the Lightstone Group, and has been employed by Lightstone since April 1994. Mr. de Vinck was previously General Manager of JN Management Co. from November 1992 to January 1994, AKS Management Co., Inc. from September 1988 to July 1992 and Heritage
Management Co., Inc. from May 1986 to September 1988. In addition, Mr. de Vinck worked as Senior Property Manager at Hekemien & Co. from May 1975 to May 1986, as a Property Manager at Charles H. Greenthal & Co. from July 1972 to June 1975 and in sales and residential development for McDonald & Phillips Real Estate Brokers from May 1970 to June 1972. From July 1982 to July 1984 Mr. de Vinck was the founding president of the Ramsey Homestead Corp., a not-for-profit senior citizen residential health care facility, and, from July 1984 until October 2004, was Chairman of its board of directors. Mr. de Vinck studied Architecture at Pratt Institute and then worked for the Bechtel Corporation from February 1966 to May 1970 in the engineering department as a senior structural draftsman.
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Mr. de Vinck is also a director of certain subsidiaries of Extended Stay that filed for Chapter 11 protection with Extended Stay. Mr. de Vinck has been selected to serve as a director due to his extensive experience in the real estate industry.
In determining the composition of our board of directors, our goals were to assemble a board that, as a whole, possesses the appropriate balance of professional and real estate industry knowledge, financial expertise and high-level management experience to bring a diverse set of skills and experiences to the board as a whole to oversee our business. To that end, our board includes directors who complement and strengthen the skills of other members and who also exhibit integrity, collegiality, sound business judgment and other qualities that we view as critical to effective functioning of the board. The brief biographies above include information, as
of the date of this prospectus, regarding the specific and particular experience, qualifications, attributes or skills of each director or nominee that led the board to believe that the director should serve on the board.
Our Executive Officers
The following table presents certain information as of April 1, 2010 concerning each of our executive officers serving in such capacities:
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Name
|
|
Age
|
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Principal Occupation and Positions Held
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David Lichtenstein
|
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49
|
|
Chief Executive Officer and Chairman of the Board of Directors
|
Bruno de Vinck
|
|
64
|
|
Chief Operating Officer, Senior Vice President, Secretary and Director
|
Stephen Hamrick
|
|
58
|
|
President
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Joseph Teichman
|
|
36
|
|
General Counsel
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Donna Brandin
|
|
53
|
|
Chief Financial Officer and Treasurer
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DAVID LICHTENSTEIN for biographical information about Mr. Lichtenstein, see Management Directors.
BRUNO DE VINCK for biographical information about Mr. de Vinck, see Management Directors.
STEPHEN H. HAMRICK has been our President since July 2006. Mr. Hamrick previously served as our Vice President of Investor Relations. Mr. Hamrick is also President of Lightstone Value Plus Real Estate Investment Trust II, Inc. and is the president and chief executive officer of Lightstone Securities, LLC. Mr. Hamrick is also the Vice President of our advisor. Prior to joining Lightstone Securities LLC in July of 2006, Mr. Hamrick served five years as President of Carey Financial Corporation and Managing Director of W.P. Carey & Co. Mr. Hamrick is a member of the Committee on Securities for the American Stock Exchange and The Board of Trustees of
The Saratoga Group of Funds. In the 1990s, Mr. Hamrick developed an electronic trading business utilized by the institutional customers of Cantor Fitzgerald, including brokerage firms and banks, to trade privately held securities; spent two years as CEO of a full-service, investment brokerage business at Wall Street Investor Services, where he executed a turnaround strategy and the ultimate sale of that business; and served as Chairman of Duroplas Corporation, a development stage company building on proprietary technology that enables the production of thermoplastic compounds. From 1988 until 1994, Mr. Hamrick headed up Private Investments at PaineWebber Incorporated and was a member of the firms Management Council. From 1975 until joining PaineWebber, he was associated with E.F. Hutton & Company, holding positions ranging from Account Executive to National Director of Private Placements. Mr. Hamrick has served on the Listings Panel for NASDAQ, as Chairman of the Securities
Industry Associations Direct Investment Committee and as Chairman of the Investment Program Association. He is a Certified Financial Planner and was graduated with degrees in English and Economics from Duke University.
JOSEPH E. TEICHMAN is our General Counsel and also serves as General Counsel of our advisor and sponsor as well as Lightstone Value Plus Real Estate Investment Trust II, Inc and its advisor. Prior to joining us in January 2007, Mr. Teichman had been an Associate with Paul, Weiss, Rifkind, Wharton & Garrison LLP in New York, NY from September 2001 to January 2007. Mr. Teichman earned his J.D. from the University of Pennsylvania Law School in May 2001. Mr. Teichman earned a B.A. in Talmudic Law from Beth Medrash Govoha, Lakewood, NJ. Mr. Teichman is licensed to practice law in New York and New Jersey.
DONNA BRANDIN is our Chief Financial Officer and Treasurer since August 2008 and also serves as Chief Financial Officer of our advisor and our sponsor as well as Lightstone Value Plus Real Estate
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Investment Trust II, Inc, and its advisor. Prior to the joining the Lightstone Group in April of 2008, Ms. Brandin spent over three years as the Executive Vice President and Chief Financial Officer of Equity Residential, the largest publicly traded apartment REIT in the country. Prior to Equity Residential, Ms. Brandin was the Senior Vice President and Treasurer of Cardinal Health, Inc. Prior to 2000, Ms. Brandin held the Assistant Treasurer roles at Campbell Soup for two years and Emerson Electric Company for seven years. Prior to Emerson, Ms. Brandin spent 10 years at Peabody Holding Company as manager of financial reporting and the director of
planning and analysis. Ms. Brandin earned her Masters in Finance at St. Louis University in Missouri and is a certified public accountant.
Committees of Our Board of Directors
Our charter authorizes our board of directors to establish such committees as it deems appropriate, so long as a majority of the members of each committee are independent directors, any applicable rules promulgated by the Securities and Exchange Commission and other applicable regulations are complied with and, in the case of the audit committee, all members are independent directors. Currently, we have the committee listed below:
Audit Committee.
Our board of directors has established an audit committee consisting of our three independent directors, Mr. Glickman, Mr. Whittemore and Mr. Tominus. These independent directors include at least one person who is a financial expert (Edwin J. Glickman and George R. Whittemore), as defined by applicable rules promulgated by the Securities and Exchange Commission. Our audit committee operates pursuant to a written charter adopted by our board of directors. Among other things, the audit committee charter calls upon the audit committee to:
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oversee the accounting and financial reporting processes and compliance with legal and regulatory requirements on behalf of our board of directors and report the results of its activities to the board;
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be directly and solely responsible for the appointment, retention, compensation, oversight, evaluation and, when appropriate, the termination and replacement of our independent auditors;
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review the annual engagement proposal and qualifications of our independent auditors;
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prepare an annual report as required by applicable SEC disclosure rules;
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review the integrity, adequacy and effectiveness of our internal controls and financial disclosure process;
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review and approve all related party transactions, including all transactions with our advisor; and
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manage our relationship with our advisor under the advisory agreement.
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The audit committee shall have such additional powers, duties and responsibilities as may be delegated by the board of directors or contained in the audit committee charter approved by the board of directors. A copy of our audit committee charter is available at
www.lightstonereit.com
. Our website is not a part of this prospectus.
Nominating the Board of Directors.
Our board of directors does not have a standing nominating committee for the purpose of nominating members to the Board of Directors. All members of our Board of Directors participate in the consideration of director nominees. The primary functions of the members of the Board of Directors relating to the consideration of director nominees is to identify individuals qualified to serve on the board of directors.
Our Board of Directors annually reviews the appropriate experience, skills and characteristics required of directors in the context of our business. This review includes, in the context of the perceived needs of the board at that time, issues of knowledge, experience, judgment and skills relating to the understanding of the real estate industry, accounting or financial expertise. This review also includes the candidates ability to attend regular board meetings and to devote a sufficient amount of time and effort in preparation for such meetings.
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Corporate Governance
Code of Business Conduct and Ethics.
Our board of directors has established a code of business conduct and ethics. Among other matters, the code of business conduct and ethics was designed to deter wrongdoing and to promote:
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honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
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full, fair, accurate, timely and understandable disclosure in our SEC reports and other public communications;
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compliance with applicable governmental laws, rules and regulations;
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prompt internal reporting of violations of the code to appropriate persons identified in the code; and
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accountability for adherence to the code.
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Waivers to the code of business conduct and ethics may only be granted by the independent directors of the board. In the event that the independent directors grant any waivers of the elements listed above to any of our officers, we expect to announce the waiver within five business days on the corporate governance section on our corporate website (
www.lightstonereit.com
). The information on that website will not be a part of this prospectus.
Independent Directors
Our board of directors has determined that each of our independent directors is independent within the meaning of the applicable (i) provisions set forth in our charter, and (ii) requirements set forth in the Securities Exchange Act of 1934, as amended (the Exchange Act), and the applicable SEC rules, and (iii) rules of the New York Stock Exchange (the NYSE), although our shares are not listed on the NYSE. Our board applied the NYSE rules governing independence as part of its policy of maintaining strong corporate governance practices.
Our charter provides that in order to be considered an independent director, the director may not:
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own any interest in the sponsor, the advisor or their affiliates, other than us;
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|
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be or have been employed by the advisor, the sponsor or their affiliates, or by us or our affiliates, on the date of determination or for two years prior to the date of determination;
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serve as an officer or director of the sponsor, the advisor or any of their affiliates, other than as a member of our board of directors;
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perform services, other than as a member of our board of directors;
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|
serve as a director, including as a member of our board of directors, of more than three real estate investment trusts organized by the sponsor or advised by the advisor; or
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maintain a material business or professional relationship with the sponsor, the advisor or any of their affiliates. A business or professional relationship qualifies as material if the aggregate gross revenue derived by the director from the sponsor, the advisor and their affiliates exceeds five percent of either the directors annual gross income during either of the last two years or the directors net worth on a fair market value basis.
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In addition, an independent director may not maintain, or have maintained, any of these prohibited associations either directly or indirectly. According to our charter, an indirect association with the sponsor or the advisor includes circumstances in which a spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in-law or brother- or sister-in-law is or has been associated with the sponsor, the advisor, any of their affiliates or us.
To be considered independent under the NYSE rules, the board of directors must determine that a director does not have a material relationship with us (either directly or as a partner, shareholder or officer of
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an organization that has a relationship with any of those entities, including The Lightstone Group and its affiliates). Under the NYSE rules, a director will not be independent if, within the last three years:
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the director was employed by us or The Lightstone Group;
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an immediate family member of the director was employed by us or The Lightstone Group as an executive officer;
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the director, or an immediate family member of the director, received more than $120,000 during any 12-month period in direct compensation from us or The Lightstone Group, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);
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the director was affiliated with or employed by a present or former internal or external auditor of us or The Lightstone Group;
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an immediate family member of the director was affiliated with or employed in a professional capacity by a present or former internal or external auditor of us or The Lightstone Group;
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an executive officer serves on our compensation committee or the board of directors of a company which employed the director, or which employed an immediate family member of the director, as an executive officer; or
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the director was an executive officer or an employee (or an immediate family member of the director was an executive officer) of a company that makes payments to, or receives payments from, us or The Lightstone Group for property or services in an amount which, in any single fiscal year, exceeded the greater of $1,000,000 or 2% of such other companys consolidated gross revenues.
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Our independent directors are responsible for reviewing our fees and expenses on at least an annual basis and with sufficient frequency to determine that the expenses incurred are in the best interest of our shareholders. Our independent directors performed such reviews for the years ended December 31, 2009 and 2008. Our independent directors may determine from time to time during or after this offering to increase or decrease the fees and expenses payable our advisor or any of its affiliates. The independent directors will also be responsible for reviewing the performance of our advisor and determining that the compensation to be paid to our advisor
is reasonable in relation to the nature and quality of services performed and our investment performance and that the provisions of the Advisory Agreement are being carried out. Specifically, the independent directors will consider factors such as:
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our net assets and net income;
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the amount of the fees paid to our advisor in relation to the size, composition and performance of our investments;
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the success of the advisor in generating appropriate investment opportunities;
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rates charged to other REITs, especially REITs of similar structure and other investors by advisors performing similar services;
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additional revenues realized by the advisor and its affiliates through their relationship with us, whether we pay them or they are paid by others with whom we do business;
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the quality and extent of service and advice furnished by the advisor;
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the performance of our investment portfolio;
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the quality of our portfolio relative to the investments generated by the advisor for its own account.
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Compensation of Directors
Our compensation committee designs our director compensation with the goals of attracting and retaining highly qualified individuals to serve as independent directors and to fairly compensate them for their time and efforts. Because of our unique attributes as a REIT, service as an independent director on our board requires broad expertise in the fields of real estate and real estate investment.
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We pay each of our independent directors an annual fee of $30,000 and are responsible for the reimbursement of their out-of-pocket expenses, as incurred. In addition, under our stock option plan, our independent directors will receive options to purchase shares of our common stock.
Compensation of Officers
Our officers will not receive any cash or non-cash compensation from us for their services as our officers. Our officers are officers of one or more of our affiliates and are compensated by those entities (including our sponsor), in part, for their services rendered to us.
Stock Option Plan
We have adopted a stock option plan under which our independent directors are eligible to receive annual nondiscretionary awards of nonqualified stock options. Our stock option plan is designed to enhance our profitability and value for the benefit of our stockholders by enabling us to offer independent directors stock-based incentives, thereby creating a means to raise the level of equity ownership by such individuals in order to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and our stockholders.
We have authorized and reserved 75,000 shares of our common stock for issuance under our stock option plan. The board of directors may make appropriate adjustments to the number of shares available for awards and the terms of outstanding awards under our stock option plan to reflect any change in our capital structure or business, stock dividend, stock split, recapitalization, reorganization, merger, consolidation or sale of all or substantially all of our assets.
Our stock option plan provides for the automatic grant of a nonqualified stock option to each of our independent directors, without any further action by our board of directors or the stockholders, to purchase 3,000 shares of our common stock on the date of each annual stockholders meeting. The exercise price for all stock options granted under our stock option plan will be fixed at $10 per share until the termination of our initial public offering, and thereafter the exercise price for stock options granted to our independent directors will be equal to the fair market value of a share on the last business day preceding the annual meeting of
stockholders. The term of each such option will be 10 years. Options granted to non-employee directors will vest and become exercisable on the second anniversary of the date of grant, provided that the independent director is a director on the board of directors on that date. At our annual stockholder meetings in July 2007, August 2008 and September 2009, options were granted to each of our three independent directors. As of March 31, 2010, options to purchase 27,000 shares of stock were outstanding, 9,000 were fully vested, at an exercise price of $10 per share.
Notwithstanding any other provisions of our stock option plan to the contrary, no stock option issued pursuant thereto may be exercised if such exercise would jeopardize our status as a REIT under the Internal Revenue Code.
Compliance with the American Jobs Creation Act
As part of our strategy for compensating our independent directors, we have issued and intend to issue options to purchase our common stock under our independent directors stock option plan, which is described above. This method of compensating individuals may possibly be considered to be a nonqualified deferred compensation plan under Section 409A of the Internal Revenue Code.
Under Section 409A, nonqualified deferred compensation plans must meet certain requirements regarding the timing of distributions or payments and the timing of agreements or elections to defer payments, and must also prohibit any possibility of acceleration of distributions or payments, as well as certain other requirements. A stock option with an exercise price that is less than the fair market value of the underlying stock as of the date of grant would be considered a nonqualified deferred compensation plan.
If Section 409A applies to any of the awards issued under the plan, or if Section 409A applies to any other arrangement or agreement that we may make, and if such award, arrangement or agreement does not meet the timing and other requirements of Section 409A, then (i) all amounts deferred for all taxable years under the award, arrangement or agreement would be currently includible in the gross income of the recipient
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of such award or of such deferred amount to the extent not subject to a substantial risk of forfeiture and not previously included in the gross income of the recipient, (ii) interest at the underpayment rate plus 1% would be imposed upon the recipient on the underpayments that would have occurred had the compensation been includible in income when first deferred (or, if later, when not subject to a substantial risk of forfeiture) and (iii) a 20% additional tax would be imposed on the recipient with respect to the amounts required to be included in the recipients income. Furthermore, if the affected individual is our employee, we would be
required to withhold federal income taxes on the amount deferred but includible in income due to Section 409A, although there may be no funds currently being paid to the individual from which we could withhold such taxes. We would also be required to report on an appropriate form (W-2 or 1099) amounts which are deferred, whether or not they meet the requirements of Section 409A, and if we fail to do so, penalties could apply.
We do not intend to issue any award, or enter into any agreement or arrangement that would be considered a nonqualified deferred compensation plan under Section 409A, unless such award, agreement or arrangement complies with the timing and other requirements of Section 409A. Nonetheless, there can be no assurances that any option award, agreement or arrangement which we have entered into will not be affected by Section 409A, or that any such option award, agreement or arrangement will not be subject to income taxation under Section 409A.
The following table sets forth information regarding securities authorized for issuance under our Employee and Director Incentive Share Plan as of March 31, 2010:
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Plan Category
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Number of Securities to be Issued Upon Exercise of
Outstanding Options, Warrants and Rights
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Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
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Number of Securities Remaining Available For Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in Column (a))
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(a)
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(b)
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(c)
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Equity Compensation Plans approved by security holders
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27,000
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$
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10.00
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48,000
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Equity Compensation Plans not approved by security holders
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N/A
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N/A
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N/A
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Total
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27,000
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$
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10.00
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48,000
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Our Advisor
Our advisor, Lightstone Value Plus REIT LLC, is a Delaware limited liability company and is wholly owned by our sponsor. Our advisor was formed on June 28, 2004. The following table sets forth information regarding the executive officers of our advisor as of April 1, 2010.
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Name
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Age
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Position
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David Lichtenstein
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49
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Chief Executive Officer and President
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Bruno de Vinck
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64
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Chief Operating Officer and Secretary
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Joseph E. Teichman
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36
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General Counsel
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Donna Brandin
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53
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Chief Financial Officer
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Stephen Hamrick
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58
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Vice President
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The biographies of Messrs. Lichtenstein, de Vinck, Teichman and Hamrick, and Ms. Brandin are set forth above in Our Directors and Executive Officers.
Our Advisory Agreement
Experience of Our Advisor.
David Lichtenstein has over 20 years of experience in identifying, acquiring financing, refinancing and operating real property investments. For a further discussion of the experience of Mr. Lichtenstein, see Our Directors and Executive Officers. The board of directors will determine that any successor advisor possesses sufficient qualifications to perform the advisory function for us and justify the compensation provided for in its contract with us.
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Duties of Our Advisor.
Under the terms of our advisory agreement, our advisor generally has responsibility for our day-to-day operations. Many of the services to be performed by the advisor in managing our day-to-day activities are summarized below. This summary is provided to illustrate the material functions which the advisor performs for us as our advisor, and it is not intended to include all of the services which may be provided to us by the advisor or by third parties. Under the terms of the advisory agreement, the advisor undertakes to use its best efforts to present to us investment opportunities consistent with our
investment policies and objectives as adopted by our board of directors. In its performance of this undertaking, the advisor, either directly or indirectly by engaging an affiliate or third party, shall, subject to the authority of the board of directors:
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find, present and recommend to us real estate investment opportunities consistent with our investment policies, acquisition strategy and objectives;
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structure the terms and conditions of transactions pursuant to which acquisitions of properties will be made;
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acquire properties on our behalf in compliance with our investment objectives and policies;
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arrange for the financing and refinancing of properties;
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administer our bookkeeping and accounting functions;
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serve as our consultant in connection with policy decisions to be made by our board of directors, managing our properties or causing them to be managed by another party; and
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render other services as our board of directors deems appropriate.
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The advisor may not acquire any property with a purchase price that is equal to or greater than $15,000,000 or finance any such acquisition, on our behalf, without the prior approval of a majority of our board of directors. The actual terms and conditions of transactions involving investments in such properties will be determined in the sole discretion of the advisor, subject at all times to such board of directors approval. Conversely, the advisor may acquire any real property with purchase price that is lower than $15,000,000, or finance any such acquisition, on our behalf, without the prior approval of the board of directors, if the following
conditions are satisfied: (i) the investment in the property would not, if consummated, violate our investment guidelines, (ii) the investment in the property would not, if consummated, violate any restrictions on indebtedness; and (iii) the consideration to be paid for such properties does not exceed the fair market value of such properties, as determined by a qualified independent real estate appraiser selected by the advisor.
Likewise, the advisor may not arrange for the financing and refinancing of properties without a satisfactory showing that such a higher level of borrowing is appropriate, the approval of the board of directors and disclosure to stockholders if such financing or refinancing, when consummated, causes the total long-term permanent leverage on all of our properties, in the aggregate, to exceed 75% of such properties fair market value. The actual terms and conditions of financing and refinancing transactions will be determined in the sole discretion of the advisor, subject at all times to board of directors approval. However, the advisor may arrange
for the financing and refinancing of properties, without the approval of the board of directors, if such financing or refinancing, when consummated, does not cause the aggregate long-term permanent leverage on all of our properties, in the aggregate, to exceed 75% of such properties fair market value. The advisor can also arrange for short-term indebtedness, having a maturity of two years or less.
Finally, the advisor may not arrange for the financing and refinancing of properties without a satisfactory showing that such a higher level of borrowing is appropriate, the approval of the board of directors and disclosure to stockholders if such financing or refinancing, when consummated, causes the total leverage on all of our properties, in the aggregate, to exceed 300% of our net assets. In addition, our aggregate borrowings, secured and unsecured, must be reasonable in relation to our net assets and reviewed by our board of directors at least quarterly. The actual terms and conditions of financing and refinancing will be determined in the sole
discretion of the advisor, subject at all times to approval of our board of directors. However, the advisor may arrange for the financing and refinancing of properties, without the approval of the board of directors, if such financing or refinancing, when consummated, does not cause the total leverage on all of our properties, in the
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aggregate, to exceed 300% of our net assets. In addition, the advisor may not arrange for mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans outstanding on the property, including our loans, would exceed 85% of the propertys appraised value, unless substantial justification exists and the loans would not exceed the propertys appraised value.
Term of the Advisory Agreement.
The advisory agreement had an initial term of one year and is renewable for successive one-year terms upon the mutual consent of the parties. It may be terminated by either party, by mutual consent of the parties or by a majority of the independent directors or the advisor, as the case may be, upon 60 days written notice. If the advisory agreement is terminated, the advisor must cooperate with us and take all reasonable steps requested by our board of directors to assist it in making an orderly transition of the advisory function. We will also have to pay our advisor any accrued but
unpaid fees and expenses, as set forth below.
Compensation to Advisor.
The advisory agreement provides for the advisor to be paid fees in connection with services provided to us (see Management Compensation). These fees include acquisition and asset management fees.
We will not reimburse the advisor or its affiliates for services for which the advisor or its affiliates are entitled to compensation in the form of a separate fee. If the advisor or its affiliates perform services that are outside of the scope of the advisory agreement, we will compensate them at rates and in amounts agreed upon by the advisor and the independent directors.
Other than as set forth in the following paragraph, the advisor bears the expenses it incurs in connection with performing its duties under the advisory agreement. These include salaries and fringe benefits of its directors and officers, travel costs and other administrative expenses of its directors or officers.
We will reimburse the advisor for certain costs it incurs in connection with the services it provides to us including, but not limited to: (i) advertising expenses, expense reimbursements, and legal and accounting fees; (ii) the actual cost of goods and materials used by us and obtained from entities not affiliated with the advisor; (iii) administrative services (including personnel costs; provided, however, that no reimbursement shall be made for costs of personnel to the extent that such personnel perform services in transactions for which the advisor receives a separate fee); (iv) acquisition expenses, which include travel and expenses related to
the selection and acquisition of properties and for goods and services provided by the advisor; (v) rent, leasehold improvement costs, utilities or other administrative items generally constituting our advisors overhead; and (vi) expenses related to negotiating and servicing mortgage loans. We will not reimburse the advisor for any services for which we will pay the advisor a separate fee.
Fees Payable Upon Termination of the Advisory Agreement.
If the advisory agreement is terminated for any reason, the advisor will be entitled to receive payment of any earned but unpaid compensation and expense reimbursements accrued as of the date of termination. In addition, our advisor may require that its special general partner interests be converted into cash in an amount equal to the purchase price of the special general partner interests, or may otherwise continue to hold such special general partnership interests after the termination of the advisory agreement.
The advisor will be entitled to receive all accrued but unpaid compensation in cash within 30 days of the effective date of the termination.
Reimbursement by Advisor.
Unless our stockholders amend our charter, our advisor must reimburse us for the amounts, if any, by which our total REIT operating expenses paid during the previous fiscal year exceed the greater of:
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2% of our average invested assets for that fiscal year; or
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25% of our net income for that fiscal year;
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provided, however, only so much of the excess specified above will be required to be reimbursed as the board of directors, including a majority of the independent directors, determines should justifiably be reimbursed in light of such unanticipated, unusual or non-recurring factors which may have occurred within 60 days after the end of the quarter for which the excess occurred. In this event, the stockholders will be sent
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a written disclosure and explanation of the factors the independent directors considered in arriving at the conclusion that the higher total operating expenses were justified. Operating expenses are defined for this purpose as being exclusive of those expenses incurred in the operation of properties we have acquired, acquisition fees and related expenses paid to our advisor, depreciation and amortization expenses, and financing related expenses such as fees paid to lenders and interest expense paid on borrowings by us or our operating partnership.
Liability and Indemnification of Advisor.
Under the advisory agreement, we are also required to indemnify the advisor and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding with respect to the advisors acts or omissions. For details regarding these limitations and circumstances under which we are required or authorized to indemnify and to advance expenses to the advisor, see Limitation of Liability and Indemnification of Directors, Officers and Our Advisor.
Other Activities of Advisor and its Affiliates.
The advisor and its affiliates expect to engage in other business ventures and, as a result, their resources will not be dedicated exclusively to our business. However, pursuant to the advisory agreement, the advisor must devote sufficient resources to the administration of Lightstone Value Plus Real Estate Investment Trust, Inc. to discharge its obligations. The advisor may assign the advisory agreement to an affiliate upon approval of a majority of the independent directors. We may assign or transfer the advisory agreement to a successor entity.
Amendment of the Advisory Agreement.
The advisory agreement can be amended by a written instrument that is signed by all of the parties to that agreement (or their successors or assigns, where applicable).
Potential Acquisition of Advisor and Property Manager.
Many REITs which are listed on a national stock exchange or included for quotation on a national market system are considered self-administered, since the employees of such a REIT perform all significant management functions. In contrast, REITs that are not self-administered, like us, typically engage a third-party, such as our advisor and property manager, to perform management functions on its behalf. If for any reason our independent directors determine that we should become self-administered, the advisory agreement and the property management agreement
each permit us to acquire the business conducted by the advisor and the property manager (including all of its assets). As the parent of our advisor and property manager and thus the recipient of the proceeds from such sales, our sponsor has an incentive to achieve our listing on a national stock exchange or inclusion for quotation on a national market system and thus cause the independent directors to determine that we should become self-administered. See Conflicts of Interest.
If we choose to acquire these businesses, their stockholders will receive in connection with such an acquisition, and in exchange for terminating any contractual arrangements and the release and waiver of all fees payable under their provisions until their stated termination, but not paid, such number of shares of our common stock as is determined in accordance with the following paragraph. We will be obligated to pay any fees accrued under such contractual arrangements for services rendered through the closing of such acquisitions.
The number of shares we may issue shall be determined as follows. We shall first send an election notice to the advisor or the property manager of our election to proceed with such a transaction. Next, the net income of the advisor or the property manager for the six month period immediately preceding the month in which the election notice is delivered, as determined by an independent audit conducted in accordance with generally accepted auditing standards, shall be annualized. (The advisor or the property manager shall bear the cost of any such audit.) Such amount shall then be multiplied by nine-tenths (0.90) and then divided by our Funds
from Operations per Weighted Average Share. Funds from Operations per Weighted Average Share shall be equal to the annualized Funds from Operations (as defined below; i.e., four times the Funds from Operations for the quarter immediately preceding the delivery of the election notice) per weighted average share for us for such quarter, all based upon our quarterly report delivered to our stockholders for such quarter. The resulting quotient shall constitute the number of shares of our common stock to be issued, with delivery thereof and the closing of the transaction to occur within 90 days of delivery of the election notice. Funds from Operations means generally net income (computed in accordance with GAAP), excluding gains or losses from debt restructuring and sales of properties, plus depreciation of real property and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
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Under some circumstances, we can enter into and consummate such transactions without seeking specific stockholder approval. See Conflicts of Interest. Any such transaction will occur, if at all, only if our board of directors obtains a fairness opinion from a recognized financial advisor or institution providing valuation services to the effect that the consideration to be paid therefore is fair, from a financial point of view, to our stockholders.
The Property Manager and the Management Agreement
Our property manager, Lightstone Value Plus REIT Management LLC, provides property management services to us under the terms of the management agreement. Our property manager was formed in Delaware on June 30, 2004 and is wholly-owned by our sponsor. The property manager provides services in connection with the rental, leasing, operation and management of our properties. We have agreed to pay the property manager a monthly management fee of 5% of the gross revenues from our residential and retail properties. In addition, for the management and leasing of our office and industrial properties, we will pay to our property manager, property management
and leasing fees of up to 4.5% of gross revenues from our office and industrial properties. We may pay our property manager a separate fee for the one-time initial rent-up or leasing-up of newly constructed office and industrial properties in an amount not to exceed the fee customarily charged in arms length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area.
Notwithstanding the foregoing, our property manager may be entitled to receive higher fees in the event our property manager demonstrates to the satisfaction of a majority of the directors (including a majority of the independent directors) that a higher competitive fee is justified for the services rendered.
Our property manager will also be paid a monthly fee for any extra services equal to no more than that which would be payable to an unrelated party providing the services.
The property manager may subcontract its duties for a fee that may be less than the fee provided for in the management services agreements. In the event that the property manager subcontracts its duties with respect to some or all of our properties, the fees payable to such parties for such services will be deducted from the monthly management fee payable to our property manager by us or paid directly by our property manager.
The management agreement can be amended by written instrument executed by the party against whom the amendment is asserted. The management agreement can be terminated after one year and will terminate upon written notice from our operating partnership to the property manager of gross negligence or willful misconduct in the performance of its duties. The management agreement will also terminate upon our property managers bankruptcy, receivership, reorganization or similar financial difficulties relating to its insolvency.
We have the option to acquire our property manager. See Conflicts of Interest and Management Our Advisory Agreement Potential acquisition of advisor and property manager for a description of this right and the terms under which we may exercise it.
Lightstone SLP, LLC
Lightstone SLP, LLC was formed in Delaware on February 11, 2005, for the purpose of purchasing the special general partner interests from our operating partnership in exchange for proceeds sufficient to pay all offering and organization expenses and receiving special general partner distributions. Lightstone SLP, LLC is a direct, wholly owned subsidiary of our sponsor. Lightstone SLP, LLC purchased special general partner interests in our operating partnership at a cost of $100,000 per unit for each $1.0 million in offering subscriptions. As of March 31, 2010, we have received proceeds of $30.0 million from the sale of SLP Units.
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LIMITATION OF LIABILITY AND INDEMNIFICATION
OF DIRECTORS, OFFICERS AND OUR ADVISOR
Our charter provides that our advisor and directors are deemed to be in a fiduciary relationship to us and our stockholders and that our directors have a fiduciary duty to the stockholders to supervise our relationship with the advisor.
The liability of our directors and officers to us or our stockholders for money damages is limited to the fullest extent permitted. As a result, our directors and officers will not be liable to us or our stockholders for monetary damages unless:
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the person actually received an improper benefit or profit in money, property or services; and
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the person is adjudged to be liable based on a finding that the persons action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.
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Except as described below, our charter authorizes and directs us to indemnify and to pay or reimburse reasonable expenses to any director, officer, employee or agent, and our advisor and its affiliates. Our charter currently prohibits us from indemnifying or holding harmless for any loss or liability that we suffer, any director, officer, employee, agent or the advisor or its affiliates unless:
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the person seeking indemnification has determined, in good faith, that the course of conduct which caused the loss or liability was in our best interests;
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the person seeking indemnification was acting on our behalf or performing services for us; and
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the liability or loss was not the result of negligence or misconduct on the part of the person seeking indemnification, except that if the person seeking indemnification is or was an independent director, the liability or loss will not have been the result of gross negligence or willful misconduct.
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In any such case, the indemnification or agreement to indemnify is recoverable only out of our net assets and not from the assets of our stockholders.
We will not indemnify any director, officer, employee, agent or the advisor, his, her or its affiliates for losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless one or more of the following conditions are met:
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there has been a successful adjudication on the merits of each count involving alleged securities law violations;
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the claims have been dismissed with prejudice by a court of competent jurisdiction; or a court of competent jurisdiction approves a settlement of the claims 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 the published position of any state securities regulatory authority of a jurisdiction in which our securities were offered and sold as to indemnification for securities law violations.
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Subject to applicable law, our charter requires us to advance amounts to a person entitled to indemnification for legal and other expenses and costs incurred as a result of any legal action for which indemnification is being sought only if all of the following conditions are satisfied:
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the legal action relates to acts or omissions relating to the performance of duties or services for us or on our behalf by the person seeking indemnification;
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the legal action is initiated by a third party who is not a stockholder or the legal action is initiated by a stockholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves advancement;
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the person seeking indemnification provides us with a written affirmation of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification; and
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the person seeking indemnification undertakes in writing to repay us the advanced funds, together with interest at the applicable legal rate of interest, if the person seeking indemnification is found not to be entitled to indemnification.
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We may purchase and maintain insurance or provide similar protection on behalf of any director, officer, employee, agent or the advisor or its affiliates against any liability asserted which was incurred in any such capacity with us or arising out of such status;
provided, however
, that we may not incur the costs of any liability insurance which insures any person against liability for which he, she or it could not be indemnified under our charter. We may enter into any contract for indemnity and advancement of expenses with any officer, employee or agent who is not a director as may be determined by the board of directors and as permitted by
law. Our sponsor has purchased directors and officers liability insurance on behalf of our officers and directors and we will reimburse our sponsor for the premiums incurred under such policy.
The Lightstone Group will enter into separate indemnification agreements with each of our directors and some of our executive officers. The indemnification agreements will require The Lightstone Group to indemnify our directors and officers to the fullest extent permitted by law, subject to the limits referred to above. The Lightstone Group also may indemnify and advance expenses incurred by directors and officers seeking to enforce their rights under the indemnification agreements and cover directors and officers under The Lightstone Groups directors and officers liability insurance, if any. Although the form of indemnification
agreement will offer substantially the same scope of coverage afforded by provisions in our charter and bylaws, it will provide greater assurance to directors and officers that indemnification will be available, because as a contract, it cannot be unilaterally modified by The Lightstone Groups or our boards of directors or by the stockholders to eliminate the rights it will provide.
We have been advised that, in the opinion of the Securities and Exchange Commission, any indemnification that applies to liabilities arising under the Securities Act is contrary to public policy and, therefore, unenforceable.
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PRINCIPAL STOCKHOLDERS
The following table provides information as of April 1, 2010 regarding the number and percentage of shares beneficially owned by each director, each executive officer, all directors and executive officers as a group and any person known to us to be the beneficial owner of more than 5% of our outstanding shares. As of April 1, 2010, we had approximately 7,705 stockholders of record and 31.9 million shares of common stock outstanding. Beneficial ownership includes outstanding shares and shares which are not outstanding that any person has the right to acquire within 60 days after the date of this table. However any such shares which are not outstanding
are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by any other person. Except as indicated, the persons named in the table have sole voting and investing power with respect to all shares beneficially owned by them.
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Name and Address of Beneficial Owner
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Number of Shares of Common Stock of the Lightstone REIT Beneficially Owned
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Percent of All
Common Shares of the Lightstone REIT
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David Lichtenstein
(1)
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20,000
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0.06
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%
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Edwin J. Glickman
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George R. Whittemore
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Shawn Tominus
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Bruno de Vinck
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5,989
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0.02
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%
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Donna Brandin
|
|
|
|
|
|
|
|
|
Joseph Teichman
|
|
|
|
|
|
|
|
|
Stephen Hamrick
|
|
|
10,000
|
|
|
|
0.03
|
%
|
Our directors and executive officers as a group (8 persons)
|
|
|
35,989
|
|
|
|
0.11
|
%
|
|
(1)
|
Includes 20,000 shares owned by our advisor. Our advisor is wholly owned by The Lightstone Group, LLC, which is controlled and wholly owned by David Lichtenstein, our sponsor. Lightstone SLP, LLC, which is also controlled and wholly owned by our sponsor, has received special general partner interests of our operating partnership in exchange for $30,000,000, which we used to defray all costs and expenses of our initial public offering, including organization costs and selling commissions.
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OUR STRUCTURE AND FORMATION
We were formed on June 8, 2004 as a Maryland corporation. The operating partnership was formed on July 12, 2004 as a Delaware limited partnership.
Structure
We operate our business using what is commonly known as an UPREIT structure. This means that we have formed the operating partnership to own all of our assets, either directly or indirectly. Our advisor contributed $200,000 to us for 20,000 shares of our common stock to form us.
We commenced an initial offering to sell a maximum of 30,000,000 shares of common shares on May 23, 2005, at a price of $10 per share (exclusive of 4 million shares available pursuant to the our dividend reinvestment plan and 75,000 shares reserved for issuance under the our stock option plan). Our Registration Statement on Form S-11 (the Registration Statement) in connection with our initial offering was declared effective under the Securities Act of 1933 on April 22, 2005, and on May 24, 2005, we began offering our common shares for sale to the public. Lightstone Securities, LLC (the Dealer Manager), an affiliate of our
sponsor, served as the dealer manager of our initial offering. In addition, the Lightstone REIT issued 20,000 shares to the Advisor on July 6, 2004, for $10 per share.
Our initial offering of common stock terminated on October 10, 2008 when all shares offered where sold. However, the shares continued to be sold to existing stockholders pursuant to our dividend reinvestment plan. As of March 31, 2010, cumulative gross offering and dividend reinvestment proceeds of approximately $314.1 million, which includes redemptions and $21.6 million of proceeds from the dividend reinvestment plan, have been received by us and used for the purchase of a 98.4% general partnership interest in the Common Units of our operating partnership.
We conduct substantially all of our business, and hold our interests in the properties in which we invest, directly or indirectly, through the operating partnership.
As a REIT, we may conduct some of our business and hold some of our interests in properties through taxable REIT subsidiaries or (TRS) which may be wholly or partially owned. We currently have one TRS to facilitate our ownership of lodging facilities. We may form another TRS or use our existing TRS to allow for our acquisition of additional lodging assets in the future. Additionally, we may in the future decide to conduct other business or hold some of our interests in properties in such subsidiaries.
See Prospectus Summary Organizational Chart for a diagram depicting the services rendered by our affiliates to us, as well as our organizational structure and the organizational structure of the operating partnership.
Currently, the properties that we own are described in Specified Investments. We form entities to acquire properties. The entities are be owned or controlled directly or indirectly by the operating partnership. Properties that may be purchased by us in the future may be owned by entities that will be directly or indirectly owned by the operating partnership. In other instances, there likely will be other investors in the entities that own our properties, in addition to the operating partnership. These investors would be the former owners of properties that we acquired from them in exchange for interests in such entities.
We have complied and intend to continue to comply with all of the corporate responsibility and disclosure rules related to the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
Benefits of the UPREIT Structure
Our structure is generally referred to as an umbrella partnership real estate investment trust (UPREIT) structure. Substantially all of our assets are held our operating partnership. This structure enables us to acquire assets from other partnerships and individual owners in a manner that defers the recognition of gain to the partners of the acquired partnerships or the individual owners, assuming certain conditions are met.
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The benefits of our REIT status and UPREIT structure include the following:
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Access to Capital.
We believe our structure will provide us with access to capital for refinancing and growth. Sources of capital include the common stock sold in this offering and possible future issuances of debt or equity through public offerings or private placements. Our anticipated financial strength should enable us to obtain financing at advantageous rates and on acceptable terms.
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Growth.
Our structure will allow stockholders through their ownership of common stock and the limited partners through their ownership of limited partnership units, an opportunity to participate in the growth of the real estate market through an ongoing business enterprise. In addition to the portfolio of initial real properties, we give stockholders an interest in all future investments in additional properties.
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Tax Deferral.
The UPREIT structure will provide property owners who transfer their real properties to the operating partnership in exchange for limited partnership units the opportunity to defer the tax consequences that would arise from a sale of their real properties and other assets to us or to a third party. This will allow us to acquire assets without using as much of our cash and may allow us to acquire assets that the owner would otherwise be unwilling to sell because of tax considerations.
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Affiliates
Throughout this prospectus, we use the term affiliate. For purposes of this prospectus, an affiliate of any natural person, partnership, corporation, association, trust, limited liability or other legal entity (a person) includes any of the following:
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(a)
|
any person directly or indirectly owning, controlling or holding, with power to vote 10% or more of the outstanding voting securities of such other person;
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(b)
|
any person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other person;
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(c)
|
any person directly or indirectly controlling, controlled by, or under common control with, such other person;
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(d)
|
any executive officer, director, trustee or general partner of such other person; and
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(e)
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any legal entity for which such person acts as an executive officer, director, trustee or general partner.
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COMPETITION
The retail, lodging, office, industrial and residential real estate markets are highly competitive. We compete in all of our markets with other owners and operators of retail, lodging, office, industrial and residential real estate. The continued development of new retail, lodging, office, industrial and residential properties has intensified the competition among owners and operators of these types of real estate in many market areas in which we intend to operate. We compete based on a number of factors that include location, rental rates, security, suitability of the propertys design to prospective tenants needs and the manner in which
the property is operated and marketed. The number of competing properties in a particular market could have a material effect on our occupancy levels, rental rates and on the operating expenses of certain of our properties.
In addition, we compete with other entities engaged in real estate investment activities to locate suitable properties to acquire and to locate tenants and purchasers for our properties. These competitors include other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, governmental bodies and other entities. There are also other REITs with asset acquisition objectives similar to ours and others may be organized in the future. Some of these competitors, including larger REITs, have substantially greater marketing and
financial resources than we will have and generally may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of tenants. In addition, these same entities seek financing through similar channels to our company. Therefore, we will compete for institutional investors in a market where funds for real estate investment may decrease.
Competition from these and other third party real estate investors may limit the number of suitable investment opportunities available to us. It may also result in higher prices, lower yields and a narrower spread of yields over our borrowing costs, making it more difficult for us to acquire new investments on attractive terms. In addition, competition for desirable investments could delay our investment in desirable assets, which may in turn reduce our earnings per share and negatively affect our ability to maintain distributions to stockholders.
We believe that our senior managements experience, coupled with our financing, professionalism, diversity of properties and reputation in the industry will enable us to compete with the other real estate investment companies.
Because we are organized as an UPREIT, we are well-positioned within the industries in which we intend to operate to offer existing owners the opportunity to contribute those properties to our company in tax-deferred transactions using our operating partnership units as transactional currency. As a result, we have a competitive advantage over most of our competitors that are structured as traditional REITs and non-REITs in pursuing acquisitions with tax-sensitive sellers.
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INVESTMENT OBJECTIVES AND POLICIES
General
Our primary objective is to achieve capital appreciation with a secondary objective of income without subjecting principal to undue risk. We intend to achieve this goal primarily through investments in real estate properties.
We have to date acquired residential and commercial properties. Our acquisitions include both portfolios and individual properties. Our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial and office properties and that our residential properties are principally comprised of Class B multi-family complexes.
Upon the closing of the disposition of our retail outlet assets in connection with the aforementioned Contribution Agreement signed on December 8, 2009, we anticipate to have additional funds of $200.0 million, before transaction expenses, from the disposition proceeds. We expect to invest a significant portion of these funds, net of distributions to stockholders equal to the estimated tax liability (if any) they would accrue from the transaction, to acquire additional investments and properties in the future.
Unlike other REITs, which typically specialize in one sector of the real estate market, we invest in both residential and commercial properties to provide a more general risk profile and take advantage of our sponsors expertise in acquiring larger properties and portfolios of both residential and commercial properties.
The following is descriptive of our investment objectives and policies:
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|
Reflecting a
flexible operating style
, our portfolio is likely to be diverse and include properties of different types (such as retail, office, industrial and residential properties); both passive and active investments; and joint venture transactions. The portfolio is likely to be determined largely by the purchase opportunities that the market offers, whether on an upward or downward trend. This is in contrast to those funds that are more likely to hold investments of a single type, usually as outlined in their charters.
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|
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We may invest in properties that are not sold through conventional marketing and auction processes. Our investments may be at a dollar cost level lower than levels that attract those funds that hold investments of a single type.
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|
|
We may be more likely to make investments that are in need of rehabilitation, redirection, remarketing and/or additional capital investment.
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|
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We may place major emphasis on a
bargain element
in our purchases, and often on the individual circumstances and motivations of the sellers. We will search for bargains that become available due to circumstances that occur when real estate cannot support the mortgages securing the property.
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|
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We intend to pursue returns in excess of the returns targeted by real estate investors who target a single type of property investment.
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We cannot assure you that we will attain these objectives.
Diversification
We attempt to be diversified by property type. We invest in retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), office, industrial and residential properties. The actual allocation to each property type is not predetermined and will ultimately depend on the relative attractiveness of the investments reviewed by our advisor and meeting our investment criteria and by the funds available to us to invest.
Sources of Investment Opportunities
We originate transactions from real estate industry sources with whom our sponsor has built relationships over a number of years.
In addition, some of our purchases will be from domestic banks, insurance companies and other regulated financial institutions, which may come into possession of real property as the result of foreclosures or surrenders.
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Set forth below are summary descriptions of the investments that we have made and may expect to make.
Real Estate Investments
We have made and may make equity investments in real estate; such investments is made through the purchase of all or part of a fee simple ownership or a more limited form of ownership, or all or part of a leasehold interest. Investment in an equity interest gives us a right to part or all of the cash flow and capital appreciation generated by the property after satisfaction of liens on the property. Liens usually include the payment of principal and interest on mortgage loans, real estate taxes and other assessments. We may also purchase limited partnership interests, limited liability company interests and other equity securities.
We invest in real estate that our advisor believes is available for less than its estimated worth. During the period we hold real estate, we may develop or redevelop the property, make tenant improvements or make certain onsite and offsite improvements. We may be required to maintain the property, pay property taxes and carry insurance on the property. We may elect to finance or refinance some of our real estate holdings by borrowing against them on a nonrecourse basis. We intend to acquire both portfolios and individual properties on a geographically diverse basis.
Building classifications in most markets refer to Class A, B, C and sometimes D properties. Class A, AA and AAA properties are typically newer buildings with superior construction and finish in excellent locations with easy access, are attractive to creditworthy tenants and offer valuable amenities such as on-site management or covered parking. These buildings command the highest rental rates in their market. As the classification of a building decreases (e.g. Class A to Class B), one building attribute or another becomes less desirable. We
expect that our commercial holdings will continue to consist of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial and office properties and that our residential properties will continue to be principally comprised of Class B multi-family complexes.
Asset Repositionings.
We identify and execute value-creation plans through a program of aggressive asset management. We focus on opportunities characterized by properties that are under-performing relative to comparable assets due to inadequate management or unresolved conflicts among existing owners, lenders, tenants and managers. These situations often offer attractive risk-adjusted returns through recapitalization and the subsequent redevelopment or repositioning of the underlying real estate.
Money Market Investments
Pending the purchase of other permitted investments, or to provide the reserve described below, we temporarily invest in one or more unaffiliated money market mutual funds or directly in certificates of deposit, commercial paper, interest-bearing government securities and other short-term instruments.
Cash and Cash Equivalents
We cannot assure you that we will attain any of our objectives. If we have not facilitated liquidity in our shares either through listing them for trading on a national stock exchange, including them for quotation on a stock exchange or on Nasdaq or providing liquidity by some other means, generally within seven to ten years after the net proceeds of our initial public offering are fully invested, we will start selling our properties and other assets, either on a portfolio basis or individually, or engage in another transaction approved by the board of directors, market conditions permitting, unless the directors (including a majority of the
independent directors) determine that, in light of our expected life at any given time, it is in the best interest of the stockholders to reinvest proceeds from property sales or refinancings.
In making the decision to apply for listing of the shares or providing other forms of liquidity, the board of directors will try to determine whether listing the shares or liquidating will result in greater value for the stockholders. It cannot be determined at this time the circumstances, if any, under which the directors will agree to list the shares.
Even if liquidity has not been facilitated, we are under no obligation to liquidate our portfolio within this period since the precise timing will depend on real estate and financial markets, economic conditions of the areas in which the properties are located and federal income tax effects on stockholders which may prevail in
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the future. Furthermore, there can be no assurance that we will be able to liquidate our portfolio and it should be noted that we will continue in existence until all properties are sold and our other assets are liquidated. Alternatively, as discussed above, we may merge with, or otherwise be acquired by, our sponsor or its affiliates. The independent directors shall review our investment policies at least annually, and with sufficient frequency to determine that such policies are in the best interests of our stockholders.
Our strategies for accomplishing these objectives are set forth below.
Acquisition Strategy
We have to date acquired residential and commercial properties. Our acquisitions include both portfolios and individual properties. Our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial and office properties and that our residential properties are principally comprised of Class B multi-family complexes. Building classifications in most markets refer to Class A, B, C and sometimes D properties. Class A, AA and AAA properties are typically newer buildings with superior
construction and finish in excellent locations with easy access, are attractive to creditworthy tenants and offer valuable amenities such as on-site management or covered parking. These buildings command the highest rental rates in their market. As the classification of a building decreases (e.g., Class A to Class B), one building attribute or another becomes less desirable. Upon the closing of the disposition of our retail outlet assets in connection with the aforementioned Contribution Agreement signed on December 8, 2009, we anticipate to have additional funds of $200.0 million, before transaction expenses. We expect to invest a significant portion of these funds to acquire additional investments and properties in the future.
We may acquire the following types of real estate interests:
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|
In market-rate, middle market multifamily properties at a discount to replacement cost located either in emerging markets or near major metropolitan areas. We will attempt to identify those sub-markets with job growth opportunities and demand demographics which support potential long-term value appreciation for multifamily properties.
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|
|
In well-located, multi-tenant, community, power and lifestyle shopping centers and malls located in highly trafficked retail corridors, in selected high-barrier to entry markets and sub-markets. We will attempt to identify those sub-markets with constraints on the amount of additional property supply will make future competition less likely.
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|
|
In improved, multi-tenant, industrial properties located near major transportation arteries and distribution corridors with limited management responsibilities.
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|
|
Interests in improved, multi-tenant, office properties located near major transportation arteries with limited management responsibilities.
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|
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In lodging properties located near major transportation arteries in urban and suburban areas.
|
All of the properties are owned by subsidiary limited partnerships or limited liability companies. These subsidiaries are single-purpose entities that we created to own a single property, and each have no assets other than the property it owns. These entities represent a useful means of shielding our operating partnership from liability under state laws and will make the underlying properties easier to transfer. However, tax law disregards single-member LLCs and so it will be as if the operating partnership owns the underlying properties for tax purposes. Use of single-purpose entities in this manner is customary for REITs. Our independent directors
are not required to approve all transactions involving the creation of subsidiary limited liability companies and limited partnerships that we intend to use for investment in properties on our behalf. These subsidiary arrangements are intended to ensure that no environmental or other liabilities associated with any particular property can be attributed against other properties that the operating partnership or we will own. The limited liability aspect of a subsidiarys form will shield parent and affiliated (but not subsidiary) companies, including the operating partnership and us, from liability assessed against it. No additional fees are imposed upon us by the subsidiary companies managers and these subsidiaries are not affected our stockholders voting rights.
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We do not intend to invest in single family residential properties; leisure home sites; farms; ranches; timberlands; unimproved properties not intended to be developed; or mining properties.
Not more than 10% of our total assets are or will be invested in unimproved real property. For purposes of this paragraph, unimproved real properties does not include properties acquired for the purpose of producing rental or other operating income, properties under construction and properties for which development or construction is planned within one year. Additionally, we do not invest in contracts for the sale of real estate unless in recordable form and appropriately recorded.
Although we are not limited as to the geographic area where we may conduct our operations, we intend to invest in properties located near the existing operations of our Sponsor, in order to achieve economies of scale where possible.
Financing Strategy and Policies
We intend to utilize leverage to acquire our properties. The number of different properties we acquire is affected by numerous factors, including, the amount of funds available to us. When interest rates on mortgage loans are high or financing is otherwise unavailable on terms that are satisfactory to us, we may purchase certain properties for cash with the intention of obtaining a mortgage loan for a portion of the purchase price at a later time. There is no limitation on the amount we may invest in any single property or on the amount we can borrow for the purchase of any property.
We intend to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. We may also incur short-term indebtedness, having a maturity of two years or less. We may finance our property acquisitions through a variety of means, including but not limited to individual non-recourse mortgages and through the exchange of an interest in the property for limited partnership units of the Operating Partnership.
By operating on a leveraged basis, we will have more funds available for investment in properties. This will allow us to make more investments than would otherwise be possible, resulting in a more diversified portfolio. Although our liability for the repayment of indebtedness is expected to be limited to the value of the property securing the liability and the rents or profits derived therefrom, our use of leveraging increases the risk of default on the mortgage payments and a resulting foreclosure of a particular property. To the extent that we do not obtain mortgage loans on our properties, our ability to acquire additional properties will be
restricted. We will endeavor to obtain financing on the most favorable terms available.
Lenders may have recourse to assets not securing the repayment of the indebtedness. Our sponsor may refinance properties during the term of a loan only in limited circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing mortgage, when an existing mortgage matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment. The benefits of the refinancing may include an increased cash flow resulting from reduced debt service requirements, an increase in distributions from proceeds of the refinancing, if any, and/or an increase in property
ownership if some refinancing proceeds are reinvested in real estate.
Operations
Our property manager manages and leases substantially all of the properties that we acquire with the existing management and leasing staff of its affiliates and where appropriate it may acquire and incorporate the existing management and leasing staffs of the portfolio properties we acquire.
Although we are not limited as to the geographic area where we may conduct our operations, we intend to invest in properties located near our sponsors existing operations to achieve economies of scale where possible. The number and mix of properties we acquire depends upon real estate and market conditions and other circumstances existing at the time we are acquiring our properties and the amount of proceeds we have available for investment. We consider relevant real estate property and financial factors, including the location of the property, its income-producing capacity, its suitability for any future development the prospects for
long-range appreciation, its liquidity and income tax considerations. In this regard, our obligation to close the purchase of any investment will generally be conditioned upon the delivery and verification of certain documents from the seller or developer, including, where appropriate:
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leases, licenses and temporary tenants;
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plans and specifications;
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zoning analyses and future development potential;
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|
|
traffic flow, car count and parking studies;
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|
environmental and engineering reports;
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|
projections, surveys and appraisals;
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evidence of marketable title subject to such liens and encumbrances as are acceptable to our advisor;
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|
|
audited financial statements covering recent operations of properties having operating histories unless such statements are not required to be filed with the Securities and Exchange Commission and delivered to our stockholders; and
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|
|
title and liability insurance policies.
|
We will not close the acquisition of any property unless and until we obtain an environmental assessment (generally a minimum of a Phase I review) for each property acquired and are generally satisfied with the environmental status of the property. In determining whether to purchase a particular property, we may, in accordance with customary practices, obtain an option on such property. The amount paid for an option, if any, is normally surrendered if the property is not purchased and is normally credited against the purchase price if the property is purchased. In acquiring, leasing and developing real estate properties, we will be subject to risks
generally incident to the ownership of real estate, including:
|
|
changes in general economic or local conditions;
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|
|
changes in supply of or demand for similar or competing properties in an area;
|
|
|
bankruptcies, financial difficulties or lease defaults by our tenants;
|
|
|
changes in interest rates and availability of permanent mortgage funds which may render the sale of a property difficult or unattractive;
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|
|
changes in tax, real estate, environmental and zoning laws;
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|
|
changes in the cost or availability of insurance, particularly after terrorist attacks of September 11, 2001;
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|
|
periods of high interest rates and tight money supply;
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|
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general overbuilding or excess supply in the market area.
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Distributions
U.S. federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income (excluding net capital gain), determined without regard to the deduction for dividends paid, although the board of directors, in its discretion, may increase that percentage as it deems appropriate. See Material U.S. Federal Income Tax Considerations REIT Qualification Tests Annual Distribution Requirements. For a discussion of the tax treatment of distributions to you, see Material U.S. Federal Income Tax Considerations.
Distributions are at the discretion of the board of directors and depend upon our distributable funds, current and projected cash requirements, tax considerations and other factors. Our ability to pay distributions
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and the size of these distributions depend upon a variety of factors. For example, our borrowing policy permits us to incur short-term indebtedness, having a maturity of two years or less, and we may have to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. We cannot assure that distributions will continue to be made or that we will maintain any particular level of distributions that we may establish.
We have declared and intend to continue to declare dividends to our stockholders as of daily record dates selected by the directors and aggregate and pay such dividends quarterly. The board of directors currently intends to declare distributions on a quarterly basis using the last day of the quarter as the record date. In order for an investor to receive a distribution, they must be a stockholder of record as of the record date. Therefore, newly admitted investors, or investors redeeming or transferring shares, will not receive a distribution for a record date that they are not considered a stockholder of record. It is the intent of the board of
directors to declare and pay distributions quarterly during the offering period and thereafter. However, the board of directors, in its sole discretion, may determine to declare and pay distributions on another basis.
Generally, income distributed will not be taxable to us under U.S. federal income tax laws if we comply with the provisions relating to electing taxation as a REIT. As we are required to distribute annually at least 90% of our REIT taxable income (excluding U.S. net capital gain), determined without regard to the deduction for dividends paid, to maintain our objective of being taxed as a REIT, we may be required to make distributions in excess of cash available. If the cash available to us is insufficient to pay such distributions, we may obtain the necessary funds by borrowing or selling assets. These methods of obtaining funds could affect future
distributions by increasing operating costs. To the extent that distributions to stockholders (and not designated as capital gain dividends or, for taxable years beginning before January 1, 2011, qualified dividend income) exceed our current and accumulated earnings and profits (as determined for U.S. federal income tax purposes), such amounts constitute a return of capital for U.S. federal income tax purposes to the extent of a stockholders tax basis in our stock, although such distributions might not reduce stockholders aggregate invested capital. Distributions in kind will not be permitted, except for distributions of readily marketable securities; distributions of beneficial interests in a liquidating trust established for our dissolution and the liquidation of our assets in accordance with the terms of the charter; or distributions of in-kind property, as long as, with respect to in-kind property, the board of directors advises each stockholder of the risks associated
with direct ownership of the property; offers each stockholder the election of receiving in-kind property distributions; and distributes in-kind property only to those stockholders who accept the directors offer.
Distributions will be made at the discretion of the directors, depending primarily on net cash from operations (which includes cash received from tenants, distributions from joint ventures, and interest income from borrowers under loans, less expenses paid) and our general financial condition, subject to the obligation of the directors to cause us to qualify and remain qualified as a REIT for federal income tax purposes. We intend to increase distributions in accordance with increases in net cash from operations, if any.
Since the period beginning February 1, 2006, the Board of Directors of the Lightstone REIT declared quarterly dividends in the amount of $0.0019178 per share per day payable to stockholders of record at the close of business each day during the applicable period. The annualized rate declared was equal to 7%, which represents the annualized rate of return on an investment of $10.00 per share attributable to these daily amounts, if paid for each day for a 365 day period. Through March 31, 2010, we have paid aggregate distribution in the $50.9 million, which includes cash distributions paid to stockholders and common stock issued under our distribution
reinvestment program.
Total dividends declared during the years ended December 31, 2009, 2008 and 2007 were $27.3 million, $9.9 million and $7.1 million, respectively. On November 3, 2009, the Companys Board of Directors declared the dividend for the three-month period ending December 31, 2009 of $5.6 million. The dividend was paid January 15, 2010.
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Source of Distribution
The following table provides a summary of the quarterly dividends declared and the source of distribution based upon cash flows provided by/(used in) operations for the year ended December 31, 2009.
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|
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2009
|
|
|
Year Ended
December 31,
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|
Quarter Ended
December 31,
|
|
Quarter Ended
September 30,
|
|
Quarter Ended
June 30,
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|
Quarter Ended
March 31,
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Dividend period
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|
|
2009 Year
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|
|
|
Q4 2009
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|
|
|
Q3 2009
|
|
|
|
Q2 2009
|
|
|
|
Q1 2009
|
|
Date dividend declared
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|
|
|
|
|
|
November 3,
2009
|
|
|
|
September 17,
2009
|
|
|
|
May 13,
2009
|
|
|
|
March 30,
2009
|
|
Date dividend paid
|
|
|
|
|
|
|
January 15,
2010
|
|
|
|
October 15,
2009
|
|
|
|
July 15,
2009
|
|
|
|
April 15,
2009
|
|
Dividend Paid
|
|
$
|
12,492,168
|
|
|
$
|
3,237,141
|
|
|
$
|
3,151,937
|
|
|
$
|
3,050,200
|
|
|
$
|
3,052,890
|
|
Dividend Reinvested
|
|
|
9,394,853
|
|
|
|
2,320,529
|
|
|
|
2,367,469
|
|
|
|
2,394,520
|
|
|
|
2,312,335
|
|
Total Dividends
|
|
$
|
21,887,021
|
|
|
$
|
5,557,670
|
|
|
$
|
5,519,406
|
|
|
$
|
5,444,720
|
|
|
$
|
5,365,225
|
|
Source of distributions
|
|
|
|
|
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|
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|
|
|
Cash flows provided by/(used in) operations
|
|
$
|
1,377,643
|
|
|
$
|
(1,520,621
|
)
|
|
$
|
1,169,895
|
|
|
$
|
1,006,312
|
|
|
$
|
722,057
|
|
Proceeds from issuance of common stock
|
|
|
20,509,378
|
|
|
|
7,078,291
|
|
|
|
4,349,511
|
|
|
|
4,438,408
|
|
|
|
4,643,168
|
|
Total Sources
|
|
$
|
21,887,021
|
|
|
$
|
5,557,670
|
|
|
$
|
5,519,406
|
|
|
$
|
5,444,720
|
|
|
$
|
5,365,225
|
|
The cash flows provided/(used in) operations include an adjustment to remove the income from investments in unconsolidated affiliated real estate entities as any cash distributions from these investments are recorded through cash flows from investing activities.
Management also evaluates the source of distribution funding based upon modified funds from operations (MFFO) (Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations for additional information and calculation of MFFO). Based upon MFFO, for the year ended December 31, 2009, approximately 90% of our distributions were funded or will be funded from MFFO and approximately 10% were funded or will be funded for with uninvested proceeds from the sale of shares from our offering.
On March 2, 2010, the Companys Board of Directors declared the quarterly dividend for the three-month period ended March 31, 2010 in the amount of $0.0019178 per share per day, $5.5 million in aggregate, payable to stockholders of record on the close of business each day during the quarter, which was paid, on March 30, 2010.
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The following table provides a summary of the quarterly dividends declared and the source of distribution based upon cash flows provided by operations for the three months ended March 31, 2010.
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|
|
|
|
Quarter Ended
March 31,
|
Distribution period
|
|
|
Q1 2010
|
|
Date distribution declared
|
|
|
March 2, 2010
|
|
Date distribution paid
|
|
|
March 30, 2010
|
|
Distributions Paid
|
|
$
|
3,332,903
|
|
Distributions Reinvested
|
|
|
2,127,482
|
|
Total Distributions
|
|
$
|
5,460,385
|
|
Source of distributions
|
|
|
|
|
Cash flows provided by operations
|
|
$
|
1,238,035
|
|
Proceeds from investment in affiliates and excess cash
|
|
|
2,094,868
|
|
Proceeds from issuance of common stock
|
|
|
2,127,482
|
|
Total Sources
|
|
$
|
5,460,385
|
|
Property Acquisition Standards
We generally acquire properties located near our sponsors existing operations (as set forth under Investment Objectives and Policies Operations above) in order to achieve economies of scale where possible. We analyze relevant demographic, economic and financial data. Specifically, we consider the following factors, among others, in the process of evaluating and performing due diligence on a piece of real property:
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|
geographic location and type;
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|
|
barriers to entry which would limit competition;
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|
|
quality of tenants or customer base;
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|
|
construction quality, condition and design;
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|
|
current and projected cash flow and the ability to increase cash flow;
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|
|
occupancy levels at the property and stability;
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|
|
potential for capital appreciation;
|
|
|
lease rent roll, including the potential for rent or rate increases;
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|
|
potential for economic growth in the tax and regulatory environment of the community in which the property is located;
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|
|
potential for expanding the physical layout of the property and/or the number of sites;
|
|
|
occupancy and demand by tenants or guests for properties of a similar type in the same geographic vicinity (the overall market and submarket);
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|
|
prospects for liquidity through sale, financing or refinancing of the property; and
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|
|
treatment under applicable federal, state and local tax and other laws and regulations.
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Before purchasing a property, we will examine and evaluate the potential value of the site, the financial condition and business history of the property, the demographics of the area in which the property is located or to be located, the proposed purchase price, geographic and market diversification and potential sales.
Description of Leases
Commercial Leases
The terms and conditions of any lease we enter into with our commercial tenants may vary substantially from those we describe in this prospectus. However, currently some of our industrial leases may be
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economically what are generally referred to as triple-net leases. A triple-net lease typically provides that, in addition to making its lease payments, the tenant will be required to pay or reimburse us for all real estate taxes, sales and use taxes, special assessments, maintenance, utilities, insurance and building repairs, and other building operation and management costs. As landlord, we have responsibility for certain capital repairs or replacement of specific structural components of a property such as the roof of the building, the truck court and parking areas, as well as the interior floor or slab of the building.
We include provisions in our commercial leases that increase the amount of base rent payable at various points during the lease term. In addition, we intend for our commercial leases to provide for the payment of additional rent calculated as a percentage of a tenants gross sales above predetermined thresholds in most leases. Our leases with retail anchor tenants generally have initial terms of 10 to 25 years, with one or more renewal options available to the tenant. By contrast, smaller commercial leases typically have three- to ten-year terms.
Residential Leases
The majority of the leases at residential properties are for a term of one or two years, which may enable us to seek increased rents upon renewal of existing leases or commencement of new leases. Such short-term leases generally minimize the risk to us of the adverse effects of inflation, although as a general rule these leases permit residents to leave at the end of the lease term without penalty.
Property Acquisition Structure
We generally acquire fee interests in properties, although other methods of acquiring a property may be utilized if we deem it to be advantageous. For example, we may acquire properties through a joint venture or the acquisition of substantially all of the interests of an entity which in turn owns the real property. We may also use separate entities to acquire a property. Such entities will be formed solely for the purpose of acquiring a property or properties. See Acquisition Strategy and Joint Ventures in this section and Material U.S. Federal Income Tax Considerations REIT Qualification
Tests.
We finance our property acquisitions through a variety of means, including but not limited to individual non-recourse mortgages and through the exchange of an interest in the property for limited partnership units of our operating partnership, Lightstone Value Plus REIT LP.
Borrowing
We use leverage in the form of borrowings secured by our properties. The aggregate amount of long-term permanent borrowings secured by all of our properties will not exceed 75% of their combined fair market value in the absence of a satisfactory showing that a higher level is appropriate, the approval of our board of directors and disclosure to stockholders. We may also incur short-term indebtedness, having a maturity of two years or less. In addition, our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate,
the approval of our board of directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. In addition, our charter prohibits us from making or investing in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans outstanding on the property, including our loans, would exceed 85% of the propertys appraised value, unless substantial justification exists and the loans would not exceed the propertys appraised value. The proceeds from such borrowings will generally be used to acquire additional
properties or to finance improvements to existing properties.
Borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with debt which will be on a non-recourse basis. This means that a
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lenders rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity. We also intend to obtain level payment financing, meaning that the amount of debt service payable would be substantially the same each year. Accordingly, we expect that some of the mortgages on our property will provide for fixed
interest rates. However, we expect that most of the mortgages on our properties will provide for a so-called balloon payment and that certain of our mortgages will provide for variable interest rates. Any mortgages secured by a property will comply with the restrictions set forth by the Commissioner of Corporations of the State of California. As of December 31, 2009, our total borrowings represented 130.2% of net assets.
We may also obtain lines of credit to be used to acquire properties. These lines of credit will be at prevailing market terms and will be repaid from offering proceeds, proceeds from the sale or refinancing of properties, working capital or permanent financing. Our sponsor or its affiliates may guarantee the lines of credit although they will not be obligated to do so. We may draw upon the lines of credit to acquire properties pending our receipt of proceeds from our initial public offering.
Sale or Disposition of Properties
Our board of directors determines whether a particular property should be sold or otherwise disposed of after considering the relevant factors, including performance or projected performance of the property and market conditions, with a view toward achieving our principal investment objectives.
We typically hold our properties for a minimum of seven to ten years prior to selling them. After seven to ten years, our board of directors may decide to liquidate us, list our shares on a national stock exchange or include them for quotation on a national market system (in each case if we meet the applicable listing requirements), sell our properties individually or merge or otherwise consolidate us with a publicly-traded REIT. Alternatively, as discussed above, we may merge with, or otherwise be acquired by, our sponsor or its affiliates. We may, however, sell properties prior to such time and if so, we may invest the proceeds from any sale,
financing, refinancing or other disposition of our properties into additional properties. Alternatively, we may use these proceeds to fund maintenance or repair of existing properties or to increase reserves for such purposes. We may choose to reinvest the proceeds from the sale, financing and refinancing of our properties to increase our real estate assets and our net income. Notwithstanding this policy, the board of directors, in its discretion, may distribute all or part of the proceeds from the sale, financing, refinancing or other disposition of all or any of our properties to our stockholders. In determining whether to distribute these proceeds to stockholders, the board of directors will consider, among other factors, the desirability of properties available for purchase, real estate market conditions, the likelihood of the listing of our shares on a national securities exchange or including the shares for quotation on a national market system and compliance with the applicable
requirements under federal income tax laws.
When we sell a property, we intend to obtain an all-cash sale price. However, we may take a purchase money obligation secured by a mortgage on the property as partial payment, and there are no limitations or restrictions on our ability to take such purchase money obligations. The terms of payment to us will be affected by custom in the area in which the property being sold is located and the then prevailing economic conditions. If we receive notes and other property instead of cash from sales, these proceeds, other than any interest payable on these proceeds, will not be available for distributions until and to the extent the notes or other property
are actually paid, sold, refinanced or otherwise disposed. Therefore, the distribution of the proceeds of a sale to the stockholders may be delayed until that time. In these cases, we will receive payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. See Material U.S. Federal Income Tax Considerations.
Loans
Our loan policies are subject to the restrictions contained in our charter and bylaws.
We will not make loans to persons or entities other than our subsidiaries, to which we will make capital contributions and may make loans as a means of providing those entities with sufficient capital to acquire single assets. For a description of the single-purpose entities that we intend to maintain as subsidiaries for the purpose of operating the properties that we purchase, see How We Operate.
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Change in Investment Objectives and Policies
Our stockholders have no voting rights to implement our investment objectives and policies. Our board of directors has the responsibility for our investment objectives and policies. Our board of directors may not, however, make any material changes regarding the restrictions on investments set forth in our charter without amending the charter. Any such amendment to our charter requires the affirmative vote of a majority of our outstanding shares of common stock. See Summary of the Organizational Documents Restrictions on Investments.
Investment Limitations
We do not:
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|
invest more than 10% of our total assets in unimproved real property (and will only invest in unimproved real property intended to be developed) or in mortgage loans on unimproved real property;
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|
|
invest in commodities or commodity future contracts;
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|
|
issue redeemable shares of common stock;
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|
|
invest in or make mortgage loans unless an appraisal of an independent expert is obtained concerning the underlying property, except where the loan is insured or guaranteed by a government or government agency;
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|
|
issue shares on a deferred payment basis or other similar arrangement;
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|
|
operate in such a manner as to be classified as an investment company for purposes of the Investment Company Act. See Summary of the Organizational Documents Restrictions on Investments for additional investment limitations; or
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|
|
issue debt securities unless the historical debt service coverage in the most recently completed fiscal year, as adjusted for known charges, is sufficient to properly service that higher level of debt.
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We do not engage in hedging or similar activities for speculative purposes.
We have no plans to invest in the securities of other issuers for the purpose of exercising control over such other issuers. We do not intend to engage in the purchase and sale (or turnover) of properties.
We intend to invest in a manner so that we are not considered an investment company as defined in the Investment Company Act of 1940. See Regulatory Aspects of Our Investment Strategy.
Appraisals
To the extent we invest in additional properties in the future, a majority of the directors will approve the consideration paid for such properties based on the fair market value of the properties. If a majority of independent directors so determines, or if an asset is acquired from our advisor, one or more of our directors, our sponsor or any of their affiliates, the fair market value will be determined by a qualified independent real estate appraiser selected by the independent directors. In addition, the advisor may purchase on our account, without the prior approval of the board of directors, properties whose purchase price is less than
$15,000,000, if the following conditions are satisfied:
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|
The investment in the property would not, if consummated, violate our investment guidelines;
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|
|
The investment in the property would not, if consummated, violate any restrictions on indebtedness; and
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|
|
The consideration to be paid for such properties does not exceed the fair market value of such properties, as determined by a qualified independent real estate appraiser selected by the advisor and acceptable to the independent directors.
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Appraisals are estimates of value and should not be relied on as measures of true worth or realizable value. We will maintain the appraisal in our records for at least five years, and copies of each appraisal will be available for review by stockholders upon their request.
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Liquidation, Listing, Sale of Properties or Merger
We anticipate that within seven to ten years after the net proceeds of our initial public offering, are fully invested, our board of directors will determine whether to:
|
|
apply to have our shares of common stock listed for trading on a national securities exchange or included for quotation on a national market system, provided we meet the then applicable listing requirements;
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|
|
sell our assets individually or otherwise;
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|
|
list our shares of common stock at a future date;
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|
|
commence the liquidation of our assets by a specified date; or
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|
|
merge or otherwise consolidate us with a publicly traded REIT.
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Many REITs that are listed on a national stock exchange or included for quotation on a national market system are considered self-administered, since the employees of such a REIT perform all significant management functions. In contrast, REITs that are not self-administered, like us, typically engage a third party, such as our advisor and property manager, to perform management functions on its behalf. If for any reason our independent directors determine that we should become self-administered, the advisory agreement and the property management agreement each permit us to acquire the business conducted by the advisor and the property
manager (including all of its assets). See Conflicts of Interest.
If our shares of common stock are listed for trading on a national securities exchange or included for quotation on a national market system, we will acquire our advisor and property manager in exchange for our shares and become self-administered. As the parent of our advisor and thus the recipient of such sales proceeds, our sponsor has an incentive to direct the advisor to effect such listing or quotation. See Management Our Advisory Agreement Potential Acquisition of Advisor and Property Manager.
Alternatively, if we have not facilitated liquidity in our shares within seven to ten years after the net proceeds of our initial public offering are fully invested, we may merge with, or otherwise be acquired by, our sponsor or its affiliates. We expect that in connection with such merger or acquisition transaction, our stockholders would receive cash or shares of a publicly traded company. The terms of such transaction must be approved by a special committee of our board of directors which will consist of our independent directors. Such merger or acquisition transaction would also require the affirmative vote of a majority of the shares of our
common stock. To assist with this process, the special committee will retain a recognized financial advisor or institution providing valuation services serve as its financial advisor. The financial advisor will be required to render an opinion to the special committee with respect to the fairness to our stockholders from a financial point of view of the consideration to be paid in the merger or acquisition transaction.
Joint Ventures and Preferred Equity Investments
From time to time, we enter into joint ventures in the future with affiliated entities for the acquisition, development or improvement of properties for the purpose of diversifying our portfolio of assets. We may also enter into joint ventures, general partnerships, co-tenancies and other participations with real estate developers, owners and others for the purpose of developing, owning and operating real properties (preferred equity investments). In determining whether to invest in a particular joint venture, we evaluate the real property which such joint venture owns or is being formed to own under the same criteria described elsewhere
in this prospectus for the selection of our real estate property investments. We do not enter into a joint venture to make an investment that we would not be permitted to make on our own. In connection with such a joint investment, both we and our affiliates would be required to approve any material decisions concerning the investment, including refinancing and capital improvements. We may enter into joint ventures with our affiliates for the acquisition of properties, but we may only do so provided that:
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|
a majority of our directors, including a majority of the independent directors, approve the transaction as being fair and reasonable to us; and
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|
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the investment by us and the investment by our affiliate are on substantially the same terms and conditions.
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We have participated and expect to continue to participate in preferred equity investments by acquiring limited partnership interests in partnerships or limited liability companies owning properties that are consistent with our investment objectives. The general partner or managing member of each such entity will generally be the developer of the property or an affiliate of the developer. Each such entity will be governed by a limited partnership agreement or, as applicable, an operating agreement, the terms of which will be negotiated between us and the general partner. Since the terms of these agreements have been or will be negotiated separately
with each respective general partner it is not possible at this time to describe these agreements.
Other Policies
Before we purchase a particular property, we may obtain an option to purchase the property. The amount paid for the option, if any, usually would be surrendered if the property was not purchased and normally would be credited against the purchase price if the property was purchased. See Real Property Investments General for a detailed description of the types of properties we may invest in.
We intend to hold substantially all uninvested funds, pending our investment in real estate, in assets which will allow us to continue to qualify as a REIT. These investments will be highly liquid and provide for appropriate safety of principal, such as cash, cash items and government securities. Cash items include cash on hand, cash deposited in time and demand accounts with financial institutions, receivables which arise in our ordinary course of operation, commercial paper and certificates of deposit. Generally, government securities are any securities issued or guaranteed as to principal or interest by the United States federal government. See
Material U.S. Federal Income Tax Considerations REIT Qualification Tests.
We will not make distributions-in-kind, except for:
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|
distributions of readily marketable securities;
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|
|
distributions of beneficial interests in a liquidating trust established for our dissolution and the liquidation of our assets in accordance with the terms of our charter; or
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|
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distributions of in-kind property which meet all of the following conditions:
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|
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our board of directors advises each stockholder of the risks associated with direct ownership of the in-kind property; and
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|
|
our board of directors offers each stockholder the election of receiving in-kind property distributions and we distribute in-kind property only to those stockholders who accept the directors offer.
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Although our charter and bylaws do not prohibit the following, we have no current plans to:
|
|
underwrite the securities of other issuers;
|
or
|
|
Invest in non-real estate related investments other than on a temporary basis.
|
We may change our current plans, without stockholder approval, if our board of directors determines that it would be in the best interests of our stockholders to engage in any such transactions.
Although we are authorized to issue senior securities, we have no current plans to do so. See Description of Securities Preferred Stock, Issuance of Additional Securities and Debt Instruments, and Restrictions on Issuance of Securities.
Regulatory Aspects of Our Investment Strategy
Investment Company Act Considerations
. We do not believe that we or our operating partnership is considered an investment company as defined in the Investment Company Act of 1940 because we do not intend to engage in the types of business that characterize an investment company under that law. Investments in real estate will represent the substantial majority of our business, which would not subject us to investment company status. We intend to invest only in fee or leasehold interests in real estate. Fee interests in real estate are considered qualifying assets for purposes of Section 3(c)(5)(C) of
the Investment Company Act and leasehold interests in real estate may be considered qualifying assets for purposes of Section 3(c)(5)(C) of
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the Investment Company Act. We do not intend to invest in mezzanine loans, subordinate interests in whole loans (B Notes), distressed debt, preferred equity or multi-class (first loss) mortgage-back securities. Investments in such assets may not be deemed qualifying assets for purposes of Section 3(c)(5)(C) of the Investment Company Act and, as a result, any such investments may have to be limited.
If we fail to maintain an exemption or exclusion from registration as an investment company, we could, among other things, be required either (a) to substantially change the manner in which we conduct our operations to avoid being required to register as an investment company, or (b) to register as an investment company, either of which could have an adverse effect on us and the market price of our common stock. If we were required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management,
operations, transactions with affiliated persons (as defined in the Investment Company Act), portfolio composition, including restrictions with respect to diversification and industry concentration and other matters.
We intend to conduct our operations so that the company and its subsidiaries are each exempt from registration as an investment company under the Investment Company Act. Under the Investment Company Act, in relevant part, a company is an investment company if:
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|
pursuant to Section 3(a)(1)(A), it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; and
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|
|
pursuant to Section 3(a)(1)(C), it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets on an unconsolidated basis. Investment securities excludes U.S. Government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
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We intend to acquire real estate and real-estate related assets directly, for example, by acquiring fee interests in real property, or by purchasing interests, including controlling interests, in REITs or other real estate operating companies, such as real estate management companies and real estate development companies, that own real property. We also may acquire real estate assets through investments in joint venture entities, including joint venture entities in which we may not own a controlling interest. We anticipate that our assets generally will be held in wholly and majority-owned subsidiaries of the company, each formed to hold
a particular asset.
We intend to conduct our operations so that the company and most, if not all, of its wholly and majority-owned subsidiaries will comply with the 40% test. We will continuously monitor our holdings on an ongoing basis to determine the compliance of the company and each wholly and majority-owned subsidiary with this test. We expect that most, if not all, of the companys wholly owned and majority-owned subsidiaries will not be relying on exemptions under either Section 3(c)(1) or 3(c)(7) of the Investment Company Act. Consequently, interests in these subsidiaries (which are expected to constitute most, if not all, of our assets) generally will not
constitute investment securities. Accordingly, we believe that the company and most, if not all, of its wholly and majority-owned subsidiaries will not be considered investment companies under Section 3(a)(1)(C) of the Investment Company Act.
Based upon changes in the valuation of our portfolio of investments as of September 30, 2009, including with respect to certain investment securities we currently hold, we may be deemed to have inadvertently become an investment company under the Investment Company Act of 1940. We are currently evaluating our response to this development, including the availability of exemptive or other relief under the Investment Company Act of 1940, and we intend to take affirmative steps to comply with applicable regulatory requirements. However, if an examination of our investments by the SEC or a court should deem us to hold investment securities in excess of
the amount that would require us to register under the Investment Company Act of 1940, we could be deemed to be an investment company and be subject to additional restrictions.
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The determination of whether an entity is a majority-owned subsidiary of our company is made by us. The Investment Company Act defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding voting securities of which are owned by such person, or by another company which is a majority-owned subsidiary of such person. The Investment Company Act further defines voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company. We treat entities in which we own at least a majority of the outstanding voting securities as majority-owned subsidiaries for purposes
of the 40% test. We have not requested that the SEC staff approve our treatment of any entity as a majority-owned subsidiary and the SEC staff has not done so. If the SEC staff were to disagree with our treatment of one or more subsidiary entities as majority-owned subsidiaries, we would need to adjust our strategy and our assets in order to continue to comply with the 40% test. Any such adjustment in our strategy could have a material adverse effect on us.
We intend to conduct our operations so that neither we nor any of our wholly or majority-owned subsidiaries fall within the definition of investment company under the Investment Company Act. If the company or any of its wholly or majority-owned subsidiaries inadvertently falls within one of the definitions of investment company, we intend to rely on the exclusion provided by Section 3(c)(5)(C) of the Investment Company Act, which is available for entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. In addition to prohibiting the
issuance of certain types of securities, this exclusion generally requires that at least 55% of an entitys assets must be comprised of mortgages and other liens on and interests in real estate, also known as qualifying assets, and at least 80% of the entitys assets must be comprised of qualifying assets and a broader category of assets that we refer to as real estate-related assets under the Investment Company Act. Additionally, no more than 20% of the entitys assets may be comprised of miscellaneous assets.
We will classify our assets for purposes of the Investment Company Act, including our 3(c)(5)(C) exclusion, in large measure upon no-action positions taken by the SEC staff in the past. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than ten years ago. No assurance can be given that the SEC staff will concur with our classification of our assets. In addition, the SEC staff may, in the future, issue further guidance that may require us to re-classify our assets for purposes of the
Investment Company Act. If we are required to re-classify our assets, we may no longer be in compliance with the exclusion from the definition of an investment company provided by Section 3(c)(5)(C) of the Investment Company Act.
For purposes of determining whether we satisfy the 55%/80% tests, we will classify the assets in which we invest as follows:
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|
Real Property.
Based on the no-action letters issued by the SEC staff, we will classify our fee interests in real properties as qualifying assets. In addition, based on no-action letters issued by the SEC staff, we will treat our investments in joint ventures, which in turn invest in qualifying assets such as real property, as qualifying assets only if we have the right to approve major decisions affecting the joint venture; otherwise, such investments will be classified as real estate-related assets. We expect that no less than 55% of our assets will consist of investments in real property, including any joint ventures that we control.
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Securities.
We intend to treat as real estate-related assets debt and equity securities of both non-majority owned publicly traded and private companies primarily engaged in real estate businesses, including REITs and other real estate operating companies, and securities issued by pass-through entities of which substantially all of the assets consist of qualifying assets or real estate-related assets.
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Loans.
Based on the no-action letters issued by the SEC staff, we will classify our investments in various types of whole loans as qualifying assets, as long as the loans are fully secured by an interest in real estate at the time we originate or acquire the loan. However, we will consider loans with loan-to-value ratios in excess of 100% to be real estate-related assets. We will treat our
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mezzanine loan investments as qualifying assets so long as they are structured as Tier 1 mezzanine loans in accordance with the guidance published by the SEC staff in a no-action letter that discusses the classifications of Tier 1 mezzanine loans under Section 3(c)(5)(C) of the Investment Company Act.
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We will classify our investments in construction loans as qualifying assets, as long as the loans are fully secured by an interest in real estate at the time we originate or acquire the loan. With respect to construction loans that are funded over time, we will consider the outstanding balance (i.e., the amount of the loan actually drawn) as a qualifying asset. The SEC staff has not issued no-action letters specifically addressing construction loans. If the SEC staff takes a position in the future that is contrary to our classification, we will modify our classification accordingly.
Consistent with no-action positions taken by the SEC staff, we will consider any participation in a whole mortgage loan, including B-Notes, to be a qualifying real estate asset only if: (1) we have a participation interest in a mortgage loan that is fully secured by real property; (2) we have the right to receive our proportionate share of the interest and the principal payments made on the loan by the borrower, and our returns on the loan are based on such payments; (3) we invest only after performing the same type of due diligence and credit underwriting procedures that we would perform if we were underwriting the underlying mortgage loan; (4) we
have approval rights in connection with any material decisions pertaining to the administration and servicing of the loan and with respect to any material modification to the loan agreements; and (5) if the loan becomes non-performing, we have effective control over the remedies relating to the enforcement of the mortgage loan, including ultimate control of the foreclosure process, by having the right to: (a) appoint the special servicer to manage the resolution of the loan; (b) advise, direct or approve the actions of the special servicer; (c) terminate the special servicer at any time with or without cause; (d) cure the default so that the mortgage loan is no longer non-performing; and (e) purchase the senior loan at par plus accrued interest, thereby acquiring the entire mortgage loan.
We will base our treatment of any other investments as qualifying assets and real estate-related assets on the characteristics of the underlying collateral and the particular type of loan (including whether we have foreclosure rights with respect to those securities or loans that have underlying real estate collateral) and we will make these determinations in a manner consistent with guidance issued by the SEC staff.
Qualification for exemption from registration under the Investment Company Act will limit our ability to make certain investments. For example, these restrictions may limit the ability of the company and its subsidiaries to invest directly in mortgage-related securities that represent less than the entire ownership in a pool of mortgage loans, debt and equity tranches of securitizations and certain asset-backed securities and real estate companies or in assets not related to real estate. Although we intend to monitor our portfolio, there can be no assurance that we will be able to maintain this exemption from registration for our company or each of
our subsidiaries.
A change in the value of any of our assets could negatively affect our ability to maintain our exemption from regulation under the Investment Company Act. To maintain compliance with the Section 3(c)(5)(C) exclusion, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional assets that we might not otherwise have acquired or may have to forego opportunities to acquire assets that we would otherwise want to acquire and would be important to our investment strategy.
To the extent that the SEC staff provides more specific guidance regarding any of the matters bearing upon the definition of investment company and the exceptions to that definition, we may be required to adjust our investment strategy accordingly. Additional guidance from the SEC staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the investment strategy we have chosen.
If we are required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), and portfolio composition, including restrictions with respect to diversification and industry concentration and other matters. Compliance with the Investment Company Act would, accordingly, limit our ability to make certain investments and require us to significantly restructure our business plan.
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REAL PROPERTY INVESTMENTS
General
We have acquired and own a portfolio of residential and commercial properties, principally in the continental United States. Currently our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging, industrial and office properties and that our residential properties will be principally comprised of Class B multi-family complexes. For a definition of Class B properties, see Investment Objectives and Policies Real Estate Investments. We have not invested in and do not intend to invest in:
|
|
single family residential properties;
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|
unimproved properties not intended to be developed; or
|
See Investment Objectives and Policies generally pertaining to our policies relating to the maintenance, operation and disposition of our properties.
Specified Investments
As of March 31, 2010, on a collective basis, we either wholly owned or owned interests in 23 retail properties containing a total of approximately 7.9 million square feet of retail space, 15 industrial properties containing a total of approximately 1.3 million square feet of industrial space, 9 multifamily properties containing a total of 2,593 units, 2 hotel properties containing a total of 290 rooms and 1 office property containing a total of approximately 1.1 million square feet of office space. All of our properties are located within the United States. As of March 31, 2010, the retail properties, the industrial properties, the multifamily
properties and the office property were 93%, 63%, 90% and 75% occupied based on a weighted average basis, respectively. Our hotel properties average revenue per available room was $22 and occupancy was 60% for the three months ended March 31, 2010. Below is a discussion about each of the properties by property type (i.e. retail, industrial, multifamily, hotel and office).
Retail Properties
We own the following properties within our retail property group including properties which are partially owned by us and accounted for as an equity method investment.
|
|
|
|
|
Real Estate Entity
|
|
Dates Acquired
|
|
Ownership %
|
St. Augustine Outlet Mall
(1)
|
|
March 31, 2006
|
|
100.00%
|
Oakview Power Center
|
|
December 21, 2006
|
|
100.00%
|
Brazos Crossing Power Center
(2)
|
|
June 29, 2007
|
|
100.00%
|
Prime Outlets Acquisitions Company (includes 18 outlet centers plus two development projects)
(1)
|
|
March 30, 2009 & August 25, 2009
|
|
40.00%
|
Mill Run LLC (Orlando Outlet and Design
Center)
(1)
|
|
June 26, 2008 & August 25, 2009
|
|
36.80%
|
|
(1)
|
On December 8, 2009, we signed a definitive agreement to dispose of our retail outlet center assets which include St. Augustine Outlet Mall as well as our investments in Prime Outlet Acquisitions Company and Mill Run LLC. The transaction is expected to close during calendar year 2010. See Contribution and Sale Agreement below for further discussion.
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|
(2)
|
On June 29, 2007, we purchased the land for Brazos Crossing Power Center and subsequently constructed the center which opened in March of 2008.
|
St. Augustine Outlet Mall
On November 30, 2005, POAC, an affiliate of the Advisor, entered into a Purchase and Sale Agreement with St. Augustine Outlet World, Ltd, an unaffiliated third party, to purchase Belz Outlets at St. Augustine,
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Florida. On March 31, 2006, POAC assigned its interest in the Purchase and Sale Agreement to LVP St. Augustine Outlets, LLC (LVP St. Augustine), a single purpose, wholly owned subsidiary of our operating partnership, and LVP St. Augustine simultaneously completed the acquisition of the property. The total acquisition price, including acquisition-related transaction costs, was $26,921,450. In connection with the transaction, the Advisor received an acquisition fee equal to 2.75% of the purchase price, or $715,000.
Approximately $22.4 million of the total acquisition cost was funded by a mortgage loan from Wachovia Bank, National Association (Wachovia) as described in the following paragraph, and approximately $4.5 million was funded with offering proceeds from the sale of our common stock. Loan proceeds from Wachovia were also used to fund approximately $4.8 million of escrows for future leasing-related expenditures, real estate taxes, insurance and debt service.
In addition, on October 2, 2007, we closed on the acquisition of an 8.5-acre parcel of undeveloped land for $2.75 million, which was intended to be used for further development of St. Augustine Outlet mall. Development rights to the land parcel were subsequently purchased by our operating partnership for $1.3 million on December 19, 2007. As of March 31, 2010, we have not commenced any development activities with regards to this land parcel.
In connection with the aforementioned Contribution Agreement (see Contribution and Sale Agreement below for additional information) signed by us on December 8, 2009, St. Augustine Outlet is expected to be disposed of during calendar 2010. As of March 31, 2010, the assets and liabilities of St. Augustine Outlet are classified as held for sale and discontinued operations, and we ceased depreciating its depreciable property on December 8, 2009.
The Loan
In connection with the acquisition, LVP St. Augustine secured a mortgage loan from Wachovia in the principal amount of $27,250,000. The loan has a 30-year amortization period, bears interest at a fixed rate of 6.09% per annum and requires monthly installments of principal and interest throughout the remainder of its stated term. The outstanding balance of the loan was $26,306,838 as of March 31, 2010. The loan will mature on April 11, 2016, at which time a balance of approximately $23,427,000 will be due, assuming no prior principal prepayment. The loan is secured by the St. Augustine Outlet mall and is non-recourse to us.
In connection with the mortgage loan on the St. Augustine Outlet mall, Lightstone Holdings, LLC, a limited liability company that is wholly owned by David Lichtenstein, has guaranteed payment of losses that Wachovia may sustain as a result of fraud, misappropriation, misuse of loan proceeds or other acts of misconduct by LVP St. Augustine and/or its principals or affiliates. Such losses are recourse to Lightstone Holdings, LLC under the guaranty regardless of whether Wachovia has attempted to procure payment from LVP St. Augustine or any other party. Further, in the event of LVP St. Augustines bankruptcy, reorganization or insolvency, or the
interference by LVP St. Augustine or its affiliates in any foreclosure proceedings or other remedy exercised by Wachovia, Lightstone Holdings, LLC has guaranteed the payment of any unpaid loan amounts. We have agreed, to the maximum extent permitted by our Charter, to indemnify Lightstone Holdings, LLC for any liability that it incurs under this guaranty.
Property Information
The St. Augustine Outlet mall is a factory outlet mall located off Interstate 95 in St. Augustine, Florida, which is 20 miles south of Jacksonville. Built in 1998, the St. Augustine Outlet mall at the time of acquisition had 255,758 square feet of retail space. In November 2008, we completed an expansion of the existing property and opened approximately 103,000 square feet of newly constructed gross leasable space. The cost of the expansion was approximately $31.6 million and is expected to provide approximately $1.9 million incremental increase in the propertys annual net operating income upon stabilization. The cost of this expansion was
funded by us from the proceeds of issuance of our common stock.
We believe the property is well located and suitable to be used as a factory outlet mall. Prior to our acquisition of the property, the opening of a competing property across the street resulted in a majority of the major tenants leaving the St. Augustine Outlet mall. The loss of these tenants directly impacted the level of rents that could be commanded from new tenants and left the property in a non-representative state of occupancy.
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Therefore, the appreciation potential of the St. Augustine Outlet mall, rather than current rental or occupancy rates, was the primary factor that we considered when assessing the St. Augustine Outlet mall for acquisition.
Prime Retail Property Management, LLC is acting as the property manager for the St. Augustine Outlet mall.
As of March 31, 2010, two of the tenants in the St. Augustine Outlet mall occupy approximately 12% and 11%, respectively, of the rentable square footage and the name, business type, primary lease terms and certain other information of the top five tenants as of March 31, 2010 are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
Name of Tenant
|
|
Business Type
|
|
Square Feet
Leased
|
|
Percentage of Leasable
Space
|
|
Lease Expiration
|
|
Party with
Renewal
Rights
|
Off Fifth Saks
|
|
Clothing retailer
|
|
28,000
|
|
12%
|
|
November 30, 2023
|
|
Tenant
|
VF Outlet
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|
Clothing retailer
|
|
25,400
|
|
11%
|
|
March 31, 2013
|
|
Tenant
|
Liz Claiborne and Liz Golf
|
|
Clothing retailer
|
|
16,477
|
|
7%
|
|
August 31, 2014
|
|
Tenant
|
Dress Barn
|
|
Clothing retailer
|
|
10,306
|
|
4%
|
|
December 31, 2010
|
|
Tenant
|
Jones Retail Store
|
|
Clothing retailer
|
|
8,077
|
|
3%
|
|
December 31, 2018
|
|
Tenant
|
The percentage occupancy rate of the St. Augustine Outlet mall was 77% on the date of its acquisition and the average effective annual rental per square foot was $22.48 at that time. As of March 31, 2010, the percentage occupancy rate of the St. Augustine Outlet mall was 82.7%, consisting of 69.9% permanent leases and 12.8% temporary leases. The propertys annual average percentage occupancy rate and average effective rental per square foot for each of the last five years was as follows:
|
|
|
|
|
Year
|
|
Annual Average Occupancy Rate
|
|
Average Effective Annual Rental Per Square Foot
|
2009
|
|
|
83.4
|
%
|
|
$
|
15.44
|
|
2008
|
|
|
80.6
|
%
|
|
$
|
14.33
|
|
2007
|
|
|
89.4
|
%
|
|
$
|
13.86
|
|
2006
|
|
|
77.5
|
%
|
|
$
|
14.89
|
|
2005
|
|
|
n/a
|
|
|
|
n/a
|
|
The 10-year schedule of lease expirations and related information for the St. Augustine Outlet mall is as follows:
|
|
|
|
|
|
|
|
|
Year
|
|
Number of Expiring Leases
|
|
Total Square Feet
|
|
Aggregate Annual Base Rent
|
|
Percentage of Gross Annual Rental
|
2010
|
|
|
12
|
|
|
|
43,743
|
|
|
$
|
1,159,133
|
|
|
|
25
|
%
|
2011
|
|
|
5
|
|
|
|
14,067
|
|
|
|
359,093
|
|
|
|
8
|
%
|
2012
|
|
|
1
|
|
|
|
4,115
|
|
|
|
59,462
|
|
|
|
1
|
%
|
2013
|
|
|
8
|
|
|
|
36,538
|
|
|
|
611,332
|
|
|
|
13
|
%
|
2014
|
|
|
6
|
|
|
|
29,121
|
|
|
|
506,441
|
|
|
|
11
|
%
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
1
|
|
|
|
1,584
|
|
|
|
24,933
|
|
|
|
1
|
%
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
6
|
|
|
|
22,543
|
|
|
|
526,065
|
|
|
|
11
|
%
|
2019
|
|
|
10
|
|
|
|
38,628
|
|
|
|
718,221
|
|
|
|
16
|
%
|
2020
|
|
|
7
|
|
|
|
40,874
|
|
|
|
664,698
|
|
|
|
14
|
%
|
Total
|
|
|
56
|
|
|
|
231,213
|
|
|
$
|
4,629,379
|
|
|
|
100
|
%
|
Realty taxes paid on the St. Augustine Outlet for the fiscal year ended December 31, 2009 were $475,414. The St. Augustine Outlet mall was subject to a tax rate of 15.34%.
We believe that the St. Augustine Outlet mall is adequately insured.
To the extent that a subsidiary of our operating partnership acquires properties for cash, the initial basis in such properties for federal income tax purposes generally is equal to the purchase price paid by our operating partnership. The St. Augustine Outlet Malls property basis for federal income tax purposes approximates its net book value in accordance with the generally accepted accounting principles in the United
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TABLE OF CONTENTS
States (US GAAP). Our operating partnership depreciates each such depreciable property for federal income tax purposes on a straight-line basis using an estimated useful life of 39 years.
General competitive conditions affecting the St. Augustine Outlet mall include those identified in the section of our prospectus captioned Competition.
Oakview Power Center
On December 21, 2006, we, through LVP Oakview Strip Center LLC (LVP Oakview), a wholly owned subsidiary of our operating partnership, acquired a retail shopping mall in Omaha, Nebraska from Oakview Plaza North, LLC (Oakview), Frank R. Krejci, Vera Jane Krejci, George W. Venteicher and Susan J. Venteicher (Oakview, Mr. and Mrs. Krejci and Mr. and Mrs. Venteicher, collectively, Seller), none of whom are affiliated with the Company.
The property was purchased subject to a commitment to acquire a 2.1 acre parcel of land (the Option Land) located immediately adjacent to the property. The unimproved Option Land was subsequently acquired in July of 2007 by a subsidiary of the Operating Partnership from Oakview for a fixed contract price of $650,000. The acquisition price for the property, exclusive of the Option Land, was $33.5 million, including an acquisition fee paid to the Advisor of $0.9 million and $47,000 in other acquisition-related transaction costs. Approximately $6.0 million of the acquisition cost was funded with offering proceeds from the sale of our common
stock and the remainder was funded with a $27.5 million fixed rate loan from Wachovia secured by the property. Offering proceeds were also used to fund financing related costs ($0.2 million) and insurance and tax reserves ($0.2 million), as well as the acquisition of the Option Land. The Property was independently appraised at $38.0 million.
In evaluating the Oakview Power Center as a potential acquisition and determining the appropriate amount of consideration to be paid for the Oakview Power Center, we considered a variety of factors, including the Oakview Power Centers location, demographics, quality of tenants, duration of in-place leases, scheduled rent increases, strong occupancy and the fact that the overall rental rate at the Oakview Power Center was comparable to market rates. We believe the Oakview Power Center is well located, has acceptable roadway access and is well maintained. The Oakview Power Center is subject to competition from similar properties within its market
area, and economic performance could be affected by changes in local economic conditions.
Our purchase of the Option Land represents an opportunity for improved economic performance once the parcel is developed and leased by either Oakview or our operating partnership. Despite such potential, our investment decision was made assuming the Option Land would not be developed and pre-leased prior to our operating partnerships purchase of the Oakview Power Center. We did not consider any other factors material or relevant to the decision to acquire this property.
The Loan
In connection with the acquisition, LVP Oakview secured a mortgage loan from Wachovia Bank, National Association in the principal amount of $27.5 million. The loan has a term of 10 years, bears interest at a fixed rate of 5.49% per annum, and requires monthly installments of interest only through the first five years and monthly installments of principal and interest throughout the remainder of its stated term. The loan will mature on January 11, 2017, at which time a balance of approximately $25.6 million will be due, assuming no prior principal prepayment. The loan is secured by the Oakview Power Center and is non-recourse to us. The outstanding
balance of the loan was $27.5 million as of March 31, 2010.
Property Information
The Oakview Power Center is a retail center consisting of three single-story retail buildings, located on approximately 19.6 acres of land and containing approximately 177,303 rentable square feet, as well as a 2.1 acre site on which we can build an additional 15,000 square feet of retail space. There is no major renovation or development planned for the Oakview Power Center. Beacon Property Management LLC is acting as the property manager of the Oakview Power Center.
As of the acquisition date of the Oakview Power Center, it was leased to retail stores with an annual average occupancy rate of 97.1%. As of March 31, 2010, the Oakview Power Center had a percentage occupancy rate of 99.3%.
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TABLE OF CONTENTS
Five tenants occupied at least 10% of the Propertys rentable square footage. The following table sets forth the name, business type, primary lease terms and certain other information with respect to each of these major tenants as of March 31, 2010:
|
|
|
|
|
|
|
|
|
Name of Tenant
|
|
Business Type
|
|
Square Feet Leased
|
|
Percentage of Leasable Space
|
|
Lease Expiration
|
Dicks Sporting Goods
|
|
Clothing and sporting goods retailer
|
|
45,000
|
|
26%
|
|
January 31, 2018
|
Toys R Us
|
|
Toy retailer
|
|
30,624
|
|
17%
|
|
January 31, 2015
|
Petsmart Inc.
|
|
Pet supply retailer
|
|
26,121
|
|
15%
|
|
January 31, 2015
|
GAP
|
|
Clothing retailer
|
|
24,800
|
|
14%
|
|
April 30, 2010
|
Brown Group Retail
|
|
Footwear retailer
|
|
17,585
|
|
10%
|
|
June 30, 2010
|
The propertys annual average percentage occupancy rate and average effective rental per square foot for each of the last five years was as follows:
|
|
|
|
|
Year
|
|
Annual
Average
Occupancy
Rate
|
|
Average
Effective
Annual
Rental Per Square Foot
|
2009
|
|
|
99.3
|
%
|
|
$
|
13.43
|
|
2008
|
|
|
99.2
|
%
|
|
$
|
14.46
|
|
2007
|
|
|
98.0
|
%
|
|
$
|
14.02
|
|
2006
|
|
|
97.1
|
%
|
|
$
|
13.98
|
|
2005
|
|
|
n/a
|
|
|
|
n/a
|
|
The following is a ten-year schedule of lease expirations and related information for the Oakview Power Center:
|
|
|
|
|
|
|
|
|
Year
|
|
Number of
Expiring Leases
|
|
Total Square Feet
|
|
Aggregate Annual
Base Rent
|
|
Percentage of
Gross Annual
Rentual
|
2010
|
|
|
4
|
|
|
|
54,297
|
|
|
$
|
720,365
|
|
|
|
31
|
%
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2
|
|
|
|
9,927
|
|
|
$
|
80,568
|
|
|
|
3
|
%
|
2015
|
|
|
3
|
|
|
|
61,765
|
|
|
$
|
837,671
|
|
|
|
37
|
%
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
1
|
|
|
|
45,000
|
|
|
$
|
663,750
|
|
|
|
29
|
%
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
1
|
|
|
|
4,914
|
|
|
|
|
(1)
|
|
|
|
|
Total
|
|
|
11
|
|
|
|
175,903
|
|
|
$
|
2,302,354
|
|
|
|
100
|
%
|
|
(1)
|
Tenant pays percentage rent in lieu of base rent per lease agreement.
|
Realty taxes paid on the Oakview Power Center for the fiscal year ended December 31, 2009 were $519,590. The Oakview Power Center was subject to a tax rate of 2.05%.
We believe that the Oakview Power Center is adequately insured. We believe that the Oakview Power Center is adequately insured.
Depreciation is taken on the Oakview Power Center. To the extent that a subsidiary of our operating partnership acquires properties for cash, the initial basis in such properties for federal income tax purposes generally is equal to the purchase price paid by our operating partnership. Our operating partnership depreciates such depreciable property for federal income tax purposes on a straight-line basis using an estimated useful life of 39 years. The basis of the Oakview Power Center for federal income tax purposes
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TABLE OF CONTENTS
approximates its net book value in accordance with US GAAP, which is disclosed in Schedule III to our Consolidated Financial Statements included in this Prospectus.
General competitive conditions affecting the Oakview Power Center include those identified in the section of our Prospectus captioned Competition. Risks associated with the Oakview Power Center are identified in the section of our Prospectus captioned Risk Factors Risks Associated with our Properties and the Market.
Brazos Crossing Power Center
On June 29, 2007, a subsidiary of our operating partnership acquired a six-acre land parcel in Lake Jackson, Texas for immediate development of a 61,287 square foot power center. The land was purchased for $1.65 million in cash and was funded 100% from the proceeds of our initial offering of common stock.
The purchase and sale agreement (the Land Agreement) for this transaction was negotiated between Lake Jackson Crossing Limited Partnership (formerly an affiliate of our sponsor) and Starplex Operating, LP, an unaffiliated entity (the Land Seller). Prior to the closing, a 99% limited partnership interest in the Lake Jackson Limited Partnership (Lake Jackson) was assigned to our operating partnership, and the membership interests in Brazos Crossing LLC (the 1% general partner of the Lake Jackson Limited Partnership) were assigned to us.
The land parcel was acquired at what represents a $2.1 million discount from the expressed $3.75 million purchase price, with such difference being subsidized and funded by a retail affiliate of our sponsor. The sale of the land parcel was a condition of the Land Sellers agreement to execute a new movie theater lease at our sponsor affiliates nearby retail mall. We own a 100% fee simple interest in the land parcel and the improvements currently being constructed. Our sponsors affiliate received no future benefit or ownership interests from this transaction.
During the year ended December 31, 2009, we identified certain indicators of impairment related to the Brazos Crossing Power Center such as negative cash flow expectations and change in managements expectations regarding the length of the holding period, which occurred during the three months ended September 30, 2009. We performed a cash flow valuation analysis and determined that the carrying value of the property exceeded the weighted probability of its undiscounted cash flows. We recorded an asset impairment charge of $2.0 million associated with the Brazos Crossing Power Center.
The Loan
In 2007, Lake Jackson entered into a construction loan to the fund the development of the power center with Compass Bank for up to $8.2 million. The interest rate on the loan was greater of LIBOR plus 150 basis points (1.50%) or 6.75%. The total cost of the project, inclusive of project construction, tenant incentives, leasing costs, and land was estimated at $10.2 million. Because the debt financing for the acquisition exceeded certain of our leverage limitations, the Board, including all of its independent directors, were required to approve any leverage exceptions as required by the our Articles of Incorporation. In December 2008, we converted the
construction loan to a term loan maturing on December 4, 2009, which has been subsequently amended and extended to mature December 4, 2011. As part of the amendment to the mortgage, we made a lump sum principal payment of $0.7 million in February 2010 and at maturity, a balance of $6,385,788 will be due, assuming no prior principal prepayment. The amended mortgage loan bears interest at the greater of 6.75% or LIBOR plus 350 basis points (3.50%) per annum rate and requires monthly installments of interest plus a principal payment of $9,737. The loan is secured by Brazos Crossing Power Center. The outstanding balance of the mortgage loan was $6,580,526 as of March 31, 2010.
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TABLE OF CONTENTS
Property Information
Upon completion of development in March 2008, Brazos Crossing Power Center opened and has been 100% occupied by three triple net tenants: Pet Smart, Office Depot and Best Buy. The following table sets forth the name, business type, primary lease terms and certain other information with respect to each of these three tenants:
|
|
|
|
|
|
|
|
|
|
|
Name of Tenant
|
|
Business Type
|
|
Square Feet
Leased
|
|
Percentage of Leasable
Space
|
|
Lease Expiration
|
|
Party with
Renewal
Rights
|
Office Depot
|
|
|
Office supply retailer
|
|
|
|
21,126
|
|
|
|
34
|
%
|
|
|
March 31, 2018
|
|
|
|
Tenant
|
|
Petsmart
|
|
|
Pet supply retailer
|
|
|
|
20,087
|
|
|
|
33
|
%
|
|
|
May 31, 2018
|
|
|
|
Tenant
|
|
Best Buy
|
|
|
Electronic retailer
|
|
|
|
20,000
|
|
|
|
33
|
%
|
|
|
January 31, 2019
|
|
|
|
Tenant
|
|
Total
|
|
|
|
|
|
|
61,213
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
Realty taxes paid on Brazos Crossing Power Center for the fiscal year ended December 31, 2009 were $119,972. The property was subject to a tax rate of 2.36%.
We believe that Brazos Crossing Power Center is adequately insured.
Depreciation is taken on the center. To the extent that a subsidiary of our operating partnership develops a property, the initial basis in such properties for federal income tax purposes generally is equal to the costs capitalized during the development. Our operating partnership depreciates the property for federal income tax purposes on a straight-line basis using an estimated useful life of 39 years. The basis of Brazos Crossing Power Center for federal income tax purposes approximates its net book value in accordance with US GAAP, which is disclosed in Schedule III to our Consolidated Financial Statements included in this Prospectus.
General competitive conditions affecting this property include those identified in the section of our Prospectus captioned Competition. Other risks associated with the Properties are identified in the section of our Prospectus captioned Risk Factors Risks Associated with our Properties and the Market.
Interest in Mill Run LLC (Orlando Outlet & Design Center) 2 retail outlet centers
On June 26, 2008, our operating partnership acquired a 22.54% membership interest in Mill Run from Arbor Mill Run JRM, LLC, a Delaware limited liability company and Arbor National CJ, LLC, a New York limited liability company in exchange for units in our operating partnership. The acquisition price before transaction costs for the 22.54% membership interest in Mill Run was approximately $85.0 million, $19.6 million in the form of equity and approximately $65.4 million in the form of indebtedness, which matures November 2010 and is secured by the Mill Run properties.
On August 25, 2009, our operating partnership acquired an additional 14.26% membership interest in Mill Run from Central Jersey LLC, a Delaware limited liability company and Central Jersey Holdings II, LLC, a New York limited liability company in exchange for units our operating partnership. The acquisition price before transaction costs for the 14.26% membership interest in Mill Run was approximately $56.0 million, $6.0 million in the form of equity, approximately $39.6 million in the form of indebtedness, which matures November 2010 and is secured by the Mill Run properties, plus $10.4 million assumption of TRAC and Central Jersey member interest
loans due to Mill Run. Any distributions to us from Mill Run related to the 14.26% membership interest will require us to make an equal amount of mandatory repayment on the member interest loans. During the three months ended December 31, 2009, we received a distribution of $10.5 million related to our 14.26% membership interest and subsequently paid off these loans. The total amount paid to pay off the loans was $10.5 million, including accrued interest.
As of March 31, 2010, our operating partnership owns a 36.8% membership interest in Mill Run (Mill Run Interest). The Mill Run Interest includes Class A and B membership shares and is a non-managing interest, with consent rights with respect to certain major decisions. Our sponsor is the managing member and owns 55% of Mill Run. Profit and cash distributions will be allocated in accordance with each investors ownership percentage after consideration of Class B members adjusted capital balance. As we have recorded this investment in accordance with the equity method of accounting, the indebtedness is not included in our investment.
In connection with the transaction, our advisor charged an acquisition fee equal to 2.75% of the acquisition price, or approximately $3.6 million plus we incurred other transactions fees of $2.9 million.
118
TABLE OF CONTENTS
On December 8, 2009, we have entered into a definitive agreement to dispose of its retail outlet center interests that include St. Augustine outlet center and investments in Mill Run and POAC. See Contribution and Sale Agreement below for further discussion.
The Loans
As our investment in Mill Run is accounted for as investment under the equity method of accounting, these loans for Mill Run are not reflected in our consolidated balance sheet. The Mill Run Properties are subject to an aggregate of approximately $290 million of indebtedness in the form of construction loans secured by the Orlando Properties (the Orlando Loans). The Orlando Loans provide for interest only payments until their maturity date and bear interest at a variable rate equal to LIBOR plus 210 basis points. The Orlando Loans were initially set to mature on November 21, 2009. During November 2009, the initial maturity date of the
Amended Orlando Construction Loan was extended to November 21, 2010, pursuant to the extension provisions, including payment of the $725,000 extension fee, of the Amended Orlando Construction Loan. At its initial maturity date in November 2009, the outstanding balance of the Amended Orlando Construction Loan was approximately $264,561,000, which reflects principal pay-downs made from excess cash flow during 2009 from the Orlando Properties at the election of Mill Run. There were no other changes to the Amended Orlando Construction Loans terms and conditions and there are no additional extension options available. The aggregate outstanding balance of the Orlando Loans was $256,560,655 as of March 31, 2010, which will be due upon maturity assuming no prior principal prepayment.
Mill Run Property Information
Mill Run includes two retail outlet centers in Orlando, Florida, Orlando Outlet World and Orlando Design Center (the Mill Run Properties). These outlet centers were recently renovated in 2008. Orlando Outlet World and the Orlando Design Center represent 773,875 and 204,866 total gross leasable area, respectively. We believe that these centers possess a premiere location at the northeastern end of International Drive combined with its strategic visibility from two major Florida freeways (i.e., Interstate 4 and the Florida Turnpike), and are highly competitive as retail shopping malls after their renovation and expansion. The assets were
98.1% and 81.3% occupied, respectively, as of March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Name of
Property
|
|
Location of Property
|
|
Monthly Base Rent as of March 31,
2010
|
|
Construction
Loan Balance at
March 31,
2010
|
|
Construction
Loan Interest
Rate
|
|
Construction
Loan Maturity
|
|
Property Management
Agent
|
|
Annual Property
Management Fee
|
Orlando Outlet Center
|
|
Orlando, Florida
|
|
$2,129,506
|
|
$250,313,217
|
|
LIBOR + 2.1%
|
|
November 2010
|
|
Prime Retail Property
Management
|
|
5% of gross revenues
|
Orlando Design Center
|
|
Orlando, Florida
|
|
$211,264
|
|
$6,247,438
|
|
LIBOR + 2.1%
|
|
November 2010
|
|
Prime Retail Property
Management
|
|
5% of gross revenues
|
The expanded and redeveloped Orlando Outlet World opened in two phases, and hosted its grand opening in May 2008. Orlando Outlet World currently has approximately 255 tenants as of March 31, 2010, including tenants such as Neiman Marcus Last Call, Saks Fifth Avenue OFF 5TH, Polo Ralph Lauren Factory Store, Kate Spade, and Hugo Boss. Orlando Design Center currently has approximately 30 tenants as of March 31, 2010, which includes Guess, G.H. Bass & Company, Calvin Klein, and Texas de Brazil. The following table sets forth the name, business type, primary lease terms and certain other information with respect to each of the top five major tenants
of the Mill Run Properties:
|
|
|
|
|
|
|
|
|
|
|
Name of Tenant
|
|
Business Type
|
|
Square Feet
Leased
|
|
Percentage of Leasable Space
|
|
Lease Expiration
|
|
Party with Renewal Rights
|
Adidas
|
|
Footwear retailer
|
|
52,270
|
|
6%
|
|
January 31, 2018
|
|
Tenant
|
Phillips Van Heusen
|
|
Clothing retailer
|
|
44,418
|
|
5%
|
|
Through August 31, 2014
|
|
Tenant
|
VF Factory Outlets
|
|
Footwear retailer
|
|
42,146
|
|
5%
|
|
Through February 28, 2019
|
|
Tenant
|
Nike
|
|
Footwear retailer
|
|
32,870
|
|
4%
|
|
Through April 30, 2013
|
|
Tenant
|
The Neiman Marcus Group
|
|
Clothing retailer
|
|
28,603
|
|
3%
|
|
January 31, 2023
|
|
Tenant
|
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TABLE OF CONTENTS
All of the leased space is commercial with leases ranging from an initial term of one year to fourteen years. The annual average percentage occupancy rate and the average effective net annual rental revenue per square foot for the last five years at the Mill Run Properties are as follows:
|
|
|
|
|
Year
|
|
Annual
Average
Occupancy
Rate
|
|
Average
Effective
Annual
Rental Per
Square Foot
|
2009
|
|
|
92.0
|
%
|
|
$
|
30.80
|
|
2008
|
|
|
83.9
|
%
|
|
$
|
30.98
|
|
2007
|
|
|
82.3
|
%
|
|
$
|
30.87
|
|
2006
|
|
|
82.8
|
%
|
|
$
|
16.12
|
|
2005
|
|
|
83.8
|
%
|
|
$
|
16.76
|
|
The existing leases for Mill Run expire as follows:
|
|
|
|
|
|
|
|
|
Year
|
|
Number of
Expiring Leases
|
|
Total
Square
Feet
|
|
Aggregate Annual
Base Rent
|
|
Percentage of
Gross Annual
Rental
|
2010
|
|
|
1
|
|
|
|
1,794
|
|
|
$
|
511,590
|
|
|
|
2
|
%
|
2011
|
|
|
4
|
|
|
|
19,589
|
|
|
|
257,693
|
|
|
|
1
|
%
|
2012
|
|
|
14
|
|
|
|
82,209
|
|
|
|
2,218,584
|
|
|
|
8
|
%
|
2013
|
|
|
14
|
|
|
|
73,325
|
|
|
|
1,664,630
|
|
|
|
6
|
%
|
2014
|
|
|
15
|
|
|
|
71,078
|
|
|
|
2,132,567
|
|
|
|
8
|
%
|
2015
|
|
|
4
|
|
|
|
20,208
|
|
|
|
576,740
|
|
|
|
2
|
%
|
2016
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
2017
|
|
|
49
|
|
|
|
144,050
|
|
|
|
6,288,756
|
|
|
|
22
|
%
|
2018
|
|
|
61
|
|
|
|
278,512
|
|
|
|
9,339,944
|
|
|
|
33
|
%
|
2019
|
|
|
26
|
|
|
|
115,249
|
|
|
|
4,107,669
|
|
|
|
14
|
%
|
2020
|
|
|
13
|
|
|
|
71,138
|
|
|
|
1,116,574
|
|
|
|
4
|
%
|
Total
|
|
|
202
|
|
|
|
877,152
|
|
|
$
|
28,214,746
|
|
|
|
100
|
%
|
The Mill Run Properties are depreciated for federal income tax purposes on a straight-line basis using an estimated useful life of 39 years.
The aggregate realty taxes paid on the Mill Run Properties for the fiscal year ended December 31, 2009 were $2,286,750. The Mill Run Properties were subject to a tax rate of 1.99%.
We believe that the Mill Run Properties are adequately insured.
General competitive conditions affecting Mill Run include those identified in the section of our Prospectus captioned Competition. Risks associated with Mill Run are identified in the section of our Prospectus captioned Risk Factors Risks Associated With our Properties and the Market.
Prime Outlets Acquisitions Company interest in 18 retail outlet malls and two development projects
On March 30, 2009, our operating partnership acquired a 25% membership interest in POAC from AR Prime Holdings LLC, a Delaware limited liability company in exchange for units in our operating partnership. The acquisition price before transaction costs for the 25% membership interest in POAC was approximately $356 million, $56 million in the form of equity and approximately $300 million in the form of indebtedness secured by the POAC properties (18 retail outlet malls and two development projects).
On August 25, 2009, our operating partnership acquired an additional 15% membership interest in POAC from JT Prime LLC, a Delaware limited liability company in exchange for units in our Operating Partnership. The acquisition price before transaction costs for the 15% membership interest in POAC was approximately $195 million, $17 million in the form of equity and approximately $178 million in the form of indebtedness secured by the POAC properties.
120
TABLE OF CONTENTS
As of March 31, 2010, our operating partnership owns a 40% membership interest in POAC (POAC Interest). The POAC Interest is a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of our sponsor is the majority owner and manager of POAC. Profit and cash distributions will be allocated in accordance with each investors ownership percentage.
As we have recorded this investment in accordance with the equity method of accounting, the indebtedness is not included in our investment. In connection with the transactions, our advisor charged an acquisition fee equal to 2.75% of the acquisition price, or approximately $15.4 million. In addition, we incurred other transactions fees associated with the acquisition of the POAC Interest of $10.4 million.
On December 8, 2009, we have entered into a definitive agreement to dispose of its retail outlet center interests that include St. Augustine outlet center and investments in Mill Run and POAC. See Contribution and Sale Agreement below for further discussion.
POAC Portfolio Information
POAC is a fully integrated real estate operating company specializing in the development, redevelopment, acquisition, leasing and management of factory outlet shopping centers. Founded in 1988, POAC is the third largest owner of factory outlet centers in the United States as measured by gross leasable area. POAC manages and leases its properties with in-house personnel, thereby reducing reliance on third-party providers and enabling Prime to monitor and control expenses. POACs 18 outlet centers, built between 1986 and 1998, have an aggregate 6,393,833 square feet of gross leasable area and average occupancy of 92.5% as of March 31, 2010. Of the
approximately $1.2 billion of outstanding indebtedness on the POAC Properties, $1.1 billion provides for amortization payments. Generally, all of POACs outstanding fixed-rate mortgages may not be prepaid but for collateral release through the payment of a yield-maintenance premium or defeasance. A brief description of the POAC Properties follows. All of the POAC Properties are managed by Prime Retail Property Management and pay a 5% management fee. Prime Retail Management Company is wholly owned by POAC and an affiliate of our sponsor.
During 2009, POAC continued its development activities related to an outlet center (the Grand Prairie Project) expected to be constructed on a parcel of land we acquired in August 2008 for approximately $9.8 million, which is located in Grand Prairie, TX. As of March 31, 2010, POAC had incurred $18.0 million of cumulative development related costs for the Grand Prairie Project. An additional $110.0 million is estimated to complete this development project. Additionally, as of March 31, 2010, POAC incurred approximately $12.5 million of cumulative predevelopment costs related to the planned development of an outlet center (the
Livermore Project) in Livermore, CA. An additional $164.3 million is estimated to complete this development project. For both of these two projects, POAC intends to use funds from operations and seek construction loans to finance the additional project costs. However, POAC may also choose to obtain senior secured credit facilities and/or seek funding from other sources of capital such as joint venture arrangements, if it is unable to secure construction financing at favorable rates or terms.
The following table provides information as of March 31, 2010 regarding the POAC Properties.
|
|
|
|
|
|
|
Trade Name of Property
|
|
Location of Property
|
|
Occupancy
|
|
Gross
Leasable
Area
|
Prime Outlets San Marcos I & II
|
|
San Marcos, Texas
|
|
96.5%
|
|
674,381
|
Prime Outlets Grove City
|
|
Grove City, Pennsylvania
|
|
93.2%
|
|
532,467
|
Prime Outlets Williamsburg
|
|
Williamsburg, Pennsylvania
|
|
96.3%
|
|
343,966
|
Prime Outlets Hagerstown
|
|
Hagerstown, Maryland
|
|
93.1%
|
|
484,890
|
Prime Outlets Ellenton
|
|
Ellenton, Florida
|
|
97.7%
|
|
476,700
|
Prime Outlets Jeffersonville
|
|
Jeffersonville, Ohio
|
|
96.3%
|
|
409,869
|
Prime Outlets Pleasant Prairie I & II
|
|
Pleasant Prairie, Wisconsin
|
|
97.3%
|
|
401,436
|
Prime Outlets Gaffney
|
|
Gaffney, South Carolina
|
|
96.8%
|
|
302,394
|
Prime Outlets Gulfport
|
|
Gulfport, Mississippi
|
|
90.7%
|
|
302,616
|
Prime Outlets Queenstown
|
|
Queenstown, Maryland
|
|
91.4%
|
|
298,409
|
Prime Outlets Huntley
|
|
Huntley, Illinois
|
|
73.0%
|
|
278,809
|
121
TABLE OF CONTENTS
|
|
|
|
|
|
|
Trade Name of Property
|
|
Location of Property
|
|
Occupancy
|
|
Gross
Leasable
Area
|
Prime Outlets Birch Run
|
|
Birch Run, Michigan
|
|
88.1%
|
|
681,528
|
Prime Outlets Calhoun
|
|
Calhoun, Georgia
|
|
94.6%
|
|
253,667
|
Prime Outlets Lebanon
|
|
Lebanon, Tennessee
|
|
84.2%
|
|
226,869
|
Prime Outlets Lee
|
|
Lee, Massachusetts
|
|
97.5%
|
|
224,484
|
Prime Outlets Florida City
|
|
Florida City, Florida
|
|
89.1%
|
|
207,953
|
Prime Outlets Pismo Beach
|
|
Pismo Beach, California
|
|
98.0%
|
|
147,416
|
Prime Outlets Naples
|
|
Naples, Florida
|
|
75.8%
|
|
145,979
|
The following table sets forth the name, business type, primary lease terms and certain other information with respect to each of the top five major tenants of the Prime Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Tenant
|
|
Business Type
|
|
Number of
Centers
|
|
Square
Feet
Leased
|
|
Percentage of
Leasable Space
|
|
Lease
Expiration
|
|
Party with
Renewal Rights
|
Gap
|
|
Clothing retailer
|
|
17
|
|
409,403
|
|
7.5%
|
|
Various
|
|
Tenant
|
Phillips Van Heusen
|
|
Clothing retailer
|
|
20
|
|
327,777
|
|
6.0%
|
|
Various
|
|
Tenant
|
Nike
|
|
Footwear retailer
|
|
16
|
|
228,385
|
|
4.2%
|
|
Various
|
|
Tenant
|
Vanity Fair
|
|
Clothing retailer
|
|
15
|
|
193,333
|
|
3.5%
|
|
Various
|
|
Tenant
|
Jones Retail
|
|
Clothing retailer
|
|
17
|
|
175,823
|
|
3.2%
|
|
Various
|
|
Tenant
|
All of the leased space is commercial with leases ranging from an initial term of one to ten years. The annual average occupancy rate and average effective annual rental per square foot is as follows:
|
|
|
|
|
Year
|
|
Annual Average
Occupancy Rate
|
|
Effective
Annual
Rental Per
Square Foot
|
2009
|
|
|
94.4
|
%
|
|
$
|
19.91
|
|
2008
|
|
|
95.3
|
%
|
|
|
n/a
|
|
2007
|
|
|
96.8
|
%
|
|
|
n/a
|
|
2006
|
|
|
94.3
|
%
|
|
|
n/a
|
|
2005
|
|
|
n/a
|
|
|
|
n/a
|
|
n/a Information is not available.
The existing leases for the Prime Properties expire as follows:
|
|
|
|
|
|
|
|
|
Year
|
|
Number of
Expiring Leases
|
|
Total
Square Feet
|
|
Aggregate Annual Rental
|
|
Percentage of
Gross Annual
|
2010
|
|
|
142
|
|
|
|
900,388
|
|
|
$
|
10,970,262
|
|
|
|
11
|
%
|
2011
|
|
|
145
|
|
|
|
784,680
|
|
|
|
13,348,319
|
|
|
|
14
|
%
|
2012
|
|
|
157
|
|
|
|
699,947
|
|
|
|
14,262,727
|
|
|
|
15
|
%
|
2013
|
|
|
167
|
|
|
|
705,100
|
|
|
|
14,632,230
|
|
|
|
15
|
%
|
2014
|
|
|
122
|
|
|
|
656,394
|
|
|
|
10,290,448
|
|
|
|
11
|
%
|
2015
|
|
|
91
|
|
|
|
337,138
|
|
|
|
6,210,376
|
|
|
|
7
|
%
|
2016
|
|
|
66
|
|
|
|
347,721
|
|
|
|
5,089,875
|
|
|
|
5
|
%
|
2017
|
|
|
84
|
|
|
|
296,190
|
|
|
|
6,857,785
|
|
|
|
7
|
%
|
2018
|
|
|
77
|
|
|
|
399,465
|
|
|
|
8,122,788
|
|
|
|
9
|
%
|
2019
|
|
|
60
|
|
|
|
224,512
|
|
|
|
5,218,348
|
|
|
|
5
|
%
|
2020
|
|
|
21
|
|
|
|
95,090
|
|
|
|
1,242,446
|
|
|
|
1
|
%
|
Total
|
|
|
1,132
|
|
|
|
5,446,625
|
|
|
$
|
96,245,603
|
|
|
|
100
|
%
|
Realty taxes paid on the POAC Properties for the fiscal year ended December 31, 2009 were approximately $14,130,000. The Prime Properties were subject to an average tax rate of 1.81%.
We believe that each of the POAC Properties is adequately insured.
122
TABLE OF CONTENTS
POAC records depreciation on building and improvements utilizing the straight-line method over their estimated useful lives, which are generally 39 years.
General competitive conditions affecting the POAC Properties include those identified in the section of our Prospectus captioned Competition. Risks associated with the POAC Properties are identified in the section of our Prospectus captioned Risk Factors Risks Associated With our Properties and the Market.
The Loans
As our investment in POAC is accounted for as investment under the equity method of accounting, these loans for POAC are not reflected in our consolidated balance sheet. The following table summarizes the outstanding indebtedness of each of the POAC Properties as of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Prime Outlets
|
|
Lender
|
|
Amount
Outstanding
|
|
Maturity
Date
|
|
Interest
Rate
|
|
Payment
Terms
|
Ellenton
(1)
|
|
|
Wachovia
|
|
|
$
|
108,905,765
|
|
|
|
1/11/2016
|
|
|
|
5.51
|
%
|
|
|
Interest Only until 2/11/2008
|
|
Florida City
(1)
|
|
|
Wachovia
|
|
|
$
|
11,114,023
|
|
|
|
1/11/2016
|
|
|
|
5.51
|
%
|
|
|
Interest Only until 2/11/2008
|
|
Grove City
(1)
|
|
|
Wachovia
|
|
|
$
|
117,785,325
|
|
|
|
1/11/2016
|
|
|
|
5.51
|
%
|
|
|
Interest Only until 2/11/2008
|
|
Gulfport
(1)
|
|
|
Wachovia
|
|
|
$
|
26,230,648
|
|
|
|
1/11/2016
|
|
|
|
5.51
|
%
|
|
|
Interest Only until 2/11/2008
|
|
Huntley
(1)
|
|
|
Wachovia
|
|
|
$
|
31,088,176
|
|
|
|
1/11/2016
|
|
|
|
5.51
|
%
|
|
|
Interest Only until 2/11/2008
|
|
Jeffersonville
(1)
|
|
|
Wachovia
|
|
|
$
|
72,960,062
|
|
|
|
1/11/2016
|
|
|
|
5.51
|
%
|
|
|
Interest Only until 2/11/2008
|
|
Lebanon
(1)
|
|
|
Wachovia
|
|
|
$
|
16,152,127
|
|
|
|
1/11/2016
|
|
|
|
5.51
|
%
|
|
|
Interest Only until 2/11/2008
|
|
Naples
(1)
|
|
|
Wachovia
|
|
|
$
|
16,709,894
|
|
|
|
1/11/2016
|
|
|
|
5.51
|
%
|
|
|
Interest Only until 2/11/2008
|
|
San Marcos
(1)
|
|
|
Wachovia
|
|
|
$
|
149,108,667
|
|
|
|
1/11/2016
|
|
|
|
5.51
|
%
|
|
|
Interest Only until 2/11/2008
|
|
Pleasant Prairie
(1)
|
|
|
Wachovia
|
|
|
$
|
62,662,104
|
|
|
|
1/11/2016
|
|
|
|
5.51
|
%
|
|
|
Interest Only until 2/11/2008
|
|
Pismo Beach
(2)
|
|
|
Citigroup
|
|
|
$
|
33,850,000
|
|
|
|
11/6/2016
|
|
|
|
5.842
|
%
|
|
|
Interest Only
|
|
Queenstown
(2)
|
|
|
Citigroup
|
|
|
$
|
61,500,000
|
|
|
|
11/6/2016
|
|
|
|
5.842
|
%
|
|
|
Interest Only
|
|
Calhoun
(3)
|
|
|
CIBC
|
|
|
$
|
21,201,871
|
|
|
|
9/1/2016
|
|
|
|
5.79
|
%
|
|
|
Interest Only until 8/1/2008
|
|
Gaffney
(3)
|
|
|
CIBC
|
|
|
$
|
38,477,491
|
|
|
|
9/1/2016
|
|
|
|
5.79
|
%
|
|
|
Interest Only until 8/1/2008
|
|
Lee
(3)
|
|
|
CIBC
|
|
|
$
|
52,926,191
|
|
|
|
9/1/2016
|
|
|
|
5.79
|
%
|
|
|
Interest Only until 8/1/2008
|
|
Pleasant Prairie II
|
|
|
CIBC
|
|
|
$
|
37,741,921
|
|
|
|
12/1/2016
|
|
|
|
6.01
|
%
|
|
|
Interest Only until 1/1/2009
|
|
Birch Run
(4)
|
|
|
Wachovia
|
|
|
$
|
110,197,266
|
|
|
|
4/11/2016
|
|
|
|
5.95
|
%
|
|
|
Interest Only until 5/11/2008
|
|
Hagerstown
(4)
|
|
|
Wachovia
|
|
|
$
|
92,574,376
|
|
|
|
4/11/2016
|
|
|
|
5.95
|
%
|
|
|
Interest Only until 5/11/2008
|
|
Williamsburg
(4)
|
|
|
Wachovia
|
|
|
$
|
106,945,239
|
|
|
|
4/11/2016
|
|
|
|
5.95
|
%
|
|
|
Interest Only until 5/11/2008
|
|
Grand Prairie
|
|
|
Amegy/GPT
|
|
|
$
|
6,651,000
|
(5)
|
|
|
8/13/2010
|
|
|
|
6.25
|
%
(6)
|
|
|
Interest Only until 8/13/2009
|
|
|
|
|
Outlet Lender
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Properties are cross-collateralized under one loan.
|
|
(2)
|
Properties are cross-collateralized under one loan.
|
|
(3)
|
Properties are cross-collateralized under one loan.
|
|
(4)
|
Properties are cross-collateralized under one loan.
|
|
(5)
|
Includes $6,650,000 of land loan from Amgey Bank National Association and $1,000,000 mezzanine loan from GPT Outlet Lender LLC.
|
|
(6)
|
LIBOR plus 3.25%, subject to a floor of 6.25% (6.25% as of March 31, 2010).
|
The scheduled principal maturities of our debt by year of maturity as of March 31, 2010 are as follows:
|
|
|
Years Ended December 31,
|
|
Principal
Maturities
|
2010
|
|
$
|
17,690,000
|
|
2011
|
|
|
15,768,000
|
|
2012
|
|
|
16,525,000
|
|
2013
|
|
|
17,671,000
|
|
2014
|
|
|
18,712,000
|
|
Thereafter
|
|
|
1,093,066,000
|
|
|
|
$
|
1,179,432,000
|
|
123
TABLE OF CONTENTS
Contribution and Sale Agreement
On December 8, 2009, we entered into a Contribution Agreement with certain affiliates of our sponsor (the Lightstone Parties), Simon Property Group, Inc., a Delaware corporation (Parent REIT), Simon Property Group, L.P., a Delaware limited partnership (Parent OP), Marco Capital Acquisition, LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent OP (Parent Sub, and together with Parent REIT and Parent OP, the Parent Parties) and POAC.
Under the terms of the Contribution Agreement, (i) we will contribute to Parent Sub their membership interests in Mill Run and POAC (collectively, the Contributions), and (ii) our operating partnership will sell to Parent Sub its membership interest in LVP St. Augustine and a related parcel of 8.5-acre parcel of undeveloped land (the Sale).
As consideration for the Contributions, we are expected to receive approximately $228.5 million in consideration before transaction expenses, twenty percent (20%) of which will consist of common operating partnership units in Parent OP and eighty percent (80%) of which will consist of cash from a debt-financed distribution by Parent OP. The pricing of the common operating partnership units in Parent OP will be based on the volume weighted average closing price of Parent REITs common stock during the ten trading days prior to the date that is three trading days prior to the closing date, subject to a ten percent collar. As consideration for the
Sale, our operating partnership will receive approximately $17.2 million in cash, subject to certain adjustments. A portion of the aggregate consideration to be received by the REIT and the Lightstone Parties will be subject to an escrow for eighteen months following closing in respect of certain indemnity obligations to the Parent Parties. Total expected consideration is $245.7 million of which $200.0 million is expected to be in the form of cash and the remaining is expected to be in the form of equity.
The Contribution Agreement contains representations and warranties and covenants of us, the Lightstone Parties, the Parent Parties and POAC, including among others, covenants concerning the conduct of the business of POAC and Mill Run during the period between the execution of the Contribution Agreement and the closing of the Contributions and the Sale. In addition, we agreed to refrain from initiating or entering into certain discussions with, or providing certain information to, third parties as it relates POAC and Mill Run.
The closing of the Contributions and the Sale is anticipated to occur in 2010 and is subject to various closing conditions including, among others, with respect to the execution by us of a tax protection agreement with the Parent Parties. The Contribution Agreement is subject to certain rights of the parties to terminate the Contribution Agreement, including in the event of certain breaches by the parties of their respective obligations thereunder.
Industrial Properties
We own the following properties within our industrial property group.
|
|
|
|
|
Real Estate Entity
|
|
Dates Acquired
|
|
Ownership %
|
Gulf Coast Industrial Portfolio
|
|
|
February 1, 2007
|
|
|
|
100.00
|
%
|
Sarasota Industrial Portfolio
|
|
|
November 15, 2007
|
|
|
|
100.00
|
%
|
Gulf Coast Industrial Portfolio
On February 1, 2007, we, through wholly owned subsidiaries of our operating partnership, acquired a portfolio of industrial and office properties located in New Orleans, LA (5 industrial and 2 office properties), Baton Rouge, LA (3 industrial properties) and San Antonio, TX (4 industrial properties), collectively the Gulf Coast Industrial Portfolio. As a group, the properties were 92% occupied at the acquisition, and represent approximately 1.0 million leasable square feet principally suitable for flexible industrial (54%), distribution (36%) and office (10%) uses. The properties were independently appraised at $70.7 million.
The acquisition price for the properties was $63.9 million, exclusive of approximately $1.9 million of closing costs, escrow funding for immediate repairs ($0.9 million) and insurance ($0.1 million), and financing related costs of approximately $0.6 million. In connection with the transaction, the Advisor received an acquisition fee equal to 2.75% of the purchase price, or approximately $1.8 million. The acquisition was funded through a combination of $14.4 million in offering proceeds from our initial offering of common stock
124
TABLE OF CONTENTS
and approximately $53.0 million in loan proceeds from a fixed rate mortgage loan secured by the properties. The loan represented 75% of appraised value and as such exceeded our debt financing leverage limits and the Board, including all its independent directors, approved the leverage exceptions as required by our Articles of Incorporation. We do not intend to make significant renovations or improvements to the properties.
In evaluating the Gulf Coast Industrial Portfolio as a potential acquisition and determining the appropriate amount of consideration to be paid, we had considered a variety of factors, including each propertys location, demographics, quality of tenants, duration of in-place leases, strong occupancy and the fact that the overall rental rates of the Gulf Coast Industrial Portfolio are comparable to market rates, in addition to those factors described above.
We believe that the Gulf Coast Industrial Portfolios properties are well located, have acceptable roadway access and are well maintained. The Gulf Coast Industrial Portfolio properties are subject to competition from similar properties within their respective market areas and the economic performance of one or more the Gulf Coast Industrial Portfolio properties could be affected by changes in local economic conditions. We did not consider any other factors material or relevant to the decision to acquire the Gulf Coast Industrial Portfolio.
The Loan
In connection with the acquisition, our operating partnership through one of its wholly owned subsidiaries secured a mortgage loan from Wachovia Bank, National Association in the principal amount of $53,025,000. The mortgage loan has a term of 10 years, bears interest at a fixed rate of 5.83%, and requires monthly installments of interest only through the first 60 months, and payments of principal and interest through the remainder of its stated 10-year term. The mortgage loan will mature on February 11, 2017, at which time a balance of $49,556,985 will be due, assuming no prior principal prepayment. The mortgage loan is secured by the Gulf Coast
Industrial Portfolio and is non-recourse to us. The outstanding balance of the mortgage loan was $53,025,000 as of March 31, 2010.
Gulf Coast Industrial Portfolio Information
The Gulf Coast Industrial Portfolio includes industrial and office properties located in New Orleans, LA (5 industrial and 2 office properties), Baton Rouge, LA (3 industrial properties) and San Antonio, TX (4 industrial properties). As of March 31, 2010, the Gulf Coast Industrial Portfolio was operating at a weighted-average occupancy rate of 73.4% and had a weighted-average annualized rental base rate per square foot of $7.50, and no single tenant occupied in excess of 10% of REIT Portfolios rentable square footage.
The Gulf Coast Industrial Portfolios annual average percentage occupancy rate and average effective rental per square foot for each of the last five years was as follows:
|
|
|
|
|
|
|
Properties
|
|
Year
|
|
Annual Average
Occupancy Rate
|
|
Average
Effective Annual
Rental Per
Square Foot
|
New Orleans Portfolio
|
|
|
2009
|
|
|
|
85.6
|
%
|
|
$
|
10.29
|
|
|
|
|
2008
|
|
|
|
92.3
|
%
|
|
$
|
10.01
|
|
|
|
|
2007
|
|
|
|
93.2
|
%
|
|
$
|
9.80
|
|
|
|
|
2006
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
2005
|
|
|
|
n/a
|
|
|
|
n/a
|
|
San Antonio Portfolio
|
|
|
2009
|
|
|
|
74.2
|
%
|
|
$
|
5.42
|
|
|
|
|
2008
|
|
|
|
81.6
|
%
|
|
$
|
4.77
|
|
|
|
|
2007
|
|
|
|
91.2
|
%
|
|
$
|
4.46
|
|
|
|
|
2006
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
2005
|
|
|
|
n/a
|
|
|
|
n/a
|
|
n/a Information is not available.
125
TABLE OF CONTENTS
|
|
|
|
|
|
|
Properties
|
|
Year
|
|
Annual Average
Occupancy Rate
|
|
Average
Effective Annual
Rental Per
Square Foot
|
Baton Rouge Portfolio
|
|
|
2009
|
|
|
|
96.0
|
%
|
|
$
|
6.71
|
|
|
|
|
2008
|
|
|
|
98.5
|
%
|
|
$
|
6.69
|
|
|
|
|
2007
|
|
|
|
98.8
|
%
|
|
$
|
6.27
|
|
|
|
|
2006
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
2005
|
|
|
|
n/a
|
|
|
|
n/a
|
|
n/a Information is not available.
The name, business type, primary lease terms and certain other information of the top five tenants of the Gulf Coast Industrial Portfolio as of March 31, 2010 are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
Name of Tenant
|
|
Business Type
|
|
Square Feet Leased
|
|
Percentage
of Leasable Space
|
|
Lease
Expiration
|
|
Party with Renewal Rights
|
New Orleans
|
|
Wink, Incorporated
|
|
Project management company
|
|
41,313
|
|
12%
|
|
July 31, 2015
|
|
Tenant
|
Portfolio
|
|
PSS World Medical, Inc.
|
|
Medical supply distribution
|
|
40,500
|
|
12%
|
|
August 31, 2011
|
|
Tenant
|
|
|
Siemens Real Estate, Inc.
|
|
Real estate operator
|
|
22,948
|
|
7%
|
|
April 30, 2015
|
|
Tenant
|
|
|
Bollinger Shipyards, Inc.
|
|
Ship builder
|
|
16,909
|
|
5%
|
|
December 31, 2014
|
|
Tenant
|
|
|
I.C.E.P. Enterprises
|
|
Building maintenance company
|
|
14,003
|
|
4%
|
|
March 31, 2011
|
|
Tenant
|
|
San Antonio
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
|
|
Alere
|
|
Health care services
|
|
18,200
|
|
4%
|
|
July 31, 2015
|
|
Tenant
|
|
|
Hearst Newspaper Partnership
|
|
Media company
|
|
14,952
|
|
3%
|
|
June 30, 2013
|
|
Tenant
|
|
|
Plant Interscapes, Inc.
|
|
Interior plant specialist
|
|
13,500
|
|
3%
|
|
January 31, 2012
|
|
Tenant
|
|
|
United Refrigeration, Inc.
|
|
Home appliance retailer
|
|
12,922
|
|
3%
|
|
June 30, 2012
|
|
Tenant
|
|
|
Big Tex Air Conditioning, Inc.
|
|
Heating & Air Conditioning
|
|
12,000
|
|
2%
|
|
December 31, 2011
|
|
Tenant
|
|
Baton Rouge
|
|
Fedex
|
|
Package delivery
|
|
66,600
|
|
39%
|
|
December 31, 2011
|
|
Tenant
|
Portfolio
|
|
Houston Wire Cable
|
|
Cable installer
|
|
22,200
|
|
13%
|
|
September 30, 2014
|
|
Tenant
|
|
|
Southwest Stainless
|
|
Household retailer
|
|
20,000
|
|
12%
|
|
July 31, 2012
|
|
Tenant
|
|
|
Enterprise Leasing
|
|
Car lease
|
|
15,746
|
|
9%
|
|
August 31, 2012
|
|
Tenant
|
|
|
Exide Technologies
|
|
Retailer
|
|
14,800
|
|
9%
|
|
June 30, 2011
|
|
Tenant
|
The following is a 10-year schedule of lease expirations for the Gulf Coast Industrial Portfolio:
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
Year
|
|
Number of Expiring Leases
|
|
Total
Square Feet
|
|
Aggregate Annual Base Rent
|
|
Percentage of Gross Annual Rental
|
New Orleans
|
|
|
2010
|
|
|
|
20
|
|
|
|
137,668
|
|
|
$
|
1,451,665
|
|
|
|
50
|
%
|
Portfolio
|
|
|
2011
|
|
|
|
9
|
|
|
|
79,472
|
|
|
|
611,953
|
|
|
|
21
|
%
|
|
|
|
2012
|
|
|
|
2
|
|
|
|
12,216
|
|
|
|
152,152
|
|
|
|
5
|
%
|
|
|
|
2013
|
|
|
|
5
|
|
|
|
27,439
|
|
|
|
252,969
|
|
|
|
9
|
%
|
|
|
|
2014
|
|
|
|
1
|
|
|
|
9,959
|
|
|
|
222,478
|
|
|
|
7
|
%
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
1
|
|
|
|
10,084
|
|
|
|
224,772
|
|
|
|
8
|
%
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
38
|
|
|
|
276,838
|
|
|
$
|
2,915,989
|
|
|
|
100%
|
|
126
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
Year
|
|
Number of Expiring Leases
|
|
Total
Square Feet
|
|
Aggregate Annual Base Rent
|
|
Percentage of Gross Annual Rental
|
San Antonio
|
|
|
2010
|
|
|
|
22
|
|
|
|
138,268
|
|
|
$
|
929,451
|
|
|
|
55
|
%
|
Portfolio
|
|
|
2011
|
|
|
|
7
|
|
|
|
36,658
|
|
|
|
171,761
|
|
|
|
10
|
%
|
|
|
|
2012
|
|
|
|
9
|
|
|
|
67,186
|
|
|
|
329,953
|
|
|
|
19
|
%
|
|
|
|
2013
|
|
|
|
5
|
|
|
|
36,773
|
|
|
|
151,696
|
|
|
|
9
|
%
|
|
|
|
2014
|
|
|
|
3
|
|
|
|
17,619
|
|
|
|
75,356
|
|
|
|
4
|
%
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
1
|
|
|
|
6,668
|
|
|
|
48,343
|
|
|
|
3
|
%
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
47
|
|
|
|
303,172
|
|
|
$
|
1,706,560
|
|
|
|
100
|
%
|
Baton Rouge
|
|
|
2010
|
|
|
|
1
|
|
|
|
4,410
|
|
|
$
|
48,951
|
|
|
|
4
|
%
|
Portfolio
|
|
|
2011
|
|
|
|
5
|
|
|
|
94,125
|
|
|
|
547,819
|
|
|
|
48
|
%
|
|
|
|
2012
|
|
|
|
3
|
|
|
|
44,952
|
|
|
|
373,412
|
|
|
|
32
|
%
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
2
|
|
|
|
25,800
|
|
|
|
147,210
|
|
|
|
13
|
%
|
|
|
|
2015
|
|
|
|
1
|
|
|
|
3,306
|
|
|
|
33,556
|
|
|
|
3
|
%
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
12
|
|
|
|
172,593
|
|
|
$
|
1,150,948
|
|
|
|
100
|
%
|
The aggregate realty taxes paid on the Gulf Coast Industrial Portfolio for the fiscal year ended December 31, 2009 were $735,740. The Gulf Coast Industrial Portfolio was subject to a weighted average realty tax rate of $3.79%.
We believe that the Gulf Coast Industrial Portfolio is adequately insured.
Depreciation is taken on the Gulf Coast Industrial Portfolio. To the extent that a subsidiary of our operating partnership acquires properties for cash, the initial basis in such properties for federal income tax purposes generally is equal generally is equal to the purchase price paid by our operating partnership. Our operating partnership plans to depreciate such property for federal income tax purposes on a straight-line basis using an estimated useful life of 39 years. The aggregate basis of the Industrial Portfolio for federal income tax purposes approximates its aggregate net book value in accordance with US GAAP, which is disclosed in Schedule
III to our Consolidated Financial Statements included in this Prospectus.
General competitive conditions affecting the Gulf Coast Industrial Portfolio include those identified in the section of our Prospectus captioned Competition. Other risks associated with the Gulf Coast Industrial Portfolio are identified in the section of our Prospectus captioned Risk Factors Risks Associated with our Properties and the Market.
Sarasota Property
On March 1, 2007, our operating partnership entered into an option agreement to participate in a joint-venture with its Sponsor (the JV Option with respect to the potential joint venture, the Joint Venture) for the purchase of a property located at 2150 Whitfield Avenue, Sarasota, Florida (the Sarasota Property). On November 15, 2007, we exercised the JV Option and, through a wholly-owned subsidiary of our operating partnership, entered into the Joint Venture and acquired the Sarasota Property.
In July, 2007, CAD Funding, LLC (CAD), an affiliate of Park Avenue Funding, LLC, had the highest bid on the Sarasota Property in a foreclosure action. Park Avenue Funding, LLC, is a real estate lending company founded in 2004 and an affiliate of our Advisor and Sponsor. CAD initiated the foreclosure action
127
TABLE OF CONTENTS
following the default of an unaffiliated third party on a loan made to the third party by CAD, for which the Sarasota Property served as security. Prior to the entry of the foreclosure judgment, the Sponsor expressed an interest in bidding at the foreclosure sale in anticipation that the Registrant would exercise the JV Option. On August 6, 2007, the Sarasota Property was indirectly acquired by the Sponsor. The Sarasota Property was contributed to the Joint Venture prior to the Registrants exercise of the JV Option. The contribution to the Joint Venture by us was $13.1 million of offering proceeds from our initial offering of common stock used
to acquire the Sarasota Property. The property was independently appraised in May of 2006 for $17.4 million. As December 31, 2007, the Company owned 100% of the Sarasota property and its operations are fully consolidated in our financial statements.
In evaluating the Sarasota Property as a potential acquisition, we had considered a variety of factors and determined that the acquisition cost was at a substantial discount to current market value. The Sarasota Property is subject to competition from similar properties within its market area, and economic performance could be affected by changes in local economic and market conditions.
Property Information
Completed in 1992, the Sarasota Property consists of four buildings and has approximately 281,000 rentable square feet, including approximately 16,000 rentable square feet suitable for office and showroom use. Beacon Property Management, LLC, is the property manager of the Sarasota Property. The property manager has agreed to a fee of 4%.
The Sarasota Property did not possess a tenant since our acquisition until April 2009. As of March 31, 2010, the Sarasota Property was 26.3% occupied with one tenant on a month-to-month basis with annualized based rent of $60,000.
For the year ended December 31, 2008, we identified certain indicators of impairment related to this property such as the property was currently vacant and experiencing negative cash flows and the difficulty in leasing the space. We performed a cash flow valuation analysis and determined that the carrying value of the property exceeded its undiscounted cash flows. Therefore, we recorded an impairment charge of $4.6 million consisting of the excess carrying value of the asset over its estimated fair values. We believe that the Sarasota Property is well maintained and suitable for industrial use, and we are aggressively seeking additional tenants.
There are no planned renovations for the Sarasota Property.
Realty taxes paid on the Sarasota Property for the fiscal year ended December 31, 2009 were $135,142. The Sarasota Property was subject to a tax rate of 16.25%.
We believe that the Sarasota Property is adequately insured.
Depreciation is taken on the Sarasota Property. To the extent that a subsidiary of our operating partnership acquires properties for cash, the initial basis in such properties for federal income tax purposes generally is equal to the purchase price paid by our operating partnership. Our operating partnership plans to depreciate such property for federal income tax purposes on a straight-line basis using an estimated useful life of 39 years. The basis of the Sarasota Property for federal income tax purposes approximates its net book value in accordance with US GAAP, which is disclosed in Schedule III to our Consolidated Financial Statements of the
REIT included in this Prospectus.
General competitive conditions affecting the Sarasota Property include those identified in the section of our Prospectus captioned Competition. Risks associated with the Sarasota Property are identified in the section of our Prospectus captioned Risk Factors Risks Associated With our Properties and the Market.
128
TABLE OF CONTENTS
Multifamily Properties
We own the following properties within our multifamily property group.
|
|
|
|
|
Real Estate Entity
|
|
Dates Acquired
|
|
Ownership %
|
Michigan Apartment Communities
(4 multifamily properties)
|
|
June 29, 2006
|
|
100.00%
|
Southeast Apartment Communities
(5 multifamily properties Camden properties)
|
|
November 16, 2007
|
|
100.00%
|
Michigan Apartment Communities
On April 26, 2006, our sponsor entered into a purchase and sale agreement with Home Properties, L.P. and Home Properties WMF I, LLC, affiliates of Home Properties, Inc., a New York Stock Exchange listed real estate investment trust (collectively, Sellers), each an unaffiliated third party, to purchase 19 multifamily apartment communities. On June 29, 2006, our sponsor assigned the purchasers interest in the purchase and sale agreement with respect to each of the four apartment communities to each of four single-purpose, wholly-owned subsidiaries of LVP Michigan Multifamily Portfolio LLC (LVP MMP) and LVP MMP subsidiaries
simultaneously completed the acquisition of the four apartment communities (Michigan Apartment Communities). Our operating partnership holds a 99% membership interest in LVP MMP, while we hold a 1% membership interest in LVP MMP. The Michigan Apartment Communities are located in Southeast Michigan and were valued by an independent third-party appraiser retained by Citigroup Global Markets Realty Corp. (Citigroup) at an aggregate value equal to $54.3 million at the time of acquisition. We believe these properties are suitable to be used as multifamily apartments.
The total acquisition price, excluding acquisition-related transaction costs, was approximately $42.2 million. A portion of this amount was allocated to each of the four apartment communities. In connection with the transaction, our advisor received an acquisition fee equal to 2.75% of the purchase price, or approximately $1.1 million. Other closing and financing related costs totaled approximately $0.4 million, and net pro ration adjustments for assumed liabilities, prepaid rents, real estate taxes and interest totaled $0.5 million.
Approximately $40.7 million of the total acquisition cost was funded by a mortgage loan from Citigroup as described below, and approximately $4.6 million was funded with offering proceeds from the initial sale of our common stock. Loan proceeds from Citigroup were also used to fund approximately $1.1 million of escrows for capital improvements, real estate taxes, and insurance.
The Loan
In connection with the acquisition, the LVP MMP secured a mortgage loan from Citigroup in the principal amount of $40.7 million. The loan has a 30-year amortization period, matures in 10 years, bears interest at a fixed rate of 5.96% per annum and requires monthly installments of interest only through the first 60 months, and monthly installments of principal and interest throughout the remainder of its stated term. The loan will mature on July 11, 2016, at which time a balance of approximately $38.1 million will be due, assuming no prior principal prepayment.
The loan is secured by all four apartment communities and is non-recourse to us and LVP MMP.
129
TABLE OF CONTENTS
Portfolio Information
The following table provides information as of March 31, 2010 regarding the Michigan Apartment Communities that we purchased from an unaffiliated third party.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Name of Property
|
|
Location of Property
|
|
Number of Apartment Units
|
|
Monthly Rents Billed
|
|
Monthly Optimum Rent
|
|
Permanent Mortgage Balance at March 31,
2010
(1)
|
|
Mortgage Interest Rate
|
|
Mortgage Maturity
|
|
Property Mangement Agent
(2)
|
|
Annual Property Management Fee
|
Carriage Hill Apartments
|
|
|
Dearborn Heights, MIMI
|
|
|
|
168
|
|
|
$
|
113,800
|
|
|
$
|
119,415
|
|
|
$
|
7,050,000
|
|
|
|
5.96
|
%
|
|
|
July 2016
|
|
|
|
Beacon Management
|
|
|
|
4.0
|
%
|
Carriage Park Apartments
|
|
|
Dearborn Heights, MIMI
|
|
|
|
256
|
|
|
$
|
168,287
|
|
|
$
|
187,700
|
|
|
$
|
10,950,000
|
|
|
|
5.96
|
%
|
|
|
July 2016
|
|
|
|
Beacon Management
|
|
|
|
4.0
|
%
|
Macomb Apartments
|
|
|
Roseville, MI
|
|
|
|
217
|
|
|
$
|
131,223
|
|
|
$
|
145,560
|
|
|
$
|
8,175,000
|
|
|
|
5.96
|
%
|
|
|
July 2016
|
|
|
|
Beacon Management
|
|
|
|
4.0
|
%
|
Scotsdale Apartments
|
|
|
Westland, MI
|
|
|
|
376
|
|
|
$
|
206,110
|
|
|
$
|
248,670
|
|
|
$
|
14,550,000
|
|
|
|
5.96
|
%
|
|
|
July 2016
|
|
|
|
Beacon Management
|
|
|
|
4.0
|
%
|
|
(1)
|
All of the four apartment communities are cross-collateralized.
|
|
(2)
|
Each of the properties is operated under a management agreement with Beacon Property Management, LLC, a subsidiary of our sponsor and an affiliate of our advisor.
|
As of March 31, 2010, the percentage occupancy rate of the Michigan Apartment Communities was 86.6%. All of the leased space is residential with leases ranging typically from six months to one year. The historical annual average percentage occupancy rate and average effective net annual rental revenue per occupied unit of the Michigan Apartment Communities for the last five years is as follows:
|
|
|
|
|
Year
|
|
Annual Average Occupancy Rate
|
|
Average Effective Net Annual Rental Revenue per Occupied Unit
|
2009
|
|
|
87.5
|
%
|
|
$
|
881
|
|
2008
|
|
|
91.6
|
%
|
|
$
|
927
|
|
2007
|
|
|
92.7
|
%
|
|
$
|
930
|
|
2006
|
|
|
92.7
|
%
|
|
$
|
960
|
|
2005
|
|
|
n/a
|
|
|
|
n/a
|
|
n/a Information is not available.
To the extent that a subsidiary of our operating partnership acquires properties for cash, the initial basis in such properties for federal income tax purposes generally is equal to the purchase price paid by our operating partnership. Our operating partnership depreciates each such depreciable property for federal income tax purposes on a straight-line basis using an estimated useful life of 27.5 years. The aggregate basis of the Michigan Apartment Communities for federal income tax purposes approximates their aggregate net book value in accordance with US GAAP, which is disclosed in Schedule III to our Consolidated Financial Statements included in
this Prospectus.
The aggregate realty taxes paid on the Michigan Apartment Communities for the fiscal year ended December 31, 2009 were $955,593. The Michigan Apartment Communities were subject to a weighted average realty tax rate of 5.52%.
General competitive conditions affecting the Michigan Apartment Communities include those identified in the section of our prospectus captioned Competition.
We believe that the Michigan Apartment Communities are adequately insured.
There is no major renovation or development planned for the Michigan Apartment Communities.
130
TABLE OF CONTENTS
Southeast Apartment Communities (Camden Properties)
On November 16, 2007, we through wholly owned subsidiaries of the operating partnership acquired five apartment communities (Camden Properties or Southeast Apartment Communities) located in Tampa, Florida (one property), Charlotte, North Carolina (two properties) and Greensboro, North Carolina (two properties) from Camden Operating, L.P. (the Seller). The Seller is not affiliated with REIT or its subsidiaries.
The total acquisition price, including acquisition-related transaction costs, was approximately $99.3 million. A portion of this amount was allocated to each of the five Camden Properties. In connection with the transaction, our advisor received an acquisition fee equal to 2.75% of the purchase price, or approximately $2.65 million. Closing and financing related costs totaled approximately $1.46 million.
Approximately $79.3 million of the total acquisition cost was funded by five substantially similar fixed rate loans (described below) with Fannie Mae secured by each of the Camden Properties and approximately $20 million was funded with offering proceeds from the initial sale of our common stock.
During the year ended December 31, 2009, we identified certain indicators of impairment related to these properties such as negative cash flow expectations and change in managements expectations regarding the length of the holding period. We performed a cash flow valuation analysis and determined that the carrying value of the properties exceeded the weighted probability of their undiscounted cash flows. We recorded an asset impairment charge of $43.2 million associated with the Camden Properties. In addition, as a result of our expectations of negative cash flows, management made the decision to stop payment of the required debt service
payment on two of the loans related to two of the Camden Properties. As a result, these two Camden properties will go through foreclosure sale during 2010 and will no longer be owned by our wholly owned subsidiaries. During 2010, the foreclosure sales on the properties were completed. See
the Loan
below for further discussion.
The Loan
In connection with the acquisition, we through wholly owned subsidiaries of our operating partnership, secured five substantially similar mortgage loans from Fannie Mae aggregating $79.3 million (the Camden Loans). The Camden Loans have a 30-year amortization period, mature in 7 years, and bear interest at a fixed rate of 5.44% per annum. The Loans require monthly installments of interest only through the first three years and monthly installments of principal and interest throughout the remainder of their stated terms. The Loans will mature on December 1, 2014, at which time a balance of $77,255,814 will be due, assuming no prior
principal prepayment. The aggregate loan amount is secured by all of the Camden Properties. The aggregate outstanding balance of the mortgage loans was $79,268,800 as of March 31, 2010.
During 2009, we decided to not make our required debt service payments of $0.2 million in the month of October on the Camden loans collateralized by one apartment property located in North Carolina and one located in Florida. These two loans had an aggregate outstanding principal balance of $42.3 million as of March 31, 2010. We determined that future debt service payments on these two loans would no longer be economically beneficial to us based upon the current and expected future performance of the locations associated with these two loans. During the first quarter of 2010, we have been notified by the lender that it will be foreclosing on these
two properties. The foreclosure sale for one of the properties closed on April 13, 2010 and the other one was completed May 12, 2010. The principal balance of these two loans of $42.3 million has been accelerated from its original maturity date of December 2014 to due current.
Portfolio Information
The Camden Properties, built between 1980 and 1987, are comprised of 1,576 apartment units, in the aggregate, contain a total of 1,124,249 net rentable square feet, and was 91.5% occupied as of March 31, 2010. The Camden Properties include a wide range of amenities, including at least one club house, tennis courts, fitness center, pool and on-site laundry facilities.
131
TABLE OF CONTENTS
The following table provides information as of March 31, 2010 regarding the Camden Properties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Name of Property
|
|
Location of
Property
|
|
Number of Apartment Units
|
|
Monthly Rents
Billed
|
|
Monthly Optimum Rent
|
|
Permanent Mortgage Balance at March 31,
2010
|
|
Mortgage Interest Rate
|
|
Mortgage
Maturity
|
|
Property
Mangement Agent
(1)
|
|
Annual
Property Management Fee
|
Eastchase
|
|
|
Charlotte, NC
|
|
|
|
220
|
|
|
$
|
129,124
|
|
|
$
|
129,124
|
|
|
$
|
9,147,000
|
|
|
|
5.44
|
%
|
|
|
December 2014
|
|
|
|
Beacon Management
|
|
|
|
4
|
%
|
Glen *
|
|
|
Greensboro, NC
|
|
|
|
304
|
|
|
$
|
159,332
|
|
|
$
|
174,320
|
|
|
$
|
14,560,000
|
|
|
|
5.44
|
%
|
|
|
December 2014
|
|
|
|
Beacon Management
|
|
|
|
4
|
%
|
Tampa Isles **
|
|
|
Tampa, FL
|
|
|
|
484
|
|
|
$
|
325,379
|
|
|
$
|
345,552
|
|
|
$
|
27,712,300
|
|
|
|
5.44
|
%
|
|
|
December 2014
|
|
|
|
Beacon Management
|
|
|
|
4
|
%
|
Wendover
|
|
|
Greensboro, NC
|
|
|
|
216
|
|
|
$
|
123,878
|
|
|
$
|
136,684
|
|
|
$
|
10,396,500
|
|
|
|
5.44
|
%
|
|
|
December 2014
|
|
|
|
Beacon Management
|
|
|
|
4
|
%
|
Timber Creek
|
|
|
Charlotte, NC
|
|
|
|
352
|
|
|
$
|
199,656
|
|
|
$
|
206,505
|
|
|
$
|
17,453,000
|
|
|
|
5.44
|
%
|
|
|
December 2014
|
|
|
|
Beacon Management
|
|
|
|
4
|
%
|
|
*
|
The Glen property is in default on its loan as of March 31, 2010. The foreclosure sale on this property was completed on April 13, 2010.
|
|
**
|
The Tampa Isles property is in default on its loan as of March 31, 2010. The foreclosure sale on this property was completed on May 12, 2010.
|
|
(1)
|
Each of the acquired properties is operated under a management agreement with Beacon Property Management, LLC.
|
Since this acquisition, we have enhanced unit interiors with minor renovations and installations of modern appliances.
All of the leased space is residential with leases ranging typically from six months to one year. The annual average occupancy rate and average effective net annual rental revenue per unit of the Camden Properties for the last five years is as follows:
|
|
|
|
|
Year
|
|
Annual Average Occupancy Rate
|
|
Average
Effective Net Annual Rental Revenue per Occupied Unit
|
2009
|
|
|
90
|
%
|
|
$
|
7,580
|
|
2008
|
|
|
87
|
%
|
|
$
|
7,440
|
|
2007
|
|
|
87
|
%
|
|
$
|
7,664
|
|
2006
|
|
|
n/a
|
|
|
|
n/a
|
|
2005
|
|
|
n/a
|
|
|
|
n/a
|
|
n/a Information is not available.
The aggregate realty taxes paid on the Camden Properties for the fiscal year ended December 31, 2009 were $1,030,417. The Camden Properties were subject to a weighted average realty tax rate of 1.59%.
We believe that the Camden Properties are adequately insured.
To the extent that a subsidiary of our operating partnership develops a property, the initial basis in such properties for federal income tax purposes generally is equal to the acquisition cost. Our operating partnership depreciates each property for federal income tax purposes on a straight-line basis using an estimated useful life of 27.5 years. The aggregate basis of the Camden Properties for federal income tax purposes approximates its aggregate net book value in accordance with US GAAP, which is disclosed in Schedule III to our Consolidated Financial Statements included in this Prospectus.
General competitive conditions affecting the Camden Properties include those identified in the section of our Prospectus captioned Competition.
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Hotel Properties
We own the following properties within our hotel property group.
|
|
|
|
|
Real Estate Entity
|
|
Dates Acquired
|
|
Ownership %
|
Houston Extended Stay Hotels (2 hotel properties)
|
|
October 17, 2007
|
|
100.00%
|
Houston Extended Stay Hotels
On October 17, 2007, we, through TLG Hotel Acquisitions LLC, a wholly owned subsidiary of our operating partnership (together with such subsidiary, the Houston Partnership), acquired two hotels located in Houston, TX (the Katy Hotel) and Sugar Land, TX (the Sugar Land Hotel and together with the Katy Hotel, the Hotels) from Morning View Hotels Katy, LP, Morning View Hotels Sugar Land, LP and Point of Southwest Gardens, Ltd., pursuant to an asset purchase and sale agreement. The seller is not an affiliate of us or its subsidiaries.
The acquisition price for the Hotels was $16 million inclusive of closing costs. In connection with the transaction, our advisor received an acquisition fee equal to 2.75% of the contract price ($15.2 million), or approximately $0.4 million.
The acquisition was funded through a combination of $6.0 million in our offering proceeds from the initial sale of our common stock and approximately $10 million in loan proceeds from a floating rate mortgage loan secured by the Hotels as described below.
We have established a taxable subsidiary, LVP Acquisitions Corp. (LVP Corp), which has entered into operating lease agreements with each of the Katy Hotel and the Sugar Land Hotel, respectively, and LVP Corp. has entered into management agreements with HVM L.L.C., a controlled affiliate of our sponsor, for the management of the Hotels.
The Loan
In connection with the acquisition of the Hotels, the Houston Partnership along with ESD #5051 Houston Sugar Land, LLC and ESD #5050 Houston Katy Freeway, LLC, its wholly owned subsidiaries (the Houston Borrowers) secured a mortgage loan from Bank of America, N.A. in the principal amount of $12.9 million, which included up to an additional $2.8 million of renovation proceeds which had been borrowed to fund the renovations described below.
The original mortgage loan had a term of one year with the option of a 6-month term extension, bears interest on a daily basis expressed as a floating rate equal to the lesser of (i) the maximum non-usurious rate of interest allowed by applicable law or (ii) the British Bankers Association LIBOR Daily Floating Rate plus one hundred seventy-five basis points (1.75%) per annum rate and requires monthly installments of interest only through the first 12 months. The mortgage has subsequently amended and extended to mature April 16, 2011. The amended mortgage loan bears interest on a daily basis expressed as a floating rate equal to the lesser of (i) the
maximum non-usurious rate of interest allowed by applicable law or (ii) the British Bankers Association Libor Daily Floating Rate plus 450 basis points (4.50%) per annum rate and requires monthly installments of interest plus a principal payment of $43,750. The remaining principal balance of $9,490,000, assuming no principal prepayment prior to maturity, together with all accrued and unpaid interest and all other amounts payable there under will be due on April 16, 2011. The mortgage loan is secured by the Hotels and 35% of the obligation is guaranteed by us. The outstanding balance of the mortgage loan was $10,062,500 as of March 31, 2010.
In connection with the Loan, we guaranteed the complete performance of the Houston Borrowers obligations with respect to the renovations and certain other customary guarantees.
Portfolio Information
The Katy Hotel, built in 1998, is located on approximately 2.3 acres and has 145 rooms including 68 standard suites, 28 standard executive rooms, 14 deluxe standard rooms, 32 standard double rooms and 3 Deluxe Double Suites. The Sugar Land Hotel, built in 2000, is located on approximately 3.5 acres and has 145 rooms including 68 standard suites, 28 standard executive rooms, 14 deluxe standard rooms, 32 standard
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double rooms and 3 Deluxe Double Suites. For the three months ended March 31, 2010, the Hotels were 59.8% occupied and annualized revenue per available room (RevPAR) based on the month of March RevPAR was $22.05.
At the time of acquisition, the Hotels were recently remodeled by the previous owner, however, during 2008, we made a $2.8 million dollar investment in capital expenditures to convert the Hotels to Extended Stay Deluxe (ESD) brand properties. The ESD brand is under license from an affiliate within the Extended Stay Hotels group of companies. The additional improvements included implementing ESDs national reservation system, new carpeting, new paint, new signage, exterior facade improvements, re-stripping parking lot, guest room upgrades, landscaping and constructing pools. The renovations were completed in 2008 and no financing
other than the mortgage loan described above was obtained in connection with such improvements.
Extended stay hotels are ideal for business travel, temporary housing or weekend getaways. Guests can count on clean, comfortable suites with wireless high-speed internet access, separate living, dining and sleeping areas, ample work space, a fully-equipped kitchen and on-site laundry. ESD offers larger upscale accommodations, an expanded cable television package, a DVD player in every room, printer stations in the lobby, pillow-top mattresses and MP3-ready alarm clocks. Most ESD hotels also include a combination of swimming pools, spas, exercise rooms, ovens and dishwashers.
The aggregate realty taxes paid on the Hotels for the fiscal year ended December 31, 2009 were $224,717. The Hotels were subject to a weighted average realty tax rate of 2.50%.
We believe that the Hotels are adequately insured.
Depreciation is taken on the Hotels. To the extent that a subsidiary of our operating partnership acquires properties for cash, the initial basis in such properties for federal income tax purposes generally is equal to the purchase price paid by our operating partnership. Our operating partnership plans to depreciate such property for federal income tax purposes on a straight-line basis using an estimated useful life of 39 years. The aggregate basis of the Hotel Properties for federal income tax purposes approximates its aggregate net book value in accordance with US GAAP, which is disclosed in Schedule III to our Consolidated Financial Statements
included in this Prospectus.
General competitive conditions affecting the Hotels Property include those identified in the section of our Prospectus captioned Competition. Risks associated with the Hotels are identified in the section of our Prospectus captioned Risk Factors Risks Associated With our Properties and the Market.
Office Properties
We own the following properties within our office property group.
|
|
|
|
|
Real Estate Entity
|
|
Dates Acquired
|
|
Ownership %
|
1407 Broadway Mezz II LLC
|
|
January 4, 2007
|
|
49.00%
|
1407 Broadway
On January 4, 2007, 1407 Broadway Real Estate LLC (NY Owner), an indirect, wholly owned subsidiary of 1407 Broadway Mezz II LLC (Mezz II), consummated the acquisition of a sub-leasehold interest (the Sublease Interest) in an office building located at 1407 Broadway, New York, New York (1407 Broadway). Mezz II is a joint venture between LVP 1407 Broadway LLC (LVP LLC), a wholly-owned subsidiary of our operating partnership, and Lightstone 1407 Manager LLC (Manager), which is wholly-owned by David Lichtenstein, and Shifra Lichtenstein, his wife.
Joint Venture
Equity from Manager totaled $13.5 million (representing a 51% managing member interest). Our capital investment, funded with proceeds from our common stock offering, was $13.0 million (representing a 49% membership interest), before $1.6 million paid outside of the closing as an acquisition fee to our advisor and other closing costs. Pursuant to the joint venture agreement, Manager is responsible for day-to-day decision-making while we retain approval rights over certain major decisions. Mezz II contributed the aggregate $26.5 million capital investment to 1407 Broadway Mezz I LLC (Mezz), its wholly-owned subsidiary,
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which in turn contributed such amount to NY Owner, its wholly-owned subsidiary. Our co-venturer and we made additional $0.6 million of contributions in 2007, and each received a distribution of approximately $1.2 million in 2008.
NY Owner acquired the Sublease Interest pursuant to a sale and purchase of leasehold agreement with Gettinger Associates, L.P. (Gettinger) for the $122.0 million, exclusive of acquisition-related costs incurred by Mezz II ($3.5 million), prorated operating expenses paid at closing ($4.1 million), financing-related costs ($1.9 million) and construction, insurance and tax reserves ($1.0 million). Incremental acquisition costs of approximately $1.7 million, representing an acquisition fee to the advisor and legal fees for REIT counsel, were paid by our operating partnership outside of the closing.
The acquisition was funded through a combination of $26.5 of capital and a $106.0 million advance on a variable rate mortgage loan secured by the Sublease Interest described below. After consideration of the business plan for the 1407 Broadway, and pro forma economics of this transaction, the independent directors of our Board of Directors approved the use of financing in excess of 75% of transaction cost and 300% of the Registrants total net assets. NY Owner currently holds a sub-leasehold interest in the Sublease Interest, subject to the encumbrances described below.
The Loan
In connection with the acquisition, NY Owner secured a mortgage loan (the NY Loan) from Lehman Brothers Holdings, Inc. (Lehman) in the maximum principal amount of $127,250,000 and on March 1, 2010 the NY Loan was assigned from Lehman to Swedbank AB, New York branch, collectively (the NY Lender). The NY Loan is secured by the Sublease Interest and is non-recourse to us. Funding for the acquisition of the Sublease Interest was limited to $106.0 million and the remaining funds under the NY Loan were advanced, at a funding rate representing 85% of actual cost, as Mezz II funds tenant improvement costs, leasing
commissions and capital improvements at the 1407 Broadway. This mortgage loan bears a floating interest rate expressed as 30-day LIBOR plus 300 basis points (subject to a separately negotiated 6.5% LIBOR interest rate cap agreement) and originally matured on January 9, 2010. The Joint Venture exercised one of its two one-year extension options for a fee of 0.125% of the amount of the respective loan for each extension. The new maturity date on the loan is January 9, 2011, at which time a balance of approximately $121.5 million will be due, assuming no prior principal prepayment. Under the mortgage loan, the joint venture has available credit of approximately $5.7 million and an outstanding balance of the loan is $121,521,000 as of March 31, 2010.
In connection with the NY Loan, Lightstone Holdings, LLC (the Guarantor), a limited liability company that is wholly owned by David Lichtenstein, guaranteed payment of losses that Lehman may sustain as a result of fraud, misappropriation, misuse of loan proceeds or other acts of misconduct by Owner and/or its principals or affiliates. Such losses are recourse to the Guarantor under the guaranty regardless of whether NY Lender has attempted to procure payment from the NY Owner or any other party. Further, the Guarantor has guaranteed the payment of any unpaid loan amounts in the event of the NY Owners bankruptcy, reorganization or
insolvency or the interference by the NY Owner or its affiliates in any foreclosure proceedings or other remedy exercised by Lehman. We agreed, to the maximum extent permitted by its Articles of Incorporation, to indemnify the Guarantor for up to 49% of any liability it incurs under this guaranty.
As an inducement to the NY Lender to make the NY Loan, NY Owner has agreed to provide the NY Lender with a 35% net profit interest in the project.
Property Information
1407 Broadway is a 42-story Class A-, multi-tenant office building built in 1952, fronts on Broadway, 7th Avenue and 39th Street in midtown Manhattan. We believe it is a well located and suitable for its current use. The ground lease, dated as of January 14, 1954, provides for multiple renewal rights, with the last renewal period expiring on December 31, 2048. The Sublease Interest runs concurrently with this ground lease. 1407 Broadway has approximately 1,114,695 rentable square feet, reported 75.2% occupancy (approximately 300 tenants) and an annualized base rental rate per square foot of $36.62 as of March 31, 2010. On its acquisition date, it was
leased by tenants engaged primarily in the female apparel business.
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As of March 31, 2010 no single tenant occupies in excess of 10% of the propertys rentable square footage and the following table sets forth the name, business type, primary lease terms and certain other information with respect to each of the top five tenants:
|
|
|
|
|
|
|
|
|
|
|
Name of Tenant
|
|
Business Type
|
|
Square
Feet
Leased
|
|
Percentage
of Leasable Space
|
|
Lease
Expiration
|
|
Party with Renewal Rights
|
Geneva Watch Company
|
|
Sporting goods retailer
|
|
32,359
|
|
2.9%
|
|
April 30, 2020
|
|
Tenant
|
Kellwood Company
|
|
Clothing retailer
|
|
23,659
|
|
2.1%
|
|
December 31, 2011
|
|
Tenant
|
Cayset Fashions
|
|
Footwear retailer
|
|
21,656
|
|
1.9%
|
|
July, 31, 2011
|
|
Tenant
|
Rousso Apparel Group
|
|
Clothing retailer
|
|
19,617
|
|
1.8%
|
|
May 14, 2014
|
|
Tenant
|
Notations Inc
|
|
Clothing retailer
|
|
18,607
|
|
1.7%
|
|
November 30, 2014
|
|
Tenant
|
1407 Broadways annual average percentage occupancy rate and average effective rental per square foot for each of the last five years was as follows:
|
|
|
|
|
Year
|
|
Annual Average Occupancy Rate
|
|
Average
Effective Annual Rental Per Square Foot
|
2009
|
|
|
79.2
|
%
|
|
$
|
38.67
|
|
2008
|
|
|
85.0
|
%
|
|
$
|
39.41
|
|
2007
|
|
|
89.6
|
%
|
|
$
|
35.04
|
|
2006
|
|
|
n/a
|
|
|
|
n/a
|
|
2005
|
|
|
n/a
|
|
|
|
n/a
|
|
n/a Information is not available.
The following was a 10-year schedule of lease expirations and related information:
|
|
|
|
|
|
|
|
|
Year
|
|
Number of Expiring Leases
|
|
Total Square Feet
|
|
Aggregate Annual Base Rent
|
|
Percentage of Gross Annual Rental
|
2010
|
|
|
27
|
|
|
|
302,015
|
|
|
$
|
10,100,664
|
|
|
|
31
|
%
|
2011
|
|
|
10
|
|
|
|
141,983
|
|
|
|
5,326,112
|
|
|
|
16
|
%
|
2012
|
|
|
11
|
|
|
|
97,602
|
|
|
|
3,843,553
|
|
|
|
12
|
%
|
2013
|
|
|
7
|
|
|
|
75,565
|
|
|
|
3,932,907
|
|
|
|
12
|
%
|
2014
|
|
|
8
|
|
|
|
106,962
|
|
|
|
4,282,692
|
|
|
|
13
|
%
|
2015
|
|
|
3
|
|
|
|
18,427
|
|
|
|
1,178,391
|
|
|
|
4
|
%
|
2016
|
|
|
1
|
|
|
|
16,494
|
|
|
|
503,858
|
|
|
|
1
|
%
|
2017
|
|
|
2
|
|
|
|
3,606
|
|
|
|
321,521
|
|
|
|
1
|
%
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
6
|
|
|
|
55,065
|
|
|
|
1,905,712
|
|
|
|
6
|
%
|
2020
|
|
|
1
|
|
|
|
32,359
|
|
|
|
1,229,642
|
|
|
|
4
|
%
|
Total
|
|
|
76
|
|
|
|
850,079
|
|
|
$
|
32,625,052
|
|
|
|
100
|
%
|
Realty taxes paid on 1407 Broadway for the fiscal year ended December 31, 2009 were $6,821,708. 1407 Broadway was subject to a tax rate of 10.43%.
We believe that 1407 Broadway is adequately insured.
Depreciation is taken on 1407 Broadway. To the extent that a subsidiary of our operating partnership acquires properties for cash, the initial basis in such properties for federal income tax purposes generally is equal to the purchase price paid by our operating partnership. Our operating partnership plans to depreciate such property for federal income tax purposes on a straight-line basis using an estimated useful life of 39 years. The basis of 1407 Broadway for federal income tax purposes approximates its net book value in accordance with US GAAP.
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Renovation Plans
Through 2013, NY Owner intends to continue an ongoing renovation project on 1407 Broadway that consists of lobby, elevator and window redevelopment projects at a total estimated cost of $21 million. In addition, based on current leasing projections and projected leasing costs, NY Owner expects to incur approximately $11.0 million of tenant improvement and leasing commission costs through 2013. The renovation is being funded by the NY Loan and no additional financing is planned.
Competitive Factors and Risks
General competitive conditions affecting 1407 Broadway include those identified in the section of our Prospectus captioned Competition. 1407 Broadway is located in the garment district, an area that continues to benefit from southward expansion of New York Citys Times Square. This expansion has resulted in a number of buildings being converted from use in the garment trade to alternative uses, primarily office.
Current litigation (described below) could result in the termination of the Sublease Interest or restrict NY Owners ability to refinance the Sublease on acceptable terms. Further, NY Owners rights to 1407 Broadway under the Sublease Interest will terminate if the ground lease is not extended beyond its current expiration in 2048. Other risks associated with 1407 Broadway are identified in the section of our Prospectus captioned Risk Factors Risks Associated with our Properties and the Market.
Subject to NY Lenders consent rights in connection with major decisions, 1407 Broadway is controlled by Lightstone Holdings LLC (Holdings), an affiliate of our sponsor. The 1407 Broadway is managed by Trebor Management Corp., an affiliate of Seller. An n affiliate of our sponsor provides asset management services and coordinates redevelopment of 1407 Broadway. NY Owner pays market rate fees in exchange for these services.
In evaluating 1407 Broadway as a potential acquisition and determining the appropriate amount of consideration to be paid for 1407 Broadway, we had considered a variety of factors, including 1407 Broadways location, demographics, quality of tenants, duration of in-place leases, scheduled rent increases, strong occupancy, the fact that the overall rental rate at 1407 Broadway is comparable to the market rate for similar properties, the potential for a return from the redevelopment and repositioning of 1407 Broadway and current strong demand for office space and other favorable market factors. We believe 1407 Broadway is well located, has
acceptable roadway and public transportation access and is well maintained. The 1407 Broadway is subject to competition from similar properties within its market area, and economic performance could be affected by changes in local economic conditions.
Litigation
The Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold Agreement with Gettinger. In July 2006, Abraham Kamber Company, as Sublessor under the sublease (Sublessor), served two notices of default on Gettinger (the Default Notices). The first alleged that Gettinger had failed to satisfy its obligations in performing certain renovations and the second asserted numerous defaults relating to Gettingers purported failure to maintain 1407 Broadway in compliance with its contractual obligations.
In response to the Default Notices, Gettinger commenced legal action and obtained an injunction that extends its time to cure any default, prohibits interference with its leasehold interest and prohibits Sublessor from terminating its sublease pending resolution of the litigation. A motion by Sublessor for partial summary judgment, alleging that certain work on 1407 Broadway required its prior approval, was denied by the Supreme Court, New York County. Subsequently, by agreement of the parties, a stay was entered precluding the termination of the Sublease Interest pending a final decision on Sublessors claim of defaults under the Sublease
Interest. In addition, the parties stipulated to the intervention of NY Owner as a party to the proceedings. The parties have been directed to engage in and complete discovery. We consider the litigation to be without merit.
Prior to consummating the acquisition of the Sublease Interest, NY Owner received a letter from Sublessor indicating that Sublessor would consider such acquisition a default under the original sublease, which prohibits assignments of the Sublease Interest when there is an outstanding default there under. On February 16, 2007, NY Owner received a Notice to Cure from Sublessor stating the transfer of the Sublease Interest occurred in violation of the Sublease given Sublessors position that Gettinger is in default. NY
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Owner will commence and vigorously pursue litigation in order to challenge the default, receive an injunction and toll the termination period provided for in the Sublease.
On September 4, 2007, NY Owner commenced a new action against Sublessor alleging a number claims, including the claims that Sublessor has breached the sublease and committed intentional torts against NY Owner by (among other things) issuing multiple groundless default notices, with the aim of prematurely terminating the sublease and depriving NY Owner of its valuable interest in the sublease. The complaint seeks a declaratory judgment that NY Owner has not defaulted under the sublease, damages for the losses NY Owner has incurred as a result of Sublessors wrongful conduct, and an injunction to prevent Sublessor from issuing further default
notices without valid grounds or in bad faith.
Other Investments
Park Avenue Funding
On April 16, 2008, we made a preferred equity contribution of $11.0 million (the Contribution) to PAF-SUB LLC (PAF), a wholly-owned subsidiary of Park Avenue in exchange for membership interests of PAF with certain rights and preferences described below (the Preferred Units). Park Avenue is a real estate lending company making loans, including first or second mortgages, mezzanine loans and collateral pledges of mortgages, to finance real estate transactions. Property types considered include multi-family, office, industrial, retail, self-storage, parking and land. Both PAF and Park Avenue are affiliates of our
Sponsor.
PAFs limited liability company agreement was amended on April 16, 2008 to create the Preferred Units and admit us as a member. The Preferred Units are entitled to a cumulative preferred distribution at the rate of 10% per annum, payable quarterly. In the event that PAF fails to pay such distribution when due, the preferred distribution rate will increase to 17% per annum. The Preferred Units are redeemable, in whole or in part, at any time at our option upon at least 180 days prior written notice (the PAF Redemption). In addition, the Preferred Units are entitled to a liquidation preference senior to any distribution upon
dissolution with respect to other equity interests of PAF in an amount equal to (x) the Contribution plus any accrued but unpaid distributions less (y) any PAF Redemption payments.
In connection with the Contribution, Park Avenue and we entered into a guarantee agreement on April 16, 2008, whereby Park Avenue unconditionally and irrevocably guarantees payment of the PAF Redemption amounts when due (the Guarantee). Also, Park Avenue agrees to pay all costs and expenses incurred by us in connection with the enforcement of the Guarantee.
We do not have any voting rights for this investment, and does not have significant influence over this investment. Through March 31, 2010, we received redemption payments from PAF of $4.7 million. As of March 31, 2010, our investment in PAF is $6.3 million.
Insurance Coverage on Properties
We carry comprehensive general liability coverage and umbrella liability coverage on all of our properties with limits of liability which we deem adequate to insure against liability claims and provide for the costs of defense. Similarly, we are insured against the risk of direct physical damage in amounts we estimate to be adequate to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the rehabilitation period. We intend to obtain earthquake, mold and terrorism coverage, if deemed necessary, if such coverage is available in the marketplace at terms and costs which
are commercially reasonable. These coverages are currently excluded by insurance companies in standard policies. Some, but not all insurance companies, may be willing to make this coverage available for a significantly increased premium. To the extent we decide to obtain such coverage or are required to do so in connection with financings, it could increase our cost of operations.
In December 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) was enacted into law. TRIPRA extends the federal terrorism insurance backstop through 2014. The government backstop the extension provides, contributes to the continued stabilization of the terrorism insurance market place allowing us the opportunity to secure coverage at commercially reasonable rates. Its extension has increased availability of terrorism insurance coverage on our properties through 2014, and thus mitigate
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certain of the risks and concerns outlined in the sections of our Prospectus captioned Risk Factors Risks Associated with our Properties and the Market Insurance Risks and Real Property Investments Insurance Coverage on Properties.
Environmental Matters
We will not close the acquisition of any property unless and until we obtain an environmental assessment (generally a minimum of a Phase I environmental assessment (defined below)) for each property acquired and are generally satisfied with the environmental status of the property. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at such property, and may be held liable to a governmental entity or to third parties for property damage and for investigation
and clean-up costs incurred by such parties in connection with the contamination. Such laws typically impose clean-up responsibility and liability without regard to whether the owner knew of or caused the presence of the contaminants, and the liability under such laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate the contamination on such property, may adversely affect the owners ability to sell or rent such property or to borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility also may be liable for the costs of removal or remediation of a release of hazardous or toxic substances at such disposal or treatment facility, whether or not such facility is owned or operated by such person. Liability for the cost of remediating releases of toxic or hazardous substances or petroleum products may adversely affect our cash flow available for distribution. Such liabilities may not be dischargeable in bankruptcy and may under some environmental laws result in a lien on the contaminated site in favor of the government
for damages and costs it incurs in connection with the contamination.
Finally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. Statutes of limitations applicable to liabilities arising from releases of hazardous or toxic substances or petroleum products generally are not based on the time of disposal. In connection with our acquisition, ownership and operation of residential properties we may be potentially liable for such costs.
Although we may require the seller of a property to provide a current Phase I environmental assessment and, if necessary, a Phase II environmental assessment, and we may also choose to obtain these reports ourselves, it is possible that our assessments do not reveal all environmental liabilities or that there are material environmental liabilities. An environmental assessment, in accordance with the accepted ASTM E1527-05 standard and commonly known as a Phase I environmental assessment, basically consists of a visual survey of the building, the property and neighboring properties, reviews of historic reports, regulatory database reviews and
interviews of prior and neighboring owners and operators in an attempt to assess surface conditions or activities that may have an adverse environmental impact on the property and to identify areas of known or potential environmental concerns at or in the vicinity of the property. A Phase I environmental site assessment does not generally include any sampling or testing of soil, ground water or building materials from the property, and may not reveal all environmental hazards on a property. If, however, a Phase I environmental assessment identifies an environmental concern and recommends further investigation of such a concern, such as with a Phase II environmental assessment consisting of, among other things, sampling and testing of soil, ground water or building materials, such an investigation would be conducted at the property.
Regulatory Matters
Our properties may be subject to various laws, ordinances and regulations, including regulations relating to recreational facilities such as swimming pools, activity centers and other common areas. Prior to acquiring a property, we will ascertain whether such property has the necessary permits and approvals to operate its business.
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CAPITALIZATION
The following table sets forth our historical capitalization as of March 31, 2010, and our pro forma capitalization as of that date as adjusted to give effect to the sale of the maximum offering as if 10,000,000 shares were sold, and the application of the estimated net proceeds from such sales as described in Use of Proceeds. The information set forth in the following table excludes our historical results of operations and the financial impact of accounting for offering costs of our initial public offering, and should be read in conjunction with our historical financial statements included elsewhere in this Prospectus.
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March 31,
2010
Historical
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Maximum
Offering
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Stockholders equity:
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Preferred shares, $1 Par value, 10,000,000 shares authorized, none outstanding
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$
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(1)
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$
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(1)
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Common stock, $.01 par value; 60,000,000 shares authorized, 31,838,066 shares issued and outstanding as of March 31, 2010
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318,380
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(2)
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418,380
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(2)
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Additional paid-in-capital
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283,634,895
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378,534,895
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Accumulated other comprehensive income
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223,106
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223,106
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Accumulated distributions in addition to net loss
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(159,312,348
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)
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(159,312,348
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)
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Total Companys stockholders equity
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124,864,033
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219,864,033
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Noncontrolling interests
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37,731,918
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37,731,918
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Total capitalization
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162,595,951
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257,595,951
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(1)
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Excludes any units issued by our operating partnership included SLP units, limited partnership units and Preferred Series A units.
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(2)
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Does not include 200 shares of common stock reserved for issuance on exchange of 200 outstanding limited partnership units of the operating partnership, or 75,000 shares of common stock that are reserved for issuance under our stock option plan.
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SELECTED FINANCIAL DATA
All of the following selected consolidated and combined financial data are qualified by reference to and should be read in conjunction with our Consolidated Financial Statements and Notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations below.
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As of and For The
Three Months Ended
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As of and For the Years Ended December 31,
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March 31,
2010
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March 31,
2009
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2009
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2008
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2007
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2006
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2005
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(unaudited)
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(unaudited)
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Operating Data:
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Revenues
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$
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7,953,891
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$
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8,800,487
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$
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33,886,060
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$
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36,374,104
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$
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21,076,056
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$
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4,188,808
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$
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Income/(loss) from investments in affiliated real estate entities
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(1,682,141
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)
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108,936
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(10,310,720
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)
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(3,357,267
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)
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(7,267,949
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)
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Net (loss) from continuing operations
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(4,876,797
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)
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(632,260
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)
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(65,743,316
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)
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(27,786,668
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)
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(8,543,501
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)
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(1,287,104
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)
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(117,571
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)
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Net income/(loss) from discontinued operations
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653,488
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(126,044
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)
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(360,328
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)
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(437,496
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(698,915
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)
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(249,326
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)
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Net loss
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(4,223,309
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)
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(758,304
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)
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(66,103,644
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)
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(28,224,164
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)
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(9,242,416
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)
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(1,536,430
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)
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(117,571
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Less: net loss attributable to noncontrolling interest
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73,979
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3,019
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908,991
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84,805
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26
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86
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1,164
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Net loss applicable to Companys common shares
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(4,149,330
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(755,285
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(65,194,653
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)
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(28,139,359
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(9,242,390
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(1,536,344
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(116,407
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Basic and diluted net loss per Companys common share
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Continuing operations
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(0.15
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(0.01
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(2.07
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)
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(1.22
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(0.93
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(0.81
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(5.82
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Discontinued operations
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0.02
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(0.01
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(0.01
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(0.02
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(0.08
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(0.15
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Basic and diluted loss per Companys common shares
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$
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(0.13
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$
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(0.02
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$
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(2.08
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$
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(1.24
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$
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(1.01
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$
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(0.96
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$
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(5.82
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)
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Dividends declared per Companys common share
(1)
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5,460,385
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10,812,810
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27,334,606
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9,911,835
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7,125,331
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1,101,708
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Weighted average common shares outstanding basic and diluted
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31,616,298
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31,109,274
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31,276,697
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22,658,290
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9,195,369
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1,594,060
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20,000
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Balance Sheet Data:
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Total assets
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$
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418,357,377
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$
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501,171,259
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$
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429,563,876
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$
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501,648,900
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$
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369,701,354
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$
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140,708,217
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$
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430,996
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Long-term obligations
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217,161,826
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219,709,583
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218,051,497
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219,922,712
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210,558,800
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68,225,000
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Liabilities held for sale
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27,497,492
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30,859,753
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27,431,060
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36,184,083
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29,885,959
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29,466,261
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Companys Stockholders Equity
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124,864,033
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203,546,664
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131,702,285
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214,513,327
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100,112,198
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35,975,704
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83,593
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Other financial data:
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Funds from operations (FFO) attributable to Companys common shares
(2)
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7,027,678
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3,511,536
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$
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(28,243,129
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$
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(11,566,691
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)
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$
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4,865,844
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$
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1,138,325
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$
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(116,407
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)
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Modified FFO (MFFO) attributable to Companys common shares
(2)
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6,851,048
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3,330,348
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19,386,336
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7,080,911
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3,864,380
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250,802
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(116,407
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)
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(1)
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Dividends declared per Companys common share for the three months ended March 31, 2009 and the year ended December 31, 2009 include the dividend related to the quarter end December 31, 2008 which was declared on January 8, 2009.
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(2)
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In addition to measurements defined by accounting principles generally accepted in the United States of America (GAAP), our management also focuses on funds from operations (FFO) and modified funds from operations (MFFO) to measure our performance. FFO is generally considered to be an appropriate supplemental non-GAAP measure of the performance of real estate investment trusts (REITs). FFO is defined by the National Association of Real Estate Investment Trusts, Inc (NAREIT) as net earnings before depreciation and amortization of real estate assets, gains or losses on dispositions of real estate, (including such non-FFO items reported in discontinued operations).
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We believe that FFO is helpful to investors in measuring our performance because FFO excludes various items included in GAAP net earnings that do not relate to, or are not indicative of, our fundamental operating performance such as gains or losses from property dispositions and depreciation and amortization of real estate assets. In our case, however, GAAP net earnings and FFO include a significant impact related to non cash activity such as impairment of long-lived assets held for use, other than temporary impairment marketable securities and gain/loss on sale of marketable securities as well as cash related to acquisition and
divestiture fees expensed related to investments in unconsolidated affiliated real estate entities, which are not reflected of our operating performance. In addition GAAP net earnings and FFO include non cash impact related to straight-line rental revenue and the net amortization of above-market and below-market leases on our recognition of revenue from rental properties. Straight-line rental revenue results primarily from fixed rental increases scheduled under certain leases with our tenants. In accordance with GAAP, the aggregate minimum rent due over the current term of these leases is recognized on a straight-line basis rather than when the payment is due. The present value of the difference between the fair market rent and the contractual rent for in-place leases at the time properties are acquired is amortized into revenue from rental properties over the remaining lives of the in-place leases. As a result, management pays particular attention to MFFO, a supplemental non-GAAP
performance measure that we define as FFO adjusted for straight-line rental revenue, net amortization of above-market and below-market leases, other than temporary impairment of marketable securities, gain/loss on sale of marketable securities, impairment on long-lived assets held for sale and acquisition fee expensed. In managements view, MFFO provides a more accurate depiction than FFO.
FFO and FFO available to common shares can help compare the operating performance of a companys real estate between periods or as compared to different companies. FFO and MFFO as well as FFO available to common shares do not represent net income, net income available to common shares or net cash flows from operating activities in accordance with GAAP. Therefore, FFO and MFFO as well as FFO available to common shares should not be exclusively considered as alternatives to net income, net income available to common shares or net cash flows from operating activities as determined by GAAP or as measures of liquidity. The Companys calculation
of FFO and MFFO may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies. See Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations for reconciliation of FFO and MFFO non-gaap measurements to net loss applicable to common shares.
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MANAGEMENTS DISCUSSION AND ANALYSIS
OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis should be read together with the accompanying consolidated financial statements of the Lightstone Value Plus Real Estate Investment Trust, Inc. and the notes thereto.
Forward-Looking Statements
Certain information included in this prospectus contains, and other materials filed or to be filed by us with the Securities and Exchange Commission, or the SEC, contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Lightstone Value Plus Real Estate Investment Trust, Inc. and members of our
management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as may, will, seeks, anticipates, believes, estimates, expects, plans, intends, should or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.
Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.
We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law.
Overview
We have acquired and operate, and may acquire and operate in the future, commercial, residential and hospitality properties, principally in the United States. Principally through our operating partnership, our acquisitions may include both portfolios and individual properties. Our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial and office properties and our residential properties are principally comprised of Class B multi-family complexes.
We do not have employees. We entered into an advisory agreement dated April 22, 2005 with Lightstone Value Plus REIT LLC, a Delaware limited liability company, which we refer to as the Advisor, pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our board of directors. We pay the Advisor fees for services related to the investment and management of our assets, and we reimburse the Advisor for certain expenses incurred on our behalf.
Beginning with the year ended December 31, 2006, the Company qualified to be taxed as a real estate investment trust (a REIT), under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the Code). To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its ordinary taxable income to stockholders. As a REIT, the Company generally will not be subject to federal income tax on taxable income that it distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will then be
subject to federal income taxes on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Companys net income and net cash available for distribution to stockholders. As of March 31, 2010, the Company continues to comply with the requirements for maintaining its REIT status.
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To maintain our qualification as a REIT, we engage in certain activities through LVP Acquisitions Corp. (LVP Corp), a wholly-owned taxable REIT subsidiary (TRS). As such, we are subject to federal and state income and franchise taxes from these activities.
Acquisitions and Investment Strategy
We acquire fee interests in multi-tenant, community, power and lifestyle shopping centers, and in malls located in highly trafficked retail corridors, high-barrier to entry markets, and sub- markets with constraints on the amount of additional property supply. Additionally, we seek to acquire mid-scale, extended stay lodging properties and multi-tenant industrial properties located near major transportation arteries and distribution corridors; multi-tenant office properties located near major transportation arteries; and market-rate, middle market multifamily properties at a discount to replacement cost. We do not intend to invest in single family
residential properties; leisure home sites; farms; ranches; timberlands; unimproved properties not intended to be developed; or mining properties.
Investments in real estate are made through the purchase of all or part of a fee simple ownership, or all or part of a leasehold interest. We may also purchase limited partnership interests, limited liability company interests and other equity securities. We may also enter into joint ventures with affiliated entities for the acquisition, development or improvement of properties as well as general partnerships, co-tenancies and other participations with real estate developers, owners and others for the purpose of developing, owning and operating real properties. We will not enter into a joint venture to make an investment that we would not be
permitted to make on our own. Not more than 10% of our total assets will be invested in unimproved real property. For purposes of this paragraph, unimproved real properties does not include properties acquired for the purpose of producing rental or other operating income, properties under construction and properties for which development or construction is planned within one year.
Through March 31, 2010, Lightstone REIT has completed eight acquisitions: the Belz Factory Outlet World, a retail outlet shopping mall in St. Augustine, Florida, on March 31, 2006; four multi-family communities in Southeast Michigan on June 29, 2006; the Oakview Plaza, a retail shopping mall located in Omaha, Nebraska, on December 21, 2006: a portfolio of 12 industrial and 2 office buildings in Louisiana and Texas, on February 1, 2007; and a land parcel in Lake Jackson, TX, intended for immediate development as a power retail center, on June 29, 2007: two hotels in Houston, Texas on October 17, 2007: five multifamily apartment communities, one in
Tampa, Florida, two in Greensboro, North Carolina and two in Charlotte, North Carolina on November 16, 2007: and an industrial building in Sarasota, Florida on November 13, 2007.
In addition, as of March 31, 2010, Lightstone REIT has acquired three investments in unconsolidated affiliated real estate entities: a 49% equity interest in an affiliated joint venture, formed to purchase a sub-leasehold interest in a ground lease to an office building in New York, NY, on January 4, 2007; a 36.8% membership interest in an affiliated limited liability corporation which owns two factory outlet centers in Orlando, Florida, of which 22.54% was acquired on June 26, 2008 and 14.26% was acquired on August 25, 2009; and a 40% membership interest in an affiliated limited liability company which owns 18 factory outlet centers located in 15
different states in the United States, of which 25% was acquired on March 30, 2009 and 15% was acquired on August 25, 2009. In addition on April 16, 2008, Lightstone REIT made a preferred equity contribution in exchange for membership interests of a wholly owned subsidiary of Park Avenue Funding, LLC, an affiliated real estate lending company. See Note 1 of the notes to consolidation financial statements for the year ended December 31, 2009 for discussion on definitive agreement signed on December 8, 2009 regarding the disposition of our interests in POAC and Mill Run and our retail outlet mall in St. Augustine.
We financed our property acquisitions through a variety of means, including but not limited to individual non-recourse mortgages and through the exchange of an interest in the property for limited partnership units of the Operating Partnership. We own substantially all of our assets and conduct our operations through the Operating Partnership.
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Current Environment
The slowdown in the economy coupled with continued job losses and/or lack of job growth leads us to be cautious regarding the expected performance of 2010 for our commercial as well as multifamily residential properties. In addition, the effect of the current economic downturn is having an impact on many retailers nationwide, including tenants of our commercial properties. There have been many national retail chains that have filed for bankruptcy. In addition to those who have filed, or may file, bankruptcy, many retailers have announced store closings and a slowdown in their expansion plans. For multifamily residential properties, in general,
evictions have increased and requests for rent reductions and abatements are becoming more frequent.
U.S. and global credit and equity markets have recently undergone significant disruption, making it difficult for many businesses to obtain financing on acceptable terms or at all. As a result of this disruption, in general there has been an increase in the costs associated with the borrowings and refinancing as well as limited availability of funds for refinancing. If these conditions continue or worsen, our cost of borrowing may increase and it may be more difficult to refinance debt obligations as they come due in the ordinary course. Our best course of action may be to work with existing lenders to renegotiate an interim extension until the
credit markets improve.
As a result of the current environment and the direct impact it is having to certain properties, we recorded an impairment charge during 2009 to our long-lived assets of $45.2 million, which represents the excess of carrying value compared to fair value. This charge is netted with a gain on disposal in the line item impairment of long-lived assets, net of gain on disposal within our consolidated statements of operations. In addition, during October 2009, we choose not to make our required debt service payments of $0.2 million on two of the five loans within the Camden portfolio, which had an outstanding principal balance of $42.3 million as of March
31, 2010. We determined that future debt service payments on these loans would no longer be economically beneficial to us based upon the current and expected future performance of the properties associated with these two loans. During the first quarter of 2010, we were notified by the lender that it will be foreclosing on these two properties. The foreclosure sale on one of the properties closed on April 13, 2010 and the other one was completed May 12, 2010. Prior to this notification, we were in discussions with the lender regarding our default status and potential future remedies, which include transferring the two properties to the lender. See Notes 9 and 14 of the notes to the consolidated financial statements for the year ended December 31, 2009 included within this Prospectus.
Our operating results are impacted by the health of the North American economies. Our business and financial performance, including collection of our accounts receivable, recoverability of assets including investments, may be adversely affected by current and future economic conditions, such as a reduction in the availability of credit, financial markets volatility, and recession.
We are not aware of any other material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from the acquisition and operation of real estate and real estate related investments, other than those referred to in this Prospectus.
Critical Accounting Policies
General.
The consolidated financial statements of the Lightstone REIT included in this annual report include the accounts of Lightstone REIT and the Operating Partnership (over which Lightstone REIT exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation.
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of our financial statements requires us to make estimates and judgments about the effects of matters or future events that are inherently uncertain. These estimates and judgments may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
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On an ongoing basis, we evaluate our estimates, including contingencies and litigation. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances. These estimates 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.
To assist in understanding our results of operations and financial position, we have identified our critical accounting policies and discussed them below. These accounting policies are most important to the portrayal of our results and financial position, either because of the significance of the financial statement items to which they relate or because they require our managements most difficult, subjective or complex judgments.
Revenue Recognition and Valuation of Related Receivables.
Our revenue, which is comprised largely of rental income, includes rents that tenants pay in accordance with the terms of their respective leases reported on a straight-line basis over the initial term of the lease. Since our leases may provide for rental increases at specified intervals, straight-line basis accounting requires us to record as an asset, and include in revenue, unbilled rent that we only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. Accordingly, we determine, in our judgment, to what
extent the unbilled rent receivable applicable to each specific tenant is collectible. We review unbilled rent receivables on a quarterly basis and take into consideration the tenants payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collection of unbilled rent with respect to any given tenant is in doubt, we record an increase in our allowance for doubtful accounts or record a direct write-off of the specific rent receivable, which has an adverse effect on our net income for the year in which the allowance is increased or the direct write-off is recorded and decreases our total assets and stockholders equity.
In addition, we will defer the recognition of contingent rental income, such as percentage rents, until the specific target which triggers the contingent rental income is achieved. Cost recoveries from tenants will be included in tenant reimbursement income in the period the related costs are incurred.
Investments in Real Estate.
We record investments in real estate at cost and capitalize improvements and replacements when they extend the useful life or improve the efficiency of the asset. We expense costs of repairs and maintenance as incurred. We compute depreciation using the straight-line method over the estimated useful lives of our real estate assets, which are approximately 39 years for buildings and improvements, 5 to 10 years for equipment and fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
We make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because, if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.
We record assets and groups of assets and liabilities which comprise disposal groups as held for sale when all of the following criteria are met: a decision has been made to sell, the assets are available for sale immediately, the assets are being actively marketed at a reasonable price in relation to the current fair value, a sale has been or is expected to be concluded within twelve months of the balance sheet date, and significant changes to the plan to sell are not expected. The assets and disposal groups held for sale are valued at the lower of book value or fair value less disposal costs. Once assets are classified as held for sale,
we cease recording depreciation expense on those assets. Additionally, we record the operating results and cash flows related to these assets and liabilities as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively, for all periods presented, if the operations and cash flows of the disposal group is expected to be eliminated from ongoing operations as a result of the disposal and we will not have any significant continuing involvement in the operations of the disposal group after disposal.
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When circumstances such as adverse market conditions indicate a possible impairment of the value of a property, we will review the recoverability of the propertys carrying value. The review of recoverability is based on our estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the propertys use and eventual disposition. Our forecast of these cash flows considers factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the
carrying value of a property, we record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the property.
We make subjective assessments as to whether there are impairments in the values of our investments in real estate. We evaluate our ability to collect both interest and principal related to any real estate related investments in which we may invest. If circumstances indicate that such investment is impaired, we reduce the carrying value of the investment to its net realizable value. Such reduction in value will be reflected as a charge to operations in the period in which the determination is made.
Real Estate Purchase Price Allocation.
The fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their fair values prior to 2009. Purchase accounting is applied to assets and liabilities related to real estate entities acquired based upon the percentage of interest acquired. Fees incurred related to acquisitions are expensed as incurred
within general and administrative costs within the consolidated statements of operation. Transaction costs, which are incurred related to our investment in unconsolidated real estate entities accounted for under the equity method of accounting, are capitalized as part of the cost of the investment.
Upon acquisition of real estate operating properties, we estimate the fair value of acquired tangible assets and identified intangible assets and liabilities and assumed debt at the date of acquisition, based upon an evaluation of information and estimates available at that date. Based on these estimates, we allocate the initial purchase price to the applicable assets, liabilities and noncontrolling interest, if any. As final information regarding fair value of the assets acquired and liabilities assumed and noncontrolling interest is received and estimates are refined, appropriate adjustments are made to the purchase price allocation. The
allocations are finalized within twelve months of the acquisition date.
We allocate the purchase price of an acquired property to tangible assets based on the estimated fair values of those tangible assets assuming the building was vacant. We record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) managements estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize
capitalized above-market lease values as a reduction of rental income over the remaining non-cancelable terms of the respective leases. We amortize any capitalized below-market lease values as an increase to rental income over the initial term and any fixed-rate renewal periods in the respective leases.
We measure the aggregate value of other intangible assets acquired based on the difference between (1) the property valued with existing in-place leases adjusted to market rental rates and (2) the property valued as if vacant. Our estimates of value are made using methods similar to those used by independent appraisers. Factors we consider in our analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases. We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing and leasing activities
in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, we also include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. We also estimate costs to execute similar leases including leasing commissions, legal and other related expenses to the extent that such costs are not already incurred in connection with a new lease origination as part of the transaction.
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The total amount of other intangible assets acquired are further allocated to in-place lease values and customer relationship intangible values based on our evaluation of the specific characteristics of each tenants lease and our overall relationship with that respective tenant. Characteristics we consider in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenants credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.
We amortize the value of in-place leases to expense over the initial term of the respective leases. Currently, our leases range from one month to 11 years. The value of customer relationship intangibles will be amortized to expense over the initial term in the respective leases, but in no event will the amortization period for intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.
Unconsolidated Affiliated Real Estate Entities.
We evaluate all joint venture arrangements for consolidation. We consider the percentage interest in the joint venture, evaluation of control and whether a variable interest entity (VIE) exists when determining if the arrangement qualifies for consolidation.
For those investments in affiliated real estate entities which do not meet the criteria for consolidation, we record these investments in unconsolidated real estate entities using the equity or cost method of accounting. We account for our investments in partially-owned entities under the equity method when we do not exercise direct or indirect control of the entity and our ownership interest is more than 3% but less than 50%, in the case of a partially-owned limited partnership, or more than 20% but less than 50%, in the case of all other partially-owned entities. Factors that we consider in determining whether or not we exercise control include
substantive participating rights of partners on significant business decisions, including dispositions and acquisitions of assets, financing and operating and capital budgets, board and management representatives and authority and other contractual rights of our partners. To the extent that we are deemed to control an entity, such entities will be consolidated.
On a periodic basis we evaluate whether there are any indicators that the value of our investments in partially owned entities are impaired. An investment is impaired if our estimate of the value of the investment is less than the carrying amount. The ultimate realization of our investment in partially owned entities is dependent on a number of factors including the performance of that entity and market conditions. If we determine that a decline in the value of a partially owned entity is other than temporary, we record an impairment charge.
Accounting for Derivative Financial Investments and Hedging Activities.
We may enter into derivative financial instrument transactions in order to mitigate interest rate risk on a related financial instrument. We may designate these derivative financial instruments as hedges and apply hedge accounting. We will account for derivative and hedging activities, following Topic 815 Derivative and Hedging in the Accounting Standards Codification (ASC). We record all derivative instruments at fair value on the consolidated balance sheet.
Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, will be considered cash flow hedges. We will formally document all relationships between hedging instruments and hedged items, as well as our risk- management objective and strategy for undertaking each hedge transaction. We will periodically review the effectiveness of each hedging transaction, which involves estimating future cash flows. Cash flow hedges will be accounted for by recording the fair value of the derivative instrument on the consolidated balance sheet as either an asset
or liability, with a corresponding amount recorded in other comprehensive income (loss) within stockholders equity. Amounts will be reclassified from other comprehensive income (loss) to the consolidated statement of operations in the period or periods the hedged forecasted transaction affects earnings. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, will be considered fair value hedges. The effective portion of the derivatives gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately.
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Inflation
Our long-term leases are expected to contain provisions to mitigate the adverse impact of inflation on our operating results. Such provisions will include clauses entitling us to receive scheduled base rent increases and base rent increases based upon the consumer price index. In addition, our leases are expected to require tenants to pay a negotiated share of operating expenses, including maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in cost and operating expenses resulting from inflation.
Treatment of Management Compensation, Expense Reimbursements and Operating Partnership Participation Interest
Management of our operations is outsourced to our Advisor and certain other affiliates of our Sponsor. Fees related to each of these services are accounted for based on the nature of such service and the relevant accounting literature. Fees for services performed that represent period costs of the Lightstone REIT are expensed as incurred. Such fees include acquisition fees associated with the purchase of interests in affiliated real estate entities; asset management fees paid to our Advisor and property management fees paid to our Property Manager. These fees are expensed or capitalized to the basis of acquired assets, as appropriate.
Our Property Manager may also perform fee-based construction management services for both our re-development activities and tenant construction projects. These fees are considered incremental to the construction effort and will be capitalized to the associated real estate project as incurred. Costs incurred for tenant construction will be depreciated over the shorter of their useful life or the term of the related lease. Costs related to redevelopment activities will be depreciated over the estimated useful life of the associated project.
Leasing activity at our properties has also been outsourced to our Property Manager. Any corresponding leasing fees we pay are capitalized and amortized over the life of the related lease.
Expense reimbursements made to both our Advisor and Property Manager will be expensed or capitalized to the basis of acquired assets, as appropriate.
Income Taxes
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code in conjunction with the filing of our 2006 federal tax return. In order to qualify as a REIT, an entity must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual ordinary taxable income to stockholders. REITs are generally not subject to federal income tax on taxable income that they distribute to their stockholders. It is our intention to adhere to these requirements and maintain our REIT status. As a REIT, we still may be subject to certain state, local and foreign taxes on our income and
property and to federal income and excise taxes on our undistributed taxable income.
We have net operating loss carryforwards for Federal income tax purposes through the year ended December 31, 2008. The availability of such loss carryforwards will begin to expire in 2026. As we do not consider it likely that we will realize any future benefit from our loss carry-forward, any deferred asset resulting from the final determination of our tax losses will be fully offset by a valuation allowance of the same amount.
In 2007, to maintain our qualification as a REIT, we engage in certain activities through LVP Acquisitions Corp. (LVP Corp), a wholly-owned taxable REIT subsidiary (TRS). As such, we are subject to federal and state income and franchise taxes from these activities. For the year ended December 31, 2009, there was no tax provision recorded. For the year ended December 31, 2008, the tax provision recorded related to the TRS was approximately $0.1 million and is included in other income, net in the consolidated statement of operations. For the year ended December 31, 2007, there was no tax provision recorded.
As of March 31, 2010, the Company had no material uncertain income tax positions and its net operating loss carryforward was approximately $3.4 million. The tax years 2005 through 2009 remain open to examination by the major taxing jurisdictions to which the Company is subject.
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Results of Operations
The Companys primary financial measure for evaluating each of its properties is net operating income (NOI). NOI represents rental income less property operating expenses, real estate taxes and general and administrative expenses. The Company believes that NOI is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of the companys properties.
Comparison of the three months ended March 31, 2010 versus March 31, 2009
Consolidated
Revenues
Total revenues decreased by $0.8 million to $8.0 million for the three months ended March 31, 2010 compared to $8.8 million for the three months ended March 31, 2009. The decrease is primarily due to a decline in our multifamily segment of $0.3 million as a result of an increase in rent concessions, as well as, a decline in our hospitality segment of $0.4 million due to overall lower demand and higher long terms stays which earn a lower rate per room.
Property operating expenses
Property operating expenses decreased by $0.1 million to approximately $3.3 million, for the three months ended March 31, 2010, compared to $3.4 million for the same period in 2009 primarily as a result of decrease in utilities within our hospitality segment due to a reduction in occupancy.
Real estate taxes
Real estate taxes were consistent at $1.0 million for the three months ended March 31, 2010 compared to the same period in 2009.
Loss on Property Damaged
Loss on property damaged of $0.3 million during the three months ended March 31, 2010 represents an estimated loss sustained at one of our multifamily segment properties as a result of a fire. Due to timing of processing the insurance claim and obtaining insurance approval of claim, the total estimated loss was recorded during three months ended March 31, 2010 without consideration of insurance proceeds. We expect that the once the insurance claim is processed, the total loss will approximate our deductible which is $50,000. The insurance recovery will be recorded once approved by our insurance carrier. During the three months ended March 31, 2009,
we did not incur any loss on property damaged.
General and administrative expenses
General and administrative costs increased by $1.6 million to $3.0 million due to the following:
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an increase of $0.8 million in asset management fees due to higher average asset values at March 31, 2010 compared to March 31, 2009 as a result of our investments in affiliates, Prime Outlet Acquisitions Company and Mill Run LLC, that we acquired during 2009;
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an increase of $1.0 million in accounting, legal and consulting services due to additional audit fees incurred during the three months ended March 31, 2010 related to work performed on new investments in affiliates made during 2009 which were not part of the audit process for the three months ended March 31, 2009.
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These increases are offset by a decline of $0.3 million in bad debt expense predominately within our multifamily residential properties.
Depreciation and Amortization
Depreciation and amortization expense decreased by $0.2 million to $1.6 million for the three months ended March 31, 2010 compared to same period in 2009 primarily due to a reduction in the depreciable asset base as a result of the impairment charges recorded during 2009 in our multifamily and retail segments.
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Other income, net
Interest income was relatively flat for the three months ended March 31, 2010 compared to the same period in 2009.
Interest Income
Interest income was consistent at $1.1 million for the three months ended March 31, 2010 compared to the same period in 2009.
Interest expense
Interest expense, including amortization of deferred financing costs, was consistent at $3.1 million for the three months ended March 31, 2010 compared to the same period in 2009.
Income/(loss) from investments in unconsolidated affiliated real estate entities
Our loss from investment in unconsolidated real estate entities for the three months ended March 31, 2010 was $1.7 million compared to income of $0.1 million during the three months ended March 31, 2009. This account represents our portion of the net income/loss of our three investments in unconsolidated affiliated real estate entities, 1407 Broadway, Mill Run and POAC. The majority of the change of $1.8 million represents the additional depreciation expense recorded of $3.9 million associated with the difference in our cost of these investments in excess of their historical net book values during the period in 2010 compared to 2009 primarily related
to timing of acquisitions. We owned 25% of POAC beginning on March 30, 2009 and 22.54% of Mill Run during the three months ended March 31, 2009. During the three months ended March 31, 2010, we owned 40% of POAC and 36.8% of Mill Run. Offsetting this additional charge is a higher amount of income of $1.7 million allocated to us from our Mill Run and POAC investments compared to 2009 primarily due to timing of acquisitions as well as increased revenue at Mill Run.
Noncontrolling interests
The loss allocated to Noncontrolling interests relates to the interest in the Operating Partnership held by our Sponsor as well as common units held by our limited partners.
Segment Results of Operations for the Three Months Ended March 31, 2010 compared to March 31, 2009
Retail Segment
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|
|
|
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For the Three Months Ended
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Variance Increase/(Decrease)
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March 31,
2010
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March 31,
2009
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$
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%
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(unaudited)
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Revenue
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$
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1,050,949
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$
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1,119,917
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$
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(68,968
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)
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-6.2
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%
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NOI
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735,240
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|
|
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739,239
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|
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(3,999
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)
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-0.5
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%
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Average Occupancy Rate for period
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99.5
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%
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|
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99.5
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%
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|
|
|
|
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0.0
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%
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Revenue and NOI were relatively flat for the three months ended March 31, 2010 compared to the three months ended March 31, 2009, based upon consistent average occupancy for each of the years.
Multi Family Segment
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|
|
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For the Three Months Ended
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Variance Increase/(Decrease)
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|
|
March 31,
2010
|
|
March 31,
2009
|
|
$
|
|
%
|
|
|
(unaudited)
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|
|
|
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Revenue
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$
|
4,563,564
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|
|
$
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4,851,671
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$
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(288,107
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)
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-5.9
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%
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NOI
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1,768,158
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|
|
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1,659,232
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|
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108,926
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|
|
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6.6
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%
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Average Occupancy Rate for period
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|
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89.5
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%
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|
|
89.3
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%
|
|
|
|
|
|
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0.2
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%
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Revenue decreased by $0.3 million to $4.6 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The continued impact of the current economic environment is negatively impacting this segment. In order to assist current tenants and to attract new tenants, we have increased rent abatements during the three months ended March 31, 2010 compared to the same period in 2009. The rent concessions provided to tenants is approximately one additional month compared to a year ago and decreased total revenue by approximately $0.2 million.
Net operating income increased by $0.1 million to $1.8 million for the three months ended March 31, 2010 from $1.7 million for the three months ended March 31, 2009. The increase is a result of lower bad debt expense of $0.2 million offset slightly by the decrease in revenue.
Industrial Segment
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|
|
|
|
|
|
|
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For the Three Months Ended
|
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Variance Increase/(Decrease)
|
|
|
March 31,
2010
|
|
March 31,
2009
|
|
$
|
|
%
|
|
|
(unaudited)
|
|
|
|
|
Revenue
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|
$
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1,761,906
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|
|
$
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1,888,638
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$
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(126,732
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)
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-6.7
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%
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NOI
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1,026,633
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|
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1,248,356
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(221,723
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)
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-17.8
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%
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Average Occupancy Rate for period
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62.8
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%
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66.4
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%
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|
|
|
|
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-5.4
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%
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Revenue decreased slightly by $0.1 million to $1.8 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009 as a result of a decline in the average occupancy rate due to turnover in small business tenants. A portion of the tenant base in this portfolio is small businesses, which are currently being negatively impacted by the current economic environment.
Net operating income decreased by $0.2 million to $1.0 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. This decrease is due to the reduction in revenue as well as an increase in repair and maintenance costs associated with roof repairs during the current period, which did not occur in same period in 2009.
Hospitality
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|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
Variance Increase/(Decrease)
|
|
|
March 31,
2010
|
|
March 31,
2009
|
|
$
|
|
%
|
|
|
(unaudited)
|
Revenue
|
|
$
|
577,472
|
|
|
$
|
940,261
|
|
|
$
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(362,789
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)
|
|
|
-38.6
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%
|
NOI
|
|
|
65,470
|
|
|
|
445,947
|
|
|
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(380,477
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)
|
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|
-85.3
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%
|
Average Occupancy Rate for period
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59.8
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%
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|
|
67.1
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%
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|
|
|
|
|
|
-10.9
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%
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Average Revenue per Available Room for period
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$
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22.05
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|
$
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35.41
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|
$
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(13.00
|
)
|
|
|
-36.7
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%
|
Revenue decreased by $0.4 million to $0.6 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The decrease is driven by a combination of lower occupancy during the period and the lower average revenue per available room (Rev PAR). Occupancy was lower due to the lower demand in the overall lodging industry as a result of reduced business and leisure travel. In addition, one of the hotels in our segment had a hot water maintenance problem which impacted the number of stays during the period. The average Rev PAR during three months ended March 31, 2010 was lower due to the Hospitality segment
had a higher percentage of rooms occupied under longer term stays which typically earn a lower rate than short term stays compared to a year ago.
Net operating income decreased by $0.4 million to $0.1 million for the three months ended March 31, 2010 compared to the same period in 2009 as a result of the decrease in revenue.
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Comparison of the year ended December 31, 2009 versus the year ended December 31, 2008
Consolidated
Revenues
Total revenues decreased by $2.5 million to $33.9 million for the year ended December 31, 2009 compared to $36.4 million for the year ended December 31, 2008. The decrease is related to a decline of approximately $1.4 million within our Multi Family segment due to increased rent concessions during the current period compared to the same period a year ago, $0.6 million decline in our Industrial segment due to a reduction in occupancy and tenant recoveries, as well as, a decline in our Hospitality segment of $0.5 million due to lower room rates earned as a result of an increase in longer term stay tenants.
Property operating expenses
Property operating expenses decreased by $1.4 million to approximately $13.6 million, for the year ended December 31, 2009, compared to $15.0 million for the same period in 2008 primarily as a result of a decline in insurance expense and repairs and maintenance expense. During the year ended December 31, 2008, we recorded insurance deductible charges of approximately $0.5 million related to damage sustained at various locations from Hurricanes Ike and Gustav, which did not occur in the current year. In addition, our repair and maintenance expense within our Multi Family segment declined. In the prior year, this segment incurred additional costs
associated with a significant turnover in tenants at the beginning of 2008.
Real estate taxes
Real estate taxes were consistent at $3.8 million for the year ended December 31, 2009 compared to December 31, 2008.
Impairment on long lived assets, net of (gain)/loss on disposal
For the year ended December 31, 2009, we recorded an asset impairment charge of $45.2 million primarily related to the impairment within the Multi Family segment of $43.2 million associated with the five properties within the Camden portfolio and $2.0 million within the Retail segment associated with our Brazos Crossing power center. In addition, we recorded $0.2 million gain on disposal of assets offsetting the $45.2 million asset impairment charge.
We identified certain indicators of impairment related to the properties within our Camden portfolio and our Brazos Crossing power center such as negative cash flow expectations and change in managements expectations regarding the length of the holding period, which occurred during the three months ended September 30, 2009. These indicators did not exist during our prior reviews of the properties during prior periods. We performed a cash flow valuation analysis and determined that the carrying value of the property exceeded the weighted probability of their undiscounted cash flows. Therefore, we recorded an impairment charge of $45.2 million
related to these properties consisting of the excess carrying value of the asset over its estimated fair values as part of impairment of long lived assets, net of (gain)/loss on disposal within the accompanying consolidated statements of operations. The fair value for these assets was determined to be approximately $60.0 million. Our debt obligations outstanding on these properties are approximately $86.6 million (See Note 9 of the notes to consolidated financial statements). If we should extinguish the debt obligations associated with these properties, we should realize a gain on extinguishment at that time based upon the difference in the recorded fair value of assets and the debt obligations outstanding.
For the year ended December 31, 2008, we recorded an asset impairment charge of $4.6 million primarily related to impairment on one of our industrial properties located in Sarasota, Florida. In addition, we recorded $0.3 million loss on disposal of asset. We identified certain indicators of impairment related to this property such as the property is currently vacate and is experiencing negative cash flows and the difficulty in leasing space. We performed a cash flow valuation analysis and determined that the carrying value of the property exceeded its undiscounted cash flows. Therefore, we recorded an impairment charge related to the property
consisting of the excess carrying value of the asset over its estimated fair value within the accompanying consolidated statements of operations.
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General and administrative expenses
General and administrative costs decreased by $3.7 million to $8.6 million for the year ended December 31, 2009 compared to $12.3 million during the year ended December 31, 2008 primarily due to a reduction of $6.6 million in acquisition fees expensed, including closing costs, related to our investment in unconsolidated affiliated real estate entities. These type of costs were expensed during 2008 and effective January 1, 2009, in accordance with accounting guidance, these type of costs incurred during 2009 were capitalized as part of the investment as discussed above in 2009 Acquisitions and Investments section. Offsetting this decline was an
increase of $2.3 million related to asset management fees due to an increase in the average asset value at December 31, 2009 compared to December 31, 2008 as well as additional consulting fees associated with valuation work performed during 2009 which did not occur in 2008 and additional accounting services.
Depreciation and Amortization
Depreciation and amortization expense decreased by $0.4 million to $7.3 million for the year ended December 31, 2009 compared to same period in 2008 primarily due to a reduction in the depreciable asset base as a result of the impairment charges recorded during 2009 and 2008 (see Note 14 of notes to consolidated financial statements).
Other income, net
Other income, net includes vending and other ancillary revenue as well as provision for income taxes related to our TRS. During 2009, other income, net increased by $0.2 million primarily related to the provision for income taxes related to our TRS. The provision in 2008 was $0.1 million compared to none in 2009. The remaining increase is due to an increase in vending and other ancillary revenue within our Multi Family segment.
Interest income
Interest income declined by $0.6 million primarily due to a decrease in interest and dividends on our money market and marketable securities investments of $2.5 million due to a decline in interest rates compared to the same period in the prior year as well as a decline in average cash invested of approximately $19.8 million offset by additional interest earned on related party loans of $1.5 million (See Note 12 of notes to consolidated financial statements) and $0.3 million additional dividends earned on investment in affiliate, at cost.
Interest expense
Interest expense, including amortization of deferred financing costs, was consistent at $12.9 million for the year ended December 31, 2009 compared to December 31, 2008.
Gain on sale of marketable securities
Gain on sale of marketable securities decreased by $0.2 million for the year ended December 31, 2009 compared to the year ended December 31, 2008 due to timing of sales of securities and the difference in adjusted cost basis compared to proceeds received on sale.
Other than temporary impairment marketable securities
During the year ended December 31, 2009, we recorded a non-cash charge of $3.4 million related to a decline in value of certain investment securities which were determined to be other than temporary and during the year ended December 31, 2008 we recorded an impairment charge of $9.8 million. (See Note 6 of notes to consolidated financial statements included within this Prospectus).
Loss from investments in unconsolidated affiliated real estate entities
Our loss from investment in unconsolidated affiliated real estate entities for the year ended December 31, 2009 was $10.3 million compared to $3.4 million during the year ended December 31, 2008. This account represents our portion of the net income/loss of our three investments in unconsolidated affiliated real estate entities, 1407 Broadway, Mill Run and POAC. The majority of the additional loss recorded represents the
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additional depreciation expense recorded of $10.8 million associated with the difference in our cost of these investments in excess of their historical net book values during 2009 compared to 2008 primarily related to timing of acquisitions (See Note 4 of notes to consolidated financial statements). Offsetting this additional charge is a higher amount of income of $3.8 million allocated to us from our Mill Run investment compared to 2008 due to timing of acquisition (June 2008 and August 2009).
Noncontrolling interests
The loss allocated to noncontrolling interests relates to the interest in the Operating Partnership held by our Sponsor as well as common units held by our limited partners.
Segment Results of Operations for the Year Ended December 31, 2009 compared to December 31, 2008
Retail Segment
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
Variance
Increase/(Decrease)
|
|
|
December 31,
2009
|
|
December 31,
2008
|
|
$
|
|
%
|
Revenue
|
|
$
|
4,029,065
|
|
|
$
|
4,048,250
|
|
|
$
|
(19,185
|
)
|
|
|
-0.5
|
%
|
NOI
|
|
|
2,660,617
|
|
|
|
2,922,379
|
|
|
|
(261,762
|
)
|
|
|
-9.0
|
%
|
Average Occupancy Rate for period
|
|
|
99.5
|
%
|
|
|
99.4
|
%
|
|
|
|
|
|
|
0.1
|
%
|
Revenue was relatively flat for the year ended December 31, 2009 compared to the year ended December 31, 2008, based upon consistent average occupancy for each of the years.
Net operating income decreased by $0.3 million to $2.7 million primarily as a result of an increase in repairs and maintenance of approximately $0.2 million plus an increase in real estate taxes based upon current year assessments compared to last year.
Multi Family Segment
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
Variance
Increase/(Decrease)
|
|
|
December 31,
2009
|
|
December 31,
2008
|
|
$
|
|
%
|
Revenue
|
|
$
|
18,942,594
|
|
|
$
|
20,304,214
|
|
|
$
|
(1,361,620
|
)
|
|
|
-6.7
|
%
|
NOI
|
|
|
7,081,037
|
|
|
|
7,145,020
|
|
|
|
(63,983
|
)
|
|
|
-0.9
|
%
|
Average Occupancy Rate for period
|
|
|
89.1
|
%
|
|
|
88.5
|
%
|
|
|
|
|
|
|
0.7
|
%
|
Revenue decreased by $1.4 million to $18.9 million for the year ended December 31, 2009 compared to the year ended December 31, 2008. As a result of the current economic environment, the number of job losses has increased which is negatively impacting this segment. In order to assist current tenants and to attract new tenants, we have increased rent abatements during the year ended December 31, 2009. The rent concessions provided to tenants is approximately one additional month compared to a year ago and decreased total revenue by approximately $1.0 million.
Net operating income decreased by $0.1 million to $7.1 million for the year ended December 31, 2009 compared to the year ended December 31, 2008. The decrease is a result of the decline in revenue of $1.4 million offset by lower bad debt expense incurred during the 2009 period of approximately $0.3 million and a decrease in repair and maintenance costs during 2009 due to significant turnover in tenants at the beginning of 2008 and lower utilities due to lower rates than the prior year.
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Industrial Segment
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
Variance
Increase/(Decrease)
|
|
|
December 31,
2009
|
|
December 31,
2008
|
|
$
|
|
%
|
Revenue
|
|
$
|
7,444,840
|
|
|
$
|
8,054,802
|
|
|
$
|
(609,962
|
)
|
|
|
-7.6
|
%
|
NOI
|
|
|
4,512,876
|
|
|
|
4,678,302
|
|
|
|
(165,426
|
)
|
|
|
-3.5
|
%
|
Average Occupancy Rate for period
|
|
|
65.1
|
%
|
|
|
69.0
|
%
|
|
|
|
|
|
|
-5.7
|
%
|
Revenue decreased by $0.6 million to $7.4 million for the year ended December 31, 2009 compared to the year ended December 31, 2008 as a result of a decline in the average occupancy rate and a reduction in tenant recoveries of $0.4 million. The reduction in tenant recoveries is due to lower property expenses incurred that are reimbursed by the tenants during the year ended December 31, 2009 compared to the 2008 period.
Net operating income decreased by $0.2 million for the year ended December 31, 2009 compared to the year ended December 31, 2008 as a result of the decline in revenue offset by a reduction in certain property expenses. Insurance expense declined by $0.3 million and bad debt expense of $0.1 million. During the year ended December 31, 2008, we recorded insurance deductible charges of approximately $0.2 million related to damage sustained at various locations from Hurricanes Gustav, which did not occur in the current year.
Hospitality
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
Variance
Increase/(Decrease)
|
|
|
December 31,
2009
|
|
December 31,
2008
|
|
$
|
|
%
|
Revenue
|
|
$
|
3,469,561
|
|
|
$
|
3,966,838
|
|
|
$
|
(497,277
|
)
|
|
|
-12.5
|
%
|
NOI
|
|
|
1,384,061
|
|
|
|
1,494,019
|
|
|
|
(109,958
|
)
|
|
|
-7.4
|
%
|
Average Occupancy Rate for period
|
|
|
69.2
|
%
|
|
|
67.1
|
%
|
|
|
|
|
|
|
3.1
|
%
|
Average Revenue per Available Room for period
|
|
$
|
32.20
|
|
|
$
|
36.78
|
|
|
$
|
(4.58
|
)
|
|
|
-12.5
|
%
|
Revenue declined by $0.5 million for the year ended December 31, 2009 compared to the year ended December 31, 2008 as a result of a decline in the average revenue per available room. During the second half of 2008, the Hospitality segment experienced higher demand than usual for their rooms due to the damage caused by Hurricane Ike, which displaced area residents from their homes. This type of demand did not exist in 2009. In addition, during 2009, the Hospitality segment had more rooms occupied under longer term stays which typically earn a lower rate than short term stays.
Net operating income decreased by $0.1 million during the year ended December 31, 2009 compared to the year ended December 31, 2008 due to the decline in revenue offset by a decline in insurance expense. During the year ended December 31, 2008, we recorded insurance deductible charges of approximately $0.3 million related to damage sustained at various locations from Hurricanes Ike, which did not occur in the current year.
Comparison of the year ended December 31, 2008 versus the year ended December 31, 2007
We commenced operations on February 1, 2006 upon the release of our offering proceeds from escrow. We acquired our three initial real estate properties on March 31, 2006, June 29, 2006, and December 21, 2006, respectively. We continued to acquire properties throughout 2007, on January 4, 2007; a portfolio of 12 industrial and 2 office buildings in Louisiana and Texas, on February 1, 2007; and a land parcel in Lake Jackson, TX, intended for immediate development as a power retail center, on June 29, 2007, two hotels in Houston, Texas on October 17, 2007, five multifamily apartment communities, one in Tampa, Florida, two in Greensboro, North Carolina
and two in Charlotte, North Carolina on November 16, 2007, and an industrial building in Sarasota, Florida on November 13, 2007.
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Properties that we owned for the entire period for both 2008 and 2007 represent 2 retail properties and 4 multifamily apartment communities. The Companys growth for the years ended December 31, 2008 and 2007 is primarily driven by the impact of acquisitions. In addition, one of the retail properties owned during both 2008 and 2007 is St. Augustine, which during 2009 has been classified to discontinued operations. We have not provided a segment analysis for the comparison of the years ended December 31, 2008 and 2007 as the majority of the growth is acquisition growth.
Revenues
Total revenues increased by $15.3 million to $36.4 million for the year ended December 31, 2008 compared to $21.1 million for the year ended December 31, 2007. Rental income increased by approximately $14.2 million primarily due to our acquisitions of a portfolio of 12 industrial and 2 office buildings in Louisiana and Texas, on February 1, 2007; and a land parcel in Lake Jackson, TX, on June 29, 2007 which subsequently opened in April of 2008, two hotels in Houston, Texas on October 17, 2007, five multifamily apartment communities, one in Tampa, Florida, two in Greensboro, North Carolina and two in Charlotte, North Carolina on November 16, 2007.
Tenant recovery income increase by $1.1 million primarily as a result of our acquisition of a portfolio of 12 industrial and 2 office buildings in Louisiana and Texas as well as the acquisition of five multifamily apartment communities during 2007. The acquisitions in 2007 accounted for $14.3 million of the rental income increase and $0.8 million of the tenant recovery income increase in 2008 compared to 2007. Excluding the impact of acquisitions, total revenues were relatively flat for the year ended December 31, 2008 compared to 2007.
Property operating expenses
Property operating expenses increased by $7.7 million to approximately $15.0 million, for the year ended December 31, 2008, compared to $7.3 million for the same period last year. Our 2007 acquisitions (see revenues above) resulted in an increase in property operating expenses of $7.6 million.
Real estate taxes
Real estate taxes increased by $1.5 million to approximately $3.8 million, for the year ended December 31, 2008, compared to $2.3 million for the same period last year as a result of our 2007 acquisitions (see revenues above).
Impairment of long-lived assets, net of (gain)/loss on disposal
For the year ended December 31, 2008, we recorded an asset impairment charge of $4.6 million primarily related to impairment on one of our industrial properties located in Sarasota, Florida. In addition, we recorded $0.3 million loss on disposal of asset. We identified certain indicators of impairment related to this property such as the property is currently vacate and is experiencing negative cash flows and the difficulty in leasing space. We performed a cash flow valuation analysis and determined that the carrying value of the property exceeded its undiscounted cash flows. Therefore, we recorded an impairment charge related to the property
consisting of the excess carrying value of the asset over its estimated fair value within the accompanying consolidated statement of operations. For the year ended December 31, 2007, we did not record an impairment charge.
General and administrative expenses
General and administrative costs increased by $8.6 million to $12.3 million due to the following:
|
|
$4.6 million additional acquisition fees, including closing costs, related to our investments in unconsolidated affiliated real estate entities during 2008 as well as our investment in POAC compared to 2007. See Note 4 notes to consolidated financial statements.
|
|
|
$1.2 million related to asset management fees due to an increase in the average asset value during 2008 compared to 2007 as a result of our acquisitions.
|
|
|
$1.0 million related to an increase in bad debt expense predominately within our Multi Family segment.
|
|
|
The remaining increase is primarily associated with an increase in consulting fees associated with legal, accounting and other professional services.
|
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TABLE OF CONTENTS
Depreciation and Amortization
Depreciation and amortization expense increased by $2.7 million to $7.7 million in 2008 as compared to 2007 primarily due to the acquisition of new properties in 2007. During 2008, we incurred a full year of depreciation and amortization expense compared to a partial year during 2007 based upon the dates of acquisition of our properties.
Other income, net
Other income, net includes vending and other ancillary revenue as well as provision for income taxes related to our TRS. During 2008, other income, net decreased by $0.2 million primarily related to the provision for income taxes related to our TRS. The provision in 2008 was $0.1 million compared to none in 2007. The remaining decrease is a reduction in vending and other ancillary revenue.
Interest Income
Interest income increased by approximately $3.0 million due to:
|
|
Interest earned of $1.4 million on note receivables issued during 2008 (See Note 12 of the notes to consolidated financial statements).
|
|
|
The remaining increase is primarily due to the increase in interest and dividend income recorded on the short-term investments and marketable securities. The average balance of cash and marketable securities was $65.7 million for 2008 and $43.0 million for 2007.
|
Interest expense
Interest expense, including amortization of deferred financing costs, increased $5.2 million for the year ended December 31, 2008 as compared to 2007, primarily due to the inclusion of a full year of interest expense associated with the financing of new properties acquired during 2007.
Gain on sale of marketable securities
Gain on sale of equity securities decreased by $0.8 million for the year ended December 31, 2008 as compared to 2007 due to timing of sales of securities and difference in cost basis compared to proceeds received on sale.
Other than temporary impairment marketable securities
During the year ended December 31, 2008, we recorded a non-cash charge of $9.8 million, of which $9.7 million and $0.1 million was recorded during the quarters ended September 30, 2008 and December 31, 2008, respectively, related to a decline in value of certain investment securities which were determined to be other than temporary. No such impairments were recorded during the year ended December 31, 2007 (See Note 6 of notes to consolidated financial statements included within this Prospectus).
Loss from investments in unconsolidated affiliated real estate entities
A $3.4 million loss from investment in unconsolidated real estate entities for the year ended December 31, 2008 compared to a $7.3 million loss during the year ended December 31, 2007. The change of $3.9 million is primarily related to a lower net loss realized from our 49% investment in 1407 Broadway of $3.0 million in 2008 compared to $7.3 million in 2007. The improved performance within 1407 Broadway primarily related to a reduction in interest expense as a result of a lower LIBOR rates during 2008 compared to 2007 plus a decrease in depreciation and amortization expense as a result of in-place leases becoming fully amortized.
Noncontrolling interests
The loss allocated to noncontrolling interests of approximately $84,805 for the year ended December 31, 2008 relates to the interest in the Operating Partnership held by our Sponsor as well as common units held by our limited partners. During the year ended December 31, 2007, the noncontrolling interests of $26 relates to the interests in the Operating Partnership held by our Sponsor.
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Financial Condition, Liquidity and Capital Resources
Overview:
We intend that rental revenue will be the principal source of funds to pay operating expenses, debt service, capital expenditures and dividends, excluding non-recurring capital expenditures. To the extent that our cash flow from operating activities is insufficient to finance non-recurring capital expenditures such as property acquisitions, development and construction costs and other capital expenditures, we are dependent upon the net proceeds received from our public offering to conduct such proposed activities. We have financed such activities through debt and equity financings. We expect that future financing will be through debt financings and
proceeds from our dividend reinvestment plan. The capital required to purchase real estate investments has been obtained from our offering and from any indebtedness that we may incur in connection with the acquisition and operations of any real estate investments thereafter.
We expect to meet our short-term liquidity requirements generally through funds received in our public offering, working capital, and net cash provided by operating activities. We frequently examine potential property acquisitions and development projects and, at any given time, one or more acquisitions or development projects may be under consideration. Accordingly, the ability to fund property acquisitions and development projects is a major part of our financing requirements. We expect to meet our financing requirements through funds generated from our public offering and long-term and short-term borrowings.
We utilize leverage in acquiring our properties. The number of different properties we acquire are affected by numerous factors, including, the amount of funds available to us. When interest rates on mortgage loans are high or financing is otherwise unavailable on terms that are satisfactory to us, we may purchase certain properties for cash with the intention of obtaining a mortgage loan for a portion of the purchase price at a later time.
Our source of funds in the future will primarily be operating cash flows, proceeds from our dividend reinvestment plan and borrowings. We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months.
We currently have $237.1 million of outstanding mortgage debt, which includes $26.0 million related to St. Augustine outlet center debt classified as liabilities held for sale. We intend to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. We may also incur short-term indebtedness, having a maturity of two years or less.
Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our board of directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next
quarterly report to stockholders, along with justification for such excess. As of March 31, 2010, our total borrowings represented 134.9% of net assets.
Borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with debt, which will be on a non-recourse basis. This means that a lenders rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion,
secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.
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We typically obtain level payment financing, meaning that the amount of debt service payable would be substantially the same each year. Accordingly, we expect that some of the mortgages on our property will provide for fixed interest rates. However, most of the mortgages on our properties provide for a so-called balloon payment and that certain of our mortgages may provide for variable interest rates.
We may also obtain lines of credit to be used to acquire properties. These lines of credit will be at prevailing market terms and will be repaid from offering proceeds, proceeds from the sale or refinancing of properties, working capital or permanent financing. Our Sponsor or its affiliates may guarantee the lines of credit although they will not be obligated to do so. We may draw upon the lines of credit to acquire properties pending our receipt of proceeds from our initial public offering. We expect that such properties may be purchased by our Sponsors affiliates on our behalf, in our name, in order to avoid the imposition of a transfer tax
upon a transfer of such properties to us.
In addition to making investments in accordance with our investment objectives, our capital resources are used to make certain payments to our Advisor and our Property Manager during the various phases of our organization and operation. During our organizational and offering stage, these payments included payments to our Advisor for the reimbursement of organization and offering costs. During the acquisition and development stage, these payments include asset acquisition fees and asset management fees, and the reimbursement of acquisition related expenses to our Advisor. During the operational stage, we pay our Property Manager a property management
fee and our Advisor an asset management fee. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Additionally, the Operating Partnership may be required to make distributions to Lightstone SLP, LLC, an affiliate of the Advisor.
The following table represents the fees incurred associated with the payments to our Advisor and our Property Manager for the three months ended March 31, 2010 and 2009 and the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Year Ended
|
|
|
March 31,
2010
|
|
March 31,
2009
|
|
December 31,
2009
|
|
December 31,
2008
|
|
December 31,
2007
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
Acquisition fees
|
|
$
|
|
|
|
$
|
9,778,760
|
|
|
$
|
16,656,847
|
|
|
$
|
2,336,565
|
|
|
$
|
6,551,896
|
|
Asset management fees
|
|
|
1,452,809
|
|
|
|
660,430
|
|
|
|
4,541,195
|
|
|
|
2,203,563
|
|
|
|
1,033,371
|
|
Property management fees
|
|
|
434,476
|
|
|
|
459,556
|
|
|
|
1,812,195
|
|
|
|
1,783,275
|
|
|
|
1,057,272
|
|
Acquisition expenses reimbursed to Advisor
|
|
|
|
|
|
|
902,753
|
|
|
|
902,753
|
|
|
|
1,265,528
|
|
|
|
635,848
|
|
Development fees and leasing commissions
|
|
|
84,821
|
|
|
|
100,192
|
|
|
|
270,122
|
|
|
|
1,934,107
|
|
|
|
247,942
|
|
Total
|
|
$
|
1,972,106
|
|
|
$
|
11,901,691
|
|
|
$
|
24,183,112
|
|
|
$
|
9,523,038
|
|
|
$
|
9,526,329
|
|
Our charter states that our operating expenses, excluding offering costs, property operating expenses and real estate taxes, as well as acquisition fees and non cash related items (Qualified Operating Expenses) are to be less than the greater of 2% of our average invested net assets or 25% of net income. For the year ended December 31, 2009, our Qualified Operating Expenses were less than the greater of 2% of our average invested net assets or 25% of net income.
In addition, our charter states that our acquisition fees and expenses shall not exceed 6% of the contract price or in the case of a mortgage, 6% of funds advanced unless approved by a majority of the independent directors. For the year ended December 31, 2009, the acquisition fees and acquisition expenses were less than 6% of the contract price.
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TABLE OF CONTENTS
Summary of Cash Flows.
The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:
|
|
|
|
|
|
|
Three Months
Ended
March 31, 2010
|
|
Three Months
Ended
March 31, 2009
|
|
|
(unaudited)
|
Cash flows provided by operating activities
|
|
$
|
1,238,035
|
|
|
$
|
722,057
|
|
Cash flows used in investing activities
|
|
|
(262,484
|
)
|
|
|
(15,042,333
|
)
|
Cash flows used in financing activities
|
|
|
(8,369,937
|
)
|
|
|
(215,128
|
)
|
Net change in cash and cash equivalents
|
|
|
(7,394,386
|
)
|
|
|
(14,535,404
|
)
|
Cash and cash equivalents, beginning of the period
|
|
|
17,076,320
|
|
|
|
66,106,067
|
|
Cash and cash equivalents, end of the period
|
|
$
|
9,681,934
|
|
|
$
|
51,570,663
|
|
During the three months ended March 31, 2010, our principal source of cash flow was derived from the operation of our rental properties. We intend that our properties will provide a relatively consistent stream of cash flow that provides us with resources to fund operating expenses, debt service and quarterly dividends.
Our principal demands for liquidity are our property operating expenses, real estate taxes, insurance, tenant improvements, leasing costs, acquisition and development activities, debt service and distributions to our stockholders. The principal sources of funding for our operations are operating cash flows, the sale of properties, and the issuance of equity and debt securities and the placement of mortgage loans.
Operating activities
During the three months ended March 31, 2010, cash flows provided by operating activities was $1.2 million compared to cash provided by operating activities of $0.7 million during the three months ended March 31, 2009 resulting in a total change of $0.5 million. The change is primarily driven by timing of payments of payables offset by an increase in net loss, adjusted for non cash related items.
Investing activities
Cash used in investing activities for the three months ended March 31, 2010 of $0.3 million resulted primarily from capital additions of $0.5 million and an increase in restricted escrows of $0.9 million primarily due to timing of funding and payments of real estate taxes and insurance premiums. These are offset by redemptions payments related to our investment in affiliate, at cost of $1.4 million.
Cash used in investing activities for the three months ended March 31, 2009 of $15.0 million relates to the following:
|
|
$12.0 million of the transaction costs paid related to our investment in POAC
|
|
|
$4.0 million related to the funding of investment property purchases, of which $3.6 million relates to funding of tenant allowances. These additional tenant allowances relate to the timing of payments associated with our St. Augustine Outlet Mall expansion.
|
|
|
In addition, we received $0.6 million in redemption payments related to our investment in affiliate, at cost which partially offset the cash used in investing activities.
|
Financing activities
Cash used in financing activities of $8.4 million during the three months ended March 31, 2010 primarily related to the payments of distributions to common shareholders and noncontrolling interests of $8.3 million, $1.6 million of payments made for redemption of common shares and $0.9 million in mortgage payment including a lump sum payment of $0.7 million associated with the refinancing of our Brazos Crossing Power Center debt obligation. These are offset by $2.5 million of proceeds from loans from affiliates (see note 3 of notes to consolidated financial statements for further discussion).
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Cash used in financing activities of $0.2 million during the three months ended March 31, 2009 primarily related to the payments of distributions to common shareholders and noncontrolling interests of $4.1 million, $1.7 million issuance of note receivable to noncontrolling interest (see note 12 of notes to consolidated financial statements for further discussion), and $1.1 million associated with redemption of common shares during the period. These outflows were offset by proceeds from issuance of special general partnership interest units (SLP Units) of $7.0 million.
We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long-term. We believe our current balance sheet position is financially sound, however due to the current weakness in and unpredictability of the capital and credit markets we can give no assurance that affordable access to capital will exist when our debt maturities occur.
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2009
|
|
Year Ended
December 31,
2008
|
|
Year Ended
December 31,
2007
|
Cash flows provided by (used in) operating activities
|
|
$
|
1,377,693
|
|
|
$
|
(3,303,624
|
)
|
|
$
|
6,651,989
|
|
Cash flows used in investing activities
|
|
|
(11,465,930
|
)
|
|
|
(97,097,602
|
)
|
|
|
(227,971,386
|
)
|
Cash flows (used in)/provided by financing activities
|
|
|
(38,941,510
|
)
|
|
|
136,917,478
|
|
|
|
231,628,502
|
|
Net change in cash and cash equivalents
|
|
|
(49,029,747
|
)
|
|
|
36,516,252
|
|
|
|
10,309,105
|
|
Cash and cash equivalents, beginning of the period
|
|
|
66,106,067
|
|
|
|
29,589,815
|
|
|
|
19,280,710
|
|
Cash and cash equivalents, end of the period
|
|
$
|
17,076,320
|
|
|
$
|
66,106,067
|
|
|
$
|
29,589,815
|
|
Our principal demands for liquidity are our property operating expenses, real estate taxes, insurance, tenant improvements, leasing costs, acquisition and development activities, debt service and distributions to our stockholders and noncontrolling interests. The principal sources of funding for our operations are operating cash flows, the sale of properties, and the issuance of equity and debt securities and the placement of mortgage loans.
Operating activities
During the year ended December 31, 2009, cash flows provided by operating activities was $1.4 million compared to cash used in operating activities of $3.3 million during the year ended December 31, 2008 resulting in a total change of $4.7 million. The improvement is driven by a reduction in accounts receivable of $2.2 million based upon timing of payments and an increase of $2.3 million in net income, adjusted for non cash charges.
During the year ended December 31, 2008, cash flows used in operating activities was $3.3 million compared to cash provided by operating activities of $6.7 million during the year ended December 31, 2007 resulting in a total change of $10.0 million. The change is primarily driven by difference in our net loss adjusted for non-cash items primarily as a result of acquisition fees paid in 2008 compared to 2007 of $3.5 million. In addition, movements in working capital accounts, which were a use of funds of $4.3 million for 2008 compared to source of funds of $4.0 million contributed to the change. The change in working capital relates primarily to the
timing of payments of interest on note receivables issued in 2008 (see Note 4 and 6 of the notes to consolidated financial statements), an increase in accounts receivable primarily within our commercial properties and timing of accounts payable.
Investing activities
Cash used in investing activities for the year ended December 31, 2009 of $11.5 million relates to $30.2 million paid associated with our investments in POAC and Mill Run. The $30.2 million is composed of transaction costs paid of $19.7 million and $10.5 million related to payment of a shareholder loan to Mill Run, which was acquired as part of the investment in Mill Run. In addition, $8.2 million relates to funding of investment property purchased, of which $6.7 million relates to our St. Augustine Outlet Mall expansion which is classified as discontinued operations (See Note 8 of notes to consolidated financial statements). The
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St. Augustine expenditures related to tenant allowances funded during 2009. Offsetting, the cash outflows were $13.0 million of distributions received from Mill Run investment ($10.5 million) and PAF of ($2.5 million), as well as, $12.2 million related to proceeds from sale of marketable securities and proceeds from maturity of corporate bonds.
Cash used in investing activities for the year ended December 31, 2008 of $97.1 million primarily related to the following:
|
|
$49.5 million note receivable issued in connection to the signing of a material agreement to enter into a contribution and conveyance agreement to acquire a 25% interest in Prime Outlets Acquisition Company, which owns 18 retail outlet malls and four development projects;
|
|
|
a preferred equity contribution of $11.0 million into a real estate lending company which is an affiliate of our Sponsor
|
|
|
$28.4 million on investments in real estate, primarily related to the renovation and expansion project at our St. Augustine Outlet Mall, which is included in discontinued operations; and
|
|
|
$13.0 million in net purchases of marketable securities.
|
|
|
Offset by repayments on note receivable of $1.0 million and distribution payments received from investments in unconsolidated affiliates of $2.0 million.
|
Financing activities
Cash used in financing activities of $38.9 million during the year ended December 31, 2009 primarily related to (i) the payments of distributions to common shareholders and noncontrolling interests of $17.1 million; (ii) $2.2 million of principal payments on debt primarily associated with the pay down of $1.2 million related to the amendment to the hotels loan and $0.3 million related to debt associated with St. Augustine included in discontinued operations; (iii) $22.4 million issuance of note receivable to noncontrolling interests (see Note 12 of notes to consolidated financial statements for further discussion); (iv) and $4.3 million associated
with redemption of common shares during the period. These outflows were offset by proceeds from issuance of special general partnership interest units (SLP Units) of $7.0 million.
Cash provided by financing activities of $136.9 million during the year ended December 31, 2008 is primarily related to proceeds from issuance of common stock of $167.9 million, net proceeds from mortgage financing $3.2 million and proceeds from sale of general partnership units of $10.1 million. Offset by the payment of offering costs of $17.0 million associated with the issuance of common stock, the issuance of a note receivable of $17.6 million entered into in connection with our investment in two retail outlet malls in Orlando, Florida and distributions paid to common stockholders and noncontrolling interests of $8.7 million.
We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long-term. We believe our current balance sheet position is financially sound, however due to the current weakness in and unpredictability of the capital and credit markets we can give no assurance that affordable access to capital will exist when our debt maturities occur.
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Contractual Obligations
The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Remainder of
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
Mortgage Payable
(1)
|
|
$
|
43,548,637
|
|
|
$
|
16,676,569
|
|
|
$
|
2,213,555
|
|
|
$
|
2,501,237
|
|
|
$
|
37,584,958
|
|
|
$
|
140,943,708
|
|
|
$
|
243,468,664
|
|
Interest Payments
(2)
|
|
|
8,803,534
|
|
|
|
11,285,303
|
|
|
|
10,686,907
|
|
|
|
10,517,067
|
|
|
|
10,366,782
|
|
|
|
15,163,524
|
|
|
|
66,823,117
|
|
Total Contractual Obligations
|
|
$
|
52,352,171
|
|
|
$
|
27,961,872
|
|
|
$
|
12,900,462
|
|
|
$
|
13,018,304
|
|
|
$
|
47,951,740
|
|
|
$
|
156,107,232
|
|
|
$
|
310,291,781
|
|
|
(1)
|
These amounts represent mortgage payable obligations outstanding as of March 31, 2010, including $26.3 million related to St. Augustine debt classified within liabilities held for sale on our consolidated balance sheet. In addition, the amount due in 2010 of $43.5 million includes the principal balance of $42.3 million associated with the two of loans within the Camden portfolio that are in default status (see Notes 8 and 9 of notes to consolidated financial statements).
|
|
(2)
|
These amounts represent future interest payments related to mortgage payable obligations based on the fixed and variable interest rates specified in the associated debt agreement including $9.4 million related to St. Augustine debt classified as held for sale and discontinued operations. All variable rate debt agreements are based on the one month LIBOR rate. For purposes of calculating future interest amounts on variable interest rate debt the one month LIBOR rate as of March 31, 2010 was used.
|
Certain of our debt agreements require the maintenance of certain ratios, including debt service coverage. We have historically been and currently are in compliance with all of our debt covenants or have obtained waivers from our lenders. We expect to remain in compliance with all our existing debt covenants; however, should circumstances arise that would cause us to be in default, the various lenders would have the ability to accelerate the maturity on our outstanding debt. See Note 9 of notes to consolidate financial statement for discussion of two loans within the Camden portfolio which are in default as a result of nonpayment of debt service. The
principal balance of these two loans of $42.3 million has been accelerated and is due immediately. We have reflected these loans as payments for 2010 based upon the default status. During the first quarter of 2010, we were notified by the lender of that their intent is to foreclose on these two properties. The foreclosure sale for one of the properties was completed on April 13, 2010 and the other one was completed on May 12, 2010.
Funds from Operations and Modified Funds from Operations
We focus on funds from operations (FFO) and modified funds from operations (MFFO) to measure our performance. FFO is generally considered to be an appropriate supplemental non-GAAP measure of the performance of real estate investment trusts (REITs). FFO is defined by the National Association of Real Estate Investment Trusts, Inc (NAREIT) as net earnings before depreciation and amortization of real estate assets, and gains or losses on dispositions of real estate, (including such non-FFO items reported in discontinued operations).
We believe that FFO is helpful to investors in measuring our performance because FFO excludes various items included in GAAP net earnings that do not relate to, or are not indicative of, our fundamental operating performance such as gains or losses from property dispositions and depreciation and amortization of real estate assets. In our case, however, GAAP net earnings and FFO include a significant impact related to non cash activity such as impairment of long-lived assets held for use, other than temporary impairment marketable securities and gain/loss on sale of marketable securities as well as cash related to acquisition fees
expensed related to investments in unconsolidated affiliated real estate entities which are not reflected of our operating performance. In addition GAAP net earnings and FFO include the non cash impact related to straight-line rental revenue and the net amortization of above-market and below-market leases on our recognition of revenue from rental properties. As a result, management pays particular attention to MFFO, a supplemental non-GAAP performance measure that we define as FFO adjusted for straight-line rental revenue, net amortization of above-market and below-market leases, other than temporary impairment of
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marketable securities, gain/loss on sale of marketable securities, impairment on long-lived assets held for sale and acquisition fee expensed. In managements view, MFFO provides a more accurate depiction than FFO.
FFO and FFO available to common shares can help compare the operating performance of a companys real estate between periods or as compared to different companies. FFO and MFFO as well as FFO available to common shares do not represent net income, net income available to common shares or net cash flows from operating activities in accordance with GAAP. Therefore, FFO and MFFO as well as FFO available to common shares should not be exclusively considered as alternatives to net income, net income available to common shares or net cash flows from operating activities as determined by GAAP or as measures of liquidity. The Companys calculation
of FFO and MFFO may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies.
Below is a reconciliation of net loss to FFO for the three months ended March 31, 2010 and 2009.
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31,
2010
|
|
March 31,
2009
|
Net loss
|
|
$
|
(4,223,309
|
)
|
|
$
|
(758,304
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of real estate assets
|
|
|
1,614,969
|
|
|
|
1,851,168
|
|
Equity in depreciation and amortization for unconsolidated affiliated real estate entities
|
|
|
9,477,422
|
|
|
|
1,872,060
|
|
Loss on property damaged
|
|
|
274,104
|
|
|
|
|
|
Gain on disposal of investment property for unconsolidated affiliated real estate entities
|
|
|
(4,306
|
)
|
|
|
(638
|
)
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of real estate assets
|
|
|
|
|
|
|
561,286
|
|
FFO
|
|
$
|
7,138,880
|
|
|
$
|
3,525,572
|
|
Less: FFO attributable to noncontrolling interests
|
|
|
(111,202
|
)
|
|
|
(14,036
|
)
|
FFO attributable to Companys common share
|
|
$
|
7,027,678
|
|
|
$
|
3,511,536
|
|
FFO per common share, basic and diluted
|
|
$
|
0.22
|
|
|
$
|
0.11
|
|
Weighted average number of common shares outstanding, basic and diluted
|
|
|
31,616,298
|
|
|
|
31,109,274
|
|
Below is the reconciliation of MFFO for the three months ended March 31, 2010 and 2009.
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31,
2010
|
|
March 31,
2009
|
FFO
|
|
$
|
7,138,880
|
|
|
$
|
3,525,572
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Noncash Adjustments:
|
|
|
|
|
|
|
|
|
Amortization of above and below market leases
(1)
|
|
|
(73,417
|
)
|
|
|
(99,342
|
)
|
Straight-line rent adjustment
(2)
|
|
|
(873,963
|
)
|
|
|
(82,570
|
)
|
Total non cash adjustments
|
|
|
(947,380
|
)
|
|
|
(181,912
|
)
|
Other adjustments:
|
|
|
|
|
|
|
|
|
Acquisition/divestiture costs expensed
(3)
|
|
|
767,955
|
|
|
|
|
|
MFFO
|
|
$
|
6,959,455
|
|
|
$
|
3,343,660
|
|
Less: MFFO attributable to noncontrolling interests
|
|
|
(108,407
|
)
|
|
|
(13,312
|
)
|
MFFO attributable to Companys common share
|
|
$
|
6,851,048
|
|
|
$
|
3,330,348
|
|
|
(1)
|
Amortization of above and below market leases includes amortization for wholly owned subsidiaries in continuing operations of zero and zero; amortization from unconsolidated entities of $0.1 million and
|
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TABLE OF CONTENTS
|
|
zero million; as well as, amortization from discontinued operations of zero and $0.1 million for the three months ended March 31, 2010 and 2009, respectively.
|
|
(2)
|
Straight-line rent adjustment includes straight-line rent for wholly owned subsidiaries in continuing operations of $0.1 million and zero; straight-line rent from unconsolidated entities of $0.7 million and zero; as well as, straight-line rent from discontinued operations of $0.1 million and $0.1 million for the months ended March 31, 2010 and 2009, respectively.
|
|
(3)
|
Acquisitions/divestiture costs expenses for the three months ended March 31, 2010 include divestiture costs of $0.8 million associated from unconsolidated entities.
|
Based upon MFFO, for the three months ended March 31, 2010, 100% of our distributions to our common stockholders were funded or will be funded from MFFO. For the three months ended March 31, 2009, approximately 60% of our distributions to our common stockholder were funded with funds from MFFO.
Below is a reconciliation of net loss to FFO for the years ended December 31, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
Net loss
|
|
$
|
(66,103,644
|
)
|
|
$
|
(28,224,164
|
)
|
|
$
|
(9,242,416
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of real estate assets
|
|
|
7,285,198
|
|
|
|
7,713,671
|
|
|
|
4,998,723
|
|
Equity in depreciation and amortization for unconsolidated affiliated real estate entities
|
|
|
28,058,821
|
|
|
|
7,363,009
|
|
|
|
7,945,310
|
|
(Gain)/loss on disposal of investment property
|
|
|
(237,812
|
)
|
|
|
315,642
|
|
|
|
|
|
Gain on disposal of investment property for unconsolidated affiliated real estate entities
|
|
|
(120,961
|
)
|
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of real estate assets
|
|
|
2,458,162
|
|
|
|
1,227,482
|
|
|
|
1,164,714
|
|
FFO
|
|
$
|
(28,660,236
|
)
|
|
$
|
(11,604,360
|
)
|
|
$
|
4,866,331
|
|
Less: FFO attributable to noncontrolling interests
|
|
|
417,107
|
|
|
|
37,669
|
|
|
|
(487
|
)
|
FFO attributable to Companys common share
|
|
$
|
(28,243,129
|
)
|
|
$
|
(11,566,691
|
)
|
|
$
|
4,865,844
|
|
FFO per common share, basic and diluted
|
|
$
|
(0.90
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
0.53
|
|
Weighted average number of common shares outstanding, basic and diluted
|
|
|
31,276,697
|
|
|
|
22,658,290
|
|
|
|
9,195,369
|
|
Below is the reconciliation of MFFO for the years ended December 31, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
FFO
|
|
$
|
(28,660,236
|
)
|
|
$
|
(11,604,360
|
)
|
|
$
|
4,866,331
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of above and below market leases
(1)
|
|
|
(633,196
|
)
|
|
|
(902,980
|
)
|
|
|
(721,772
|
)
|
Straight-line rent adjustment
(2)
|
|
|
(2,633,170
|
)
|
|
|
(501,430
|
)
|
|
|
(646,794
|
)
|
Impairment of assets held for use
|
|
|
45,198,614
|
|
|
|
4,550,795
|
|
|
|
|
|
Gain on sale of marketable securities
|
|
|
(343,724
|
)
|
|
|
(528,334
|
)
|
|
|
(1,301,949
|
)
|
Other than temporary impairment marketable securities
|
|
|
3,373,716
|
|
|
|
9,830,259
|
|
|
|
|
|
Total non cash adjustments
|
|
|
44,962,240
|
|
|
|
12,448,310
|
|
|
|
(2,670,515
|
)
|
Other adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition/divestiture costs expensed
(3)
|
|
|
3,370,638
|
|
|
|
6,260,021
|
|
|
|
1,668,950
|
|
MFFO
|
|
$
|
19,672,642
|
|
|
$
|
7,103,971
|
|
|
$
|
3,864,766
|
|
Less: MFFO attributable to noncontrolling interests
|
|
|
(286,306
|
)
|
|
|
(23,060
|
)
|
|
|
(386
|
)
|
MFFO attributable to Companys common share
|
|
$
|
19,386,336
|
|
|
$
|
7,080,911
|
|
|
$
|
3,864,380
|
|
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TABLE OF CONTENTS
|
(1)
|
Amortization of above and below market leases includes amortization for wholly owned subsidiaries in continuing operations of $0.1 million, $0.4 million and $0.2 million; amortization from unconsolidated entities of $0.3 million, $0.1 million and $0.1 million; as well as, amortization from discontinued operations of $0.2 million, $0.4 million and $0.4 million for the years ended December 31, 2009, 2008 and 2007, respectively.
|
|
(2)
|
Straight-line rent adjustment includes straight-line rent for wholly owned subsidiaries in continuing operations of $0.1 million, $0.1 million and $0.2 million; straight-line rent from unconsolidated entities of $2.4 million, $0.4 million and $0.4 million; as well as, straight-line rent from discontinued operations of $0.1 million, zero and zero for the years ended December 31, 2009, 2008 and 2007, respectively.
|
|
(3)
|
Acquisitions/divestiture costs expenses in 2009 include divestiture costs of $3.4 million associated from unconsolidated entities.
|
For the year ended December 31, 2009, approximately 90% of our distributions to our common shareholders were funded or will be funded with funds from operations, adjusted for non cash related items and acquisition fees and 10% were funded or will be funded from the uninvested proceeds from the sale of shares from our offering.
For the year ended December 31, 2008, approximately 46% of our distributions to our common shareholders were funded with funds from operations, adjusted for non cash related items and acquisition fees and 54% were funded from the uninvested proceeds from the sale of shares from our offering.
For the year ended December 31, 2007, approximately 47% of our distributions to our common shareholders were funded with funds from operations, adjusted for non cash related items and acquisition fees and 53% were funded from the uninvested proceeds from the sale of shares from our offering.
New Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141R, a revision of SFAS No. 141, Accounting for Business Combinations, which was primarily codified into Topic 805 Business Combinations in the ASC. This standard establishes principles and requirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree and goodwill acquired in a business combination. One significant change includes
expensing acquisition fees instead of capitalizing these fees as part of the purchase price. This will impact the Companys recording of acquisition fees associated with the purchase of wholly-owned entities on a prospective basis. This statement is effective for 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 adopted this standard on January 1, 2009 and the adoption of this statement did not have a material effect on the consolidated results of operations or financial position.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment to ARB No. 51 which was primarily codified into Topic 810 Consolidation in the ASC. This standard establishes and expands accounting and reporting standards for minority interests, which will be recharacterized as noncontrolling interests, in a subsidiary and the deconsolidation of a subsidiary. The Company will also be required to present net income allocable to the noncontrolling interests and net income attributable to the stockholders of the Company separately in its consolidated
statements of operations. Prior to the implementation of this standard, noncontrolling interests (minority interests) were reported between liabilities and stockholders equity in the Companys statement of financial position and the related income attributable to minority interests was reflected as an expense/income in arriving at net income/loss. This standard requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of this standard are to be applied prospectively. The Company adopted this standard on January 1, 2009 and the presentation and disclosure requirements were applied retrospectively. Other than the change in presentation of noncontrolling interests, the adoption of this standard did not have a material effect on the consolidated results of operations or financial position.
In February 2008, the FASB issued Staff Position No. FAS 157-2 which provides for a one-year deferral of the effective date of SFAS No. 157, Fair Value Measurements, which was primarily codified into Topic 820 Fair Value Measurements and Disclosures in the ASC. This guidance is for non-financial
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assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company adopted this guidance and it did not have a material impact to the Companys financial position or consolidated results of operations.
In November 2008, the FASB ratified EITF Issue No. 08-6, Equity Method Investment Accounting Considerations, which was primarily codified into Topic 323 Investments Equity Method in the ASC. This guidance clarifies the accounting for certain transactions and impairment considerations involving equity method investments and is effective for fiscal years beginning on or after December 15, 2008 to be applied on a prospective basis. The Company adopted the provisions of this standard on January 1, 2009. The adoption of this guidance changed the Companys accounting for transaction costs
related to equity investments. Prior to the adoption of this guidance, the Company expensed these transaction costs to general and administrative expense as incurred. Beginning January 1, 2009, transaction costs incurred related to the Companys investment in unconsolidated affiliated real estate entities accounted for under the equity method of accounting are capitalized as part of the cost of the investment. For the year ended December 31, 2009, the Company capitalized $26.0 million, respectively of transaction costs incurred during the related period related to its investments in POAC and Mill Run (see Note 4).
In April 2009, FASB, issued FASB Staff Position, or FSP, No. FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments,
which was primarily codified into Topic 320 Investments Debt and Equity Securities in the ASC. This guidance is intended to provide greater clarity to investors about the credit and noncredit component of an other-than-temporary impairment event and to more effectively communicate when an other-than-temporary impairment event has occurred. The guidance applies to fixed maturity securities only and requires separate display of losses related to
credit deterioration and losses related to other market factors. When an entity does not intend to sell the security and it is more likely than not that an entity will not have to sell the security before recovery of its cost basis, it must recognize the credit component of an other-than-temporary impairment in earnings and the remaining portion in other comprehensive income. In addition, upon adoption of the guidance, an entity will be required to record a cumulative-effect adjustment as of the beginning of the period of adoption to reclassify the noncredit component of a previously recognized other-than-temporary impairment from retained earnings to accumulated other comprehensive income. The guidance is effective for the Company for the quarter ended June 30, 2009. The Company adopted the guidance during the quarter ended June 30, 2009 and the adoption did not have a material effect on the consolidated results of operations or financial position.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which was primarily codified into Topic 810 in the ASC. This standard requires ongoing assessments to determine whether an entity is a variable entity and requires qualitative analysis to determine whether an enterprises variable interest(s) give it a controlling financial interest in a variable interest entity. In addition, it requires enhanced disclosures about an enterprises involvement in a variable interest entity. This standard is effective for the fiscal year that begins after November 15, 2009. The adoption of this standard is not
expected to have a material impact on the Companys consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, which was primarily codified into Topic 105 Generally Accepted Accounting Standards in the ASC. This standard will become the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants, EITF, and other related accounting literature. This standard condenses the thousands of GAAP pronouncements into approximately 90 accounting topics and displays them using a consistent structure. Also
included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. This guidance became effective for financial statements issued for reporting periods that ended after September 15, 2009. Beginning in the third quarter of 2009, this guidance impacts the Companys financial statements and related disclosures as all references to authoritative accounting literature reflect the newly adopted codification.
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In January 2010, the FASB issued FASB Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 amends ASC 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements. This ASU became effective for the Company on January 1, 2010. The adoption of this ASU did not have a material impact on the Companys consolidated financial statements.
The Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations.
Quantitative and Qualitative Disclosures About Market Risk:
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.
We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund the expansion and refinancing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest
rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes. As of March 31, 2010, we did not have any other swap or derivative agreements outstanding.
We also hold equity securities for general investment return purposes. We regularly review the market prices of these investments for impairment purposes. As of March 31, 2010, a hypothetical adverse 10% movement in market values would result in a hypothetical loss in fair value of approximately $0.1 million.
The following table shows the mortgage payable obligations maturing during the next five years and thereafter at March 31, 2010, including $26.3 million related to St. Augustine debt classified as liabilities held for sale in the consolidated balance sheet:
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Remainder of
2010
(1)
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2011
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2012
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2013
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2014
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Thereafter
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Total
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Mortgage Payable
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$
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43,548,637
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16,676,569
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2,213,555
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2,501,237
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37,584,958
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140,943,708
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$
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243,468,664
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(1)
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In addition, the amount due in 2010 of $43.5 million includes the principal balance of $42.3 million associated with the two loans within the Camden portfolio that are in default status (see Note 9 of notes to consolidated financial statements).
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As of March 31, 2010, approximately $16.6 million, or 8%, of our debt are variable rate instruments and our interest expense associated with these instruments is, therefore, subject to changes in market interest rates. A 1% adverse movement (increase in LIBOR) would increase annual interest expense by approximately $0.2 million.
The fair value of the mortgage payable as of March 31, 2010 was approximately $237.1 million, which includes $26.0 million related to St. Augustine debt classified as liabilities held for sale compared to the book value of approximately $243.5 million, including $26.3 related to St. Augustine. The fair value of the mortgage payable as of December 31, 2009 was approximately $235.3 million, which includes $25.6 million related to St. Augustine compared to the book value of approximately $244.5 million, including $26.4 related to St. Augustine.
In addition to changes in interest rates, the value of our real estate and real estate related investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance our debt if necessary. As of March 31, 2010, we had no off-balance sheet arrangements.
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We cannot predict the effect of adverse changes in interest rates on our debt and, therefore, our exposure to market risk, nor can we provide any assurance that long-term debt will be available at advantageous pricing. Consequently, future results may differ materially from the estimated adverse changes discussed above.
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DESCRIPTION OF SECURITIES
We were incorporated under the laws of the State of Maryland. Your rights are governed by Maryland law, our charter and our bylaws. The following summary of the terms of our stock is only a summary and you should refer to our charter and bylaws for a full description. Copies of our charter and bylaws are filed as part of the registration statement of which this prospectus is a part.
Authorized Stock
Our charter provides that we may issue up to 60,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of March 31, 2010, we had approximately 31.8 million shares of common stock outstanding and no preferred stock outstanding.
Our charter contains a provision permitting our board of directors, without any action by the stockholders, to amend the charter to increase or decrease the aggregate number of shares of common stock or preferred stock that we are authorized to issue and to change the aggregate number of shares, change the number of shares of any class or series of stock we have the authority to issue, and classify or reclassify any unissued common stock or preferred stock into one or more classes or series by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such stock.
We believe that the power of the board of directors to issue additional authorized but unissued shares of common stock or preferred stock and to classify or reclassify unissued shares of common stock or preferred stock and thereafter to cause us to issue such classified or reclassified shares of stock will provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs which might arise. The additional common stock or preferred stock will generally be available for issuance without further action by our stockholders.
Common Stock
All of the common stock we are offering will be duly authorized, fully paid and nonassessable. Subject to the preferential rights of any other class or series of stock and to the provisions of our charter regarding the restriction on the ownership and transfer of shares of our stock, holders of our common stock will be entitled to receive distributions if authorized by our board of directors and to share ratably in our assets available for distribution to the stockholders in the event of a liquidation, dissolution or winding-up.
Each outstanding share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors. There is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding common stock can elect all of the directors then standing for election, and the holders of the remaining common stock will not be able to elect any directors.
Holders of our common stock have no conversion, sinking fund, redemption or exchange rights, and have no preemptive rights to subscribe for any of our securities. Maryland law provides that a stockholder has appraisal rights in connection with some transactions. However, our charter provides that the holders of our stock do not have appraisal rights unless a majority of the board of directors determines that such rights shall apply. Shares of our common stock have equal dividend, distribution, liquidation and other rights.
Under our charter, we cannot make some material changes to our business form or operations without the approval of stockholders holding at least a majority of the shares of our stock entitled to vote on the matter. These include (1) amendment of our charter, (2) our liquidation or dissolution, (3) our reorganization, and (4) our merger, consolidation or the sale or other disposition of all or substantially all of our assets. Share exchanges in which we are the acquirer, however, do not require stockholder approval.
Our Bylaws provide that the election of directors requires a majority of all the votes present at a meeting of our stockholders at which a quorum is present. Our charter provides that the affirmative vote of the holders of a majority of our outstanding common stock may remove any director with or without cause.
Our registrar and transfer agent is ACS Securities.
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Preferred Stock
Shares of preferred stock may be issued in the future in one or more series as authorized by our board of directors. Prior to the issuance of shares of any series, the board of directors is required by our charter to fix the number of shares to be included in each series and the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each series. Because our board of directors has the power to establish the preferences, powers and rights of each series of preferred stock, it may provide the holders of any series of
preferred stock with preferences, powers and rights, voting or otherwise, senior to the rights of holders of our common stock. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock.
Issuance of Additional Securities and Debt Instruments
Our directors are authorized to issue additional stock or other convertible securities for cash, property or other consideration on such terms as they may deem advisable. Subject to restrictions in our charter, our directors may cause us to issue debt obligations on such terms and conditions as they may determine, including debt with the right to convert into stock. Subject to certain restrictions, our directors may also cause us to issue, options and rights to buy our common stock on such terms as they deem advisable to our stockholders, as part of a financing arrangement, or pursuant to stock option plans. Our directors may cause us to issue
warrants, options and rights to buy our common stock even though their exercise could result in dilution in the value of our outstanding common stock.
Restrictions on Issuance of Securities
Our charter provides that we will not issue:
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equity securities which are redeemable solely at the option of the holder;
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debt securities unless the historical debt service coverage in the most recently completed fiscal year is sufficient to properly service the higher level of debt;
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options or warrants to purchase stock to our advisor, sponsor, director(s) or any affiliates of our advisor, sponsor or directors except on the same terms as sold to the general public and in an amount not to exceed 10% of our outstanding common or preferred stock on the date of grant of any options or warrants; or
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equity securities on a deferred payment basis or similar arrangement.
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The charter also provides that we will not issue non-voting or assessable common stock or warrants, options or similar evidences of a right to buy stock unless they are issued to all holders of stock ratably, as part of a financing arrangement or as part of a stock option plan to our or our affiliates directors, officers or employees.
Restrictions on Ownership and Transfer
The resale of our shares may be restricted by limitations on transferability of shares imposed by state suitability standards or blue sky laws. Specifically, the REIT sponsors must establish minimum income and net worth standards for purchasers of shares in REITs for which there is not likely to be a substantial and active secondary market, such as us. The Guidelines require a sponsor to propose minimum income and net worth standards that are reasonable given the type of REIT and risk associated with the purchase of shares. REITS with greater investor risk must have minimum standards with a substantial net worth requirement. Generally, unless a
particular state regulator decides otherwise, stockholders must have a minimum annual gross income of $70,000 and a minimum net worth of $70,000, or a minimum net worth of $250,000. For specific states with increased minimum income and net worth requirements, see the page immediately following the cover page of this prospectus.
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In order to qualify as a REIT under the Code, among other things, our charter provides that, subject to exceptions described below, no person may beneficially or constructively own, or be deemed to beneficially or constructively own by virtue of the attribution provisions of the Code, (i) more than 9.8% in value of our aggregate outstanding shares of capital stock or (ii) our capital stock to the extent that such ownership would result in us being closely held within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or otherwise failing to qualify
as a REIT (including, but not limited to, ownership that would result in us owning (actually or constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Company from such tenant would cause us to fail to satisfy any of the gross income requirements of Section 856(c) of the Code). Our charter further provides that any transfer of our common stock or preferred stock that would result in our common stock and preferred stock being beneficially owned by fewer than 100 persons shall be null and void, and the intended transferee will not acquire any rights in the common stock or preferred stock intended to be transferred.
Subject to the exceptions described below, to the extent that any person beneficially or constructively owns our common or preferred stock in excess of the 9.8% ownership limit or that would cause us to be closely held within the meaning of the Code or would otherwise cause us to fail to qualify as a REIT, such shares will be transferred automatically by operation of law, to a trust, the beneficiary of which will be a qualified charitable organization selected by us. The trustee will be a person unaffiliated with us who is designated by us. The automatic transfer will be effective as of the close of business on the business day prior to
the date of the transfer. Within 20 days of receiving notice from us of the transfer of shares to the trust, the trustee of the trust shall sell the shares held in the trust to a person or entity who could own such shares without violating the ownership limit. The trustee will distribute to the prohibited transferee an amount equal to the lesser of the price paid by the prohibited transferee for the shares held in the trust or the sales proceeds received by the trust for such shares.
In the case of any shares held in the trust resulting from any event other than a transfer or from a transfer for no consideration, such as a gift, the trustee will be required to sell the shares held in the trust to a qualified person or entity and distribute to the prohibited owner an amount equal to the lesser of the market price of the shares held in the trust as of the date of the event or the sales proceeds received by the trust for the shares held in the trust. In either case, any proceeds in excess of the amount distributable to the prohibited transferee or prohibited owner, as applicable, will be distributed to the beneficiary. Prior to a
sale of any of the shares by the trust, the trustee will be entitled to receive, in trust for the beneficiary, all dividend and other distributions paid by us with respect to the shares, and also will be entitled to exercise all voting rights with respect to the shares. Subject to the MGCL, effective as of the date that such shares have been transferred to the trust, the trustee shall have the authority, in its sole discretion to:
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rescind as void any vote cast by a prohibited transferee or prohibited owner, as applicable, prior to the discovery by us that such shares have been transferred to the trust; and
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recast such vote in accordance with the desires of the trustee acting for the benefit of the beneficiary.
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However, if we have already taken irreversible corporate action, then the trustee shall not have the authority to rescind and recast such vote. Any dividend or other distribution paid to the prohibited transferee or prohibited owner prior to the discovery by us that such shares had been automatically transferred to a trust as described above, will be required to be repaid to the trustee upon demand for distribution to the beneficiary. In the event that the transfer to the trust as described above is not automatically effective for any reason to prevent violation of the ownership limit or such other limit as provided in the charter or as otherwise
permitted by the board of directors, our charter provides that the transfer of the excess shares will be voided.
In addition, our shares which are held in trust shall be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser of:
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the price per share on the transaction that resulted in such transfer to the trust, or, in the case of a gift, the market price at the time of the gift; and
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the market price on the date we accept such offer.
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We shall have the right to accept such offer until the trustee has sold the shares of stock held in the trust. Upon such a sale to us, the interest of the beneficiary in the shares sold shall terminate and the trustee shall distribute the net proceeds of the sale to the prohibited transferee or prohibited owner.
Our charter requires all persons who directly or indirectly beneficially own more than 5%, or any lower percentages as required pursuant to regulations under the Internal Revenue Code, of our outstanding common and preferred stock, within 30 days after December 31 of each year, to provide to us a written statement stating their name and address, the number of shares of common and preferred stock they beneficially own directly or indirectly, and a description of how the shares are held. In addition, each beneficial owner must provide to us any additional information as we may request in order to determine the effect, if any, of their beneficial
ownership on our status as a REIT and to ensure compliance with the 9.8% ownership limit.
Our board of directors may exempt a person from the 9.8% ownership limit upon certain conditions. However, our board of directors may not grant an exemption from the 9.8% ownership limit to any proposed transferee whose beneficial ownership of our common and preferred stock in excess of the ownership limit would result in the termination of our status as a REIT.
Prior to the listing of our shares on a national stock exchange, the quotation of our shares on NASDAQ or the trading of our shares in the over-the-counter market, we will not issue share certificates except to stockholders who make a written request to us therefor. Until such time, ownership of our shares will be recorded by us in book-entry form. Once issued, all certificates representing any shares of our common or preferred stock will bear a legend referring to the restrictions described above.
Provisions of Maryland Law and Our Charter and Bylaws
The following paragraphs summarize material provisions of Maryland law and of our charter and bylaws. The following summary does not purport to be complete, and you should review our charter and bylaws, copies of which are exhibits to the registration statement of which this prospectus is part.
Business Combinations.
Under Maryland law, some business combinations (including a merger, consolidation, share exchange or, under some circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and any person who beneficially owns ten percent or more of the voting power of the corporations shares or an affiliate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the then-outstanding voting stock of the corporation (an interested stockholder) or an
affiliate of such an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. A person is not an interested stockholder if, prior to the most recent time at which the person would otherwise have become an interested stockholder, the board of directors of the corporation approved the transaction which otherwise would have resulted in the person becoming an interested stockholder. The board of directors may provide that its approval is subject to compliance with any terms and conditions determined by the board of directors. Thereafter, any such business combination must be recommended by the board of directors of such corporation and approved by the affirmative vote of at least:
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80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
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two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected, unless, among other conditions, the corporations common stockholders receive a minimum price (as defined in the Maryland business combination statute) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares.
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These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that the interested stockholder becomes an interested stockholder. Our board, by resolution, has exempted any business combinations involving us and The Lightstone Group or any of its affiliates from these provisions. As a result, the five-year prohibition and the super-majority vote requirement will not apply to any business combinations between any affiliate of The
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Lightstone Group and us. As a result, any affiliate of The Lightstone Group may be able to enter into business combinations with us, which may or may not be in the best interests of the stockholders.
Control Share Acquisition.
With some exceptions, Maryland law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares (1) owned by the acquiring person, (2) owned by officers, and (3) owned by employees who are also directors. Control shares mean voting shares which, if aggregated with all other voting shares owned by an acquiring person or which the acquiring person can exercise or direct the exercise of voting power, would entitle the acquiring
person to exercise voting power in electing directors within one of the following ranges of voting power:
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one-tenth or more but less than one-third;
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one-third or more but less than a majority; or
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a majority or more of all voting power.
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Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition occurs when, subject to some exceptions, a person directly or indirectly acquires ownership or the power to direct the exercise of voting power (except solely by virtue of a revocable proxy) of issued and outstanding control shares. A person who has made or proposes to make a control share acquisition, upon satisfaction of some specific conditions, including an undertaking to pay expenses, may compel our board of directors to call a special meeting of stockholders to be held
within 50 days of demand to consider the voting rights of the control shares. If no request for a meeting is made, we may present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to some conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or of any meeting of stockholders at which the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at
a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.
The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or to acquisitions approved or exempted by the charter or bylaws of the corporation.
Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions of our shares of stock. We cannot assure that such provision will not be amended or eliminated at any time in the future.
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SHARES ELIGIBLE FOR FUTURE SALE
Shares to be Outstanding or Issuable upon Exercise or Conversion of Other Outstanding Securities
Subject to the provisions of our charter, we could issue an undetermined number of shares of common or preferred stock. On May 23, 2005, we commenced an initial public offering to sell a maximum of 30,000,000 shares of common shares, at a price of $10 per share and our initial public offering terminated on October 10, 2008 when all shares offered where sold. As of March 31, 2010, we had approximately 31,838,066 shares of common stock outstanding.
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we have reserved 75,000 shares for issuance upon exercise of options which may be granted pursuant to our stock option plan, and as of March 31, 2010, options to purchase 27,000 shares of stock were outstanding at an exercise price of $10.00 per share; 9,000 are fully vested.
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directly for equity interests in real properties;
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upon exchange of any units of limited partnership interest in the operating partnership, including units issued in exchange for equity interests in real properties; or
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upon exchange of any interests in entities that own our properties or in other companies we control, which might be issued for equity interests in real properties.
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All of the common stock we are offering by this prospectus will be freely tradable in the public market, if any, without restriction or limitation under the Securities Act of 1933 by persons other than our affiliates and soliciting dealers considered underwriters. However, the common stock will be subject to the restrictions explained under Description Of Securities Restrictions on Ownership and Transfer.
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Securities Act Restrictions
The common stock owned by our affiliates and the common stock issuable upon exchange of limited partnership units will be subject to Rule 144 promulgated under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including exemptions contained in Rule 144.
In general, under Rule 144, a person, or persons whose common stock is aggregated with them in accordance with Rule 144, who has beneficially owned securities acquired from an issuer or an affiliate of the issuer for at least one year, would be entitled, within any three-month period, to sell a number of shares of common stock that does not exceed the greater of (1) 1% of the then-outstanding number of shares or (2) the average weekly reported trading volume of the common stock on a national securities exchange or market during the four calendar weeks preceding each sale. Sales under Rule 144 must be transacted in a specific manner and must meet
requirements for public notice as well as public information about us. Any person who (1) is not deemed to have been our affiliate at any time during the three months preceding a sale, and (2) has beneficially owned our common stock for at least six months, would be entitled to sell the common stock under Rule 144 without regard to the volume limitations, manner of sale provisions, notice requirements or public information requirements. An affiliate, for purposes of the Securities Act, is a person that directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or under common control with, us.
Stock Option Plan
We have established a stock option plan for the purposes of attracting and retaining independent directors, to our company. See Management Stock Option Plan for additional information regarding the stock option plan. In July 2007, August 2008 and September 2009, options to purchase 3,000 shares were granted to each of our three independent directors at the annual stockholders meeting on the respective dates. As of March 31, 2010, options to purchase 27,000 shares of stock were outstanding, 9,000 were fully vested, at an exercise price of $10. Through March 31, 2010, there were no forfeitures related to stock options
previously granted.
Effect of Availability of Shares on Market Price of Shares
Prior to the date of this prospectus, there has been no public market for our common stock. We cannot assure that a public market for our common stock will develop. We cannot predict that future sales of
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common stock, including sales pursuant to Rule 144, or the availability of common stock for future sale will have on the market price, if any, prevailing from time to time. Sales of substantial amounts of our common stock, including shares issued upon the exercise of options or the exchange of limited partnership units or other interests, or the perception that these sales could occur, could adversely affect prevailing market prices of our common stock and impair our ability to obtain additional capital through the sale of equity securities. See Risk Factors Investment Risks. For a description of restrictions on transfer
of common stock, see Description of Securities Restrictions on Ownership and Transfer. Also, see the following paragraphs regarding exchange and registration rights pertaining to limited partnership units.
Exchange Rights
Limited partners in the operating partnership will have the ability to exchange their limited partnership units into cash equal to the fair market value of one share of our common stock, or, at our option, shares of our common stock. See Operating Partnership Agreement Limited Partner Exchange Rights.
See also Operating Partnership Agreement Extraordinary Transactions for a discussion of exchange rights triggered by mergers and other major transactions.
Similar exchange rights may be given to holders of other classes of units in the operating partnership and to holders of interests in other companies we control, if any.
Any common stock issued to a limited partner upon exchange of limited partnership units may be sold only pursuant to an effective registration under the Securities Act or pursuant to any available exemption from such registration, such as Rule 144 promulgated under the Securities Act.
Limited partnership unit holders cannot exchange units for shares within one year of issuance.
Registration Rights
In the future we expect to grant demand and/or piggyback registration rights to (1) stockholders receiving our common stock directly for their equity interests in our assets, (2) limited partners receiving units of limited partnership interest in the operating partnership for their interests in properties, and (3) persons receiving interests in any real property partnership for their interests in real properties. These rights will be for registration under the Securities Act of any of our common stock acquired by them directly or upon exchange of their units or interests in the applicable partnership. The terms and conditions
of any agreements for registration rights will be negotiated and determined at such future time as we determine advisable in connection with the acquisition of one or more properties.
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SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS
Each stockholder is bound by and deemed to have agreed to the terms of our organizational documents by his, her or its election to become a stockholder. Our organizational documents consist of our articles of incorporation, or charter, and bylaws. The following is a summary of material provisions of our organizational documents and does not purport to be complete. Our organizational documents are filed as exhibits to our registration statement of which this prospectus is part. See Where You Can Find More Information.
Our charter in its present form was filed with the State Department of Assessments and Taxation of Maryland and became effective on May 12, 2005. The bylaws in their present form became operative when our board of directors approved them as of October 19, 2007. Neither our charter nor bylaws have an expiration date. As a result, they will remain effective in their current form throughout our existence, unless they are amended. Upon effectiveness of this registration statement with the SEC, we will hold the first meeting of our board of directors, where a majority of our directors and of our independent directors will review and ratify our charter.
CHARTER AND BYLAW PROVISIONS
The stockholders rights and related matters are governed by our charter and bylaws and Maryland law. Some provisions of the charter and bylaws, summarized below, may make it more difficult to change the composition of our board of directors and could have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock.
Stockholders Meetings
Our bylaws provide that an annual meeting of the stockholders will be held on the date in the month of July in each year that the board of directors may determine, but not less than 30 days after the delivery of our annual report to stockholders. The purpose of each annual meeting of the stockholders is to elect directors and to transact any other proper business. The chairman, the president, the chief executive officer, a majority of the directors or a majority of the independent directors may call a special meeting of the stockholders. The secretary must call a special meeting when stockholders holding 10% or more of the outstanding shares entitled
to vote make a written request for a meeting. The written request may be delivered in person or by mail and must state the purpose(s) of the meeting and matters proposed to be acted upon at the meeting. The meeting will be held on a date not less than 15 nor more than 60 days after the distribution of the notice for such meeting, at the time and place specified in the stockholder request. Except as provided in the preceding sentence, we will give notice of any annual or special meeting of stockholders not less than 10 nor more than 90 days before the meeting. With respect to special meetings, the notice will state the purpose of the meeting and the matters to be acted upon. At any meeting of the stockholders, each stockholder is entitled to one vote for each share owned of record on the applicable record date. In general, the presence in person or by proxy of a majority of the outstanding shares will constitute a quorum.
Board of Directors
Our bylaws provide that we may not have less than three or more than nine directors. A majority of the directors must be independent directors. (See Our Directors and Executive Officers Committees of Our Board of Directors). Any vacancy on the board of directors may be filled by a majority of the remaining directors, whether or not the remaining directors constitute a quorum, except that upon a vacancy created by the death, resignation or incapacity of an independent director, the remaining independent directors must nominate a replacement. Any director may resign at any time and may be removed with or without cause at a
meeting called for that purpose by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote generally for the election of directors.
A director must have at least three years of relevant experience and demonstrate the knowledge required to successfully acquire and manage the type of assets we are acquiring. At least one of the independent directors must have three years of relevant real estate experience. At least one of the independent directors must be a financial expert, with at least three years of equivalent financial experience.
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Stockholder Voting Rights
Each share of our common stock has one vote on each matter submitted to a vote of stockholders. Shares of common stock do not have cumulative voting rights or preemptive rights. Stockholders may vote in person or by proxy.
Directors are elected when they receive a majority of the votes cast in person or by proxy at a stockholders meeting, provided there was a quorum when the meeting commenced. A quorum is obtained when the stockholders holding a majority of the aggregate number of shares entitled to be voted are present in person or by proxy. Any or all directors may be removed, with or without cause, at a meeting called for that purpose, by the affirmative vote of the holders of not less than a majority of the outstanding shares entitled to vote generally for the election of directors. A majority of all the votes cast at a meeting of stockholders at which a
quorum is present is sufficient to approve any other matter unless our charter or the MGCL require otherwise. Unless the charter of the corporation provides otherwise (which ours does not), Maryland law provides that any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting by the unanimous written consent of all common stockholders (which may be impracticable for a publicly held corporation).
A majority of the then outstanding shares may, without the necessity for concurrence by our board of directors, vote to:
The approval of our board of directors and of holders of at least a majority of the outstanding voting shares of equity stock is necessary for us to do either of the following:
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transfer all or substantially all of our assets other than in the ordinary course of business or in connection with liquidation and dissolution; or
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with certain exceptions, engage in mergers, consolidations or share exchanges.
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Neither the advisor, the directors, nor any of their affiliates may vote their shares of stock or consent on matters submitted to the stockholders regarding the removal of the advisor, such directors or any of their affiliates or any transaction between us and any of them. For purposes of determining the necessary percentage in interest of shares needed to approve a matter on which the advisor, the directors and any of their affiliates may not vote or consent, the shares of our common stock owned by them will not be included.
Stockholder Lists; Inspection of Books and Records
Any stockholder or his designated representative will be permitted access to all of our records at all reasonable times and may inspect and copy any of them for a reasonable charge for the purposes specified below. We maintain an alphabetical list of names, record addresses and business telephone numbers, if any, of all stockholders with the number of shares held by each at our principal office. The stockholder list is updated at least quarterly and is open for inspection by a stockholder or his designated agent at the stockholders request. A stockholder may request a copy of the stockholder list to find out about matters relating to the
stockholders voting rights and their exercise under federal proxy laws. We will mail the stockholder list to any stockholder requesting it within 10 days of receiving the request. We may impose a reasonable charge for expenses incurred in reproducing the list.
If our advisor or board of directors neglect or refuse to exhibit, produce or mail a copy of the stockholder list as requested, then in accordance with applicable law and our charter, the advisor and the directors will be liable to the stockholder who requested the list. Their liability will include the costs, including reasonable attorneys fees, incurred by the stockholder in compelling the production of the list and actual damages suffered by the stockholder because of the refusal or neglect. However, the fact that the actual purpose of the request is to secure the list for the purpose of selling it, or using it for a commercial purpose
unrelated to such stockholders interest in us is a defense against liability for refusal to supply the list. We
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may require the stockholder requesting the list to represent that the stockholder list is not requested for a commercial purpose unrelated to the stockholders interest in us.
Under Maryland law, one or more persons who together are and for at least six months have been, stockholders holding at least five percent of any class of our outstanding stock may, upon written request, inspect and copy our stock ledger.
Amendment of the Organizational Documents
Our charter may be amended, after a declaration by the board of directors that the amendment is advisable and approval by the affirmative vote of holders of a majority of all votes entitled to be cast on the matter. Our bylaws may be amended in a manner not inconsistent with the charter by a majority vote of the directors.
Dissolution or Termination
We may be dissolved after a declaration by the board of directors that dissolution is advisable and the approval of a majority of the outstanding shares of stock entitled to vote on the matter. If our shares are listed on a national stock exchange, quoted by The Nasdaq Stock Market or traded in the over-the-counter market by the tenth anniversary of termination of our initial public offering, we shall continue perpetually unless dissolved pursuant to any applicable provision of the MGCL. If not, our board of directors must either (a) adopt a resolution that proposes an extension or elimination of this deadline by amendment to our charter, declares
that such amendment is advisable and directs that the proposed amendment be submitted for consideration at a stockholder meeting, or (b) adopt a resolution that declares that a proposed liquidation and dissolution is advisable and mandates submission of the proposed plan of liquidation for consideration at a stockholder meeting. If our stockholders do not approve the amendment sought by our board of directors, then our board of directors shall seek the plan of liquidation described above. If our stockholders do not then approve the plan of liquidation, we shall continue our business. If our board of directors initially seeks the plan of liquidation and our stockholders do not approve the resolution, then our board of directors shall seek the charter amendment extending the ten-year deadline. If our stockholders do not then approve the amendment, we shall continue our business.
Advance Notice of Director Nominations and New Business
Our bylaws provide that, with respect to our annual meeting of stockholders, nominations for election to our board of directors and the proposal of business to be considered by stockholders may be made only:
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pursuant to our notice of the meeting;
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by or at the direction of our board of directors; or
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by a stockholder who was a stockholder of record both at the time of giving notice of such nomination or proposal of business and at the time of the meeting, who is entitled to vote at the meeting and who has complied with the advance notice procedures set forth in the bylaws.
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Our bylaws also provide that, with respect to special meetings of stockholders, only the business specified in our notice of meeting may be brought before the meeting of stockholders and nominations for election to the board of directors may be made only:
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pursuant to our notice of the meeting;
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by or at the direction of the board of directors; or
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provided that the board of directors has determined that directors will be elected at the meeting, by a stockholder who was a stockholder of record both at the time of giving notice of such nomination or proposal of business and at the time of the meeting, who is entitled to vote at the meeting and who complied with the advance notice procedures set forth in the bylaws.
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A stockholder nomination or proposal of business in connection with an annual meeting must provide the information required in our bylaws and be delivered to our secretary at our principal executive offices:
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not less than 120 days nor more than 150 days before the first anniversary of the date on which we first mailed our notice of meeting for the prior years annual meeting; or
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in the event that the maximum or minimum number of directors is increased or decreased and there is no public announcement of such action at least 130 days before the first anniversary of the date on which we first mailed our notice of the preceding years annual meeting, with respect to nominees for any new positions created by such increase, not later than the close of business on the tenth day following the day on which such public announcement is first made.
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A stockholder nomination or proposal of business for a special meeting must provide the information required in our bylaws and be delivered to our secretary at our principal executive offices:
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not earlier than the 120
th
day prior to the special meeting; and
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not later than the close of business on the later of the 90
th
day prior to the special meeting or the tenth day following the first public announcement of the special meeting and the nominees proposed by the board of directors to be elected at the meeting.
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Restrictions on Conversion Transactions and Roll-Ups
A roll-up entity is a partnership, REIT, corporation, trust or similar entity that would be created or would survive after the successful completion of a proposed roll-up transaction. A roll-up does not include (1) a transaction involving securities that have been listed on a national securities exchange including The NASDAQ Stock Market NASDAQ National Market for at least 12 months, or (2) a transaction involving our conversion to a trust or association form if, as a consequence of the transaction, there will be no significant adverse change in any of the following:
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stockholders voting rights;
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sponsor or advisor compensation; or
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our investment objectives.
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In the event of a proposed roll-up, an appraisal of all our assets must be obtained from a person with no current or prior business or personal relationship with our advisor or directors and who is a qualified appraiser of real estate of the type held by the Company or of other assets determined by our board of directors. Further, that person must be substantially engaged in the business of rendering valuation opinions of assets of the kind we hold. We will include a summary of the appraisal, indicating all material assumptions underlying it, in a report to our stockholders in connection with a proposed roll-up. We may not participate in any proposed
roll-up which would:
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result in the stockholders having rights which are more restrictive to stockholders than those provided in our charter, including any restriction on the frequency of meetings;
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result in the stockholders having less voting rights than are provided in our charter;
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result in the stockholders having greater liability than provided in our charter;
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result in the stockholders having fewer rights to receive reports than those provided in our charter;
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result in the stockholders having access to records that are more limited than those provided for in our charter;
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include provisions which would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the roll-up entity, except to the minimum extent necessary to preserve the tax status of the roll-up entity;
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limit the ability of an investor to exercise its voting rights in the roll-up entity on the basis of the number of the shares held by that investor; or
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place any of the costs of the transaction on us if the roll-up is not approved by the stockholders.
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Stockholders who vote no on the proposed roll-up will have the choice of:
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accepting the securities of the roll-up entity offered; or
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either remaining as our stockholders and preserving their interests on the same terms and conditions as previously existed or receiving cash in an amount equal to their pro rata share of the appraised value of our net assets.
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These provisions in our charter could have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock.
Limitation on Total Operating Expenses
Our charter provides that, subject to the conditions described herein, reimbursement to the advisor for total operating expenses (excluding property level operating expenses) in any four consecutive fiscal quarters shall not exceed the greater of 2% of our average invested assets or 25% of our net income. Our independent directors have the responsibility to limit our annual total operating expenses to amounts that do not exceed these limits. Our independent directors may, however, determine that a higher level of total operating expenses is justified for such period because of unusual and non-recurring expenses. Such a finding by our independent
directors and the reasons supporting it shall be recorded in the minutes of meetings of our board of directors. If at the end of any fiscal quarter our total operating expenses for the 12 months then ended are more than 2% of average invested assets or more than 25% of net income, whichever is greater, as described above, we will disclose this in writing to the stockholders within 60 days of the end of the fiscal quarter. If our independent directors conclude that higher total operating expenses are justified, the disclosure will also contain an explanation of the conclusion. If total operating expenses exceed the limitations described above and if our directors are unable to conclude that the excess was justified, then the advisor will reimburse us the amount by which the aggregate annual total operating expenses we paid or incurred exceed the limitation. Our advisor must make the reimbursement within 60 days after the end of such fiscal quarter.
Transactions with Affiliates
Our charter imposes restrictions on transactions between us and our advisor, sponsor and any director or their affiliates as follows:
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(1)
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Sales and Leases to Us.
We will not purchase property from our sponsor, advisor, directors or any of their affiliates.
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(2)
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Sales and Leases to Sponsor, Advisor, Director or any Affiliate.
Our sponsor, advisor, director or any of their affiliates will not acquire assets from us unless a majority of disinterested directors, including a majority of disinterested independent directors, approves the transaction as being fair and reasonable to us. We may lease assets to our sponsor, advisor, director or any of their affiliates, but still only if a majority of the disinterested directors, including a majority of disinterested independent directors, approves it as fair and reasonable to us.
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(3)
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Loans.
We will not, directly or indirectly, including through any subsidiary, extend or maintain credit, arrange for the extension of credit, or renew an extension of credit, in the form of a personal loan to or for any of our directors or executive officers. We will not make loans to our sponsor, advisor, or any of their affiliates except as provided in clause (4) under Restrictions on Investments below in this section, or to our wholly owned subsidiaries. Also, we may not borrow money from our sponsor, advisor, directors or any of their affiliates, unless a majority of disinterested directors, including a majority of disinterested independent directors, approves the transaction as fair, competitive and commercially reasonable and no less favorable to us than loans between unaffiliated parties under the same circumstances.
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(4)
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Investments.
We will not invest in joint ventures with our sponsor, advisor, directors or any of their affiliates, unless a majority of disinterested directors, including a majority of disinterested independent directors, approves the transaction as fair and reasonable to us and on substantially the same terms and conditions as those received by the other joint ventures.
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(5)
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Other Transactions.
All other transactions between us and our sponsor, advisor, directors or any of their affiliates, require approval by a majority of disinterested directors, including a majority of disinterested independent directors, as being fair and reasonable and on terms and conditions not less favorable to us than those available from unaffiliated third parties.
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Restrictions on Borrowing
Our aggregate borrowings, secured and unsecured, will be reasonable in relation to our net assets and will be reviewed by our board of directors at least quarterly. We anticipate that, in general, aggregate long-term permanent borrowings will not exceed 75% of the aggregate fair market value of all properties. This anticipated amount of leverage will be achieved over time and we may also incur short-term indebtedness, having a maturity of two years or less. In addition, our charter provides that the aggregate amount of borrowing (both long- and short-term) in relation to our net assets will, in the absence of a satisfactory showing that a higher
level of borrowing is appropriate, not exceed 300% of net assets. Any excess in borrowing over such 75% of fair market value or 300% of net assets levels will be:
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approved by a majority of our independent directors and
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disclosed to stockholders in our next quarterly report, along with justification for such excess.
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In addition, our charter prohibits us from making or investing in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans outstanding on the property, including our loans, would exceed 85% of the propertys appraised value, unless substantial justification exists and the loans would not exceed the propertys appraised value. See Investment Objectives and Policies Borrowing.
Restrictions on Investments
In addition to other investment restrictions imposed by our directors from time to time consistent with our objective to continue to qualify as a REIT, we will observe the following restrictions on our investments as set forth in our charter:
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(1)
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Not more than 10% of our total assets will be invested in unimproved real property. For purposes of this paragraph, unimproved real properties does not include properties acquired for the purpose of producing rental or other operating income, properties under construction and properties for which development or construction is planned within one year.
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(2)
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We will not invest in commodities or commodity future contracts. This limitation does not apply to interest rate futures when used solely for hedging purposes in connection with our ordinary business of investing in real estate assets and mortgages.
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(3)
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We will not invest in contracts for the sale of real estate unless in recordable form and appropriately recorded.
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(4)
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Mortgage indebtedness on any property shall not exceed the appraised value of the property.
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(5)
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We will not invest in equity securities unless a majority of disinterested directors, including a majority of disinterested independent directors, approves the transaction as being fair, competitive and commercially reasonable. Investments in entities affiliated with our advisor, the sponsor, any director or their affiliates are subject to the restrictions on joint venture investments.
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(6)
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We will not engage in any short sale nor will we borrow on an unsecured basis if the borrowing will result in an asset coverage of less than 300%, unless the borrowing is approved by a majority of our independent directors and disclosed to our stockholders in our subsequent quarterly report, along with justification for such excess.
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(7)
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To the extent we invest in properties, a majority of the directors will approve the consideration paid for such properties based on the fair market value of the properties. If a majority of independent directors so determines, or if an asset is acquired from our advisor, one or more of our directors, our sponsor or any of their affiliates, the fair market value will be determined by a qualified independent real estate appraiser selected by the independent directors. In addition, the advisor may purchase on
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our account, without the prior approval of the board of directors, properties whose purchase price is less than $15,000,000, if the following conditions are satisfied:
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The investment in the property would not, if consummated, violate our investment guidelines;
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The investment in the property would not, if consummated, violate any restrictions on indebtedness; and
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The consideration to be paid for such properties does not exceed the fair market value of such properties, as determined by a qualified independent real estate appraiser selected by the advisor and acceptable to the independent directors.
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(8)
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We will not engage in trading, as compared with investment activities.
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(9)
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We will not engage in underwriting activities, or distribute as agent, securities issued by others.
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(10)
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We will not acquire securities in any entity holding investments or engaging in activities prohibited by the restrictions on investments set forth in the foregoing clauses (1) through (9).
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(11)
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We will not invest in foreign currency or bullion.
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Subject to the above restrictions and so long as we qualify as a REIT, a majority of our directors, including a majority of our independent directors, may alter the investment policies if they determine that a change is in our best interests. In addition, if we fail to so qualify, our stockholders must vote on any such changes.
We intend to invest in a manner so that we are not considered an investment company as defined in the Investment Company Act of 1940. See Investment Objectives and Policies Regulatory Aspects of Our Investment Strategy.
Compensation Restrictions
As discussed, our compensation structure differs from that of other REITs. In order to comply with the compensation provisions contained in the Statement of Policy Regarding REITs adopted by the North American Securities Administrators Association, Inc., which we also refer to as the NASAA REIT Guidelines and for the benefit of our stockholders, our charter limits acquisition fees, acquisition expenses and asset management fee paid to the advisor, and subordinated payments by the operating partnership to our sponsor and Lightstone SLP, LLC, collectively. Specifically, our charter prohibits the total of those expenditures from exceeding (i) six
percent of all properties aggregate gross contract purchase price, (ii) as determined annually, the greater, in the aggregate, of two percent of average invested assets or twenty-five percent of our net income after reducing such asset management amount by those total operating expenses as defined in the NASAA REIT Guidelines that exclude the asset management amount, (iii) disposition fees, if any, of up to three percent of the contract sales price of all properties that we sell and (iv) fifteen percent of net sales proceeds, if any, remaining after we pay our stockholders an aggregate amount sufficient to repay their shares initial issue price plus six percent of that issue price per annum, cumulative.
In order to ensure our continued compliance with these restrictions, our charter requires us annually to prepare a comparison between our compensation structure and the compensation structure prescribed by the NASAA REIT Guidelines. Certain state securities regulators require us to deliver this comparison for their review on a regular basis. If the comparison indicates that our proceeds exceed those allowed by the NASAA REIT Guidelines, our charter requires us to return any excess proceeds to our stockholders within 30 days of making the comparison.
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OPERATING PARTNERSHIP AGREEMENT
The following is a summary of the agreement of limited partnership of Lightstone Value Plus REIT LP dated April 22, 2005, as amended and restated as of June 28, 2008. This summary and the descriptions of its provisions elsewhere in this prospectus, are qualified by the operating partnership agreement itself, which is filed as an exhibit to our registration statement, of which this prospectus is a part. See Where You Can Find Additional Information.
Conducting our operations through the operating partnership allows the sellers of properties to contribute their property interests to the operating partnership in exchange for limited partnership units rather than for cash or common stock. By this, the seller is able to defer some or all of the potential taxable gain on the transfer. From the sellers point of view, there are also differences between the ownership of common stock and units. Some of the differences may be material to investors because they impact the form of business organization, distribution rights, voting rights, transferability of equity interests received and federal income
taxation.
Description of Partnership Units
Partnership interests in the operating partnership are divided into units. Initially, the operating partnership will have two classes of units: general partnership units and limited partnership units. General partnership units represent an interest as a general partner in the operating partnership and we will hold them as general partner. In return for our initial capital contribution of $200,000 the operating partnership issued to us 20,000 general partnership units.
Limited partnership units represent an interest as a limited partner in the operating partnership. The operating partnership may issue additional units and classes of units with rights different from and superior to those of general partnership units or limited partnership units without the consent of the limited partners. Holders of limited partnership units do not have any preemptive rights with respect to the issuance of additional units.
For each limited partnership common unit received, investors generally will be required to contribute money or a property with a net equity value determined by the general partner. Holders of limited partnership units will not be obligated to make additional capital contributions to the operating partnership. Furthermore, they will not have the right to make additional capital contributions to the operating partnership or the right to purchase additional units without our consent as general partner. For further information on capital contributions, see Capital Contributions in this section. Limited partners who do not participate
in the management of the operating partnership generally are not liable for the debts and liabilities of the operating partnership beyond the amount of their capital contributions by virtue of their status as limited partners. We, however, as the general partner of the operating partnership, are liable for any unpaid debts and liabilities.
Limited partners do not have the right to participate in the management of the operating partnership. The voting rights of the limited partners are generally limited to approval of specific types of amendments to the operating partnership agreement. With respect to such amendments, each limited partnership common unit has one vote. See Management of the Operating Partnership in this section for a more detailed discussion of this subject.
In general, each limited partnership common unit will share equally in distributions from the operating partnership when as general partner we may declare distributions in our sole discretion. They will also share equally in the assets of the operating partnership legally available for distribution upon its liquidation after payment of all liabilities and establishment of reserves and after payment of the preferred return owed to holders of limited partnership preferred units, if any. In addition, a portion of the items of income, gain, loss and deduction of the operating partnership for U.S. federal income tax purposes will be allocated to each
limited partnership common unit, regardless of whether any distributions are made by the operating partnership. See Material U.S. Federal Income Tax Considerations Tax Aspects of Investments in Partnerships for a description of the manner in which income, gain, loss and deductions are allocated under the operating partnership agreement. As general partner, we may amend the allocation and distribution sections of the operating partnership agreement to reflect the issuance of additional units and classes of units without the consent of the limited partnership common unit holders. See Issuance of Additional Units
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and Distributions in this section; and also see Material U.S. Federal Income Tax Considerations Tax Aspects of Investments in Partnerships for a more detailed explanation of these matters.
Under certain circumstances, holders of limited partnership units may not transfer their interests without the consent of the general partner. See Transferability of Interests in this section for a discussion of certain restrictions imposed by the operating partnership agreement on such transfers. After owning a limited partnership common unit for one year, limited partnership common unit holders generally may, subject to restrictions, exchange limited partnership units into cash or, at our option, shares of common stock. See Limited Partner Exchange Rights in this section for a description of these rights and the
amount and types of consideration a limited partner is entitled to receive upon their exercise. These exchange rights are accelerated in the case of some extraordinary transactions. See Extraordinary Transactions in this section for an explanation of the exchange rights under those circumstances. For a description of registration rights which may in the future be granted to holders of limited partnership units, see Shares Eligible for Future Sale Registration Rights.
Series A Preferred Units
The Series A Preferred Units holders are entitled to receive cumulative preferential distributions equal to an annual rate 4.6316%, if and when declared by the Company. The Series A Preferred Units have no mandatory redemption or maturity date. The Series A Preferred Units are not redeemable by the Operating Partnership prior to the Lockout Date of June 26, 2013. On or after the Lockout Date, the Series A Preferred Units may be redeemed at the option of the Operating Partnership (which notice may be delivered prior to the Lockout Date as long as the redemption does not occur prior to the Lockout Date), in whole but not in part, on thirty (30)
days prior written notice at the option of the Operating Partnership, at a redemption price per Series A Preferred Unit equal to the sum of the Series A Liquidation Preference plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of redemption, and the redemption price shall be payable in cash. During any redemption notice period, the holders of the Series A Preferred Units may convert, in whole or in part, the Series A Preferred Units into Common Units of the Operating Partnership obtained by dividing the aggregate Series A Liquidation Preference of such Series A Preferred Units by the estimated fair market value of the one common share of the Company. The Series A Preferred Units shall not be subject to any sinking fund or other obligation of the Operating Partnership to redeem or retire the Series A Preferred Units.
Special General Partner Interests
On April 22, 2005, our operating partnership entered into an agreement with Lightstone SLP, LLC, an entity controlled by our sponsor, pursuant to which the Operating Partnership has issued special general partner interests to Lightstone SLP, LLC in an amount equal to all expenses, dealer manager fees and selling commissions that we incurred in connection with our organization and the initial offering of our common stock (up to a maximum of 10% of our offering proceeds). As of March 31, 2010, Lightstone SLP, LLC had contributed $30.0 million to the Operating Partnership in exchange for special general partner interests. As the sole member of our
Sponsor, which wholly owns Lightstone SLP, LLC, Mr. Lichtenstein is the indirect, beneficial owner of such special general partner interests and will thus receive an indirect benefit from any distributions made in respect thereof.
These special general partner interests entitle Lightstone SLP, LLC to a portion of any regular and liquidation distributions that we make to stockholders, but only after stockholders have received a stated preferred return. As we have paid our stockholders an annual rate of return of 7% on their net investment, we have paid regular distributions to Lightstone SLP, LLC at an annual return of 7% through March 31, 2010.
Regular Distributions
This section describes the apportionment of any regular distributions that the operating partnership may make. At each stage of distribution, a different apportionment method commences or terminates, as applicable, when a particular party or parties have received a specific amount of distributions. The return calculations described below apply to all regular distributions received and not the specific distribution being made. Achievement of a particular threshold, therefore, is determined with reference to all prior distributions made
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by our operating partnership to Lightstone SLP, LLC and to us, which we will then distribute to our stockholders, and results in all subsequent regular distributions being made pursuant to the allocation method triggered by that or later thresholds.
Distributions Until 7% Stockholder Return Threshold is Achieved
Regular distributions will be made initially to us, which we will distribute to the holders of our common stock until these holders have received dividends equal to a cumulative non-compounded return of 7% per year on their net investment. Net investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of properties. Until this 7% threshold is reached, our operating partnership will not pay to Lightstone SLP, LLC any distributions with respect to the purchase price of the special general partner interests that it received in exchange for agreeing to pay the costs and expenses of our
initial public offering.
Distributions Until 7% Lightstone SLP, LLC Return Threshold is Achieved
After this 7% threshold is reached, our operating partnership will make all of its distributions to Lightstone SLP, LLC until our sponsor receives an amount equal to a cumulative non-compounded return of 7% per year on the purchase price of the special general partner interests.
Distributions Until 12% Stockholder Return Threshold is Achieved
After this second 7% threshold is reached and until the holders of our common stock have received dividends in an amount equal to a cumulative non-compounded return of 12% per year on their net investment (including, for the purpose of the calculation of such amount, the amounts equaling a 7% return on their net investment described in the first paragraph of this section), 70% of the aggregate amount of any additional distributions by our operating partnership will be payable to us (and the limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), which we will distribute to the holders
of our common stock, and 30% of such amount will be payable by our operating partnership to Lightstone SLP, LLC. Net investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of properties.
Distributions After 12% Stockholder Return Threshold is Achieved
After this 12% threshold is reached, 60% of the aggregate amount of any additional distributions by our operating partnership will be payable to us, which we will distribute to the holders of our common stock (and the limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), and 40% of such amount will be payable by our operating partnership to Lightstone SLP, LLC.
We cannot assure investors of the cumulative non-compounded returns discussed above, which we disclose solely as a measure for the incentive compensation of our sponsor, advisor and affiliates.
Special Liquidation Distribution
This section describes the apportionment of any liquidation distributions that we make. At each stage of distributions, a different apportionment method commences or terminates, as applicable, when a particular party or parties have received a specific amount of distributions. The return calculations described below apply to all regular and liquidation distributions received and not just distributions made upon liquidation. Achievement of a particular threshold, therefore, is determined with reference to all prior distributions made by our operating partnership to Lightstone SLP, LLC and to us, which we will then distribute to our stockholders.
We cannot assure investors of the cumulative non-compounded returns discussed below, which we disclose solely as a measure for compensation of our sponsor, advisor and affiliates.
Distributions Until 7% Stockholder Return Threshold is Achieved
Distributions in connection with our liquidation will be made initially to us, which we will distribute to the holders of our common stock, until these holders have received liquidation distributions equal to their initial investment plus a cumulative non-compounded return of 7% per year on their net investment. Net
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investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of properties. Until this 7% threshold is reached, our operating partnership will not pay to Lightstone SLP, LLC any special liquidation distribution in connection with our liquidation.
Distributions Until 7% Lightstone SLP, LLC Return Threshold is Achieved
After the first 7% threshold is reached, Lightstone SLP, LLC will receive special liquidation distributions with respect to the purchase price of the special general partner interests that it received in exchange for agreeing to pay the costs and expenses of our initial public offering, until it receives an amount equal to the purchase price of the special general partner interests plus a cumulative non-compounded return of 7% per year on the purchase price of those interests.
Distributions Until 12% Stockholder Return Threshold is Achieved
After this second 7% threshold is reaches and until the holders of our common stock have received an amount equal to their initial investment plus a cumulative non-compounded return of 12% per year on their net investment. Net investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of properties (including, for the purpose of the calculation of such amount, the amounts equaling a 7% return on their net investment described in the first paragraph of this section), 70% of the aggregate amount of any additional distributions by our operating partnership will be payable to us (and the
limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), which we will distribute to the holders of our common stock, and 30% of such amount will be payable by our operating partnership to Lightstone SLP, LLC.
Distributions After 12% Stockholder Return Threshold is Achieved
After this 12% threshold is reached, 60% of the aggregate amount of any additional distributions by our operating partnership will be payable to us (and the limited partners entitled to such distributions under the terms of the operating partnerships operating agreement), which we will distribute to the holders of our common stock, and 40% of such amount will be payable by our operating partnership to Lightstone SLP, LLC.
Advisory Agreement Termination
If the advisory agreement is terminated, the special general partner interests may, at the election of our advisor, be converted into cash equal to the purchase price of the special general partner interests.
Management of the Operating Partnership
The operating partnership is organized as a Delaware limited partnership pursuant to the terms of the operating partnership agreement. We are the general partner of the operating partnership and we anticipate that we will conduct substantially all of our business through it. Generally, pursuant to the operating partnership agreement, we and Lightstone SLP, LLC, as general partners, will have full, exclusive and complete responsibility and discretion in the management and control of the partnership, including the ability to enter into major transactions, including acquisitions, dispositions and refinancings, and to cause changes in its line of
business and distribution policies. We may, without the consent of the limited partners:
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file a voluntary petition seeking liquidation, reorganization, arrangement or readjustment, in any form, of the partnerships debts under Title 11 of the United States Bankruptcy Code, or any other federal or state insolvency law, or corresponding provisions of future laws, or file an answer consenting to or acquiescing in any such petition; or
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cause the operating partnership to make an assignment for the benefit of its creditors or admit in writing its inability to pay its debts as they mature.
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The limited partners in their capacities as limited partners of the operating partnership will have no authority to transact business for, or participate in the management or decisions of, the operating partnership, except as provided in the operating partnership agreement and as required by applicable law.
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As general partner of the operating partnership, we may amend the operating partnership agreement without the consent of the limited partners. However, any amendment that:
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alters or changes the distribution rights of limited partners, subject to the exceptions discussed below under Distributions in this section;
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alters or changes their exchange rights;
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imposes on limited partners any obligation to make additional capital contributions;
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alters the terms of the operating partnership agreement regarding the rights of the limited partners with respect to extraordinary transactions; or
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will require the unanimous written consent of the affected limited partners holding more than 50% of the voting power in the operating partnership. The limited partners have no right to remove us as the general partner.
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Indemnification
To the extent permitted by law, the operating partnership agreement provides for our indemnification as general partner. It also provides for the indemnification of directors, officers and other persons as we may designate against damages and other liabilities under the same conditions and subject to the same restrictions applicable to the indemnification of officers, directors, employees and stockholders under our charter. See Limitation of Liability and Indemnification of Directors, Officers and Our Advisor.
Transferability of Interests
Under the operating partnership agreement, we may not withdraw from the partnership or transfer or assign all of our general partnership interest, except in connection with the sale of all or substantially all of our assets, without the consent of two-thirds of the limited partners. We may, however, assign less than all of our general partnership interest. Under certain circumstances, holders of limited partnership units may withdraw from the partnership and may transfer or encumber all or any part of their units only with the written consent of the general partner and upon satisfaction of the other conditions set forth in the partnership agreement.
In addition, limited partnership units are not registered under the federal or state securities laws. As a result, the ability of a holder to transfer units may be restricted under such laws.
Extraordinary Transactions
The operating partnership agreement generally provides that either we or the operating partnership may engage in any authorized business combination without the consent of the limited partners. A business combination is any merger, consolidation or other combination with or into another person, or the sale of all or substantially all of the assets of any entity, or any liquidation, or any reclassification, recapitalization or change in the terms of the equity stock into which a unit may be converted. We are required to send to each limited partnership common unit holder notice of a proposed business combination at least 15 days prior to the record
date for the stockholder vote on the combination, if any. Generally, a limited partner may not exercise his or her exchange rights until he or she has held the units for at least one year. However, in the case of a proposed combination, each holder of a limited partnership common unit in the operating partnership shall have the right to exercise his or her exchange right prior to the stockholder vote on the transaction, even if he or she has held the units for less than one year. See Limited Partner Exchange Rights in this section for a description of such rights. Upon the limited partners exercise of the exchange right in the case of a business combination, the partnership units will be exchanged into cash or, at our option, shares of common stock. However, we cannot pay the limited partnership common unit holder in shares if the issuance of shares to such holder would:
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violate the ownership limit;
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result in our being closely held within the meaning of section 856(h) of the Internal Revenue Code;
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cause us to no longer qualify or create a material risk that we may no longer qualify as a REIT in the opinion of our counsel; or
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cause the acquisition of shares by such limited partner to be integrated with any other distribution of shares for purposes of complying with the registration provisions of the Securities Act of 1933.
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Holders of limited partnership units who timely exchange their units prior to the record date for the stockholder vote on a business combination, if any, shall be entitled to vote their shares in any stockholder vote on the business combination. Holders of limited partnership units who exchange their units after the record date may not vote their shares in any stockholder vote on the proposed business combination. The right of the limited partnership common unit holders to exercise their right to exchange without regard to whether they have held the units for more than a year shall terminate upon the first to occur of the disapproval of the business
combination by our board of directors, its disapproval by the stockholders, its abandonment by any of the parties to it, or its effective date.
Issuance of Additional Units
As general partner of the operating partnership, we can, without the consent of the limited partners, cause the operating partnership to issue additional units representing general or limited partnership interests. A new issuance may include preferred units, which may have rights which are different and/or superior to those of general partnership units and limited partnership units.
Capital Contributions
The operating partnership agreement provides that if the operating partnership requires additional funds at any time or from time to time in excess of funds available to it from borrowings or prior capital contributions, we as general partner have the right to raise additional funds required by the operating partnership by causing it to borrow the necessary funds from third parties on such terms and conditions as we deem appropriate. As an alternative to borrowing funds required by the operating partnership, we may contribute the amount of such required funds as an additional capital contribution. The operating partnership agreement also provides
that we will contribute cash or other property received in exchange for the issuance of equity stock to the operating partnership in exchange for units. Upon the contribution of the cash or other property received in exchange for the issuance of a share, we will receive one general partnership common unit for each share issued by us. Upon the contribution of the cash or other property received in exchange for the issuance of each share of equity stock other than a share, we shall receive one unit with rights and preferences respecting distributions corresponding to the rights and preferences of the equity stock. If we so contribute additional capital to the operating partnership, our partnership interest will be increased on a proportionate basis. Conversely, the partnership interests of the limited partners will be decreased on a proportionate basis in the event we contribute any additional capital.
Distributions
The operating partnership agreement sets forth the manner in which distributions from the partnership will be made to unit holders. Distributions from the partnership are made at the times and in the amounts determined by us as the general partner. Under the operating partnership agreement, preferred units, if any, may entitle their holders to distributions prior to the payment of distributions for the units. The agreement further provides that remaining amounts available for distribution after distributions for preferred units, if any, will be distributed at the times and in the amounts we determine as the general partner in our sole discretion, pro
rata, to the holders of the general partnership units and the limited partnership units, in accordance with the number of units that they hold (provided that the special general partner will also be entitled to its share of distributions as described in Special General Partner Interests, above). We will also distribute the remaining amounts to the holders of preferred units, if any, which are entitled to share in the net profits of the operating partnership beyond, or in lieu of, the receipt of any preferred return. Liquidating distributions will generally be made in the same manner and amounts as operating distributions. The operating partnership agreement also provides that as general partner we have the right to amend the distribution provisions of the operating partnership agreement to reflect the issuance of additional classes of units.
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Operations
The operating partnership agreement requires that the operating partnership be operated in a manner that will:
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satisfy the requirements for our classification as a REIT;
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avoid any federal income or excise tax liability, unless we otherwise cease to qualify as a REIT; and
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ensure that the operating partnership will not be classified as a publicly traded partnership under the Internal Revenue Code.
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Pursuant to the operating partnership agreement, the operating partnership will assume and pay when due or reimburse us for payment of all administrative and operating costs and expenses incurred by the operating partnership and the administrative costs and expenses that we incur on behalf of, or for the benefit of, the operating partnership.
Limited Partner Exchange Rights
Pursuant to the terms of the operating partnership agreement and subject to the conditions in the operating partnership agreement, each holder of a limited partnership common unit (but not the holder of the special general partner units) will have the right, commencing one year from the issuance of the limited partner common units (except in connection with a business combination), to have all or any portion of his or her units exchanged for cash equal to the has an aggregate market price as of the date of exchange equal to the net equity value of the property or properties as of the date of exchange of the property or properties he or she
contributed. However, at our option, we may satisfy the exchange right by delivering a number of shares which has an aggregate market price as of the date of exchange equal to the net equity value of the property or properties he or she contributed. We will make the decision to exercise our right to deliver exchange cash in lieu of shares on a case by case basis at our sole and absolute discretion. The limited partnership units exchanged for cash or common stock will augment our ownership percentage in the operating partnership. See Extraordinary Transactions in this section for a description of exchange rights in connection with mergers and other major transactions. However, no limited partner may exchange any limited partnership units for shares at any time if the limited partners actual or constructive ownership of our common stock would:
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violate the 9.8% ownership limit;
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result in our being closely held within the meaning of Section 856(h) of the Internal Revenue Code;
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in the opinion of our counsel, cause us to no longer qualify, or create a material risk that we would no longer qualify, as a REIT; or
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cause the acquisition of common stock by the limited partner to be integrated with any other distribution of common stock for purposes of complying with the registration provisions of the Securities Act of 1933.
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Any common stock issued to the limited partners upon exchange of their respective limited partnership units may be sold only pursuant to an effective registration statement under the Securities Act of 1933 or pursuant to an available exemption from registration. We expect to grant holders of partnership interests registration rights for such shares of common stock. See Shares Eligible for Future Sale Exchange Rights and Registration Rights. The interest represented by the limited partnership units exchanged for cash or common stock will augment our ownership percentage interest in the operating
partnership. The cash necessary to exchange limited partnership units will come from any funds legally available to us or the operating partnership. However, specific funds will not be specially set aside for such purposes, nor will an accounting reserve be established for it. The necessary cash to satisfy the exchange right could come from cash flow not required to be distributed to stockholders to maintain our REIT status, fund operations or acquire new properties, or could come from borrowings. However, as explained above, we always have the option to satisfy the exchange right by the issuance of common stock, and we intend to reserve common stock for that purpose. We will make the decision to exercise our right to satisfy the exchange right by paying to the
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holder the exchange price or common stock having an aggregate market price on the date the holder exercises the exchange right equal to the exchange price for all units being exchanged on a case by case basis in our sole and absolute discretion.
In the event of termination of the advisory agreement by our board of directors or stockholders, Lightstone SLP, LLC, which is controlled by our sponsor, will receive cash, in an amount equal to the purchase price of the special general partner interests that it received.
As general partner, we will have the right to grant similar exchange rights to holders of other classes of units, if any, in the operating partnership, and to holders of equity interests in the entities that own our properties.
Exercise of exchange rights will be a taxable transaction in which gain or loss will be recognized by the limited partner exercising its right to exchange its units into common stock to the extent that the amount realized exceeds the limited partners adjusted basis in the units exchanged. See Material U.S. Federal Income Tax Considerations Tax Aspects of Investments in Partnerships and Tax Consequences of Exercise of Exchange Right.
Tax Matters
Pursuant to the operating partnership agreement, we will be the tax matters partner of the operating partnership and, as such, will have authority to make tax decisions under the Internal Revenue Code on behalf of the operating partnership. Tax income and loss will generally be allocated in a manner that reflects the entitlement of the general partner, limited partners and special general partner to receive distributions from the operating partnership. For a description of other tax consequences stemming from our investment in the operating partnership, see Material U.S. Federal Income Tax Considerations Tax Aspects of
Investments in Partnerships.
Duties and Conflicts
Except as otherwise set forth under Conflicts of Interest and Management, any limited partner may engage in other business activities outside the operating partnership, including business activities that directly compete with the operating partnership.
Term
The operating partnership will continue in full force and effect until December 31, 2099 or until sooner dissolved and terminated upon (1) our dissolution, bankruptcy, insolvency or termination, (2) the sale or other disposition of all or substantially all of the assets of the operating partnership unless we, as general partner, elect to continue the business of the operating partnership to collect the indebtedness or other consideration to be received in exchange for the assets of the operating partnership, or (3) by operation of law.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discusses the material U.S. federal income tax considerations associated with our qualification and taxation as a REIT and the acquisition, ownership and disposition of our shares of common stock. This discussion is based upon the laws, regulations, and reported judicial and administrative rulings and decisions in effect as of the date of this prospectus, all of which are subject to change, retroactively or prospectively, and to possibly differing interpretations. This discussion does not purport to deal with the U.S. federal income and other tax consequences applicable to all investors in light of their particular investment or other
circumstances, or to all categories of investors, some of whom may be subject to special rules (for example, insurance companies, entities treated as partnerships for U.S. federal income tax purposes and investors therein, trusts, financial institutions and broker-dealers and, except to the extent discussed below, tax-exempt organizations and Non-U.S. Stockholders, as defined below). No ruling on the U.S. federal, state, or local tax considerations relevant to our operation or to the purchase, ownership or disposition of our shares, has been requested from the Internal Revenue Service, or IRS, or other tax authority. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.
This summary is also based upon the assumption that the operation of the company, and of its subsidiaries and other lower-tier and affiliated entities, will in each case be in accordance with its applicable organizational documents or partnership agreements. This summary does not discuss the impact that U.S. state and local taxes and taxes imposed by non-U.S. jurisdictions could have on the matters discussed in this summary. In addition, this summary assumes that security holders hold our common stock as a capital asset, which generally means as property held for investment.
Prospective investors are urged to consult their tax advisors in order to determine the U.S. federal, state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our shares, the tax treatment of a REIT and the effect of potential changes in the applicable tax laws.
Beginning with our taxable year ending December 31, 2006, we elected to be taxed as a REIT under the applicable provisions of the Code and the Treasury Regulations promulgated thereunder and have received the beneficial income tax treatment described below. We intend to continue operating as a REIT so long as our board determines that REIT qualification remains advantageous to us. However, we cannot assure you that we will meet the applicable requirements under U.S. federal income tax laws, which are highly technical and complex.
In brief, a corporation that complies with the provisions in Sections 856 through 860 of the Code, and qualifies as a REIT generally is not taxed on its net taxable income to the extent such income is currently distributed to stockholders, thereby completely or substantially eliminating the double taxation that a corporation and its stockholders generally bear together. However, as discussed in greater detail below, a corporation could be subject to U.S. federal income tax in some circumstances even if it qualifies as a REIT and would likely suffer adverse consequences, including reduced cash available for distribution to its
stockholders, if it failed to qualify as a REIT.
Proskauer Rose LLP has acted as our tax counsel in connection with this registration statement. Proskauer Rose LLP is of the opinion that (i) commencing with our taxable year ended on December 31, 2006, we have been organized in conformity with the requirements for qualification as a REIT, and our actual method of operation through the date hereof has enabled and, assuming that our election to be treated as a REIT is not either revoked or intentionally terminated, our proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the Code, and (ii) our operating partnership has been and
will continue to be taxed as a partnership and not an association or publicly traded partnership (within the meaning of Section 7704 of the Code) subject to tax as a corporation, for U.S. federal income tax purposes beginning with its first taxable year. This opinion has been filed as an exhibit to the registration statement of which this prospectus is a part, and is based and conditioned, in part, on various assumptions and representations as to factual matters and covenants made to Proskauer Rose LLP by us and based upon certain terms and conditions set forth in the opinion. Our qualification as a REIT depends upon our ability to meet, through operation of the properties we acquire and our investment in other assets, the applicable requirements under U.S. federal income tax laws. Proskauer Rose LLP has not reviewed
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these operating results for compliance with the applicable requirements under U.S. federal income tax laws. Therefore, we cannot assure you that our actual operating results allow us to satisfy the applicable requirements to qualify as a REIT under U.S. federal income tax laws in any taxable year.
General
The term REIT taxable income means the taxable income as computed for a corporation which is not a REIT:
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without the deductions allowed by Code Sections 241 through 247, and 249 (relating generally to the deduction for dividends received);
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excluding amounts equal to: the net income from foreclosure property and the net income derived from prohibited transactions;
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deducting amounts equal to: the net loss from foreclosure property, the net loss derived from prohibited transactions, the tax imposed by Code Section 857(b)(5) upon a failure to meet the 95% and/or the 75% gross income tests, the tax imposed by Code Section 856(c)(7)(C) upon a failure to meet the quarterly asset tests, the tax imposed by Code Section 856(g)(5) for otherwise avoiding REIT disqualification, and the tax imposed by Code Section 857(b)(7) on redetermined rents, redetermined deductions and excess interest;
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deducting the amount of dividends paid under Code Section 561, computed without regard to the amount of the net income from foreclosure property (which is excluded from REIT taxable income); and
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without regard to any change of annual accounting period pursuant to Code Section 443(b).
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In any year in which we qualify as a REIT and have a valid election in place, we will claim deductions for the dividends we pay to the stockholders, and therefore will not be subject to U.S. federal income tax on that portion of our taxable income or capital gain which is distributed to our stockholders.
Although we can eliminate or substantially reduce our U.S. federal income tax liability by maintaining our REIT qualification and paying sufficient dividends, we will be subject to U.S. federal tax in the following circumstances:
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We will be taxed at normal corporate rates on any undistributed REIT taxable income or net capital gain.
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If we fail to satisfy either the 95% Gross Income Test or the 75% Gross Income Test (each of which is described below), but our failure is due to reasonable cause and not willful neglect, and we therefore maintain our REIT qualification, we will be subject to a tax equal to the product of (a) the amount by which we failed the 75% or 95% Test (whichever amount is greater) multiplied by (b) a fraction intended to reflect our profitability.
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We will be subject to an excise tax if we fail to currently distribute sufficient income. In order to make the required distribution with respect to a calendar year, we must distribute the sum of (1) 85% of our REIT ordinary income for the calendar year, (2) 95% of our REIT capital gain net income for the calendar year, and (3) the excess, if any, of the grossed up required distribution (as defined in the Code) for the preceding calendar year over the distributed amount for that preceding calendar year. Any excise tax liability would be equal to 4% of the difference between the amount required to be distributed under this formula and the amount actually distributed and would not be deductible by us.
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We may be subject to the corporate alternative minimum tax on our items of tax preference, including any deductions of net operating losses.
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If we have net income from prohibited transactions such income would be subject to a 100% tax. See the section entitled REIT Qualification Tests Prohibited Transactions below.
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We will be subject to U.S. federal income tax at the highest corporate rate on any non-qualifying income from foreclosure property, although we will not own any foreclosure property unless we make loans or accept purchase money notes secured by interests in real property and foreclose on the property following a default on the loan, or foreclose on property pursuant to a default on a lease.
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If we fail to satisfy any of the REIT asset tests, as described below, other than a failure of the 5% or 10% REIT assets tests that does not exceed a statutory de minimis amount as described more fully below, but our failure is due to reasonable cause and not due to willful neglect and we nonetheless maintain our REIT qualification because of specified cure provisions, we will be required to pay a tax equal to the greater of $50,000 or the highest corporate tax rate (currently 35%) of the net income generated by the non-qualifying assets during the period in which we failed to satisfy the asset tests.
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If we fail to satisfy any other provision of the Code that would result in our failure to qualify as a REIT (other than a gross income or asset test requirement) and that violation is due to reasonable cause, we may retain our REIT qualification, but we will be required to pay a penalty of $50,000 for each such failure.
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We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record-keeping requirements intended to monitor our compliance with rules relating to the composition of our stockholders.
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If we acquire any asset from a corporation that is subject to full corporate-level U.S. federal income tax in a transaction in which our basis in the asset is determined by reference to the transferor corporations basis in the asset, and we recognize gain on the disposition of such an asset during the 10-year period beginning on the date we acquired such asset, then the excess of the fair market value as of the beginning of the applicable recognition period over our adjusted basis in such asset at the beginning of such recognition period will be subject to U.S. federal income tax at the highest regular corporate U.S. federal income tax rate. The results described in this paragraph assume that the non-REIT corporation will not elect, in lieu of this treatment, to be subject to an immediate tax when the asset is acquired by us.
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A 100% tax may be imposed on transactions between us and a TRS that do not reflect arms-length terms.
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The earnings of our subsidiaries that are C corporations, including any subsidiary we may elect to treat as a TRS will generally be subject to U.S. federal corporate income tax.
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We may elect to retain and pay income tax on our net capital gain. In that case, a stockholder would include his, her or its proportionate share of our undistributed net capital gain (to the extent we make a timely designation of such gain to the stockholder) in his, her or its income as long-term capital gain, would be deemed to have paid the tax that we paid on such gain, and would be allowed a credit for his, her or its proportionate share of the tax deemed to have been paid, and an adjustment would be made to increase the stockholders basis in our common stock. Stockholders that are U.S. corporations will also appropriately adjust their earnings and profits for the retained capital gain in accordance with Treasury Regulations to be promulgated.
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In addition, notwithstanding our qualification as a REIT, we and our subsidiaries may be subject to a variety of taxes, including state and local and foreign income, property, payroll and other taxes on our assets and operations. We could also be subject to tax in situations and on transactions not presently contemplated.
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REIT Qualification Tests
The Code defines a REIT as a corporation, trust or association:
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that is managed by one or more trustees or directors;
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the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;
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that would be taxable as a domestic corporation but for its qualification as a REIT;
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that is neither a financial institution nor an insurance company;
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that meets the gross income, asset and annual distribution requirements;
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the beneficial ownership of which is held by 100 or more persons on at least 335 days in each full taxable year, proportionately adjusted for a short taxable year;
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generally in which, at any time during the last half of each taxable year, no more than 50% in value of the outstanding stock is owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include specified entities);
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that makes an election to be taxable as a REIT for the current taxable year, or has made this election for a previous taxable year, which election has not been revoked or terminated, and satisfies all relevant filing and other administrative requirements established by the IRS that must be met to maintain qualification as a REIT; and
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that uses a calendar year for U.S. federal income tax purposes.
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The first five conditions must be met during each taxable year for which REIT qualification is sought, while the sixth and seventh conditions do not have to be met until after the first taxable year for which a REIT election is made. We have adopted December 31 as our year end, thereby satisfying the last condition.
Although the 25% Asset Test (as defined below) generally prevents a REIT from owning more than 10% of the stock, by vote or value, of an entity other than another REIT, the Code provides an exception for ownership of stock in a qualified REIT subsidiary and in a TRS. A qualified REIT subsidiary is a corporation that is wholly owned by a REIT, and that it is not a TRS. For purposes of the Asset Tests and Gross Income Tests (each as defined below), all assets, liabilities and tax attributes of a qualified REIT subsidiary are treated as belonging to the REIT. A qualified REIT subsidiary is not subject to U.S. federal income tax, but may be subject to
state or local tax. Although we expect to hold most of our investments through our operating partnership, we may hold some investments through qualified REIT subsidiaries. A TRS is described in the section entitled 25% Asset Test below. With respect to the operating partnership, an entity taxed as a partnership is not subject to U.S. federal income tax, and instead allocates its tax attributes to its partners. The partners are subject to U.S. federal income tax on their allocable share of the income and gain, without regard to whether they receive distributions from the partnership. Each partners share of a partnerships tax attributes generally is determined in accordance with the partnership agreement. For purposes of the Asset and Gross Income Tests, we will be deemed to own a proportionate share (based on our capital interest) of the assets of the operating partnership and we will be allocated a proportionate share of each item of gross income of the
operating partnership.
In satisfying the tests described above, we must meet, among others, the following requirements:
Share Ownership Tests.
The common stock and any other stock we issue must be held by a minimum of 100 persons (determined without attribution to the owners of any entity owning our stock) for at least 335 days in each full taxable year, proportionately adjusted for partial taxable years. In addition, we cannot be closely held, which means that at all times during the second half of each taxable year, no more than 50% in value of our stock may be owned, directly or indirectly, by five or fewer individuals (determined by applying certain attribution rules under the Code to the owners of any entity owning our stock) as
specifically defined for this purpose.
Our charter contains certain provisions intended to enable us to meet the sixth and seventh requirement above. First, subject to certain exceptions, our charter provides that no person may beneficially or
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constructively own (applying certain attribution rules under the Code) more than 9.8% in value in the aggregate of our outstanding shares of capital stock, as well as in certain other circumstances. See the section entitled Description of Securities -- Restrictions on Ownership and Transfer in this prospectus. Additionally, the distribution reinvestment program as well as the terms of the options granted to the independent directors contain provisions that prevent them from causing a violation of these tests. Our charter also contains provisions requiring each holder of our shares to disclose, upon demand, constructive or beneficial
ownership of shares as deemed necessary to comply with the requirements of the Code. Furthermore, stockholders failing or refusing to comply with our disclosure request will be required, under Treasury Regulations promulgated under the Code, to submit a statement of such information to the IRS at the time of filing their annual income tax returns for the year in which the request was made.
Asset Tests.
At the close of each calendar quarter of the taxable year, we must satisfy four tests based on the composition of our assets, or the Asset Tests. After initially meeting the Asset Tests at the close of any quarter, we will not lose our qualification as a REIT for failure to satisfy the Asset Tests at the end of a later quarter solely due to changes in value of our assets. In addition, if the failure to satisfy the Asset Tests results from an acquisition during a quarter, the failure generally can be cured by disposing of non-qualifying assets within 30 days after the close of that quarter. We intend to maintain adequate
records of the value of our assets to ensure compliance with these tests and will act within 30 days after the close of any quarter as may be required to cure any noncompliance.
75% Asset Test.
At least 75% of the value of our assets must be represented by real estate assets, cash, cash items (including receivables) and government securities, which we refer to as the 75% Asset Test. Real estate assets include (1) real property (including interests in real property and interests in mortgages on real property), (2) shares in other qualifying REITs and (3) any property (not otherwise a real estate asset) attributable to the temporary investment of new capital in stock or a debt instrument, but only for the one-year period beginning on the date we received the new capital. Property will
qualify as being attributable to the temporary investment of new capital if the money used to purchase the stock or debt instrument is received by us in exchange for our stock (other than amounts received pursuant to our distribution reinvestment program) or in a public offering of debt obligations that have a maturity of at least five years. Assets that do not qualify for purposes of the 75% test are subject to the additional asset tests described below under 25% Asset Test.
We are currently invested in the real properties described in the Real Property Investments section of this prospectus. We anticipate that substantially all of our gross income will be from sources that will allow us to satisfy the income tests described below. Further, our purchase contracts for such real properties will apportion no more than 5% of the purchase price of any property to property other than real property, as defined in the Code. However, there can be no assurance that the IRS will not contest such purchase price allocation. If the IRS were to prevail, resulting in more than 5% of the purchase price of property
being allocated to other than real property, we may be unable to continue to qualify as a REIT under the 75% Asset Test, and also may be subject to additional taxes, as described below. In addition, we intend to invest funds not used to acquire properties in cash sources, new capital investments or other liquid investments which allow us to continue to qualify under the 75% Asset Test. Therefore, our investment in real properties should constitute real estate assets and should allow us to meet the 75% Asset Test.
25% Asset Test.
Except as described below, the remaining 25% of our assets may generally be invested without restriction, which we refer to as the 25% Asset Test. However, if we invest in any securities that do not qualify under the 75% Asset Test, such securities may not exceed either (1) 5% of the value of our assets as to any one issuer; or (2) 10% of the outstanding securities by vote or value of any one issuer. The 10% value test does not apply to certain straight debt and other excluded securities, as described in the Code, including but not limited to any loan to an individual or estate, any obligation to pay
rents from real property and any security issued by a REIT. In addition, a partnership interest held by a REIT is not considered a security for purposes of the 10% value test; instead, the REIT is treated as owning directly its proportionate share of the partnerships assets, which is based on the REITs proportionate interest in any securities issued by the partnership (disregarding for this purpose the general rule that a partnership interest is not a security), but excluding certain securities described in the Code.
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Two modifications apply to the 25% Asset Test for qualified REIT subsidiaries or taxable REIT subsidiaries. As discussed above, the stock of a qualified REIT subsidiary is not counted for purposes of the 25% Asset Test. A qualified REIT subsidiary is a corporation that is wholly owned by a REIT and that is not a TRS. All assets, liabilities and tax attributes of a qualified REIT subsidiary are treated as belonging to the REIT. A qualified REIT subsidiary is not subject to U.S. federal income tax, but may be subject to other taxes. Although we expect to hold all of our investments through the operating partnership, we also may
hold investments separately, through qualified REIT subsidiaries. As described above, a qualified REIT subsidiary must be wholly owned by a REIT. Thus, any such subsidiary utilized by us would have to be owned by us, or another qualified REIT subsidiary, and would not be owned by the operating partnership.
Additionally, a REIT may own the stock of a TRS which is a corporation (other than another REIT) that is owned in whole or in part by a REIT, and joins in an election with the REIT to be classified as a TRS. A corporation that is 35% owned by a TRS also will be treated as a TRS. A TRS may not be a qualified REIT subsidiary, and vice versa. A TRS is subject to full corporate-level tax on its income. As described below regarding the 75% Gross Income Test, a TRS is utilized in much the same way an independent contractor is used to provide types of services without causing the REIT to receive or accrue some types of non-qualifying income. For purposes of
the 25% Asset Test, securities of a TRS are excepted from the 10% vote and value limitations on a REITs ownership of securities of a single issuer. However, no more than 25% of the value of a REIT may be represented by securities of one or more TRSs. In addition to using independent contractors to provide services in connection with the operation of our properties, we also may use TRSs to carry out these functions. We have formed a subsidiary and jointly made the election to cause such subsidiary to be treated as a TRS to facilitate our acquisition of lodging facilities. We may form additional subsidiaries and jointly make the election to cause them to be treated as TRSs to facilitate the acquisition of additional lodging facilities in the future. It is our intention to lease all acquired lodging facilities to such TRSs, or their subsidiaries.
We believe that our holdings of real estate assets and other securities comply with the foregoing REIT asset requirements, and we intend to monitor compliance on an ongoing basis. We may make real estate-related debt investments, provided the underlying real estate meets our criteria for direct investment. A real estate mortgage loan that we own generally will be treated as a real estate asset for purposes of the 75% REIT asset test if, on the date that we acquire or originate the mortgage loan, the value of the real property securing the loan is equal to or greater than the principal amount of the loan.
A REIT is able to cure certain asset test violations. As noted above, a REIT cannot own securities of any one issuer representing more than 5% of the total value of the REITs assets or more than 10% of the outstanding securities, by vote or value, of any one issuer. However, a REIT would not lose its REIT qualification for failing to satisfy these 5% or 10% asset tests in a quarter if the failure is due to the ownership of assets the total value of which does not exceed the lesser of (1) 1% of the total value of the REITs assets at the end of the quarter for which the measurement is done, or (2) $10 million;
provided
in either case
that the REIT either disposes of the assets within six months after the last day of the quarter in which the REIT identifies the failure (or such other time period prescribed by the Treasury), or otherwise meets the requirements of those rules by the end of that period.
If a REIT fails to meet any of the asset test requirements for a quarter and the failure exceeds the de minimis threshold described above, then the REIT still would be deemed to have satisfied the requirements if (1) following the REITs identification of the failure, the REIT files a schedule with a description of each asset that caused the failure, in accordance with regulations prescribed by the Treasury; (2) the failure was due to reasonable cause and not to willful neglect; (3) the REIT disposes of the assets within six months after the last day of the quarter in which the identification occurred or such other time period as is prescribed
by the Treasury (or the requirements of the rules are otherwise met within that period); and (4) the REIT pays a tax on the failure equal to the greater of (1) $50,000, or (2) an amount determined (under regulations) by multiplying (x) the highest rate of tax for corporations under section 11 of the Code, by (y) the net income generated by the assets that caused the failure for the period beginning on the first date of the failure and ending on the date the REIT has disposed of the assets (or otherwise satisfies the requirements).
Gross Income Tests.
For each calendar year, we must satisfy two separate tests based on the composition of our gross income, as defined under our method of accounting, or the Gross Income Tests.
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The 75% Gross Income Test.
At least 75% of our gross income for the taxable year (excluding gross income from prohibited transactions) must result from (i) rents from real property, (ii) interest on obligations secured by mortgages on real property or on interests in real property, (iii) gains from the sale or other disposition of real property (including interests in real property and interests in mortgages on real property) other than property held primarily for sale to customers in the ordinary course of our trade or business, (iv) dividends from other qualifying REITs and gain (other than gain from prohibited transactions) from
the sale of shares of other qualifying REITs, (v) other specified investments relating to real property or mortgages thereon, and (vi) for a limited time, temporary investment income (as described under the 75% Asset Test above). We refer to this requirement as the 75% Gross Income Test. We intend to invest funds not otherwise invested in real properties in cash sources or other liquid investments which will allow us to qualify under the 75% Gross Income Test.
Income attributable to a lease of real property will generally qualify as rents from real property under the 75% Gross Income Test (and the 95% Gross Income Test described below) if such lease is respected as a true lease for U.S. federal income tax purposes (see Characterization of Property Leases) and subject to the rules discussed below.
Rent from a particular tenant will not qualify if we, or an owner of 10% or more of our stock, directly or indirectly, owns 10% or more of the voting stock or the total number of shares of all classes of stock in, or 10% or more of the assets or net profits of, the tenant (subject to certain exceptions). As described below, we expect that amounts received from our TRS, and TRSs we may form to facilitate our acquisition of lodging facilities, will satisfy the conditions of the exception for rents received from a TRS with the result that such amounts will be considered rents from real property.
The portion of rent attributable to personal property rented in connection with real property will not qualify, unless the portion attributable to personal property is 15% or less of the total rent received under, or in connection with, the lease.
Generally, rent will not qualify if it is based in whole, or in part, on the income or profits of any person from the underlying property. However, rent will not fail to qualify if it is based on a fixed percentage (or designated varying percentages) of receipts or sales, including amounts above a base amount so long as the base amount is fixed at the time the lease is entered into, the provisions are in accordance with normal business practice and the arrangement is not an indirect method for basing rent on income or profits.
If a REIT operates or manages a property or furnishes or renders certain impermissible services to the tenants at the property, and the income derived from the services exceeds 1% of the total amount received by that REIT with respect to the property, then no amount received by the REIT with respect to the property will qualify as rents from real property. Impermissible services are services other than services usually or customarily rendered in connection with the rental of real property and not otherwise considered rendered to the occupant. For these purposes, the income that a REIT is considered to
receive from the provision of impermissible services will not be less than 150% of the cost of providing the service. If the amount so received is 1% or less of the total amount received by us with respect to the property, then only the income from the impermissible services will not qualify as rents from real property. However, this rule generally will not apply if such services are provided to tenants through an independent contractor from whom we derive no revenue, or though a TRS. With respect to this rule, tenants will receive some services in connection with their leases of the real properties. Our intention is that the services to be provided are those usually or customarily rendered in connection with the rental of space, and therefore, providing these services will not cause the rents received with respect to the properties to fail to qualify as rents from real property for purposes of the 75% Gross Income Test (and the 95% Gross Income Test described
below). The board of directors intends to hire qualifying independent contractors or to utilize our TRSs to render services which it believes, after consultation with our tax advisors, are not usually or customarily rendered in connection with the rental of space.
In addition, we have represented that, with respect to our leasing activities, we will not (1) charge rent for any property that is based in whole or in part on the income or profits of any person (excluding rent based
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on a percentage of receipts or sales, as described above), (2) charge rent that will be attributable to personal property in an amount greater than 15% of the total rent received under the applicable lease, or (3) enter into any lease with a related party tenant.
Amounts received as rent from a TRS are not excluded from rents from real property by reason of the related party rules described above, if the activities of the TRS and the nature of the properties it leases meet certain requirements. Generally, amounts received by us from our TRSs with respect to any lodging facilities we own will be considered rents from real property only if the following conditions are met:
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Each lodging facility must not be managed or operated by us or the TRS to which it is leased, but rather must be managed or operated by an eligible independent contractor that qualifies for U.S. federal tax purposes as an independent contractor that is actively engaged in the trade or business of operating lodging facilities for persons not related to us or the TRS. The test for such independent contractors eligibility is made at the time the independent contractor enters into a management agreement or other similar service contract with the TRS to operate the lodging facility;
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The lodging facility is a (i) hotel, (ii) motel or (iii) other establishment, more than one-half of the dwelling units in which are used on a transient basis. A dwelling unit is generally understood to be used on a transient basis if, for more than one half of the days in which such unit is used on a rental basis during a taxable year, it is used by a tenant or series of tenants each of whom uses the unit for less than thirty days;
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The TRS may not directly or indirectly provide to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility is operated, except with respect to an independent contractor in relation to facilities it manages for or leases from us; and
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No wagering activities may be conducted at or in connection with our lodging facilities by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business.
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We expect that all lodging facilities we have acquired, or will acquire, will be operated in accordance with these requirements with the result that amounts received from a TRS will be considered rents from real property. The TRSs will pay regular corporate rates on any income they earn from the lease of our lodging facilities, as well as any other income they earn. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. Further, the rules impose a 100% excise tax on transactions between a TRS and its parent REIT or the
REITs tenants whose terms are not on an arms-length basis.
It is possible that we will be paid interest on loans secured by real property. All interest income qualifies under the 95% Gross Income Test, and interest on loans secured by real property qualifies under the 75% Gross Income Test,
provided
in both cases, that the interest does not depend, in whole or in part, on the income or profits of any person (excluding amounts based on a fixed percentage of receipts or sales). If a loan is secured by both real property and other property, the interest on it may nevertheless qualify under the 75% Gross Income Test if the amount of the loan does not exceed the fair market value of the real property at
the time of the loan commitment. All of our loans secured by real property will be structured this way. Therefore, income generated through any investments in loans secured by real property should be treated as qualifying income under the 75% Gross Income Test.
The 95% Gross Income Test.
In addition to deriving 75% of our gross income from the sources listed above, at least 95% of our gross income (excluding gross income from prohibited transactions) for the taxable year must be derived from (i) sources which satisfy the 75% Gross Income Test, (ii) dividends, (iii) interest, or (iv) gain from the sale or disposition of stock or other securities that are not assets held primarily for sale to customers in the ordinary course of our trade or business. We refer to this requirement as the 95% Gross Income Test. It is important to note that dividends and interest on obligations not
collateralized by an interest in real property qualify under the 95% Gross Income Test, but not under the 75% Gross Income Test. We intend to invest funds not otherwise invested in properties in cash sources or other liquid investments which will allow us to qualify under the 95% Gross Income Test.
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Our share of income from the properties will primarily give rise to rental income and gains on sales of the properties, substantially all of which will generally qualify under the 75% Gross Income and 95% Gross Income Tests. Our anticipated operations indicate that it is likely that we will have little or no non-qualifying income to cause adverse U.S. federal income tax consequences.
As described above, we have established a TRS with which we have entered into leases for lodging facilities we have invested in and may establish additional TRSs in the future with which we could enter into similar arrangements. The gross income generated by our TRSs is not be included in our gross income. However, we realize gross income from these subsidiaries in the form of rents. In addition, any dividends from our TRSs to us are included in our gross income and qualify for the 95% Gross Income Test, but not the 75% Gross Income Test.
If we fail to satisfy either the 75% Gross Income or 95% Gross Income Tests for any taxable year, we may retain our qualification as a REIT for such year if we satisfy the IRS that (i) the failure was due to reasonable cause and not due to willful neglect, (ii) we attach to our return a schedule describing the nature and amount of each item of our gross income, and (iii) any incorrect information on such schedule was not due to fraud with intent to evade U.S. federal income tax. If this relief provision is available, we would remain subject to tax equal to the greater of the amount by which we failed the 75% Gross Income Test or the 95% Gross Income
Test, as applicable, multiplied by a fraction meant to reflect our profitability.
Annual Distribution Requirements.
In addition to the other tests described above, we are required to distribute dividends (other than capital gain dividends) to our stockholders each year in an amount at least equal to the excess of: (1) the sum of: (a) 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and by excluding any net capital gain); and (b) 90% of the net income (after tax) from foreclosure property; less (2) the sum of some types of items of non-cash income. Whether sufficient amounts have been distributed is based on amounts paid in the taxable year to which they relate, or in
the following taxable year if we: (1) declared a dividend before the due date of our tax return (including extensions); (2) distribute the dividend within the 12-month period following the close of the taxable year (and not later than the date of the first regular dividend payment made after such declaration); and (3) file an election with our tax return. Additionally, dividends that we declare in October, November or December in a given year payable to stockholders of record in any such month will be treated as having been paid on December 31st of that year so long as the dividends are actually paid during January of the following year. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be preferential dividends. A dividend is not a preferential dividend if the distribution is (1) pro rata among all outstanding shares of stock within a
particular class, and (2) in accordance with the preferences among different classes of stock as set forth in our organizational documents. If we fail to meet the annual distribution requirements as a result of an adjustment to our U.S. federal income tax return by the IRS, or under certain other circumstances, we may cure the failure by paying a deficiency dividend (plus penalties and interest to the IRS) within a specified period.
If we do not distribute 100% of our REIT taxable income, we will be subject to U.S. federal income tax on the undistributed portion. We also will be subject to an excise tax if we fail to currently distribute sufficient income. In order to make the required distribution with respect to a calendar year and avoid the excise tax, we must distribute the sum of (1) 85% of our REIT ordinary income for the calendar year, (2) 95% of our REIT capital gain net income for the calendar year, and (3) the excess, if any, of the grossed up required distribution (as defined in the Code) for the preceding calendar year over the distributed amount for that
preceding calendar year. Any excise tax liability would be equal to 4% of the difference between the amount required to be distributed and the amount actually distributed and would not be deductible by us.
We intend to pay sufficient dividends each year to satisfy the annual distribution requirements and avoid U.S. federal income and excise taxes on our earnings; however, it may not always be possible to do so. It is possible that we may not have sufficient cash or other liquid assets to meet the annual distribution requirements due to tax accounting rules and other timing differences.
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We will closely monitor the relationship between our REIT taxable income and cash flow, and if necessary to comply with the annual distribution requirements, will attempt to borrow funds to fully provide the necessary cash flow or to pay dividends in the form of taxable in-kind distributions of property, including taxable stock dividends.
Failure to Qualify.
If we fail to qualify, for U.S. federal income tax purposes, as a REIT in any taxable year, we may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements. If the applicable relief provisions are not available or cannot be met, we will not be able to deduct our dividends and will be subject to U.S. federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates, thereby reducing cash available for distributions. In
such event, all distributions to stockholders (to the extent of our current and accumulated earnings and profits) will be taxable as ordinary dividend income. This double taxation results from our failure to qualify as a REIT. Unless entitled to relief under specific statutory provisions, we will not be eligible to elect REIT qualification for the four taxable years following the year during which qualification was lost.
Recordkeeping Requirements.
We are required to maintain records and request on an annual basis information from specified stockholders. These requirements are designed to assist us in determining the actual ownership of our outstanding stock and maintaining our qualification as a REIT.
Prohibited Transactions.
As discussed above, we will be subject to a 100% U.S. federal income tax on any net income derived from prohibited transactions. Net income derived from prohibited transactions arises from the sale or exchange of property held for sale to customers in the ordinary course of our business which is not foreclosure property. There is an exception to this rule for the sale of property that:
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is a real estate asset under the 75% Asset Test;
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generally has been held for at least two years;
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has aggregate expenditures which are includable in the basis of the property not in excess of 30% of the net selling price;
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in some cases, was held for production of rental income for at least two years;
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in some cases, substantially all of the marketing and development expenditures were made through an independent contractor; and
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when combined with other sales in the year, either does not cause the REIT to have made more than seven sales of property during the taxable year (excluding sales of foreclosure property or in connection with an involuntary conversion) or occurs in a year when the REIT disposes of less than 10% of its assets (measured by U.S. federal income tax basis or fair market value, and ignoring involuntary dispositions and sales of foreclosure property).
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Although we will eventually sell each of the properties, our primary intention in acquiring and operating the properties is the production of rental income and we do not expect to hold any property for sale to customers in the ordinary course of our business. The 100% tax will not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate income tax rates. As a general matter, any condominium conversions we might undertake must satisfy these restrictions to avoid being prohibited transactions, which will
limit the annual number of transactions.
Characterization of Property Leases.
We may purchase either new or existing properties and lease them to tenants. We currently intend to structure our leases so that they qualify as true leases for U.S. federal income tax purposes. For example, with respect to each lease, we generally expect that:
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our operating partnership and the lessee will intend for their relationship to be that of a lessor and lessee, and such relationship will be documented by a lease agreement;
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the lessee will have the right to exclusive possession and use and quiet enjoyment of the properties covered by the lease during the term of the lease;
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the lessee will bear the cost of, and will be responsible for, day-to-day maintenance and repair of the properties other than the cost of certain capital expenditures, and will dictate through the property managers, who will work for the lessee during the terms of the leases, and how the properties will be operated and maintained;
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the lessee will bear all of the costs and expenses of operating the properties, including the cost of any inventory used in their operation, during the term of the lease, other than the cost of certain furniture, fixtures and equipment, and certain capital expenditures;
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the lessee will benefit from any savings and will bear the burdens of any increases in the costs of operating the properties during the term of the lease;
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in the event of damage or destruction to a property, the lessee will be at economic risk because it will bear the economic burden of the loss in income from operation of the properties subject to the right, in certain circumstances, to terminate the lease if the lessor does not restore the property to its prior condition;
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the l
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ssee will indemnify the lessor against all liabilities imposed on the lessor during the term of the lease by reason of (A) injury to persons or damage to property occurring at the properties or (B) the lessees use, management, maintenance or repair of the properties;
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the lessee will be obligated to pay, at a minimum, substantial base rent for the period of use of the properties under the lease;
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the lessee will stand to incur substantial losses or reap substantial gains depending on how successfully it, through the property managers, who work for the lessees during the terms of the leases, operates the properties;
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we expect that each lease that we enter into, at the time we enter into it (or at any time that any such lease is subsequently renewed or extended) will enable the tenant to derive a meaningful profit, after expenses and taking into account the risks associated with the lease, from the operation of the properties during the term of its leases; and
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upon termination of each lease, the applicable property will be expected to have a remaining useful life equal to at least 20% of its expected useful life on the date the lease is entered into, and a fair market value equal to at least 20% of its fair market value on the date the lease was entered into.
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If, however, the IRS were to recharacterize our leases as service contracts or partnership agreements, rather than true leases, or disregarded altogether for tax purposes, all or part of the payments that we receive from the lessees would not be considered rent and would not otherwise satisfy the various requirements for qualification as rents from real property. In that case, we might not be able to satisfy either the 75% or 95% gross income tests and, as a result, could lose our REIT qualification.
Tax Aspects of Investments in Partnerships
General.
We anticipate holding direct or indirect interests in one or more partnerships, including the operating partnership. We intend to operate as an Umbrella Partnership REIT, or UPREIT, which is a structure whereby we would own a direct interest in the operating partnership, and the operating partnership would, in turn, own the properties and may possibly own interests in other non-corporate entities that own properties. Such non-corporate entities would generally be organized as limited liability companies, partnerships or trusts and would either be disregarded for U.S. federal income tax purposes (if the operating partnership
were the sole owner) or treated as partnerships for U.S. federal income tax purposes.
The following is a summary of the U.S. federal income tax consequences of our investment in the operating partnership. This discussion should also generally apply to any investment by us in a property partnership or other non-corporate entity.
A partnership (that is not a publicly traded partnership taxed as a corporation) is not subject to tax as an entity for U.S. federal income tax purposes. Rather, partners are allocated their allocable share of the items of income, gain, loss, deduction and credit of the partnership, and are potentially subject to tax thereon, without regard to whether the partners receive any distributions from the partnership. We will be required to take into
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account our allocable share of the foregoing items for purposes of the various REIT gross income and asset tests, and in the computation of our REIT taxable income and U.S. federal income tax liability. Further, there can be no assurance that distributions from the operating partnership will be sufficient to pay the tax liabilities resulting from an investment in the operating partnership.
Generally, an entity with two or more members formed as a partnership or limited liability company under state law will be taxed as a partnership for U.S. federal income tax purposes unless it specifically elects otherwise. Because the operating partnership was formed as a partnership under state law and will have two or more partners, the operating partnership will be treated as a partnership for U.S. federal income tax purposes. We presently intend that interests in the operating partnership (and any partnership invested in by the operating partnership) will fall within one of the safe harbors for the partnership to avoid being
classified as a publicly traded partnership. However, our ability to satisfy the requirements of some of these safe harbors depends on the results of actual operations and accordingly no assurance can be given that any such partnership will at all times satisfy one of such safe harbors. We reserve the right to not satisfy any safe harbor. Even if a partnership is a publicly traded partnership, it generally will not be treated as a corporation if at least 90% of its gross income each taxable year is from certain sources, which generally include rents from real property and other types of passive income. We believe that our operating partnership has had and will have sufficient qualifying income so that it would be taxed as a partnership, even if it were treated as a publicly traded partnership.
If for any reason the operating partnership (or any partnership invested in by the operating partnership) is taxable as a corporation for U.S. federal income tax purposes, the character of our assets and items of gross income would change, and as a result, we would most likely be unable to satisfy the applicable REIT requirements under U.S. federal income tax laws discussed above. In addition, any change in the status of any partnership may be treated as a taxable event, in which case we could incur a tax liability without a related cash distribution. Further, if any partnership was treated as a corporation, items of income, gain, loss, deduction and
credit of such partnership would be subject to corporate income tax, and the partners of any such partnership would be treated as stockholders, with distributions to such partners being treated as dividends.
Anti-abuse Treasury Regulations have been issued under the partnership provisions of the Code that authorize the IRS, in some abusive transactions involving partnerships, to disregard the form of a transaction and recast it as it deems appropriate. The anti-abuse regulations apply where a partnership is utilized in connection with a transaction (or series of related transactions) with a principal purpose of substantially reducing the present value of the partners aggregate U.S. federal tax liability in a manner inconsistent with the intent of the partnership provisions. The anti-abuse regulations contain an example in which a REIT contributes
the proceeds of a public offering to a partnership in exchange for a general partnership interest. The limited partners contribute real property assets to the partnership, subject to liabilities that exceed their respective aggregate bases in such property. The example concludes that the use of the partnership is not inconsistent with the intent of the partnership provisions, and thus, cannot be recast by the IRS. However, the anti-abuse regulations are extraordinarily broad in scope and are applied based on an analysis of all the facts and circumstances. As a result, we cannot assure you that the IRS will not attempt to apply the anti-abuse regulations to us. Any such action could potentially jeopardize our qualification as a REIT and materially affect the tax consequences and economic return resulting from an investment in us.
Income Taxation of the Partnerships and their Partners.
Although a partnership agreement will generally determine the allocation of a partnerships income and losses among the partners, such allocations may be disregarded for U.S. federal income tax purposes under Section 704(b) of the Code and the Treasury Regulations. If any allocation is not recognized for U.S. federal income tax purposes, the item subject to the allocation will be reallocated in accordance with the partners economic interests in the partnership. We believe that the allocations of taxable income and loss in the operating partnership agreement comply
with the requirements of Section 704(b) of the Code and the Treasury Regulations. For a description of allocations by the operating partnership to the partners, see the section entitled Our Operating Partnership and the Partnership Agreement in this prospectus.
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In some cases, special allocations of net profits or net losses will be required to comply with the U.S. federal income tax principles governing partnership tax allocations. Additionally, pursuant to Section 704(c) of the Code, income, gain, loss and deduction attributable to property contributed to the operating partnership in exchange for units must be allocated in a manner so that the contributing partner is charged with, or benefits from, the unrealized gain or loss attributable to the property at the time of contribution. The amount of such unrealized gain or loss is generally equal to the difference between the fair market value and the
adjusted basis of the property at the time of contribution. These allocations are designed to eliminate book-tax differences by allocating to contributing partners lower amounts of depreciation deductions and increased taxable income and gain attributable to the contributed property than would ordinarily be the case for economic or book purposes. With respect to any property purchased by the operating partnership, such property will generally have an initial tax basis equal to its fair market value, and accordingly, Section 704(c) will not apply, except as described further below in this paragraph. The application of the principles of Section 704(c) in tiered partnership arrangements is not entirely clear. Accordingly, the IRS may assert a different allocation method than the one selected by the operating partnership to cure any book-tax differences. In certain circumstances, we create book-tax differences by adjusting the values of properties for economic or book purposes and
generally the rules of Section 704(c) of the Code would apply to such differences as well.
For U.S. federal income tax purposes, our depreciation deductions generally will be computed using the straight-line method. Commercial buildings, structural components and improvements are generally depreciated over 40 years. Shorter depreciation periods apply to other properties. Some improvements to land are depreciated over 15 years. With respect to such improvements, however, taxpayers may elect to depreciate these improvements over 20 years using the straight-line method. For properties contributed to the operating partnership, depreciation deductions are calculated based on the transferors basis and depreciation method. Because
depreciation deductions are based on the transferors basis in the contributed property, the operating partnership generally would be entitled to less depreciation than if the properties were purchased in a taxable transaction. The burden of lower depreciation will generally fall first on the contributing partner, but also may reduce the depreciation allocated to other partners.
Gain on the sale or other disposition of depreciable property is characterized as ordinary income (rather than capital gain) to the extent of any depreciation recapture. Buildings and improvements depreciated under the straight-line method of depreciation are generally not subject to depreciation recapture unless the property was held for less than one year. However, individuals, trusts and estates that hold shares either directly or through a pass-through entity may be subject to tax on the disposition on such assets at a rate of 25% rather than at the normal capital gains rate, to the extent that such assets have been depreciated.
Some expenses incurred in the conduct of the operating partnerships activities may not be deducted in the year they were paid. To the extent this occurs, the taxable income of the operating partnership may exceed its cash receipts for the year in which the expense is paid. As discussed above, the costs of acquiring properties must generally be recovered through depreciation deductions over a number of years. Prepaid interest and loan fees, and prepaid management fees are other examples of expenses that may not be deducted in the year they were paid.
Tax Consequences of Exercise of Exchange Rights.
Subject to some restrictions, the operating partnership agreement gives holders of limited partnership units the right to exchange their units into cash, subject to our right to pay for the units with shares of common stock rather than with cash. The exchange of units into shares is treated as a taxable sale of the units to us on which the unit owners will generally recognize capital gain or loss. To the extent that the unit holders amount realized on the transaction is attributable to the unit holders share of inventory or unrealized receivables of the operating
partnership, such portion may be recharacterized as ordinary income. No gain or loss will be recognized by us. Our basis in the units will be increased by the amount of cash and the market price of the shares used to acquire the units, and will be adjusted to reflect changes in the liabilities of the operating partnership allocated to us as a result of acquiring the units.
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Taxation of U.S. Stockholders
Taxation of Taxable U.S. Stockholders.
For so long as we qualify as a REIT, distributions paid to our U.S. stockholders out of current or accumulated earnings and profits (and not designated as capital gain dividends or, for taxable years beginning before January 1, 2011, qualified dividend income) will be ordinary income. Generally, for purposes of this discussion, a U.S. Stockholder is a person (other than a partnership or entity treated as a partnership for U.S. federal income tax purposes) that is, for U.S. federal income tax purposes:
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an individual citizen or resident of the United States for U.S. federal income tax purposes;
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a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
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a trust if (1) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) the trust has a valid election in effect under current Treasury Regulations to be treated as a U.S. person.
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If a partnership or entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the U.S. federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding our common stock should consult its own tax advisor regarding the U.S. federal income tax consequences to the partner of the acquisition, ownership and disposition of our stock by the partnership.
Distributions in excess of current and accumulated earnings and profits are treated first as a tax-deferred return of capital to the U.S. Stockholder, reducing the U.S. Stockholders tax basis in his or her common stock by the amount of such distribution, and then as capital gain. Because our earnings and profits are reduced for depreciation and other non-cash items, it is possible that a portion of each distribution will constitute a tax-deferred return of capital. Additionally, because distributions in excess of earnings and profits reduce the U.S. Stockholders basis in our stock, this will increase the stockholders gain on any
subsequent sale of the stock.
Distributions that are designated as capital gain dividends will be taxed as long-term capital gain to the extent they do not exceed our actual net capital gain for the taxable year, without regard to the period for which the U.S. Stockholder that receives such distribution has held its stock. However, corporate stockholders may be required to treat up to 20% of some types of capital gain dividends as ordinary income. We also may decide to retain, rather than distribute, our net capital gain and pay any tax thereon. In such instances, U.S. Stockholders would include their proportionate shares of such gain in income as long-term capital gain, receive
a credit on their returns for their proportionate share of our tax payments, and increase the tax basis of their shares of stock by the after-tax amount of such gain.
With respect to U.S. Stockholders who are taxed at the rates applicable to individuals, for taxable years beginning before January 1, 2011, we may elect to designate a portion of our distributions paid to such U.S. Stockholders as qualified dividend income. A portion of a distribution that is properly designated as qualified dividend income is taxable to non-corporate U.S. Stockholders as capital gain, provided that the U.S. Stockholder has held the common stock with respect to which the distribution is made for more than 60 days during the 121 day period beginning on the date that is 60 days before the date on which such common stock
became ex-dividend with respect to the relevant distribution. The maximum amount of our distributions eligible to be designated as qualified dividend income for a taxable year is equal to the sum of:
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(1)
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the qualified dividend income received by us during such taxable year from C corporations (including any TRSs);
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(2)
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the excess of any undistributed REIT taxable income recognized during the immediately preceding year over the U.S. federal income tax paid by us with respect to such undistributed REIT taxable income; and
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(3)
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the excess of any income recognized during the immediately preceding year attributable to the sale of a built-in-gain asset that was acquired in a carry-over basis transaction from a non-REIT corporation or had appreciated at the time our REIT election became effective over the U.S. federal income tax paid by us with respect to such built in gain.
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Generally, dividends that we receive will be treated as qualified dividend income for purposes of (1) above if the dividends are received from a regular, domestic C corporation, such as any TRSs, and specified holding period and other requirements are met.
Dividend income is characterized as portfolio income under the passive loss rules and cannot be offset by a stockholders current or suspended passive losses. Corporate stockholders cannot claim the dividends-received deduction for such dividends unless we lose our REIT qualification. Although U.S. Stockholders generally will recognize taxable income in the year that a distribution is received, any distribution we declare in October, November or December of any year and is payable to a U.S. Stockholder of record on a specific date in any such month will be treated as both paid by us and received by the U.S. Stockholder on December
31st of the year declared if paid by us during January of the following calendar year. Because we are not a pass-through entity for U.S. federal income tax purposes, U.S. Stockholders may not use any of our operating or capital losses to reduce their tax liabilities.
We have the ability to declare a large portion of a dividend in shares of our stock. As long as a portion of such dividend is paid in cash (which portion can be as low as 10% for a REITs taxable years ending on or before December 31, 2011) and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, U.S. Stockholders will be taxed on 100% of the dividend in the same manner as a cash dividend, even though most of the dividend was paid in shares of our stock. In general, any dividend on shares of our preferred stock will be taxable as a dividend, regardless of whether
any portion is paid in stock.
In general, the sale of our common stock held for more than 12 months will produce long-term capital gain or loss. All other sales will produce short-term gain or loss. In each case, the gain or loss is equal to the difference between the amount of cash and fair market value of any property received from the sale and the U.S. Stockholders basis in the common stock sold. However, any loss from a sale or exchange of common stock by a U.S. Stockholder who has held such stock for six months or less generally will be treated as a long-term capital loss, to the extent that the U.S. Stockholder treated our distributions as long-term capital gain. The
use of capital losses is subject to limitations.
For taxable years beginning before January 1, 2011, the maximum tax rate applicable to individuals and certain other noncorporate taxpayers on net capital gain recognized on the sale or other disposition of shares has been reduced from 20% to 15%, and the maximum marginal tax rate payable by them on dividends received from corporations that are subject to a corporate level of tax has been reduced. Except in limited circumstances, as discussed above, this reduced tax rate will not apply to dividends paid by us.
Taxation of Tax-Exempt Stockholders.
U.S. tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt from U.S. federal income taxation. However, they are subject to taxation on their unrelated business taxable income, or UBTI. While many investments in real estate may generate UBTI, the IRS has ruled that dividend distributions from a REIT to a tax-exempt entity do not constitute UBTI. Based on that ruling, our distributions to a U.S. Stockholder that is a domestic tax-exempt entity should not constitute UBTI unless such U.S. Stockholder borrows funds
(or otherwise incurs acquisition indebtedness within the meaning of the Code) to acquire its common shares, or the common shares are otherwise used in an unrelated trade or business of the tax-exempt entity. Furthermore, part or all of the income or gain recognized with respect to our stock held by certain domestic tax-exempt entities including social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal service plans (all of which are exempt from U.S. federal income taxation under Sections 501(c)(7), (9), (17) or (20) of the Code), may be treated as UBTI.
Special rules apply to the ownership of REIT shares by some tax-exempt pension trusts. If we would be closely held (discussed above with respect to the share ownership tests) because the stock held by tax-exempt pension trusts was viewed as being held by the trusts rather than by their respective beneficiaries,
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tax-exempt pension trusts owning more than 10% by value of our stock may be required to treat a percentage of our dividends as UBTI. This rule applies if: (1) at least one tax-exempt pension trust owns more than 25% by value of our shares, or (2) one or more tax-exempt pension trusts (each owning more than 10% by value of our shares) hold in the aggregate more than 50% by value of our shares. The percentage treated as UBTI is our gross income (less direct expenses) derived from an unrelated trade or business (determined as if we were a tax-exempt pension trust) divided by our gross income from all sources (less direct expenses). If this percentage is
less than 5%, however, none of the dividends will be treated as UBTI. Because of the restrictions in our charter regarding the ownership concentration of our common stock, we believe that a tax-exempt pension trust should not become subject to these rules. However, because our common shares may become publicly traded, we can give no assurance of this.
Prospective tax-exempt purchasers should consult their own tax advisors and financial planners as to the applicability of these rules and consequences to their particular circumstances.
Backup Withholding and Information Reporting.
We will report to our U.S. Stockholders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld. Under the backup withholding rules, a U.S. Stockholder may be subject to backup withholding at the current rate of 28% with respect to dividends paid, unless the U.S. Stockholder (1) is a corporation or comes within other exempt categories and, when required, demonstrates this fact or (2) provides a taxpayer identification number or social security number, certifies under penalties of perjury that such number is correct and that such U.S.
Stockholder is not subject to backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A U.S. Stockholder that does not provide his or her correct taxpayer identification number or social security number may also be subject to penalties imposed by the IRS. In addition, we may be required to withhold a portion of capital gain distribution to any U.S. Stockholder who fails to certify its non-foreign status.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such U.S. Stockholders U.S. federal income tax liability, provided the required information is furnished to the IRS.
For taxable years beginning after December 31, 2012, a U.S. withholding tax at a 30% rate will be imposed on dividends and proceeds of sale in respect of our common stock received by U.S. Stockholders who own their stock through foreign accounts or foreign intermediaries if certain disclosure requirements related to U.S. accounts or ownership are not satisfied. We will not pay any additional amounts in respect to any amounts withheld.
Taxation of Non-U.S. Stockholders
General.
The rules governing the U.S. federal income taxation of Non-U.S. Stockholders are complex, and as such, only a summary of such rules is provided in this prospectus. Non-U.S. investors should consult with their own tax advisors and financial planners to determine the impact that U.S. federal, state and local income tax or similar laws will have on such investors as a result of an investment in our REIT. A Non-U.S. Stockholder means a person (other than a partnership or entity treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Stockholder.
Distributions In General.
Distributions paid by us that are not attributable to gain from our sales or exchanges of U.S. real property interests and not designated by us as capital gain dividends will be treated as dividends of ordinary income to the extent that they are made out of our current or accumulated earnings and profits. Such dividends to Non-U.S. Stockholders ordinarily will be subject to a withholding tax equal to 30% of the gross amount of the dividend unless an applicable tax treaty reduces or eliminates that tax. Under some treaties, however, lower rates generally applicable to dividends do not apply to
dividends from REITs. If income from the investment in the common shares is treated as effectively connected with the Non-U.S. Stockholders conduct of a U.S. trade or business, the Non-U.S. Stockholder generally will be subject to a tax at the graduated rates applicable to ordinary income, in the same manner as U.S. stockholders are taxed with respect to such dividends (and also may be subject to the 30% branch profits tax in the case of a stockholder that is a foreign corporation that is not entitled to any treaty exemption). In general, Non-U.S. Stockholders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of our stock. Dividends in excess of our current and accumulated earnings and profits will not be taxable to a
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stockholder to the extent they do not exceed the adjusted basis of the stockholders shares. Instead, they will reduce the adjusted basis of such shares. To the extent that such dividends exceed the adjusted basis of a Non-U.S. Stockholders shares, they will give rise to tax liability if the Non-U.S. Stockholder would otherwise be subject to tax on any gain from the sale or disposition of his shares, as described in the Sales of Shares portion of this Section below.
Distributions Attributable to Sale or Exchange of Real Property.
Distributions that are attributable to gain from our sales or exchanges of U.S. real property interests will be taxed to a Non-U.S. Stockholder as if such gain were effectively connected with a U.S. trade or business. Non-U.S. Stockholders would thus be taxed at the normal capital gain rates applicable to U.S. Stockholders, and would be subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. Also, such dividends may be subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Stockholder not entitled to any treaty exemption. However, generally a capital gain dividend from a REIT is not treated as effectively connected income for a Non-U.S. Stockholder if (1) the distribution is received with respect to a class of stock that is regularly traded on an established securities market located in the U.S.; and (2) the Non-U.S. Stockholder does not own more than 5% of the class of stock at any time during the one year period ending on the date of such distribution. However, it is not anticipated that our shares will be regularly traded on an established securities market and therefore this exception is not expected to apply.
U.S. Federal Income Tax Withholding on Distributions.
For U.S. federal income tax withholding purposes, we will generally withhold tax at the rate of 30% on the amount of any distribution (other than distributions designated as capital gain dividends) made to a Non-U.S. Stockholder, unless the Non-U.S. Stockholder provides us with appropriate documentation (1) evidencing that such Non-U.S. Stockholder is eligible for an exemption or reduced rate under an applicable income tax treaty, generally an IRS Form W-8BEN (in which case we will withhold at the lower treaty rate) or (2) claiming that the dividend is effectively connected with
the Non-U.S. Stockholders conduct of a trade or business within the U.S., generally an IRS Form W-8ECI (in which case we will not withhold tax). We are also generally required to withhold tax at the rate of 35% on the portion of any dividend to a Non-U.S. Stockholder that is or could be designated by us as a capital gain dividend, to the extent attributable to gain on a sale or exchange of an interest in U.S. real property. Such withheld amounts of tax do not represent actual tax liabilities, but rather, represent payments in respect of those tax liabilities described in the preceding two paragraphs. Therefore, such withheld amounts are creditable by the Non-U.S. Stockholder against its actual U.S. federal income tax liabilities, including those described in the preceding two paragraphs. The Non-U.S. Stockholder would be entitled to a refund of any amounts withheld in excess of such Non-U.S. Stockholders actual U.S. federal income tax liabilities,
provided
that the
Non-U.S. Stockholder files applicable returns or refund claims with the IRS.
Sales of Shares.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally will not be subject to U.S. federal income taxation,
provided
that: (i) such gain is not effectively connected with the conduct by such Non-U.S. Stockholder of a trade or business within the U.S.; (ii) the Non-U.S. Stockholder is an individual and is not present in the U.S. for 183 days or more during the taxable year and certain other conditions apply; and (iii) (A) our REIT is domestically controlled, which generally means that less than 50% in value of our shares continues to be held directly or indirectly by foreign
persons during a continuous five year period ending on the date of disposition or, if shorter, during the entire period of our existence, or (B) our common shares are regularly traded on an established securities market and the selling Non-U.S. Stockholder has not held more than 5% of our outstanding common shares at any time during the five-year period ending on the date of the sale.
We cannot assure you that we will qualify as domestically controlled. If we were not domestically controlled, a Non-U.S. Stockholders sale of common shares would be subject to tax, unless the common shares were regularly traded on an established securities market and the selling Non-U.S. Stockholder has not directly, or indirectly, owned during the five-year period ending on the date of sale more than 5% in value of our common shares. However, it is not anticipated that our common shares will be regularly traded on an established market. If the gain on the sale of shares were to be subject to taxation, the Non-U.S.
Stockholder would be subject to the same treatment as U.S. stockholders with respect to such gain, and the purchaser of such common shares may be required to withhold 10% of the gross purchase price.
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If the proceeds of a disposition of common stock are paid by or through a U.S. office of a broker-dealer, the payment is generally subject to information reporting and to backup withholding unless the disposing Non-U.S. Stockholder certifies as to its name, address and non-U.S. status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding will not apply to a payment of disposition proceeds if the payment is made outside the U.S. through a foreign office of a foreign broker-dealer. Under Treasury Regulations, if the proceeds from a disposition of common stock paid to or through a foreign office of a U.S.
broker-dealer or a non-U.S. office of a foreign broker-dealer that is (i) a controlled foreign corporation for U.S. federal income tax purposes, (ii) a person 50% or more of whose gross income from all sources for a three-year period was effectively connected with a U.S. trade or business, (iii) a foreign partnership with one or more partners who are U.S. persons and who, in the aggregate, hold more than 50% of the income or capital interest in the partnership, or (iv) a foreign partnership engaged in the conduct of a trade or business in the U.S., then (A) backup withholding will not apply unless the broker-dealer has actual knowledge that the owner is not a Non-U.S. Stockholder, and (B) information reporting will not apply if the Non-U.S. Stockholder certifies its non-U.S. status and further certifies that it has not been, and at the time the certificate is furnished reasonably expects not to be, present in the U.S. for a period aggregating 183 days or more during each
calendar year to which the certification pertains. Prospective foreign purchasers should consult their tax advisors and financial planners concerning these rules.
With respect to payments made after December 31, 2012, a withholding tax of 30% will be imposed on dividends from, and the gross proceeds of a disposition of, our common stock paid to certain foreign entities unless various information reporting requirements are satisfied. Such withholding tax will generally apply to non-U.S. financial institutions, which is generally defined for this purpose as any non-U.S. entity that (i) accepts deposits in the ordinary course of a banking or similar business, (ii) is engaged in the business of holding financial assets for the account of others, or (iii) is engaged or holds itself out as being engaged primarily in
the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest in such assets. Non-U.S. Stockholders are encouraged to consult their tax advisors regarding the implications of this legislation on their investment in our common stock.
Other Tax Considerations
State, Local and Foreign Taxes.
We and you may be subject to state, local or foreign taxation in various jurisdictions, including those in which we transact business or you reside. Our and your state, local and foreign tax treatment may not conform to the U.S. federal income tax consequences discussed above. Any foreign taxes incurred by us would not pass through to stockholders as a credit against their U.S. federal income tax liability. You should consult your own tax advisors and financial planners regarding the effect of state, local and foreign tax laws on an investment in the common shares.
Legislative Proposals.
You should recognize that our and your present U.S. federal income tax treatment may be modified by legislative, judicial or administrative actions at any time, which may be retroactive in effect. The rules dealing with U.S. federal income taxation are constantly under review by Congress, the IRS and the Treasury Department, and statutory changes as well as promulgation of new regulations, revisions to existing statutes, and revised interpretations of established concepts occur frequently. We are not currently aware of any pending legislation that would materially affect our or your taxation as described in
this prospectus. You should, however, consult your advisors concerning the status of legislative proposals that may pertain to a purchase of our common shares.
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ERISA CONSIDERATIONS
The following is a summary of material considerations arising under ERISA and the prohibited transaction provisions of ERISA and of Section 4975 of the Internal Revenue Code that may be relevant to a prospective purchaser of the shares. This discussion does not address all aspects of ERISA or Section 4975 of the Internal Revenue Code or, to the extent not pre-empted by ERISA, state law that may be relevant to particular employee benefit plan stockholders (including plans subject to Title I of ERISA, other employee benefit plans and IRAs subject to the prohibited transaction provisions of Section 4975 of the Internal Revenue Code, and governmental
plans and church plans that are exempt from ERISA and Section 4975 of the Internal Revenue Code but that may be subject to state law and other Internal Revenue Code requirements) in light of their particular circumstances.
General Investment Considerations
A plan fiduciary making the decision to invest in shares is advised to consult its own legal advisor regarding the specific considerations arising under ERISA, Section 4975 of the Internal Revenue Code, and (to the extent not pre-empted by ERISA) state law with respect to the purchase, ownership, or sale of shares. Plan fiduciaries should also consider the entire discussion under the preceding section entitled Material U.S. Federal Income Tax Considerations, as material contained therein is relevant to any decision by a plan to purchase the shares.
In considering whether to invest a portion of the assets of a plan in shares, plan fiduciaries should consider, among other things, whether the investment:
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will be in accordance with the documents and instruments governing the plan;
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will allow the plan to satisfy the diversification requirements of ERISA, if applicable;
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will result in UBTI to the plan (see Material U.S. Federal Income Tax Considerations Taxation of Stockholders Taxation of Tax-Exempt U.S. Stockholders);
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will be sufficiently liquid;
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is prudent under ERISA; and
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is for the exclusive purpose of providing benefits to participants and their beneficiaries.
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The fiduciary of a plan not subject to Title I of ERISA or Section 4975 of the Internal Revenue Code, such as a governmental or church plan, should consider that such a plan may be subject to prohibitions against some related-party transactions under Section 503 of the Internal Revenue Code, which operate similar to the prohibited transaction rules of ERISA and Section 4975 of the Internal Revenue Code. In addition, the fiduciary of any such plan must consider applicable state or local laws, if any, and the restrictions and duties of common law, if any, imposed upon such plan. We express no opinion on whether an investment in shares is appropriate or
permissible for any plan under Section 503 of the Internal Revenue Code, or under any state, county, local, or other law respecting such plan.
Regulation Under ERISA and the Internal Revenue Code
In addition to imposing general fiduciary standards of investment prudence and diversification on persons who are plan fiduciaries, ERISA and the Internal Revenue Code prohibit certain transactions involving plan assets and persons who have specified relationships to the plan (parties in interest under ERISA and disqualified persons under the Internal Revenue Code).
A prohibited transaction may occur if our assets are deemed to be assets of a benefit plan (i.e., the look-through rule) which invests in shares and thereafter a party in interest or a disqualified person deals with the assets in a manner not permitted under ERISA or the Internal Revenue Code. Under such circumstances, any person that exercises authority or control with respect to the management or disposition of plan assets is a plan fiduciary and, therefore, is a party in interest and a disqualified person capable of participating in a prohibited transaction with the plan. Thus, the action
of an employee of ours in dealing with our assets could cause a plan which invests in our shares to be a participant in a prohibited transaction.
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Regulations Issued by the Department of Labor
While the term plan assets is not defined by ERISA or the Internal Revenue Code, the Department of Labor, or the DOL, issued regulations that provide guidance on the circumstances under which a plans investment in shares will be subject to the look-through rule and thus turn our assets into plan assets. The DOL regulations provide exceptions to the look-through rule. Under the DOL regulation, an exception exists for investments in a publicly-offered security. A publicly-offered security is a security that is:
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part of a class of securities that is widely held,
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freely transferable, and
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either part of a class of securities registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 or sold to the plan as part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act of 1933 provided the securities are registered under the Securities Exchange Act of 1934 within the requisite time.
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The DOL regulations provide that a security is widely-held only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. A security will not fail to be widely-held because the number of independent investors falls below 100 subsequent to the initial offering as a result of events beyond the issuers control. We represent that the shares will be held by over 100 investors independent of us and of one another and, therefore, should be considered widely-held.
The DOL regulations further provide that whether a security is freely-transferable is a factual question to be determined on the basis of all relevant facts and circumstances. The DOL regulations state that generally, when a security is part of an offering in which the minimum investment is $10,000 or less, as is the case with this offering, some restrictions ordinarily will not, alone or in combination, affect the determination of the finding that such securities are freely-transferable. The DOL regulations indicate that a restriction or prohibition against a transfer or assignment which would result in a termination or
reclassification of an entity for federal or state income tax purposes will not affect the determination of whether securities are freely transferable. The ownership limits imposed under our charter on the transfer of the shares are designed to prevent violations of the five or fewer requirement of federal income tax laws (which would cause a termination of REIT status for tax purposes) or are otherwise permitted under the DOL regulations and, therefore, we represent that there will be no restrictions imposed on the transfer of shares that will cause the shares to fail to be freely-transferable.
The DOL regulations are interpretive in nature and, therefore, no assurance can be given that the DOL will not conclude that the shares are not freely-transferable, or not widely-held. However, since the shares will be sold as part of an offering pursuant to an effective registration statement under the Securities Act of 1933 and they will be timely registered under the Securities Exchange Act of 1934, each as amended, we believe that the shares are publicly offered securities for purposes of the DOL regulations and that:
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our assets will not be deemed to be plan assets of any plan that invests in the shares; and
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any person who exercises authority or control with respect to our assets should not be treated as a plan fiduciary of any plan that invests in the shares, for purposes of the prohibited transaction rules of ERISA and Section 4975 of the Internal Revenue Code.
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Other Prohibited Transactions
In addition, a prohibited transaction may also occur under ERISA or the Internal Revenue Code where there are circumstances indicating that:
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investment in the shares is made or retained for the purposes of avoiding application of the fiduciary standard of ERISA;
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the investment in the REIT constitutes an arrangement under which it is expected that the REIT will engage in transactions which would otherwise be prohibited if entered into directly by the plan purchasing the shares;
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the investing plan, by itself, has the authority or influence to cause us to engage in such transactions; or
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the person who is prohibited from transacting with the investing plan may, but only with the aid of its affiliates and the investing plan, cause us to engage in such transactions with such person.
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In any event, a fiduciary or other person investing plan assets of any plan should not purchase shares, unless an exemption is available, if we or any of our affiliates either:
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have investment discretion with respect to the investment of such assets; or
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have authority or responsibility to give or regularly gives investment advice with respect to such assets, for a fee, pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to such assets and that such advice will be based on the particular investment needs of such plan.
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Any such purchase might result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Internal Revenue Code.
Insurance Companies
An insurance company considering an investment in shares should consider whether its general account may be deemed to include assets of the plans investing in the general account, for example, through the purchase of an annuity contract. In John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 510 U.S. 86 (1993), the United States Supreme Court held that assets held in an insurance companys general account may be deemed to be the plan assets under certain circumstances. In that event, the insurance company might be treated as a party in interest under such plans. However, Prohibited Transaction Exemption 95-60 may exempt some
or all of the transactions that could occur as the result of the acquisition of the common stock by an insurance company general account. Therefore, insurance company investors should analyze whether John Hancock and PTE 95-60 or any other exemption may have an impact with respect to their purchase of the shares.
In addition, the Small Business Job Protection Act of 1996 added a new Section 401(c) of ERISA relating to the status of the assets of insurance company general accounts under ERISA and Section 4975 of the Internal Revenue Code. Pursuant to Section 401(c), the Department of Labor issued final regulations effective January 5, 2000 with respect to insurance policies issued on or before December 31, 1998 that are supported by an insurers general account. As a result of these regulations, assets of an insurance company general account will not be treated as plan assets for purposes of the fiduciary responsibility provisions of ERISA and
Section 4975 of the Internal Revenue Code to the extent such assets relate to contracts issued to employee plans on or before December 31, 1998 and the insurer satisfies various conditions. The assets of a plan invested in an insurance company separate account continue to be treated as the plan assets of any such plan.
See Risk Factors Employee Benefit Plan Risks Annual Statement of Value is an Estimate for an explanation of the annual statement of value we will provide stockholders.
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PLAN OF DISTRIBUTION
General
We are offering a maximum of 10,000,000 shares to our current stockholders through the Program. We have no basis for estimating the number of shares that will be sold. We will not pay any selling commissions or dealer manager fees in connection with the sale of shares pursuant to the Program. ACS Securities Services, Inc. (the Administrator), an unaffiliated third party, will serve as reinvestment agent and will apply all distributions paid with respect to the Shares held by each Participant (the Distributions), if permitted under state securities laws and, if not, through the Dealer Manager registered in the
Participants state of residence. Lightstone Securities will be available to answer questions from investors regarding administration of the Program, including eligibility for participation in the Program, the procedures for enrollment in the Program, the mechanics of how shares are purchased by the Program, the absence of stock certificates in the Program, the Programs reporting obligations, a shareholders ability to withdraw from participation in the Program, tax consequences of the reinvestment, the transfer of shares, termination of the Program, the risks associated with participation in the Program and the state suitability requirements for participation in the Program. Additionally, Lightstone Securities will review the activities of the reinvestment agent and report such activities to us.
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SHARE REDEMPTION PROGRAMS
Prior to the time that our shares are listed on a national securities exchange (or on a similar quotation system), the share repurchase program may provide eligible stockholders with limited, interim liquidity by enabling them to sell shares back to us, subject to restrictions and applicable law. Specifically, state securities regulators impose investor suitability standards that establish specific financial thresholds that must be met by any investor in certain illiquid, long-term investments, including REIT shares. The prices at which stockholders who have held shares for the required one-year period may sell shares back to us at the lesser of (i)
the share price as determined by the board of directors or (ii) the purchase price per share if purchased at a reduced price. As of December 31, 2009, the share price determined by the board of directors is $9.97 per share.
A stockholder must have beneficially held the shares for at least one year prior to offering them for sale to us through the share redemption program, although if a stockholder redeems all of its shares our Board of Directors has the discretion to exempt shares purchased pursuant to the dividend reimbursement plan from this one-year requirement. Our affiliates will not be eligible to participate in the share redemption program.
Pursuant to the terms of the share redemption program, we will make repurchases, if requested, at least once quarterly. Each stockholder whose redemption request is granted will receive the redemption amount within 30 days after the fiscal quarter in which we grant its redemption request. Subject to the limitations described in this prospectus, we will also redeem shares upon the request of the estate, heir or beneficiary of a deceased stockholder. We will limit the number of shares redeemed pursuant to our share redemption program as follows: during any 12-month period, we will not redeem in excess of two percent (2.0%) of the weighted average
number of shares outstanding during the prior calendar year.
Since inception through December 2008, we fully funded all redemption requests. During 2009, we redeemed 453,167 common shares which was the maximum amount allowed under our share redemption program for the calendar year and represented 31% of redemption requests received during the period. During January 2010, we redeemed 158,127 common shares or 36% of redemption requests received during the period.
Our Board of Directors, at its sole discretion, has the power to terminate the share redemption program after the end of the offering period, change the price per share under the share redemption program or reduce the number of shares purchased under the program, if it determines that the funds allocated to the share redemption program are needed for other purposes, such as the acquisition, maintenance or repair of properties, or for use in making a declared distribution. A determination by our Board of Directors to eliminate or reduce the share redemption program will require the unanimous affirmative vote of the independent directors.
As of March 2, 2010, the board of directors has temporarily suspended the share redemption program. The board of directors will revisit this decision when the previously announced disposition of retail outlet assets transaction closes and anticipates that after that time it will resume redeeming shares during the second half of 2010.
No selling commissions or dealer manager fees are payable in connection with the share redemption plan.
Our Board of Directors reserves the right in its sole discretion at any time and from time to time to:
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waive the one-year holding period in the event of the death of a stockholder, a stockholders disability or need for long-term care, other involuntary exigent circumstances such as bankruptcy, or a mandatory distribution requirement under a stockholders IRA;
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reject any request for redemption;
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change the purchase price for redemptions; or
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otherwise amend the terms of, suspend or terminate our share redemption program.
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Funding for the share redemption program will come exclusively from proceeds we receive from the sale of shares under our distribution reinvestment plan and other operating funds, if any, as our Board of Directors, at its sole discretion, may reserve for this purpose. We cannot guarantee that the funds set aside for the share
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redemption program will be sufficient to accommodate all requests made each year. However, the stockholder may withdraw the request at any time or ask that we honor the request when funds are available. Pending redemption requests will be honored on a pro rata basis.
If funds available for our share redemption program are not sufficient to accommodate all requests, shares will be redeemed as follows: first, pro rata as to redemptions upon the death or disability of a stockholder; next pro rata as to redemptions to stockholders who demonstrate, in the discretion of our Board of Directors, another involuntary exigent circumstance, such as bankruptcy; next pro rata as to redemptions to stockholders subject to a mandatory distribution requirement under such stockholders IRA; and, finally, pro rata as to all other redemption requests.
In general, a stockholder or his or her estate, heir or beneficiary may present to us fewer than all of the shares then-owned for redemption, except that the minimum number of shares that must be presented for redemption shall be at least 25% of the holders shares. However, provided that your redemption request is made within 180 days of the event giving rise to the special circumstances described in this sentence, where redemption is being requested (1) on behalf of a deceased stockholder; (2) by stockholder who is deemed by our Board of Directors to be disabled or in need of long-term care; (3) by a stockholder due to other involuntary
exigent circumstances, such as bankruptcy; or (4) by a stockholder due to a mandatory distribution under such stockholders IRA, a minimum of 10% of the stockholders shares may be presented for redemption; provided, however, that any future redemption request by such stockholder must present for redemption at least 25% of such stockholders remaining shares.
A stockholder who wishes to have shares redeemed must mail or deliver to us a written request on a form provided by us and executed by the stockholder, its trustee or authorized agent. An estate, heir or beneficiary that wishes to have shares redeemed following the death of a stockholder must mail or deliver to us a written request on a form provided by us, including evidence acceptable to our Board of Directors of the death of the stockholder, and executed by the executor or executrix of the estate, the heir or beneficiary, or their trustee or authorized agent. Unredeemed shares may be passed to an estate, heir or beneficiary following the death of
a stockholder.
A stockholder requesting the redemption of his shares due to a disability must mail or deliver to us a written request on a form provided by us, including the evidence acceptable to our Board of Directors of the stockholders disability. If the shares are to be redeemed under any conditions outlined herein, we will forward the documents necessary to effect the redemption, including any signature guaranty we may require.
Stockholders are not required to sell their shares to us. The share redemption program is only intended to provide interim liquidity for stockholders until a liquidity event occurs, such as the listing of the shares on a national stock exchange, inclusion of the shares for quotation on a national market system, or our merger with a listed company. We cannot guarantee that a liquidity event will occur.
Shares we purchase under the share redemption program will be canceled, and will have the status of authorized but unissued shares. Shares we acquire through the share redemption program will not be reissued unless they are first registered with the Securities and Exchange Commission under the Securities Act of 1933 and under appropriate state securities laws or otherwise issued in compliance with such laws.
If we terminate, reduce or otherwise change the share redemption program, we will send a letter to stockholders informing them of the change, and we will disclose the changes in quarterly reports filed with the Securities and Exchange Commission on Form 10-Q.
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REPORTS TO STOCKHOLDERS
Our advisor will keep, or cause to be kept, full and true books of account on an accrual basis of accounting, in accordance with generally accepted accounting principles. All of these books of account, together with a copy of our charter, will at all times be maintained at our principal office, and will be open to inspection, examination and duplication at reasonable times by the stockholders or their agents.
The advisor will submit to each stockholder our audited annual reports within 120 days following the close of each fiscal year. The annual reports will contain the following:
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audited financial statements;
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the ratio of the costs of raising capital during the period to the capital raised;
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the aggregate amount of advisory fees and the aggregate amount of fees paid to the advisor and any affiliate of the advisor, including fees or charges paid to the advisor and to any affiliate of the advisor by third parties doing business with us;
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our total operating expenses, stated as a percentage of the average invested assets and as a percentage of net income;
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a report from the independent directors that the policies we follow are in the best interests of our stockholders and the basis for such determination; and
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separately stated, full disclosure of all material terms, factors and circumstances surrounding any and all transactions involving us, the directors, the advisor and any of their affiliates occurring in the year for which the annual report is made. Independent directors are specifically charged with the duty to examine and comment in the report on the fairness of such transactions.
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At the same time as any distribution, we will provide stockholders with a statement disclosing the source of the funds distributed. If the information is not available when the distribution is made, we will provide a statement setting forth the reasons why the information is not available. In no event will the information be provided to stockholders more than 60 days after we make the distribution. We will include in our stockholders account statements an estimated value of our shares that will comply with the requirements of NASD Rule 2340.
Within 60 days following the end of any calendar quarter during the period of the offering in which we have closed an acquisition of a property, we will submit a report to each stockholder containing:
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the location and a description of the general character of the property acquired during the quarter;
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the present or proposed use of the property and its suitability and adequacy for that use;
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the terms of any material leases affecting the property;
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the proposed method of financing, if any, including estimated down payment, leverage ratio, prepaid interest, balloon payment(s), prepayment penalties, due-on-sale or encumbrance clauses and possible adverse effects thereof and similar details of the proposed financing plan; and
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a statement that title insurance has been or will be obtained on the property acquired.
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After the completion of the last acquisition, the advisor will, upon request, send a schedule to the Commissioner of Corporations of the State of California. The schedule, verified under the penalty of perjury, reflects: each acquisition made; the purchase price paid; the aggregate of all acquisition expenses paid on each transaction; and a computation showing compliance with our charter. We will, upon request, submit to the Commissioner of Corporations of the State of California or to any of the various state securities administrators, any report or statement required to be distributed to stockholders pursuant to our charter or any applicable law or
regulation.
The accountants we regularly retain will prepare our federal tax return and any applicable state income tax returns. We will submit appropriate tax information to the stockholders within 30 days following the end of each of our fiscal years. We will not provide a specific reconciliation between generally accepted accounting principles and income tax information to the stockholders. However, the reconciling information
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will be available in our office for inspection and review by any interested stockholder. Annually, at the same time as the dissemination of appropriate tax information (including a Form 1099) to stockholders, we will provide each stockholder with an individualized report on his or her investment, including the purchase date(s), purchase price and number of shares owned, as well as the dates of distribution and amounts of distributions received during the prior fiscal year. The individualized statement to stockholders will include any purchases of shares under the distribution reinvestment program. Stockholders requiring individualized reports on a
more frequent basis may request these reports. We will make every reasonable effort to supply more frequent reports, as requested, but we may, at our sole discretion, require payment of an administrative charge either directly by the stockholder, or through pre-authorized deductions from distributions payable to the stockholder making the request.
We may deliver to our stockholders each of the reports discussed in this section, as well as any other communications that we may provide them with, by E-mail or by any other means.
See Risk Factors; Employee Benefit Plan Risks; Annual Statement of Value is an Estimate for an explanation of the annual statement of value we provide to stockholders.
LITIGATION
We are not subject to any legal proceedings except as described below.
General
On March 29, 2006, Jonathan Gould, a former member of our Board of Directors and Senior Vice-President-Acquisitions, filed a lawsuit against us in the District Court for the Southern District of New York. The suit alleges, among other things, that Mr. Gould was insufficiently compensated for his services to us as director and officer. Mr. Gould sought damages of (i) up to $11,500,000 or (ii) a 2.5% ownership interest in all properties that we acquire and an option to acquire up to 5% of the membership interests of Lightstone SLP, LLC. We filed a motion to dismiss the lawsuit. After review of the motion to dismiss, counsel for Mr. Gould represented
that Mr. Gould was dropping his claim for ownership interest in the properties we acquire and his claim for membership interests. Mr. Goulds counsel represented that he would be suing only under theories of quantum merit and unjust enrichment seeking the value of work he performed. Counsel for the Lightstone REIT made motion to dismiss Mr. Goulds complaint, which was granted by Judge Sweeney. Mr. Gould has filed an appeal of the decision dismissing his case which is pending. Management believes that this suit is frivolous and entirely without merit and intends to defend against these charges vigorously.
1407 Broadway
On January 4, 2007, 1407 Broadway Real Estate LLC (Office Owner), an indirect, wholly owned subsidiary of 1407 Broadway Mezz II LLC (Mezz II), consummated the acquisition of a sub-leasehold interest (the Sublease Interest) in an office building located at 1407 Broadway, New York, New York (the Office Property). Mezz II is a joint venture between LVP 1407 Broadway LLC (LVP LLC), a wholly owned subsidiary of our operating partnership, and Lightstone 1407 Manager LLC (Manager), which is wholly owned by David Lichtenstein, the Chairman of our Board of Directors and our Chief
Executive Officer, and Shifra Lichtenstein, his wife.
The Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold Agreement with Gettinger Associates, L.P. (Gettinger). In July 2006, Abraham Kamber Company, as sublessor under the sublease (Sublessor), served two notices of default on Gettinger (the Default Notices). The first alleged that Gettinger had failed to satisfy its obligations in performing certain renovations and the second asserted numerous defaults relating to Gettingers purported failure to maintain the Office Property in compliance with its contractual obligations.
In response to the Default Notices, Gettinger commenced legal action and obtained an injunction that extends its time to cure any default, prohibits interference with its leasehold interest and prohibits Sublessor from terminating its sublease pending resolution of the litigation. A motion by Sublessor for partial summary judgment, alleging that certain work on the Office Property required its prior approval, was denied by the Supreme Court, New York County. Subsequently, by agreement of the parties, a stay was entered precluding the termination of the Sublease Interest pending a final decision on Sublessors claim of defaults under the
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Sublease Interest. In addition, the parties stipulated to the intervention of Office Owner as a party to the proceedings. The parties have been directed to engage in and complete discovery. We consider the litigation to be without merit.
Prior to consummating the acquisition of the Sublease Interest, Office Owner received a letter from Sublessor indicating that Sublessor would consider such acquisition a default under the original sublease, which prohibits assignments of the Sublease Interest when there is an outstanding default there under. On February 16, 2007, Office Owner received a Notice to Cure from Sublessor stating the transfer of the Sublease Interest occurred in violation of the Sublease given Sublessors position that Office Seller is in default. Office Owner will commence and vigorously pursue litigation in order to challenge the default, receive an injunction and
toll the termination period provided for in the Sublease.
On September 4, 2007, Office Owner commenced a new action against Sublessor alleging a number claims, including the claims that Sublessor has breached the sublease and committed intentional torts against Office Owner by (among other things) issuing multiple groundless default notices, with the aim of prematurely terminating the sublease and depriving Office Owner of its valuable interest in the sublease. The complaint seeks a declaratory judgment that Office Owner has not defaulted under the sublease, damages for the losses Office Owner has incurred as a result of Sublessors wrongful conduct, and an injunction to prevent Sublessor from issuing
further default notices without valid grounds or in bad faith.
As of the date hereof, we are not a party to any other material pending legal proceedings.
RELATIONSHIPS AND RELATED TRANSACTIONS
David Lichtenstein serves as the Chairman of our Board of Directors, our Chief Executive Officer and our President. Our Dealer Manager, Advisor and Property Manager are wholly owned subsidiaries of our Sponsor, The Lightstone Group, which is wholly owned by Mr. Lichtenstein. On April 22, 2005, we entered into agreements with our Dealer Manager, Advisor and Property Manager to pay certain fees, as described below, in exchange for services performed by these and other affiliated entities. As the indirect owner of those entities, Mr. Lichtenstein benefits from fees and other compensation that they receive pursuant to these agreements.
Property Manager
We have agreed to pay our Property Manager a monthly management fee of up to 5% of the gross revenues from our residential, hospitality and retail properties. In addition, for the management and leasing of our office and industrial properties, we will pay, to our Property Manager, property management and leasing fees of up to 4.5% of gross revenues from our office and industrial properties. We may pay our Property Manager a separate fee for i) the development of, ii) the one-time initial rent-up or iii) leasing-up of newly constructed office and industrial properties in an amount not to exceed the fee customarily charged in arm's length transactions
by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. Our Property Manager will also be paid a monthly fee for any extra services equal to no more than that which would be payable to an unrelated party providing the services. The actual amounts of these fees are dependent upon results of operations and, therefore, cannot be determined at the present time. We have recorded the following amounts related to the Property Manager:
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For the Three Months Ended
March 31,
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For the Years Ended December 31,
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2010
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2009
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2009
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2008
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2007
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(unaudited)
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(unaudited)
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Property management fees
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$
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434,476
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$
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459,556
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$
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1,812,195
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$
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1,783,275
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$
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1,057,272
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Development fees and leasing commissions
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84,821
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100,192
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270,122
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1,934,107
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247,942
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Total
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$
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519,297
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$
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559,748
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$
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2,082,317
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$
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3,717,382
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$
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1,305,214
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Dealer Manager
We paid the Dealer Manager selling commissions of up to 7% of gross offering proceeds, or approximately $21,000,000, before reallowance of commissions earned by participating broker-dealers. The Dealer Manager reallowed 100% of commissions earned for those transactions that involve participating broker-dealers. We also paid to our Dealer Manager a dealer manager fee of up to 1% of gross offering proceeds, or approximately $3,000,000, before reallowance to participating broker-dealers. Our Dealer Manager, in its sole discretion, may reallow a portion of its dealer manager fee of up to 1% of the gross offering proceeds to be paid to such participating
broker-dealers. Total fees paid to the dealer manager in 2009 were $0 and $3.3 million in 2008.
Advisor
We agreed to our Advisor an acquisition fee equal to 2.75% of the gross contract purchase price (including any mortgage assumed) of each property purchased and will reimburse our Advisor for expenses that it incurs in connection with the purchase of a property. We anticipate that acquisition expenses will be between 1% and 1.5% of a property's purchase price, and acquisition fees and expenses are capped at 5% of the gross contract purchase price of a property. However, $33,000,000 may be paid as an acquisition fee and for the reimbursement of acquisition expenses as the maximum offering was sold, assuming aggregate long-term permanent leverage of
approximately 75%. The Advisor will also be paid an advisor asset management fee of 0.55% of our average invested assets and we will reimburse some expenses of the Advisor. . We have recorded the following amounts related to the Advisor:
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For the Three Months Ended March 31,
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For the Years Ended December 31,
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2010
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2009
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2009
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2008
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2007
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(unaudited)
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(unaudited)
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Acquisition fees
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$
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$
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9,778,760
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|
$
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16,656,847
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|
$
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2,336,565
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|
$
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6,551,896
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Asset management fees
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1,452,809
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660,430
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4,541,195
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2,203,563
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1,033,371
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Acquisition expenses reimbursed to Advisor
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902,753
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902,753
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1,265,528
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|
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635,848
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Total
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$
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1,452,809
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$
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11,341,943
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$
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22,100,795
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|
$
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5,805,656
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|
$
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8,221,115
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As of March 31, 2010, we owed our sponsor $1.5 million related to asset management fees for the quarter ended March 31, 2010.
Sponsor
On April 22, 2005, the Operating Partnership entered into an agreement with Lightstone SLP, LLC pursuant to which the Operating Partnership has issued special general partner interests to Lightstone SLP, LLC in an amount equal to all expenses, dealer manager fees and selling commissions that we incurred in connection with our organization and the offering of our common stock. As of March 31, 2010, Lightstone SLP, LLC had contributed $30.0 million to the Operating Partnership in exchange for special general partner interests. As the sole member of our Sponsor, which wholly owns Lightstone SLP, LLC, Mr. Lichtenstein is the indirect, beneficial owner of
such special general partner interests and will thus receive an indirect benefit from any distributions made in respect thereof.
These special general partner interests entitle Lightstone SLP, LLC to a portion of any regular and liquidation distributions that we make to stockholders, but only after stockholders have received a stated preferred return. Although the actual amounts are dependent upon results of operations and, therefore, cannot be determined at the present time, distributions to Lightstone SLP, LLC, as holder of the special general partner interests, could be substantial.
Since inception through March 31, 2010, cumulative distributions declared were $4.9 million, of which $4.4 million have been paid. Such distributions, paid current at a 7% annualized rate of return to Lightstone SLP, LLC through March 31, 2010 and will always be subordinated until stockholders receive a stated preferred return, as described below.
220
TABLE OF CONTENTS
Tax Protection Agreement
In connection with the contribution of the Mill Run and POAC membership interests, as more fully described in Real Property Investments Specified Investments, our operating partnership entered into Tax Protection Agreements with each of Arbor JRM, Arbor CJ, AR Prime, TRAC, Central Jersey and JT Prime (collectively, the Contributors). Under these Tax Protection Agreements, our operating partnership is required to indemnify each of Arbor JRM, Arbor CJ, TRAC and Central Jersey with respect to the Mill Run Properties, and AR Prime and JT Prime, with respect to the POAC Properties, from June 26, 2008 for Arbor JRM,
Arbor CJ and AR Prime and from August 25, 2009 for TRAC, Central Jersey and JT Prime to June 26, 2013 for, among other things, certain income tax liability that would result from the income or gain which Arbor JRM, Arbor CJ, TRAC, Central Jersey on the one hand, or AR Prime, JT Prime, on the other hand, would recognize upon our operating partnerships failure to maintain the current level of debt encumbering the Mill Run Properties or the POAC Properties, respectively, or the sale or other disposition by our operating partnership of the Mill Run Properties, the Mill Run Interest, the POAC Properties, or the POAC Interest (each, an Indemnifiable Event). Under the terms of the Tax Protection Agreements, our operating partnership is indemnifying the Contributors for certain income tax liabilities based on income or gain which the Contributors are deemed to be required to include in their gross income for federal or state income tax purposes (assuming the Contributors are
subject to tax at the highest regional, federal, state and local tax rates imposed on individuals residing in New York City) as a result of an Indemnifiable Event. This indemnity covers income taxes, interest and penalties and is required to be made on a grossed up basis that effectively results in the Contributors receiving the indemnity payment on a net, after-tax basis. The amount of the potential tax indemnity to the Contributors under the Tax Protection Agreements, including a gross-up for taxes on any such payment, using current tax rates, is estimated to be approximately $95.7 million. The Company has not recorded a liability in its consolidated balance sheet as the Company believes that the potential liability is remote as of March 31, 2010.
Each Tax Protection Agreement imposes certain restrictions upon our operating partnership relating to transactions involving the Mill Run Properties and the POAC Properties which could result in taxable income or gain to the Contributors. Our operating partnership may not dispose or transfer any Mill Run Property or any POAC Property without first proving that our operating partnership possesses the requisite liquidity, including the proceeds from any such transaction, to make any payments that would come due pursuant to the Tax Protection Agreement. However, our operating partnership may take the following actions: (i) (A) as to the POAC Properties,
commencing with the period one year and thirty-one days following the date of the Tax Protection Agreement, our operating partnership can sell on an annual basis part or all of any of the POAC Properties with an aggregate value of ten percent (10%) or less of the total value of the POAC Properties as of the date of contribution (and any amounts of the ten percent (10%) value not sold can be applied to sales in future years); and (B) as to the Mill Run Properties either the same ten percent (10%) test as set forth above in (i)(A) with respect to the Mill Run Properties or the sale of the property known by Design Outlet Center; and (ii) our operating partnership can enter into a non-recognition transaction with either the consent of the Contributors or an opinion from an independent law or accounting firm stating that it is more likely than not that the transaction will not give rise to current taxable income or gain.
Other Related Party Transactions
In July of 2007, the Company purchased a $16.0 million certificate of deposit with an affiliate of the Advisor. The certificate of deposit matured in less than three months, and earned interest at 10 percent. The Company redeemed the certificate of deposit in September of 2007, and has included $0.3 million in interest income from this investment.
From time to time, Lightstone purchases title insurance from an agent in which our sponsor owns a fifty percent limited partnership interest. Because this title insurance agent receives significant fees for providing title insurance, our advisor may face a conflict of interest when considering the terms of purchasing title insurance from this agent. However, prior to the purchase by Lightstone of any title insurance, an independent title consultant with more than 25 years of experience in the title insurance industry reviews the transaction, and performs market research and competitive analysis on our behalf. This process results in terms similar to
those that would be negotiated at an arms-length basis.
221
TABLE OF CONTENTS
During March 2010, the Company entered into a demand grid note to borrow up to $20 million from POAC and $20 million from 1407 Broadway. As of March 31, 2010, the Company has received loan proceeds from POAC of $2.0 million and loan proceeds from 1407 Broadway of $0.5 million associated with the demand grid loans. The loans bear interest a libor plus 2.5%. The principal and interest on the loans are due the earlier of February 28, 2020 or on demand. The principal and interest on the loans are recorded in loans due to affiliates in the consolidated balance sheets.
In connection with the contribution of the Mill Run and POAC membership interests, as more fully described in Real Property Investments Specified Investments, we made loans to Arbor JRM, Arbor CJ, AR Prime, TRAC, Central Jersey and JT Prime (collectively, Noncontrolling Interest Borrowers) in the aggregate principal amount of $88.5 million (the Noncontrolling Interest Loans). These loans are payable semi-annually and accrue interest at an annual rate of 4%. The loans mature through September 2017 and contain customary events of default and default remedies. The loans require the Noncontrolling
Interest Borrowers to prepay their respective loans in full upon redemption of the Series A Preferred Units by the Operating Partnership. The loans are secured by the Series A Preferred Units and Common Units issued in connection with the respective contribution of the Mill Run and the POAC membership interests, as such these loans are classified as a reduction to noncontrolling interests in the consolidated balance sheets. Accrued interest related to these loans totaled $1.1 million and $1.8 million at March 31, 2010 and December 31, 2009 and are included in interest receivable from related parties in the consolidated balance sheets.
On August 25, 2009, our operating partnership contributed its investments of the 15% membership interest in POAC and the 14.26% membership interest in Mill Run to the newly formed PRO-DFJV Holdings, LLC, a Delaware limited liability company (PRO) in exchange for a 99.99% managing membership interest in PRO. In addition, Lightstone REIT contributed $2,900 cash for a 0.01% non- managing membership interest in PRO. As our operating partnership is the managing member with control, PRO is consolidated into the results and financial position of the Company. On September 15, 2009, the Advisor accepted, in lieu of a cash payment of $6.9 million
for the acquisition fee, a 19.17% profit membership interest in PRO and assigned its rights to receive payment to the Sponsor, who assigned the same to David Lichtenstein. Under the terms of the operating agreement of PRO, the 19.17% profit membership interest will not receive any distributions until our operating partnership and Lightstone REIT receive distributions equivalent to their capital contributions of approximately $29.0 million, then the 19.17% profit membership interest shall receive distributions to $6.9 million. Any remaining distributions shall be split between the three members in proportion to their profit interests.
We have entered into agreements to pay our advisor, our property manager, our dealer manager and their affiliates fees or other compensation for providing services to us, as more fully described in Compensation Table and entered into joint venture agreements with our sponsor in connection with our acquisitions of 1407 Broadway, New York, New York and 2150 Whitfield Avenue, Sarasota Florida and preferred equity investment in PAF-SUB LLC, as more fully described in Real Property Investments Specified Investments.
LEGAL MATTERS
Proskauer Rose LLP, New York, New York, will pass upon the legality of the common stock and legal matters in connection with our status as a REIT for federal income tax purposes. Proskauer Rose LLP does not purport to represent our stockholders or potential investors, who should consult their own counsel. Proskauer Rose LLP also provides legal services to our sponsor, advisor and their affiliates.
Proskauer Rose LLP has reviewed the statements in the section in the prospectus titled Material U.S. Federal Income Tax Considerations and elsewhere as they relate to federal income tax matters and the statements in the section in the prospectus titled ERISA Considerations.
Venable LLP will pass upon certain matters of Maryland law in connection with our organization. Venable LLP does not purport to represent our stockholders or potential investors, who should consult their own counsel.
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TABLE OF CONTENTS
EXPERTS
The consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries as of December 31, 2009 and 2008, and for the years ended December 31, 2009, 2008 and 2007, included in this prospectus have been audited by Amper, Politziner & Mattia, LLP, independent registered public accounting firm, as stated in their report appearing herein and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-11 with the Securities and Exchange Commission in connection with this offering. This prospectus is part of the registration statement and does not contain all of the information included in the registration statement and all of its exhibits, certificates and schedules. Whenever a reference is made in this prospectus to any contract or other document of ours, the reference may not be complete and you should refer to the exhibits that are a part of the registration statement for a copy of the contract or document.
You may read and copy our registration statement and all of its exhibits and schedules which we have filed with the SEC and which may be inspected and copied at the Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. This material, as well as copies of all other documents filed with the SEC, may be obtained from the Public Reference Section of the SEC, Washington D.C. 20549 upon payment of the fee prescribed by the SEC. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site that contains reports, proxies, information statements and other
information regarding registrants that file electronically with the SEC, including us. The address of this website is
http://www.sec.gov
.
223
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.
(A Maryland Corporation)
INDEX
|
|
|
|
|
Page
|
Unaudited Financial Statements
|
|
|
|
|
Financial Statements
|
|
|
|
|
Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009
|
|
|
F-2
|
|
Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2010 and 2009
|
|
|
F-3
|
|
Consolidated Statement of Stockholders Equity and Comprehensive Loss (unaudited) for the Three Months Ended March 31, 2010
|
|
|
F-4
|
|
Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2010 and 2009
|
|
|
F-5
|
|
Notes to Consolidated Financial Statements
|
|
|
F-6
|
|
Audited Financial Statements
|
|
|
|
|
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
|
|
|
F-25
|
|
Financial Statements:
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2009 and 2008
|
|
|
F-26
|
|
Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007
|
|
|
F-27
|
|
Consolidated Statements of Stockholders Equity for the years ended December 31, 2009, 2008 and 2007
|
|
|
F-28
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
|
|
|
F-29
|
|
Notes to Consolidated Financial Statements
|
|
|
F-30
|
|
Real Estate and Accumulated Depreciation (Schedule III)
|
|
|
F-68
|
|
F-1
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
March 31,
2010
|
|
December 31,
2009
|
|
|
(unaudited)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investment property:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
44,828,406
|
|
|
$
|
44,799,646
|
|
Building
|
|
|
183,181,666
|
|
|
|
183,330,499
|
|
Construction in progress
|
|
|
147,127
|
|
|
|
284,952
|
|
Gross investment property
|
|
|
228,157,199
|
|
|
|
228,415,097
|
|
Less accumulated depreciation
|
|
|
(12,855,566
|
)
|
|
|
(11,602,988
|
)
|
Net investment property
|
|
|
215,301,633
|
|
|
|
216,812,109
|
|
Investments in unconsolidated affiliated real estate entities
|
|
|
114,308,527
|
|
|
|
115,972,466
|
|
Investment in affiliate, at cost
|
|
|
6,297,995
|
|
|
|
7,658,337
|
|
Cash and cash equivalents
|
|
|
9,681,934
|
|
|
|
17,076,320
|
|
Marketable securities
|
|
|
736,277
|
|
|
|
840,877
|
|
Restricted escrows
|
|
|
2,927,113
|
|
|
|
2,034,774
|
|
Tenant accounts receivable
(net of allowance for doubtful account of $191,921 and $189,639, respectively)
|
|
|
871,580
|
|
|
|
677,753
|
|
Other accounts receivable
|
|
|
5,419
|
|
|
|
23,182
|
|
Acquired in-place lease intangibles, net
|
|
|
533,237
|
|
|
|
609,487
|
|
Acquired above market lease intangibles, net
|
|
|
169,213
|
|
|
|
199,348
|
|
Deferred intangible leasing costs, net
|
|
|
334,510
|
|
|
|
377,687
|
|
Deferred leasing costs (net of accumulated amortization of $237,201 and $204,208 respectively)
|
|
|
697,535
|
|
|
|
584,973
|
|
Deferred financing costs
(net of accumulated amortization of $952,216 and $949,475 respectively)
|
|
|
1,194,494
|
|
|
|
1,212,847
|
|
Interest receivable from related parties
|
|
|
1,114,167
|
|
|
|
1,886,449
|
|
Prepaid expenses and other assets
|
|
|
2,359,004
|
|
|
|
2,047,683
|
|
Assets held for sale (See Note 7)
|
|
|
61,824,739
|
|
|
|
61,549,584
|
|
Total Assets
|
|
$
|
418,357,377
|
|
|
$
|
429,563,876
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Mortgage payable
|
|
$
|
217,161,826
|
|
|
$
|
218,051,497
|
|
Accounts payable and accrued expenses
|
|
|
5,083,242
|
|
|
|
3,869,310
|
|
Due to sponsor
|
|
|
1,487,403
|
|
|
|
1,349,730
|
|
Loans due to affiliates (see Note 3)
|
|
|
2,493,466
|
|
|
|
|
|
Tenant allowances and deposits payable
|
|
|
940,682
|
|
|
|
946,420
|
|
Distributions payable
|
|
|
|
|
|
|
5,557,670
|
|
Prepaid rental revenues
|
|
|
764,663
|
|
|
|
767,334
|
|
Acquired below market lease intangibles, net
|
|
|
332,652
|
|
|
|
380,504
|
|
Liabilities held for sale (See Note 7)
|
|
|
27,497,492
|
|
|
|
27,431,060
|
|
Total Liabilities
|
|
|
255,761,426
|
|
|
|
258,353,525
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Companys Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred shares, $1 Par value, 10,000,000 shares authorized, none outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 60,000,000 shares authorized, 31,838,066 and
31,528,353 shares issued and outstanding in 2010 and 2009, respectively
|
|
|
318,380
|
|
|
|
315,283
|
|
Additional paid-in-capital
|
|
|
283,634,895
|
|
|
|
280,763,558
|
|
Accumulated other comprehensive income
|
|
|
223,106
|
|
|
|
326,077
|
|
Accumulated distributions in excess of net loss
|
|
|
(159,312,348
|
)
|
|
|
(149,702,633
|
)
|
Total Companys stockholders equity
|
|
|
124,864,033
|
|
|
|
131,702,285
|
|
Noncontrolling interests
|
|
|
37,731,918
|
|
|
|
39,508,066
|
|
Total Stockholders Equity
|
|
|
162,595,951
|
|
|
|
171,210,351
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
418,357,377
|
|
|
$
|
429,563,876
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-2
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
|
|
|
|
Three Months
Ended
March 31,
2010
|
|
Three Months
Ended
March 31,
2009
|
Revenues:
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
7,209,964
|
|
|
$
|
7,992,239
|
|
Tenant recovery income
|
|
|
743,927
|
|
|
|
808,248
|
|
Total revenues
|
|
|
7,953,891
|
|
|
|
8,800,487
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
3,312,348
|
|
|
|
3,371,790
|
|
Real estate taxes
|
|
|
992,156
|
|
|
|
995,450
|
|
Loss on property damaged
|
|
|
274,104
|
|
|
|
|
|
General and administrative costs
|
|
|
3,043,905
|
|
|
|
1,473,229
|
|
Depreciation and amortization
|
|
|
1,614,969
|
|
|
|
1,851,168
|
|
Total operating expenses
|
|
|
9,237,482
|
|
|
|
7,691,637
|
|
Operating (loss)/income
|
|
|
(1,283,591
|
)
|
|
|
1,108,850
|
|
Other income, net
|
|
|
123,510
|
|
|
|
176,558
|
|
Interest income
|
|
|
1,084,823
|
|
|
|
1,088,532
|
|
Interest expense
|
|
|
(3,119,398
|
)
|
|
|
(3,115,136
|
)
|
Income/(loss) from investments in unconsolidated affiliated
real estate entities
|
|
|
(1,682,141
|
)
|
|
|
108,936
|
|
Net loss from continuing operations
|
|
|
(4,876,797
|
)
|
|
|
(632,260
|
)
|
Net income/(loss) from discontinued operations
|
|
|
653,488
|
|
|
|
(126,044
|
)
|
Net loss
|
|
|
(4,223,309
|
)
|
|
|
(758,304
|
)
|
Less: net loss attributable to noncontrolling interests
|
|
|
73,979
|
|
|
|
3,019
|
|
Net loss attributable to Companys common shares
|
|
$
|
(4,149,330
|
)
|
|
$
|
(755,285
|
)
|
Basic and diluted net loss per Companys common share
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.15
|
)
|
|
$
|
(0.01
|
)
|
Discontinued operations
|
|
|
0.02
|
|
|
|
(0.01
|
)
|
Net loss per Companys common share, basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.02
|
)
|
Weighted average number of common shares outstanding, basic and diluted
|
|
|
31,616,298
|
|
|
|
31,109,274
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Shares
|
|
Amount
|
|
Common
Shares
|
|
Amount
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Other
Comprehensive
Income
|
|
Accumulated
Distributions
in Excess of
Net Loss
|
|
Total
Noncontrolling
Interests
|
|
Total
Equity
|
BALANCE,
December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
31,528,353
|
|
|
$
|
315,283
|
|
|
$
|
280,763,558
|
|
|
$
|
326,077
|
|
|
$
|
(149,702,633
|
)
|
|
$
|
39,508,066
|
|
|
$
|
171,210,351
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,149,330
|
)
|
|
|
(73,979
|
)
|
|
|
(4,223,309
|
)
|
Unrealized loss on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102,971
|
)
|
|
|
|
|
|
|
(1,629
|
)
|
|
|
(104,600
|
)
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,327,909
|
)
|
Distributions declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,460,385
|
)
|
|
|
|
|
|
|
(5,460,385
|
)
|
Distributions paid to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700,540
|
)
|
|
|
(1,700,540
|
)
|
Redemption and cancellation of shares
|
|
|
|
|
|
|
|
|
|
|
(158,127
|
)
|
|
|
(1,581
|
)
|
|
|
(1,568,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,570,048
|
)
|
Shares issued from distribution reinvestment program
|
|
|
|
|
|
|
|
|
|
|
467,840
|
|
|
|
4,678
|
|
|
|
4,439,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,444,482
|
|
BALANCE,
March 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
31,838,066
|
|
|
$
|
318,380
|
|
|
$
|
283,634,895
|
|
|
$
|
223,106
|
|
|
$
|
(159,312,348
|
)
|
|
$
|
37,731,918
|
|
|
$
|
162,595,951
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31,
2010
|
|
March 31,
2009
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,223,309
|
)
|
|
$
|
(758,304
|
)
|
Less net income/(loss) discontinued operations
|
|
|
653,488
|
|
|
|
(126,044
|
)
|
Net loss from continuing operations
|
|
$
|
(4,876,797
|
)
|
|
$
|
(632,260
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,512,633
|
|
|
|
1,755,834
|
|
Amortization of deferred financing costs
|
|
|
54,604
|
|
|
|
90,072
|
|
Amortization of deferred leasing costs
|
|
|
102,336
|
|
|
|
99,970
|
|
Amortization of above and below-market lease intangibles
|
|
|
(17,717
|
)
|
|
|
(29,487
|
)
|
Loss on property damaged
|
|
|
274,104
|
|
|
|
|
|
Equity in (income)/loss from investments in unconsolidated affiliated real estate entities
|
|
|
1,682,141
|
|
|
|
(108,936
|
)
|
Provision for bad debts
|
|
|
48,431
|
|
|
|
329,212
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in prepaid expenses and other assets
|
|
|
505,726
|
|
|
|
506,557
|
|
(Decrease)/increase in tenant and other accounts receivable
|
|
|
(224,495
|
)
|
|
|
275,841
|
|
Increase/(decrease) in tenant allowance and security deposits payable
|
|
|
33,608
|
|
|
|
(1,560
|
)
|
Increase/(decrease) in accounts payable and accrued expenses
|
|
|
1,350,616
|
|
|
|
(1,246,448
|
)
|
(Decrease)/increase in prepaid rents
|
|
|
(2,671
|
)
|
|
|
5,139
|
|
Net cash provided by operating activities continuing operations
|
|
|
442,519
|
|
|
|
1,043,934
|
|
Net cash provided by/(used in) operating activities discontinued operations
|
|
|
795,516
|
|
|
|
(321,877
|
)
|
Net cash provided by operating activities
|
|
|
1,238,035
|
|
|
|
722,057
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of investment property, net
|
|
|
(454,856
|
)
|
|
|
(23,719
|
)
|
Redemption payments from investments in unconsolidated affiliate
|
|
|
1,360,342
|
|
|
|
616,666
|
|
Purchase of investment in unconsolidated affiliated real estate entity
|
|
|
(18,202
|
)
|
|
|
(11,989,263
|
)
|
Funding of restricted escrows
|
|
|
(892,338
|
)
|
|
|
(319,558
|
)
|
Net cash used in investing activities continuing operations
|
|
|
(5,054
|
)
|
|
|
(11,715,874
|
)
|
Net cash used in investing activities discontinued operations
|
|
|
(257,430
|
)
|
|
|
(3,326,459
|
)
|
Net cash used in investing activities
|
|
|
(262,484
|
)
|
|
|
(15,042,333
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Mortgage payments
|
|
|
(889,671
|
)
|
|
|
(213,128
|
)
|
Payment of loan fees and expenses
|
|
|
(36,250
|
)
|
|
|
(22,911
|
)
|
Proceeds from loans due to affiliates
|
|
|
2,493,466
|
|
|
|
|
|
Redemption and cancellation of common stock
|
|
|
(1,570,048
|
)
|
|
|
(1,142,132
|
)
|
Proceeds from issuance of special general partnership units
|
|
|
|
|
|
|
6,982,534
|
|
Issuance of note receivable to noncontrolling interest
|
|
|
|
|
|
|
(1,657,708
|
)
|
Distribution from/(contributions to) discontinued operations
|
|
|
600,000
|
|
|
|
(3,350,720
|
)
|
Distributions paid to noncontrolling interests
|
|
|
(1,700,540
|
)
|
|
|
(1,013,494
|
)
|
Distributions paid to Company's common stockholders
|
|
|
(6,573,573
|
)
|
|
|
(3,060,141
|
)
|
Net cash used in financing activities continuing operations
|
|
|
(7,676,616
|
)
|
|
|
(3,477,700
|
)
|
Net cash (used in)/provided by financing activities discontinued operations
|
|
|
(693,321
|
)
|
|
|
3,262,572
|
|
Net cash used in financing activities
|
|
|
(8,369,937
|
)
|
|
|
(215,128
|
)
|
Net change in cash and cash equivalents
|
|
|
(7,394,386
|
)
|
|
|
(14,535,404
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
17,076,320
|
|
|
|
66,106,067
|
|
Cash and cash equivalents, end of period
|
|
$
|
9,681,934
|
|
|
$
|
51,570,663
|
|
Cash paid for interest
|
|
$
|
2,891,585
|
|
|
$
|
3,438,945
|
|
Distributions declared
|
|
$
|
5,460,385
|
|
|
$
|
10,812,810
|
|
Value of shares issued from distribution reinvestment program
|
|
$
|
4,444,482
|
|
|
$
|
2,387,444
|
|
Issuance of units in exchange for investment in unconsolidated affiliated real estate entity
|
|
$
|
|
|
|
$
|
55,988,411
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
1. Organization
Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (Lightstone REIT and, together with the Operating Partnership (as defined below), the Company) was formed on June 8, 2004 and subsequently qualified as a real estate investment trust (REIT) during the year ending December 31, 2006. The Company was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States and Puerto Rico.
The Lightstone REIT is structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of the Lightstone REITs current and future business is and will be conducted through Lightstone Value Plus REIT, L.P., a Delaware limited partnership formed on July 12, 2004 (the Operating Partnership). The Lightstone REIT is managed by Lightstone Value Plus REIT, LLC (the Advisor), an affiliate of the Lightstone Group (the Sponsor), under the terms and conditions of an advisory agreement. The Sponsor and Advisor are owned and controlled by David Lichtenstein, the Chairman of the
Companys board of directors and its Chief Executive Officer.
As of March 31, 2010, on a collective basis, the Company either wholly owned or owned interests in 23 retail properties containing a total of approximately 7.9 million square feet of retail space, 15 industrial properties containing a total of approximately 1.3 million square feet of industrial space, 9 multi-family properties containing a total of 2,593 units, 2 hotel properties containing a total of 290 rooms and 1 office property containing a total of approximately 1.1 million square feet of office space. All of its properties are located within the United States. As of March 31, 2010, the retail properties, the industrial properties, the
multi-family properties and the office property were 93%, 63%, 90% and 75% occupied based on a weighted average basis, respectively. Its hotel properties average revenue per available room was $22 and occupancy was 60% for the three months ended March 31, 2010.
On December 8, 2009, the Company signed a definitive agreement to dispose of a substantial portion of its retail properties; its St. Augustine Outlet center plus its interests in its investments in Prime Outlets Acquisitions Company (POAC), which includes 18 retail properties and Mill Run, LLC (Mill Run), which includes 2 of its retail properties. Upon closing of the transaction, we are expecting to receive $245.7 million in total consideration before transaction expenses, of which approximately $200.0 million will be in the form of cash and the remaining in the form of equity which may not be available for sale until July
2013. The equity will be common units of the operating partnership of Simon Property Group.
We expect the transaction to be completed during mid to late 2010. At a meeting on May 13, 2010 the board of directors of the Company (the Board) made the decision to distribute proceeds to the shareholders equal to the estimated tax liability, if any, they would accrue from the transaction. Subject to change based on market conditions that may prevail when the transaction closes and the proceeds are received, the Board further determined to direct the reinvestment of the balance of the cash proceeds. In reaching its determination, the board considered that, in the event all proceeds were distributed, we would need to substantially reduce
or eliminate our dividend to shareholders. The Board concluded that reinvesting a significant portion of the proceeds will allow the Company to take advantage of the current real estate environment and is consistent with our shareholders original expectation of being invested in our shares for seven to ten years.
During 2009, the Company decided to not make the required debt service payments of $0.2 million in the month of October and thereafter on the two loans collateralized by an apartment property located in North Carolina and one located in Florida. These two loans had an aggregate outstanding principal balance of $42.3 million as of March 31, 2010. The Company determined that future debt service payments on these two loans would no longer be economically beneficial to the Company based upon the current and expected future performance of the properties associated with these two loans. During the three months ended March 31, 2010, the Company has been
notified by the lender that it will be foreclosing on these two properties. The foreclosure sale for one of the properties closed on April 13, 2010 and the other one was completed on May 12, 2010. As of March 31, 2010, these two properties are included in continuing operations and represent 788 of the 2,593 units of multi-family properties owned. See Note 8 for summary financial data related to these two properties.
F-6
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and the Operating Partnership and its subsidiaries (over which Lightstone REIT exercises financial and operating control). As of March 31, 2010, the Company had a 98.4% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation.
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009. The unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited condensed consolidated financial statements of and its Subsidiaries (collectively, the
Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
New Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which was primarily codified into Topic 810 in the ASC. This standard requires ongoing assessments to determine whether an entity is a variable entity and requires qualitative analysis to determine whether an enterprises variable interest(s) give it a controlling financial interest in a variable interest entity. In addition, it requires enhanced disclosures about an enterprises involvement in a variable interest entity. This standard is effective for the fiscal year that begins after November 15, 2009. The Company adopted this standard on
January 1, 2010 and the adoption did not have a material impact on the Companys consolidated financial statements.
In January 2010, the FASB issued FASB Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 amends ASC 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements. This ASU becomes effective for the Company on January 1, 2010. The adoption of this ASU did not have a material impact on the Companys consolidated financial statements.
The Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations.
F-7
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
3. Investments in Unconsolidated Affiliated Real Estate Entities
The entities listed below are partially owned by the Company. The Company accounted for these investments under the equity method of accounting as the Company exercises significant influence, but does not control these entities. A summary of the Companys investments in unconsolidated affiliated real estate entities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
Real Estate Entity
|
|
Dates Acquired
|
|
Ownership %
|
|
March 31,
2010
|
|
December 31, 2009
|
Prime Outlets Acquistions Company (POAC)
|
|
|
March 30, 2009 &
August 25, 2009
|
|
|
|
40.00
|
%
|
|
$
|
81,645,138
|
|
|
$
|
84,291,011
|
|
Mill Run LLC (Mill Run)
|
|
|
June 26, 2008 &
August 25, 2009
|
|
|
|
36.80
|
%
|
|
|
30,903,572
|
|
|
|
29,809,641
|
|
1407 Broadway Mezz II LLC (1407 Broadway)
|
|
|
January 4, 2007
|
|
|
|
49.00
|
%
|
|
|
1,759,817
|
|
|
|
1,871,814
|
|
Total Investments in unconsolidated affiliated real estate entities
|
|
|
|
|
|
|
|
|
|
$
|
114,308,527
|
|
|
$
|
115,972,466
|
|
Prime Outlets Acquisitions Company
As of March 31, 2010, the Operating Partnership owns a 40% membership interest in POAC (POAC Interest). The POAC Interest is a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of The Lightstone Group, the Companys sponsor, is the majority owner and manager of POAC. Profit and cash distributions will be allocated in accordance with each investors ownership percentage.
As we have recorded this investment in accordance with the equity method of accounting, our portion of POACs total indebtedness of $1.2 billion as of March 31, 2010 is not included in our investment. In connection with the acquisition of the investment in POAC, our advisor charged an acquisition fee equal to 2.75% of the acquisition price, or approximately $15.4 million. In addition, we incurred other transactions fees associated with the acquisition of the POAC Interest of approximately $10.4 million.
On December 8, 2009, the REIT has entered into a definitive agreement to dispose of its retail outlet center interests that include St. Augustine outlet center and investments in Mill Run and POAC. See Note 1.
During March 2010, the Company entered a demand grid note to borrow up to $20 million from POAC. As of March 31, 2010, the Company has received loan proceeds from POAC associated with this demand grid note in the amount of $2.0 million. The loan bears interest at libor plus 2.5%. The principal and interest on this loan is due the earlier of February 28, 2020 or on demand. The principal and interest on the loan is recorded in loans due to affiliates in the consolidated balance sheets.
POAC Financial Information
The Companys carrying value of its POAC Interest differs from its share of members equity reported in the condensed balance sheet of POAC due to the Companys cost of its investments in excess of the historical net book values of POAC. The Companys additional basis allocated to depreciable assets is recognized on a straight-line basis over the lives of the appropriate assets.
F-8
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
3. Investments in Unconsolidated Affiliated Real Estate Entities
(continued)
The following table represents the unaudited condensed income statement for POAC for the three months ended March 31, 2010 and the period March 30, 2009 through March 31, 2009:
|
|
|
|
|
|
|
For the Three
Months Ended
March 31, 2010
|
|
For the Period
March 30, 2009 to
March 31, 2009
|
Revenue
|
|
$
|
45,402,236
|
|
|
$
|
985,637
|
|
Property operating expenses
|
|
|
19,936,230
|
|
|
|
526,651
|
|
Depreciation and amortization
|
|
|
9,305,553
|
|
|
|
155,321
|
|
Operating income
|
|
|
16,160,453
|
|
|
|
303,665
|
|
Interest expense and other, net
|
|
|
(14,223,152
|
)
|
|
|
(270,393
|
)
|
Net income
|
|
$
|
1,937,301
|
|
|
$
|
33,272
|
|
Companys share of net income
|
|
$
|
774,920
|
|
|
$
|
8,318
|
|
Additional depreciation and amortization expense
(1)
|
|
|
(3,438,996
|
)
|
|
|
|
|
Companys (loss)/income from investment
|
|
$
|
(2,664,076
|
)
|
|
$
|
8,318
|
|
|
(1)
|
Additional depreciation and amortization expense relates to the amortization of the difference between the cost of the POAC Interest and the amount of the underlying equity in net assets of the POAC.
|
The following table represents the unaudited condensed balance sheet for POAC as of March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
As of
March 31, 2010
|
|
As of
December 31, 2009
|
Real estate, at cost (net)
|
|
$
|
751,629,420
|
|
|
$
|
757,385,791
|
|
Intangible assets
|
|
|
10,602,030
|
|
|
|
11,384,965
|
|
Cash and restricted cash
|
|
|
30,937,510
|
|
|
|
44,891,427
|
|
Other assets
|
|
|
63,481,595
|
|
|
|
59,050,970
|
|
Total Assets
|
|
$
|
856,650,555
|
|
|
$
|
872,713,153
|
|
Mortgage payable
|
|
$
|
1,179,432,145
|
|
|
$
|
1,183,285,466
|
|
Other liabilities
|
|
|
32,300,873
|
|
|
|
46,447,451
|
|
Member capital
|
|
|
(355,082,463
|
)
|
|
|
(357,019,764
|
)
|
Total liabilities and members capital
|
|
$
|
856,650,555
|
|
|
$
|
872,713,153
|
|
Mill Run Interest
As of March 31, 2010, our operating partnership owns a 36.8% membership interest in Mill Run (Mill Run Interest). The Mill Run Interest includes Class A and B membership shares and is a non-managing interest, with consent rights with respect to certain major decisions. Our sponsor is the managing member and owns 55% of Mill Run. Profit and cash distributions will be allocated in accordance with each investors ownership percentage after consideration of Class B members adjusted capital balance.
As the Company has recorded this investment in accordance with the equity method of accounting, our portion of Mill Runs total indebtedness of $259.7 million as March 31, 2010 is not included in the Companys investment. In connection with the acquisition of the investment in Mill Run, our advisor charged an acquisition fee equal to 2.75% of the acquisition price, or approximately $3.6 million plus we incurred other transactions fees of $2.9 million.
On December 8, 2009, the REIT has entered into a definitive agreement to dispose of its retail outlet center interests that include St. Augustine outlet center and investments in Mill Run and POAC. See Note 1.
F-9
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
3. Investments in Unconsolidated Affiliated Real Estate Entities
(continued)
Mill Run Financial Information
The Companys carrying value of its Mill Run Interest differs from its share of members equity reported in the condensed balance sheet of Mill Run due to the Companys cost of its investments in excess of the historical net book values of Mill Run. The Companys additional basis allocated to depreciable assets is recognized on a straight-line basis over the lives of the appropriate assets.
The following table represents the unaudited condensed income statement for Mill Run for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31, 2010
|
|
March 31, 2009
|
Revenue
|
|
$
|
11,895,434
|
|
|
$
|
10,643,752
|
|
Property operating expenses
|
|
|
3,051,084
|
|
|
|
3,420,971
|
|
Depreciation and amortization
|
|
|
3,041,241
|
|
|
|
2,361,153
|
|
Operating income
|
|
|
5,803,109
|
|
|
|
4,861,628
|
|
Interest expense and other, net
|
|
|
(1,631,904
|
)
|
|
|
(1,949,080
|
)
|
Net income
|
|
$
|
4,171,205
|
|
|
$
|
2,912,548
|
|
Companys share of net income
|
|
$
|
1,535,003
|
|
|
$
|
656,488
|
|
Additional depreciation and amortization expense
(1)
|
|
|
(441,072
|
)
|
|
|
(239,870
|
)
|
Companys income from investment
|
|
$
|
1,093,931
|
|
|
$
|
416,618
|
|
|
(1)
|
Additional depreciation and amortization expense relates to the amortization of the difference between the cost of the Mill Run Interest and the amount of the underlying equity in net assets of the Mill Run.
|
The following table represents the unaudited condensed balance sheet for Mill Run as of March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
As of
March 31, 2010
|
|
As of
December 31, 2009
|
Real estate, at cost (net)
|
|
$
|
254,465,778
|
|
|
$
|
257,274,810
|
|
Intangible assets
|
|
|
615,933
|
|
|
|
644,421
|
|
Cash and restricted cash
|
|
|
7,968,668
|
|
|
|
6,410,480
|
|
Other assets
|
|
|
9,815,071
|
|
|
|
9,755,013
|
|
Total Assets
|
|
$
|
272,865,450
|
|
|
$
|
274,084,724
|
|
Mortgage payable
|
|
$
|
259,695,763
|
|
|
$
|
265,195,763
|
|
Other liabilities
|
|
|
22,376,970
|
|
|
|
22,267,449
|
|
Member capital
|
|
|
(9,207,283
|
)
|
|
|
(13,378,488
|
)
|
Total liabilities and members capital
|
|
$
|
272,865,450
|
|
|
$
|
274,084,724
|
|
1407 Broadway
As of March 31, 2010, the Company has a 49% ownership in 1407 Broadway. Earnings for each investment are recognized in accordance with this investment agreement and where applicable, based upon an allocation of the investments net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period.
F-10
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
3. Investments in Unconsolidated Affiliated Real Estate Entities
(continued)
During March 2010, the Company entered a demand grid note to borrow up to $20 million from 1407 Broadway. As of March 31, 2010, the Company has received loan proceeds from the 1407 Broadway associated with this demand grid note in the amount of $0.5 million. The loan bears interest at libor plus 2.5%. The principal and interest on this loan is due the earlier of February 28, 2020 or on demand. The principal and interest on the loan is recorded in loans due to affiliates in the consolidated balance sheets.
1407 Broadway Financial
The following table represents the condensed income statement derived from unaudited financial statements for 1407 Broadway for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31, 2010
|
|
March 31, 2009
|
Total Revenue
|
|
$
|
8,861,739
|
|
|
$
|
9,607,521
|
|
Property operating expenses
|
|
|
6,478,568
|
|
|
|
6,968,759
|
|
Depreciation & Amortization
|
|
|
1,542,768
|
|
|
|
2,165,622
|
|
Operating income
|
|
|
840,403
|
|
|
|
473,140
|
|
Interest Expense and other, net
|
|
|
(1,068,967
|
)
|
|
|
(1,118,037
|
)
|
Net operating loss
|
|
$
|
(228,564
|
)
|
|
$
|
(644,897
|
)
|
Companys share of net operating loss (49%)
|
|
$
|
(111,996
|
)
|
|
$
|
(316,000
|
)
|
The following table represents the condensed balance sheet derived from unaudited financial statements for 1407 Broadway as of March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
As of
March 31, 2010
|
|
As of
December 31, 2009
|
Real estate, at cost (net)
|
|
$
|
111,553,892
|
|
|
$
|
111,803,186
|
|
Intangible assets
|
|
|
1,622,121
|
|
|
|
1,845,941
|
|
Cash and restricted cash
|
|
|
13,228,029
|
|
|
|
10,226,017
|
|
Other assets
|
|
|
12,181,544
|
|
|
|
11,887,040
|
|
Total Assets
|
|
$
|
138,585,586
|
|
|
$
|
135,762,184
|
|
Mortgage payable
|
|
$
|
121,521,030
|
|
|
$
|
116,796,263
|
|
Other liabilities
|
|
|
13,483,401
|
|
|
|
15,156,202
|
|
Member capital
|
|
|
3,581,155
|
|
|
|
3,809,719
|
|
Total liabilities and members capital
|
|
$
|
138,585,586
|
|
|
$
|
135,762,184
|
|
Debt Compliance for Investments in Unconsolidated Affiliated Real Estate Entities
The debt agreements of the unconsolidated affiliated real estate entities, which the Company has an equity investment in, are subject to various financial and reporting covenants and requirements. Noncompliance with these requirements could constitute an event of default, which could allow the lenders to accelerate the repayment of the loan, or to exercise other remedies. Although all of these real estate entities are current on payment of their respective debt obligations as of March 31, 2010, certain of these entities have instances of noncompliance with other requirements stipulated by their applicable debt agreements. These noncompliance issues
do not constitute an event of default until the borrower is notified by the lender. In certain cases, the borrower has an ability to cure the noncompliance within a specified period. To date, these entities have not been notified by the lenders. Should the lender take action to exercise its remedies, it could have an unfavorable impact on these entities cash flows and rights as owner of any investment holdings in the underlying property. Management believes that these entities will satisfactorily resolve these matters with the applicable lender for each instance where noncompliance has occurred.
F-11
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
4. Investment in Affiliate
Park Avenue Funding
On April 16, 2008, the Company made a preferred equity contribution of $11,000,000 (the Contribution) to PAF-SUB LLC (PAF), a wholly-owned subsidiary of Park Avenue Funding LLC (Park Avenue), in exchange for membership interests of PAF with certain rights and preferences described below (the Preferred Units). Park Avenue is a real estate lending company making loans, including first or second mortgages, mezzanine loans and collateral pledges of mortgages, to finance real estate transactions. Property types considered include multi-family, office, industrial, retail, self-storage, parking and land. Both
PAF and Park Avenue are affiliates of our Sponsor.
PAFs limited liability company agreement was amended on April 16, 2008 to create the Preferred Units and admit the Company as a member. The Preferred Units are entitled to a cumulative preferred distribution at the rate of 10% per annum, payable quarterly. In the event that PAF fails to pay such distribution when due, the preferred distribution rate will increase to 17% per annum. The Preferred Units are redeemable, in whole or in part, at any time at the option of the Company upon at least 180 days prior written notice (the Redemption). In addition, the Preferred Units are entitled to a liquidation preference senior to any
distribution upon dissolution with respect to other equity interests of PAF in an amount equal to (x) the Contribution plus any accrued but unpaid distributions less (y) any Redemption payments.
In connection with the Contribution, the Company and Park Avenue entered into a guarantee agreement on April 16, 2008, whereby Park Avenue unconditionally and irrevocably guarantees payment of the Redemption amounts when due (the Guarantee). Also, Park Avenue agrees to pay all costs and expenses incurred by the Company in connection with the enforcement of the Guarantee.
The Company does not have any voting rights for this investment, and does not have significant influence over this investment. The Company accounts for this investment under the cost method. Total accrued distributions related to this investment totaled $0.1 million at March 31, 2010 and at December 31, 2009, and are included in interest receivable from related parties in the consolidated balance sheets. Through March 31, 2010, the Company received redemption payments from PAF of $4.7 million, of which $1.4 million was received during the three months ended March 31, 2010. As of March 31, 2010, the Companys investment in PAF is $6.3 million and
is included in investment in affiliate, at cost in the consolidated balance sheets.
5. Marketable Securities and Fair Value Measurements
The following is a summary of the Companys available for sale securities at March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010
|
|
As of December 31, 2009
|
|
|
Adjusted
Cost
|
|
Unrealized
Gain/(Loss)
|
|
Fair Value
|
|
Adjusted
Cost
|
|
Unrealized
Gain/(Loss)
|
|
Fair Value
|
Equity Securities, primarily REITs
|
|
|
466,142
|
|
|
|
270,135
|
|
|
|
736,277
|
|
|
|
466,142
|
|
|
|
374,735
|
|
|
|
840,877
|
|
Total Marketable Securities available for sale
|
|
$
|
466,142
|
|
|
$
|
270,135
|
|
|
$
|
736,277
|
|
|
$
|
466,142
|
|
|
$
|
374,735
|
|
|
$
|
840,877
|
|
F-12
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
5. Marketable Securities and Fair Value Measurements
(continued)
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
|
|
Level 1
Quoted prices in active markets for identical assets or liabilities.
|
|
|
Level 2
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
Assets measured at fair value on a recurring basis as of March 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
As of March 31, 2010
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Equity Securities, primiarily REITs
|
|
|
736,277
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
736,277
|
|
Total Marketable securities available for sale
|
|
$
|
736,277
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
736,277
|
|
Assets measured at fair value on a recurring basis as of December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
As of December 31, 2009
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Equity Securities, primiarily REITs
|
|
|
840,877
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
840,877
|
|
Total Marketable securities available for sale
|
|
$
|
840,877
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
840,877
|
|
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.
6. Intangible Assets
At March 31, 2010, the Company had intangible assets relating to above-market leases from property acquisitions, intangible assets related to leases in place at the time of acquisition, intangible assets related to leasing costs, and intangible liabilities relating to below-market leases from property acquisitions.
The following table sets forth the Companys intangible assets/ (liabilities) as of March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2010
|
|
At December 31, 2009
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
Acquired in-place lease intangibles
|
|
$
|
1,938,968
|
|
|
$
|
(1,405,731
|
)
|
|
$
|
533,237
|
|
|
$
|
2,115,335
|
|
|
$
|
(1,505,848
|
)
|
|
$
|
609,487
|
|
Acquired above market lease intangibles
|
|
|
687,686
|
|
|
|
(518,473
|
)
|
|
|
169,213
|
|
|
|
841,475
|
|
|
|
(642,127
|
)
|
|
|
199,348
|
|
Deferred intangible leasing costs
|
|
|
1,080,475
|
|
|
|
(745,965
|
)
|
|
|
334,510
|
|
|
|
1,161,392
|
|
|
|
(783,705
|
)
|
|
|
377,687
|
|
Acquired below market lease intangibles
|
|
|
(1,165,900
|
)
|
|
|
833,248
|
|
|
|
(332,652
|
)
|
|
|
(1,614,988
|
)
|
|
|
1,234,484
|
|
|
|
(380,504
|
)
|
F-13
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
6. Intangible Assets
(continued)
During the three months ended March 31, 2010, the Company wrote off fully amortized acquired intangible assets of approximately $0.9 million resulting in a reduction of cost and accumulated amortization of intangible assets at March 31, 2010 compared to the December 31, 2009. There were no additions during the three months ended March 31, 2010.
The following table presents the projected amortization benefit of the acquired above market lease costs and the below market lease costs during the next five years and thereafter at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense/(benefit) of:
|
|
Remainder
of 2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
Acquired above market lease value
|
|
$
|
44,285
|
|
|
$
|
39,231
|
|
|
$
|
23,379
|
|
|
$
|
14,425
|
|
|
$
|
14,425
|
|
|
$
|
33,468
|
|
|
$
|
169,213
|
|
Acquired below market lease value
|
|
|
(76,133
|
)
|
|
|
(82,669
|
)
|
|
|
(44,748
|
)
|
|
|
(43,462
|
)
|
|
|
(42,819
|
)
|
|
|
(42,821
|
)
|
|
|
(332,652
|
)
|
Projected future net rental income increase
|
|
$
|
(31,848
|
)
|
|
$
|
(43,438
|
)
|
|
$
|
(21,369
|
)
|
|
$
|
(29,037
|
)
|
|
$
|
(28,394
|
)
|
|
$
|
(9,353
|
)
|
|
$
|
(163,439
|
)
|
Amortization benefit of acquired above and below market lease values is included in total revenues in our consolidated statement of operations was $17,717 and $29,487 for the three months ended March 31, 2010 and 2009, respectively.
The following table presents the projected amortization expense of the acquired in-place lease intangibles and acquired leasing costs during the next five years and thereafter at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of:
|
|
Remainder
of 2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
Acquired in-place leases value
|
|
$
|
123,049
|
|
|
$
|
104,441
|
|
|
$
|
71,444
|
|
|
$
|
65,790
|
|
|
$
|
65,565
|
|
|
$
|
102,948
|
|
|
$
|
533,237
|
|
Deferred intangible leasing costs value
|
|
|
78,547
|
|
|
$
|
70,973
|
|
|
$
|
44,209
|
|
|
$
|
39,247
|
|
|
$
|
38,922
|
|
|
$
|
62,612
|
|
|
|
334,510
|
|
Projected future amortization expense
|
|
$
|
201,596
|
|
|
$
|
175,414
|
|
|
$
|
115,653
|
|
|
$
|
105,037
|
|
|
$
|
104,487
|
|
|
$
|
165,560
|
|
|
$
|
867,747
|
|
Actual total amortization expense included in depreciation and amortization expense in our consolidated statement of operations was $0.1 million and $0.2 million for the three months ended March 31, 2010 and 2009, respectively.
7. Assets and Liabilities Held for Sale and Discontinued Operations
On December 8, 2009, the Company signed a definitive agreement to sell its St. Augustine Outlet center (St. Augustine) as part of an agreement to dispose of its interests in its investments in POAC and Mill Run. See Note 1 for further discussion. The Company expects the transaction to be completed during 2010. The St. Augustine assets and liabilities meet the criteria for classification as held for sale and discontinued operations. To date, the Company has not recorded an impairment charge related to the expected sale as the St. Augustines net asset carrying value plus the Companys carrying value of the investments in POAC and
Mill Run are lower than the expected proceeds, after consideration of debt to be assumed by buyer.
F-14
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
7. Assets and Liabilities Held for Sale and Discontinued Operations
(continued)
The following summary presents the operating results of St. Augustine included in discontinued operations in the Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009.
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31,
2010
|
|
March 31,
2009
|
Revenue
|
|
$
|
1,699,951
|
|
|
$
|
1,653,612
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Property operating expense
|
|
|
651,836
|
|
|
|
641,298
|
|
Real estate taxes
|
|
|
128,064
|
|
|
|
132,337
|
|
General and administrative costs
|
|
|
6,829
|
|
|
|
27,626
|
|
Depreciation and amortization
|
|
|
|
|
|
|
561,286
|
|
Total operating expense
|
|
|
786,729
|
|
|
|
1,362,547
|
|
Operating income
|
|
|
913,222
|
|
|
|
291,065
|
|
Other income, net
|
|
|
139,006
|
|
|
|
2,056
|
|
Interest income
|
|
|
2,480
|
|
|
|
2,969
|
|
Interest expense
|
|
|
(401,220
|
)
|
|
|
(422,134
|
)
|
Net income/(loss) loss from discontinued operations
|
|
$
|
653,488
|
|
|
$
|
(126,044
|
)
|
Cash flows generated from discontinued operations are presented separately on the Companys Consolidated Statements of Cash Flows.
The following summary presents the major components of assets and liabilities held for sale as of March 31, 2010 and December 31, 2009.
|
|
|
|
|
|
|
As of
|
|
|
March 31,
2010
|
|
December 31,
2009
|
Net investment property
|
|
$
|
55,796,597
|
|
|
$
|
55,787,190
|
|
Intangible assets, net
|
|
|
827,010
|
|
|
|
801,818
|
|
Restricted escrows
|
|
|
4,205,413
|
|
|
|
4,015,945
|
|
Other assets
|
|
|
995,719
|
|
|
|
944,631
|
|
Total assets
|
|
$
|
61,824,739
|
|
|
$
|
61,549,584
|
|
Mortgage payable
|
|
$
|
26,306,838
|
|
|
$
|
26,400,159
|
|
Other liabilities
|
|
|
1,190,654
|
|
|
|
1,030,901
|
|
Total liabilities
|
|
$
|
27,497,492
|
|
|
$
|
27,431,060
|
|
For the mortgage payable related to St. Augustine, Lightstone Holdings, LLC (Guarantor), a company wholly owned by the Advisor, has guaranteed to the extent of a $27.2 million mortgage loan on the St. Augustine, the payment of losses that the lender may sustain as a result of fraud, misappropriation, misuse of loan proceeds or other acts of misconduct by the Company and/or its principals or affiliates. Such losses are recourse to the Guarantor under the guaranty regardless of whether the lender has attempted to procure payment from the Company or any other party. Further, in the event of the Companys voluntary bankruptcy,
reorganization or insolvency, or the interference by the Company or its affiliates in any foreclosure proceedings or other remedy exercised by the lender, the Guarantor has guaranteed the payment of any unpaid loan amounts. The Company has agreed, to the maximum extent permitted by its Charter, to indemnify Guarantor for any liability that it incurs under this guaranty.
F-15
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
8. Assets and Liabilities of Properties in Foreclosure
During the three months ended March 31, 2010, two of the Companys multifamily properties were part of foreclosure proceedings as a result of the properties being in default on their debt at the end of 2009. During 2009, the Company decided to not make the required debt service payments of $0.2 million in the month of October and thereafter on the two loans collateralized by an apartment property located in North Carolina and one located in Florida. These two loans had an aggregate outstanding principal balance of $42.3 million as of March 31, 2010. The Company determined that future debt service payments on these two loans would no longer be
economically beneficial to the Company based upon the current and expected future performance of the properties associated with these two loans. The foreclosure sale for one of the properties closed on April 13, 2010 and the other one was completed on May 12, 2010. As of March 31, 2010, these two properties are included in continuing operations and once disposed of will be removed from continuing operations and reported as discontinued operations. The Company during 2009 recorded an asset impairment charge of $26.0 million associated with these properties. During the three months ended March 31, 2010, no additional impairment charge has been recorded as the net book values of the assets are not greater than the current estimated fair market value.
The following summary presents the operating results of the two properties within the multifamily segment to be disposed of through foreclosure, which are included in continuing operations in the Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009.
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31,
2010
|
|
March 31,
2009
|
Revenue
|
|
$
|
1,334,206
|
|
|
$
|
1,383,310
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Property operating expense
|
|
|
641,091
|
|
|
|
699,696
|
|
Real estate taxes
|
|
|
154,575
|
|
|
|
169,554
|
|
General and administrative costs
|
|
|
17,415
|
|
|
|
114,414
|
|
Depreciation and amortization
|
|
|
148,225
|
|
|
|
282,876
|
|
Total Operating expense
|
|
|
961,306
|
|
|
|
1,266,540
|
|
Operating income
|
|
|
372,900
|
|
|
|
116,770
|
|
Other income, net
|
|
|
(3,050
|
)
|
|
|
49,038
|
|
Interest income
|
|
|
673
|
|
|
|
85
|
|
Interest expense
|
|
|
(595,091
|
)
|
|
|
(595,091
|
)
|
Net loss
|
|
$
|
(224,568
|
)
|
|
$
|
(429,198
|
)
|
The following summary presents the major components of the two properties within the multifamily segment to be disposed of through foreclosure which are included in continuing operations as of March 31, 2010 and December 31, 2009.
|
|
|
|
|
|
|
As of
|
|
|
March 31,
2010
|
|
December 31,
2009
|
Net investment property
|
|
$
|
25,384,560
|
|
|
$
|
25,514,160
|
|
Intangible assets, net
|
|
|
376,833
|
|
|
|
397,020
|
|
Cash and cash equivalents
|
|
|
800,190
|
|
|
|
398,765
|
|
Restricted escrows
|
|
|
468,939
|
|
|
|
167,953
|
|
Other assets
|
|
|
159,702
|
|
|
|
203,225
|
|
Total assets
|
|
$
|
27,190,224
|
|
|
$
|
26,681,123
|
|
Mortgage payable
|
|
$
|
42,272,300
|
|
|
$
|
42,272,300
|
|
Other liabilities
|
|
|
1,970,615
|
|
|
|
1,231,050
|
|
Total liabilities
|
|
$
|
44,242,915
|
|
|
$
|
43,503,350
|
|
F-16
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
9. Mortgages Payable
Mortgages payable, totaling approximately $217.2 million at March 31, 2010 and $218.1 million at December 31, 2009 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
Weighted Avg
Interest Rate
as March 31,
2010
|
|
Maturity
Date
|
|
Amount
Due at
Maturity
|
|
Loan Amount as of
|
Property
|
|
March 31,
2010
|
|
December 31,
2009
|
Southeastern Michigan Multi Family Properties
|
|
|
5.96
|
%
|
|
|
5.96
|
%
|
|
|
July 2016
|
|
|
$
|
38,138,605
|
|
|
$
|
40,725,000
|
|
|
$
|
40,725,000
|
|
Oakview Plaza
|
|
|
5.49
|
%
|
|
|
5.49
|
%
|
|
|
January 2017
|
|
|
|
25,583,137
|
|
|
|
27,500,000
|
|
|
|
27,500,000
|
|
Gulf Coast Industrial Portfolio
|
|
|
5.83
|
%
|
|
|
5.83
|
%
|
|
|
February 2017
|
|
|
|
49,556,985
|
|
|
|
53,025,000
|
|
|
|
53,025,000
|
|
Houston Extended Stay Hotels
|
|
|
LIBOR +
4.50
|
%
|
|
|
4.80
|
%
|
|
|
April 2011
|
|
|
|
9,008,750
|
|
|
|
10,062,500
|
|
|
|
10,193,750
|
|
Brazos Crossing Power Center
|
|
|
Greater of
LIBOR +3.50%
or 6.75
|
%
|
|
|
6.75
|
%
|
|
|
December 2011
|
|
|
|
6,385,788
|
|
|
|
6,580,526
|
|
|
|
7,338,947
|
|
Camden Multi Family Properties (Three Individual Loans)
|
|
|
5.44
|
%
|
|
|
5.44
|
%
|
|
|
December 2014
|
|
|
|
34,983,514
|
|
|
|
36,996,500
|
|
|
|
36,996,500
|
|
Total subtotal mortgage obligations
|
|
|
|
|
|
|
7.45
|
%
|
|
|
|
|
|
|
163,656,779
|
|
|
|
174,889,526
|
|
|
|
175,779,197
|
|
Camden Multi Family Propertes (Two Individual Loans) in default and foreclosure
|
|
|
|
|
|
|
5.44
|
%
|
|
|
Current
|
|
|
|
42,272,300
|
|
|
|
42,272,300
|
|
|
|
42,272,300
|
|
Total mortgage obligations
|
|
|
|
|
|
|
6.96
|
%
|
|
|
|
|
|
$
|
205,929,079
|
|
|
$
|
217,161,826
|
|
|
$
|
218,051,497
|
|
LIBOR at March 31, 2010 was 0.2486%. Each of the loans is secured by acquired real estate and is non-recourse to the Company, with the exception of the Houston Extended Stay Hotels loan which is 35% recourse to the Company.
The following table shows the mortgage payable maturing during the next five years and thereafter at March 31, 2010 including St. Augustines debt of $26.3 million reported in liabilities held for sale in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder
of 2010
(1)
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
$43,548,637
|
|
$
|
16,676,569
|
|
|
$
|
2,213,555
|
|
|
$
|
2,501,237
|
|
|
$
|
37,584,958
|
|
|
$
|
140,943,708
|
|
|
$
|
243,468,664
|
|
|
(1)
|
The amount due in 2010 of $43.5 million includes the principal balance of $42.3 million associated with two loans within the Camden portfolio that are in default status.
|
Pursuant to the Companys loan agreements, escrows in the amount of approximately $2.9 million were held in restricted escrow accounts at March 31, 2010. These escrows will be released in accordance with the loan agreements as payments of real estate taxes, insurance and capital improvement transactions, as required. Of the $2.9 million in restricted escrows as of March 31, 2010, $0.5 million was directly held by the lender for two of the Camden properties (See discussion below). Our mortgage debt also contains clauses providing for prepayment penalties.
In connection with the acquisition of the Hotels, the Houston Partnership along with ESD #5051 Houston Sugar Land, LLC and ESD #5050 Houston Katy Freeway, LLC, its wholly owned subsidiaries (the Houston Borrowers) secured a mortgage loan from Bank of America, N.A. in the principal amount of $12.85 million which matured on April 16, 2010 and during April 2010 has been subsequently amended and extended to mature April 16, 2011. As part of the April 2010 amendment, the Company made a
F-17
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
9. Mortgages Payable
(continued)
lump sum principal payment of $0.5 million. The amended mortgage loan bears interest on a daily basis expressed as a floating rate equal to the lesser of (i) the maximum non-usurious rate of interest allowed by applicable law or (ii) the British Bankers Association Libor Daily Floating Rate plus 450 basis points (4.50%) per annum rate and requires monthly installments of interest plus a principal payment of $43,750. The remaining principal balance, together with all accrued and unpaid interest and all other amounts payable there under will be due on April 16, 2011. The mortgage loan is secured by the Hotels and 35% of the obligation is guaranteed by
the Company.
In December 2008, the Company converted its construction loan to fund and the development of the Brazos Crossing Power Center, in Lake Jackson, Texas Location to a term loan maturing on December 4, 2009 which has been subsequently amended and extended to mature December 4, 2011. As part of the amendment to the mortgage, the Company made a lump sum principal payment of $0.7 million in February 2010. The amended mortgage loan bears interest at the greater of 6.75% or libor plus 350 basis points (3.50%) per annum rate and requires monthly installments of interest plus a principal payment of $9,737. The loan is secured by acquired real estate.
On November 16, 2007, in connection with the acquisition of the Camden Properties, the Company through its wholly owned subsidiaries obtained from Fannie Mae five substantially similar fixed rate mortgages aggregating $79.3 million (the Loans). The Loans have a 30 year amortization period, mature in 7 years, and bear interest at a fixed rate of 5.44% per annum. The Loans require monthly installments of interest only through December 2010 and monthly installments of principal and interest throughout the remainder of their stated terms. The Loans will mature on December 1, 2014, at which time a balance of approximately $75.0 million will be
due. During October 2009, the Company decided to not make its required debt service payments of $0.2 million on two of these five loans, which had an outstanding principal balance of $42.3 million as of December 31, 2009. The Company determined that future debt service payments on these loans would no longer be economically beneficial to the Company based upon the current and expected future performance of the locations associated with these two loans. During the first quarter of 2010, the Company has been notified by the lender that it will be foreclosing on these two properties. The foreclosure sale for one of the properties was completed on April 13, 2010 and the other one was completed on May 12, 2010. Through March 31, 2010, the Company has not recorded any potential prepayment penalties that it may be assessed by the lender as the Company believes that the payment of this potential liability is remote.
10. Distributions and Share Redemption Plan
Distributions
The Board of Directors of the Lightstone REIT declared a dividend for each quarter in since 2006. The distributions have been calculated based on stockholders of record each day during this three-month period at a rate of $0.0019178 per day, which, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00.
On March 2, 2010, the Company declared a distribution for the three-month period ending March 31, 2010 of $5.5 million. The distribution was calculated based on stockholders of record each day during this three-month period at a rate of $0.0019178 per day, and equaled a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. The distribution was paid in full on March 30, 2010 using a combination of cash ($3.4 million) and shares ($2.1 million) which represents 0.2 million shares of the Companys common stock issued pursuant to the Companys Distribution Reinvestment
Program, at a discounted price of $9.50 per share.
The amount of distributions paid to our stockholders in the future will be determined by our Board of Directors and is dependent on a number of factors, including funds available for payment of dividends, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code.
F-18
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
10. Distributions and Share Redemption Plan
(continued)
Share Redemption Plans
Effective March 2, 2010, the Board voted to temporarily suspend future share redemptions under the Share Redemption Plan. The Board will revisit this decision when the previously announced disposition of retail outlet assets transaction closes and anticipates that after that time it will resume redeeming shares during the second half of 2010.
11. Net Loss per Share
Net Loss per Share
Net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding. As of March 31, 2010, the Company has 27,000 options issued and outstanding. As such, the numerator and the denominator used in computing both basic and diluted net loss per share allocable to common stockholders for each year presented are equal due to the net operating loss. The 27,000 options are not included in the dilutive calculation as they are anti dilutive as a result of the net loss attributable to Companys common shares.
12. Noncontrolling Interests
The noncontrolling interests of the Company hold shares in the Operating Partnership. These shares include SLP units, limited partner units, Series A Preferred Units and Common Units.
Distributions
During the three months ended March 31, 2010, the Company paid distributions to noncontrolling interests of $1.7 million. In addition, as of March 31, 2010, the total distributions declared and not paid to noncontrolling interests was $1.7 million, which were subsequently paid on April 15, 2010.
Note Receivable due from Noncontrolling Interests
In connection with the contribution of the Mill Run and POAC membership interests, the Company made loans to Arbor Mill Run JRM, LLC (Arbor JRM), Arbor National, LLC CJ (Arbor CJ), AR Prime Holding, LLC (AR Prime), Central Jersey, LLC (TRAC), Central Jersey Holdings II, LLC (Central Jersey), and JT Prime, LLC (JT Prime) (collectively, Noncontrolling Interest Borrowers) in the aggregate principal amount of $88.5 million (the Noncontrolling Interest Loans). These loans are payable semi-annually and accrue interest at an annual rate of 4%. The loans mature
through September 2017 and contain customary events of default and default remedies. The loans require the Noncontrolling Interest Borrowers to prepay their respective loans in full upon redemption of the Series A Preferred Units by the Operating Partnership. The loans are secured by the Series A Preferred Units and Common Units issued in connection with the respective contribution of the Mill Run and the POAC membership interests, as such these loans are classified as a reduction to noncontrolling interests in the consolidated balance sheets.
Accrued interest related to these loans totaled $1.1 million and $1.8 million at March 31, 2010 and December 31, 2009 and are included in interest receivable from related parties in the consolidated balance sheets.
Noncontrolling Interest of Subsidiary within the Operating Partnerships
On August 25, 2009, the Operating Partnership acquired an additional 15% membership interest in POAC and an additional 14.26% membership interest in Mill Run. In connection with the transactions, the Advisor charged an acquisition fee equal to 2.75% of the acquisition price, which was approximately $6.9 million ($5.6 million related POAC and $1.3 million related to Mill Run, see Note 4). On August 25, 2009, the Operating Partnership contributed its investments of the 15% membership interest in POAC and the 14.26% membership interest in Mill Run to the newly formed PRO-DFJV Holdings, LLC, a Delaware limited liability
F-19
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
12. Noncontrolling Interests
(continued)
company (PRO) in exchange for a 99.99% managing membership interest in PRO. In addition, Lightstone REIT contributed $2,900 cash for a 0.01% non-managing membership interest in PRO. As the Operating Partnership is the managing member with control, PRO is consolidated into the results and financial position of the Company. On September 15, 2009, the Advisor accepted, in lieu of a cash payment of $6.9 million for the acquisition fee, a 19.17% profit membership interest in PRO and assigned its rights to receive payment to the Sponsor, who assigned the same to David Lichtenstein. Under the terms of the operating agreement of PRO, the 19.17%
profit membership interest will not receive any distributions until the Operating Partnership and Lightstone REIT receive distributions equivalent to their capital contributions of approximately $29.0 million, then the 19.17% profit membership interest shall receive distributions to $6.9 million. Any remaining distributions shall be split between the three members in proportion to their profit interests.
13. Related Party Transactions
The Lightstone REIT has agreements with the Advisor and Lightstone Value Plus REIT Management LLC (the Property Manager) to pay certain fees in exchange for services performed by these entities and other affiliated entities. The Lightstone REITs ability to secure financing and subsequent real estate operations are dependent upon its Advisor, Property Manager and their affiliates to perform such services as provided in these agreements.
The Lightstone REIT pursuant to the related party arrangements has recorded the following amounts the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
2010
|
|
March 31,
2009
|
|
|
(unaudited)
|
Acquisition fees
|
|
$
|
|
|
|
$
|
9,778,760
|
|
Asset management fees
|
|
|
1,452,809
|
|
|
|
660,430
|
|
Property management fees
|
|
|
434,476
|
|
|
|
459,556
|
|
Acquisition expenses reimbursed to Advisor
|
|
|
|
|
|
|
902,753
|
|
Development fees and leasing commissions
|
|
|
84,821
|
|
|
|
100,192
|
|
Total
|
|
$
|
1,972,106
|
|
|
$
|
11,901,691
|
|
Lightstone SLP, LLC, an affiliate of our Sponsor, has purchased SLP units in the Operating Partnership. These SLP units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, will entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership. During the three months ended March 31, 2010, distributions of $0.5 million were declared and distributions of $0.5 million were paid related to the SLP units and are part of noncontrolling interests. Since inception through March 31, 2010, cumulative distributions declared were $4.9 million, of
which $4.4 million have been paid. Such distributions, paid current at a 7% annualized rate of return to Lightstone SLP, LLC through March 31, 2010 and will always be subordinated until stockholders receive a stated preferred return.
See Notes 3, 4 and 12 for other related party transactions.
F-20
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
14. Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because of the short maturity of these instruments. The fair value of the mortgage payable as of March 31, 2010 was approximately $237.1 million, which includes $26.0 million related to St. Augustine debt classified as liabilities held for sale compared to the book value of approximately $243.5 million, including $26.3 million related to St. Augustine. The fair value of the mortgage payable as of December 31, 2009 was approximately $235.3 million, which includes $25.6 million related to St. Augustine debt classified as liabilities
held for sale compared to the book value of approximately $244.5 million, including $26.4 related to St. Augustine. The fair value of the mortgage payable was determined by discounting the future contractual interest and principal payments by a market interest rate.
15. Segment Information
The Company currently operates in four business segments as of March 31, 2010: (i) retail real estate, (ii) residential multifamily real estate, (iii) industrial real estate and (iv) hospitality. The Companys advisor and its affiliates provide leasing, property and facilities management, acquisition, development, construction and tenant-related services for its portfolio. The Companys revenues for the three months ended March 31, 2010 and 2009 were exclusively derived from activities in the United States. No revenues from foreign countries were received or reported. The Company had no long-lived assets in foreign locations as of March 31,
2010 and December 31, 2009. The accounting policies of the segments are the same as those described in Note 2: Summary of Significant Accounting Policies of the Companys December 31, 2009 Annual Report on Form 10-K. Unallocated assets, revenues and expenses relate to corporate related accounts.
The Company evaluates performance based upon net operating income from the combined properties in each real estate segment.
Selected results of operations for the three months ended March 31, 2010 and 2009, and total assets as of March 31, 2010 and December 31, 2009 regarding the Companys operating segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2010
|
|
|
(unaudited)
|
|
|
Retail
|
|
Multi Family
|
|
Industrial
|
|
Hospitality
|
|
Unallocated
|
|
Total
|
Total revenues
|
|
$
|
1,050,949
|
|
|
$
|
4,563,564
|
|
|
$
|
1,761,906
|
|
|
$
|
577,472
|
|
|
$
|
|
|
|
$
|
7,953,891
|
|
Property operating expenses
|
|
|
144,099
|
|
|
|
2,238,643
|
|
|
|
495,575
|
|
|
|
433,925
|
|
|
|
106
|
|
|
|
3,312,348
|
|
Real estate taxes
|
|
|
173,423
|
|
|
|
511,112
|
|
|
|
233,526
|
|
|
|
74,095
|
|
|
|
|
|
|
|
992,156
|
|
General and administrative costs
|
|
|
(1,813
|
)
|
|
|
45,651
|
|
|
|
6,172
|
|
|
|
3,982
|
|
|
|
2,989,913
|
|
|
|
3,043,905
|
|
Net operating income (loss)
|
|
|
735,240
|
|
|
|
1,768,158
|
|
|
|
1,026,633
|
|
|
|
65,470
|
|
|
|
(2,990,019
|
)
|
|
|
605,482
|
|
Depreciation and amortization
|
|
|
321,210
|
|
|
|
560,869
|
|
|
|
608,085
|
|
|
|
124,805
|
|
|
|
|
|
|
|
1,614,969
|
|
Loss of property damaged
|
|
|
|
|
|
|
300,000
|
|
|
|
(25,896
|
)
|
|
|
|
|
|
|
|
|
|
|
274,104
|
|
Operating income (loss)
|
|
$
|
414,030
|
|
|
$
|
907,289
|
|
|
$
|
444,444
|
|
|
$
|
(59,335
|
)
|
|
$
|
(2,990,019
|
)
|
|
$
|
(1,283,591
|
)
|
As of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
101,370,402
|
|
|
$
|
97,422,425
|
|
|
$
|
71,735,677
|
|
|
$
|
17,835,030
|
|
|
$
|
129,993,843
|
|
|
$
|
418,357,377
|
|
F-21
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
15. Segment Information
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2009
|
|
|
(unaudited)
|
|
|
Retail
|
|
Multi Family
|
|
Industrial
|
|
Hospitality
|
|
Unallocated
|
|
Total
|
Total revenues
|
|
$
|
1,119,917
|
|
|
$
|
4,851,671
|
|
|
$
|
1,888,638
|
|
|
$
|
940,261
|
|
|
$
|
|
|
|
$
|
8,800,487
|
|
Property operating expenses
|
|
|
138,438
|
|
|
|
2,397,053
|
|
|
|
397,721
|
|
|
|
438,578
|
|
|
|
|
|
|
|
3,371,790
|
|
Real estate taxes
|
|
|
181,623
|
|
|
|
520,928
|
|
|
|
233,212
|
|
|
|
59,687
|
|
|
|
|
|
|
|
995,450
|
|
General and administrative costs
|
|
|
60,617
|
|
|
|
274,458
|
|
|
|
9,349
|
|
|
|
(3,951
|
)
|
|
|
1,132,756
|
|
|
|
1,473,229
|
|
Net operating income (loss)
|
|
|
739,239
|
|
|
|
1,659,232
|
|
|
|
1,248,356
|
|
|
|
445,947
|
|
|
|
(1,132,756
|
)
|
|
|
2,960,018
|
|
Depreciation and amortization
|
|
|
352,142
|
|
|
|
755,530
|
|
|
|
628,378
|
|
|
|
114,841
|
|
|
|
277
|
|
|
|
1,851,168
|
|
Operating income (loss)
|
|
$
|
387,097
|
|
|
$
|
903,702
|
|
|
$
|
619,978
|
|
|
$
|
331,106
|
|
|
$
|
(1,133,033
|
)
|
|
$
|
1,108,850
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
101,842,972
|
|
|
$
|
97,733,447
|
|
|
$
|
72,032,250
|
|
|
$
|
18,043,757
|
|
|
$
|
139,911,450
|
|
|
$
|
429,563,876
|
|
16. Commitments and Contingencies
Legal Proceedings
From time to time in the ordinary course of business, the Lightstone REIT may become subject to legal proceedings, claims or disputes.
On March 29, 2006, Jonathan Gould, a former member of our Board of Directors and Senior Vice-President Acquisitions, filed a lawsuit against us in the District Court for the Southern District of New York. The suit alleges, among other things, that Mr. Gould was insufficiently compensated for his services to us as director and officer. Mr. Gould sought damages of (i) up to $11,500,000 or (ii) a 2.5% ownership interest in all properties that we acquire and an option to acquire up to 5% of the membership interests of Lightstone SLP, LLC. We filed a motion to dismiss the lawsuit. After review of the motion to dismiss, counsel for Mr.
Gould represented that Mr. Gould was dropping his claim for ownership interest in the properties we acquire and his claim for membership interests. Mr. Goulds counsel represented that he would be suing only under theories of quantum merit and unjust enrichment seeking the value of work he performed. Counsel for the Lightstone REIT made motion to dismiss Mr. Goulds complaint, which was granted by Judge Sweeney. Mr. Gould has filed an appeal of the decision dismissing his case, which is pending. Management believes that this suit is frivolous and entirely without merit and intends to defend against these charges vigorously. The Company believes any unfavorable outcome on this matter will not have a material effect on the unaudited consolidated financial statements.
On January 4, 2007, 1407 Broadway Real Estate LLC (Office Owner), an indirect, wholly owned subsidiary of 1407 Broadway Mezz II LLC (Mezz II), consummated the acquisition of a sub-leasehold interest (the Sublease Interest) in an office building located at 1407 Broadway, New York, New York (the Office Property). Mezz II is a joint venture between LVP 1407 Broadway LLC (LVP LLC), a wholly owned subsidiary of our operating partnership, and Lightstone 1407 Manager LLC (Manager), which is wholly owned by David Lichtenstein, the Chairman of our Board of Directors and our Chief
Executive Officer, and Shifra Lichtenstein, his wife.
The Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold Agreement with Gettinger Associates, L.P. (Gettinger). In July 2006, Abraham Kamber Company, as Sublessor under the sublease (Sublessor), served two notices of default on Gettinger (the Default Notices). The first alleged that Gettinger had failed to satisfy its obligations in performing certain renovations and the second asserted numerous defaults relating to Gettingers purported failure to maintain the Office Property in compliance with its contractual obligations.
F-22
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
16. Commitments and Contingencies
(continued)
In response to the Default Notices, Gettinger commenced legal action and obtained an injunction that extends its time to cure any default, prohibits interference with its leasehold interest and prohibits Sublessor from terminating its sublease pending resolution of the litigation. A motion by Sublessor for partial summary judgment, alleging that certain work on the Office Property required its prior approval, was denied by the Supreme Court, New York County. Subsequently, by agreement of the parties, a stay was entered precluding the termination of the Sublease Interest pending a final decision on Sublessors claim of defaults under the Sublease
Interest. In addition, the parties stipulated to the intervention of Office Owner as a party to the proceedings. The parties have been directed to engage in and complete discovery. We consider the litigation to be without merit.
Prior to consummating the acquisition of the Sublease Interest, Office Owner received a letter from Sublessor indicating that Sublessor would consider such acquisition a default under the original sublease, which prohibits assignments of the Sublease Interest when there is an outstanding default there under. On February 16, 2007, Office Owner received a Notice to Cure from Sublessor stating the transfer of the Sublease Interest occurred in violation of the Sublease given Sublessors position that Office Seller is in default. Office Owner will commence and vigorously pursue litigation in order to challenge the default, receive an injunction and
toll the termination period provided for in the Sublease.
On September 4, 2007, Office Owner commenced a new action against Sublessor alleging a number claims, including the claims that Sublessor has breached the sublease and committed intentional torts against Office Owner by (among other things) issuing multiple groundless default notices, with the aim of prematurely terminating the sublease and depriving Office Owner of its valuable interest in the sublease. The complaint seeks a declaratory judgment that Office Owner has not defaulted under the sublease, damages for the losses Office Owner has incurred as a result of Sublessors wrongful conduct, and an injunction to prevent Sublessor from issuing
further default notices without valid grounds or in bad faith. The Company believes any unfavorable outcome on this matter will not have a material effect on the consolidated financial statements.
As of the date hereof, we are not a party to any other material pending legal proceedings.
Tax Protection Agreement
In connection with the contribution of the Mill Run Interest (see Note 3) and the POAC Interest (See Note 3), the Operating Partnership entered into Tax Protection Agreements with each of Arbor JRM, Arbor CJ, AR Prime, TRAC, Central Jersey and JT Prime (collectively, the Contributors). Under these Tax Protection Agreements, the Operating Partnership is required to indemnify each of Arbor JRM, Arbor CJ, TRAC and Central Jersey with respect to the Mill Run Properties, and AR Prime and JT Prime, with respect to the POAC Properties, from June 26, 2008 for Arbor JRM, Arbor CJ and AR Prime and from August 25, 2009 for TRAC, Central Jersey and
JT Prime to June 26, 2013 for, among other things, certain income tax liability that would result from the income or gain which Arbor JRM, Arbor CJ, TRAC, Central Jersey on the one hand, or AR Prime, JT Prime, on the other hand, would recognize upon the Operating Partnerships failure to maintain the current level of debt encumbering the Mill Run Properties or the POAC Properties, respectively, or the sale or other disposition by the Operating Partnership of the Mill Run Properties, the Mill Run Interest, the POAC Properties, or the POAC Interest (each, an Indemnifiable Event). Under the terms of the Tax Protection Agreements, the Operating Partnership is indemnifying the Contributors for certain income tax liabilities based on income or gain which the Contributors are deemed to be required to include in their gross income for federal or state income tax purposes (assuming the Contributors are subject to tax at the highest regional, federal, state and local tax rates
imposed on individuals residing in New York City) as a result of an Indemnifiable Event. This indemnity covers income taxes, interest and penalties and is required to be made on a grossed up basis that effectively results in the Contributors receiving the indemnity payment on a net, after-tax basis. The amount of the potential tax indemnity to the Contributors under the Tax Protection Agreements, including a gross-up for taxes on any such payment, using current tax rates, is estimated to be
F-23
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
16. Commitments and Contingencies
(continued)
approximately $95.7 million. The Company has not recorded a liability in its consolidated balance sheets as the Company believes that the potential liability is remote as of March 31, 2010.
Each Tax Protection Agreement imposes certain restrictions upon the Operating Partnership relating to transactions involving the Mill Run Properties and the POAC Properties which could result in taxable income or gain to the Contributors. The Operating Partnership may not dispose or transfer any Mill Run Property or any POAC Property without first proving that the Operating Partnership possesses the requisite liquidity, including the proceeds from any such transaction, to make any payments that would come due pursuant to the Tax Protection Agreement. However, the Operating Partnership may take the following actions: (i) (A) as to the POAC Properties,
commencing with the period one year and thirty-one days following the date of the Tax Protection Agreement, the Operating Partnership can sell on an annual basis part or all of any of the POAC Properties with an aggregate value of ten percent (10%) or less of the total value of the POAC Properties as of the date of contribution (and any amounts of the ten percent (10%) value not sold can be applied to sales in future years); and (B) as to the Mill Run Properties either the same ten percent (10%) test as set forth above in (i)(A) with respect to the Mill Run Properties or the sale of the property known by Design Outlet Center; and (ii) the Operating Partnership can enter into a non-recognition transaction with either the consent of the Contributors or an opinion from an independent law or accounting firm stating that it is more likely than not that the transaction will not give rise to current taxable income or gain.
Investment Company Act of 1940
The Investment Company Act of 1940 places restrictions on the capital structure and business activities of companies registered thereunder. The Company intends to conduct its operations so that it will not be subject to regulation under the Investment Company Act of 1940. However, based upon changes in the valuation of the Companys portfolio of investments as of September 30, 2009, including with respect to certain investment securities the Company currently holds, the Company may be deemed to have become an inadvertent investment company under the Investment Company Act of 1940. The Company is currently evaluating its response to this
development, including the availability of exemptive or other relief under the Investment Company Act of 1940, and the Company intends to take affirmative steps to ensure compliance with applicable regulatory requirements.
If the Company fails to maintain an exemption or exclusion from registration as an investment company, the Company could, among other things, be required either (a) to substantially change the manner in which the Company conducts its operations to avoid being required to register as an investment company, or (b) to register as an investment company, either of which could have an adverse effect on the Company and the market price of its common stock. If the Company were required to register as an investment company under the Investment Company Act of 1940, the Company would become subject to substantial regulation with respect to its capital structure
(including its ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act of 1940), portfolio composition, including restrictions with respect to diversification and industry concentration and other matters. In addition, if the SEC or a court takes the view that the Company has operated and continues to operate as an unregistered investment company in violation of the Investment Company Act of 1940, and does not provide the Company with a sufficient period to either register as an investment company, obtain exemptive relief, or divest itself of investment securities and/or acquire non-investment securities, the Company may be subject to significant potential penalties and certain of the contracts to which it is a party may be voidable.
The Company intends to continue to monitor its compliance with the exemptions under the Investment Company Act of 1940 on an ongoing basis.
From time to time in the ordinary course of business, the Lightstone REIT may become subject to legal proceedings, claims or disputes.
F-24
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Lightstone Value Plus Real Estate Investment Trust, Inc. and its Subsidiaries
We have audited the accompanying consolidated balance sheets of Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders equity and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 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 Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
We have also audited the consolidated financial statement schedule, Schedule III Real Estate and Accumulated Depreciation, as of December 31, 2009. In our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Amper, Politziner & Mattia, LLP
March 31, 2010
Edison, New Jersey
F-25
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2009 and 2008
|
|
|
|
|
|
|
December 31,
2009
|
|
December 31,
2008
|
ASSETS
|
|
|
|
|
|
|
|
|
Investment property:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
44,799,646
|
|
|
$
|
53,967,517
|
|
Building
|
|
|
183,330,499
|
|
|
|
225,647,655
|
|
Construction in progress
|
|
|
284,952
|
|
|
|
2,517,707
|
|
Gross investment property
|
|
|
228,415,097
|
|
|
|
282,132,879
|
|
Less accumulated depreciation
|
|
|
(11,602,988
|
)
|
|
|
(15,153,906
|
)
|
Net investment property
|
|
|
216,812,109
|
|
|
|
266,978,973
|
|
Investments in unconsolidated affiliated real estate entities
|
|
|
115,972,466
|
|
|
|
21,375,908
|
|
Investment in affiliate, at cost
|
|
|
7,658,337
|
|
|
|
10,150,000
|
|
Cash and cash equivalents
|
|
|
17,076,320
|
|
|
|
66,106,067
|
|
Marketable securities
|
|
|
840,877
|
|
|
|
11,450,565
|
|
Restricted escrows
|
|
|
2,034,774
|
|
|
|
2,944,971
|
|
Tenant accounts receivable
|
|
|
677,753
|
|
|
|
1,524,761
|
|
Other accounts receivable, primarily escrow receivable
|
|
|
23,182
|
|
|
|
414,991
|
|
Note receivable, related party
|
|
|
|
|
|
|
48,500,000
|
|
Acquired in-place lease intangibles, net
|
|
|
609,487
|
|
|
|
1,032,151
|
|
Acquired above market lease intangibles, net
|
|
|
199,348
|
|
|
|
360,761
|
|
Deferred intangible leasing costs, net
|
|
|
377,687
|
|
|
|
620,925
|
|
Deferred leasing costs (net of accumulated amortization of $204,208 and $89,844 respectively)
|
|
|
584,973
|
|
|
|
523,373
|
|
Deferred financing costs (net of accumulated amortization of $949,475 and $584,090 respectively)
|
|
|
1,212,847
|
|
|
|
1,555,322
|
|
Interest receivable from related parties
|
|
|
1,886,449
|
|
|
|
1,815,279
|
|
Prepaid expenses and other assets
|
|
|
2,047,683
|
|
|
|
1,249,491
|
|
Assets held for sale (See Note 8)
|
|
|
61,549,584
|
|
|
|
65,045,362
|
|
Total Assets
|
|
$
|
429,563,876
|
|
|
$
|
501,648,900
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Mortgage payable
|
|
$
|
218,051,497
|
|
|
$
|
219,922,712
|
|
Accounts payable and accrued expenses
|
|
|
3,869,310
|
|
|
|
4,455,060
|
|
Due to sponsor
|
|
|
1,349,730
|
|
|
|
1,145,890
|
|
Tenant allowances and deposits payable
|
|
|
946,420
|
|
|
|
961,115
|
|
Distributions payable
|
|
|
5,557,670
|
|
|
|
|
|
Prepaid rental revenues
|
|
|
767,334
|
|
|
|
695,913
|
|
Acquired below market lease intangibles, net
|
|
|
380,504
|
|
|
|
656,817
|
|
Liabilities held for sale (See Note 8)
|
|
|
27,431,060
|
|
|
|
36,184,083
|
|
Total Liabilities
|
|
|
258,353,525
|
|
|
|
264,021,590
|
|
Commitments and contingencies (Note 19)
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred shares, $1 Par value, 10,000,000 shares authorized, none outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 60,000,000 shares authorized, 31,528,353 and 30,985,544 shares issued and outstanding in 2009 and 2008, respectively
|
|
|
315,283
|
|
|
|
309,855
|
|
Additional paid-in-capital
|
|
|
280,763,558
|
|
|
|
275,589,300
|
|
Accumulated other comprehensive income/(loss)
|
|
|
326,077
|
|
|
|
(4,212,454
|
)
|
Accumulated distributions in addition to net loss
|
|
|
(149,702,633
|
)
|
|
|
(57,173,374
|
)
|
Total Company's stockholders equity
|
|
|
131,702,285
|
|
|
|
214,513,327
|
|
Noncontrolling interests
|
|
|
39,508,066
|
|
|
|
23,113,983
|
|
Total Equity
|
|
|
171,210,351
|
|
|
|
237,627,310
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
429,563,876
|
|
|
$
|
501,648,900
|
|
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.
F-26
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
For the Years ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
30,956,600
|
|
|
$
|
33,019,099
|
|
|
$
|
18,780,905
|
|
Tenant recovery income
|
|
|
2,929,460
|
|
|
|
3,355,005
|
|
|
|
2,295,151
|
|
Total revenues
|
|
|
33,886,060
|
|
|
|
36,374,104
|
|
|
|
21,076,056
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
13,564,676
|
|
|
|
15,046,065
|
|
|
|
7,250,123
|
|
Real estate taxes
|
|
|
3,757,062
|
|
|
|
3,807,236
|
|
|
|
2,323,001
|
|
Impairment of long lived assets, net of (gain)/loss on disposal
|
|
|
44,960,802
|
|
|
|
4,866,437
|
|
|
|
|
|
General and administrative costs
|
|
|
8,627,264
|
|
|
|
12,310,137
|
|
|
|
3,704,601
|
|
Depreciation and amortization
|
|
|
7,285,198
|
|
|
|
7,713,671
|
|
|
|
4,998,723
|
|
Total operating expenses
|
|
|
78,195,002
|
|
|
|
43,743,546
|
|
|
|
18,276,448
|
|
Operating (loss) income
|
|
|
(44,308,942
|
)
|
|
|
(7,369,442
|
)
|
|
|
2,799,608
|
|
Other income, net
|
|
|
584,638
|
|
|
|
343,122
|
|
|
|
518,913
|
|
Interest income
|
|
|
4,186,168
|
|
|
|
4,792,979
|
|
|
|
1,780,962
|
|
Interest expense
|
|
|
(12,864,468
|
)
|
|
|
(12,894,135
|
)
|
|
|
(7,676,984
|
)
|
Gain on sale of marketable securities
|
|
|
343,724
|
|
|
|
528,334
|
|
|
|
1,301,949
|
|
Other than temporary impairment marketable
securities
|
|
|
(3,373,716
|
)
|
|
|
(9,830,259
|
)
|
|
|
|
|
Loss from investments in unconsolidated affiliated real estate entities
|
|
|
(10,310,720
|
)
|
|
|
(3,357,267
|
)
|
|
|
(7,267,949
|
)
|
Net loss from continuing operations
|
|
|
(65,743,316
|
)
|
|
|
(27,786,668
|
)
|
|
|
(8,543,501
|
)
|
Net loss from discontinued operations
|
|
|
(360,328
|
)
|
|
|
(437,496
|
)
|
|
|
(698,915
|
)
|
Net loss
|
|
|
(66,103,644
|
)
|
|
|
(28,224,164
|
)
|
|
|
(9,242,416
|
)
|
Less: net loss attributable to noncontrolling interest
|
|
|
908,991
|
|
|
|
84,805
|
|
|
|
26
|
|
Net loss applicable to Company's common shares
|
|
$
|
(65,194,653
|
)
|
|
$
|
(28,139,359
|
)
|
|
$
|
(9,242,390
|
)
|
Basic and diluted net loss per Company's common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(2.07
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(0.93
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.08
|
)
|
Net loss per Company's common share, basic and diluted
|
|
$
|
(2.08
|
)
|
|
$
|
(1.24
|
)
|
|
$
|
(1.01
|
)
|
Weighted average number of common shares outstanding, basic and diluted
|
|
|
31,276,697
|
|
|
|
22,658,290
|
|
|
|
9,195,369
|
|
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.
F-27
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years ended December 31, 2009, December 31, 2008 and December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares
|
|
Common Shares
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Other
Comprehensive
Income/(Loss)
|
|
Accumulated
Distributions
in Excess
of Net Loss
|
|
Total Non-
controlling
Interests
|
|
Total
Equity
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
BALANCE, December 31, 2006
|
|
|
|
|
|
$
|
|
|
|
|
4,316,989
|
|
|
$
|
43,170
|
|
|
$
|
38,686,993
|
|
|
$
|
|
|
|
$
|
(2,754,459
|
)
|
|
$
|
4,282,122
|
|
|
$
|
40,257,826
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,242,390
|
)
|
|
|
(26
|
)
|
|
|
(9,242,416
|
)
|
Unrealized loss on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,199,278
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,199,278
|
)
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,441,694
|
)
|
Distributions declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,125,331
|
)
|
|
|
|
|
|
|
(7,125,331
|
)
|
Distributions paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from special general partner interest (SLP) units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,672,567
|
|
|
|
8,672,567
|
|
Proceeds from offering
|
|
|
|
|
|
|
|
|
|
|
9,082,793
|
|
|
|
90,828
|
|
|
|
88,541,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,632,296
|
|
Selling commissions and dealer manager fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,130,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,130,796
|
)
|
Other offering costs and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,762,855
|
)
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
(2,762,803
|
)
|
Shares issued from distribution reinvestment program
|
|
|
|
|
|
|
|
|
|
|
206,826
|
|
|
|
2,068
|
|
|
|
1,962,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,964,848
|
|
BALANCE, December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
13,606,608
|
|
|
|
136,066
|
|
|
|
120,297,590
|
|
|
|
(1,199,278
|
)
|
|
|
(19,122,180
|
)
|
|
|
12,954,715
|
|
|
|
113,066,913
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,139,359
|
)
|
|
|
(84,805
|
)
|
|
|
(28,224,164
|
)
|
Unrealized loss on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,013,176
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,013,176
|
)
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,237,340
|
)
|
Distributions declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,911,835
|
)
|
|
|
|
|
|
|
(9,911,835
|
)
|
Distributions paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,779,452
|
)
|
|
|
(1,779,452
|
)
|
Proceeds from SLP units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,063,525
|
|
|
|
10,063,525
|
|
Proceeds from offering
|
|
|
|
|
|
|
|
|
|
|
16,900,087
|
|
|
|
169,000
|
|
|
|
167,709,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,878,611
|
|
Redemption and cancellation of shares
|
|
|
|
|
|
|
|
|
|
|
(102,207
|
)
|
|
|
(1,022
|
)
|
|
|
(918,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(919,863
|
)
|
Selling commissions and dealer manager fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,379,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,379,358
|
)
|
Other offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,633,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,633,923
|
)
|
Shares issued from distribution reinvestment program
|
|
|
|
|
|
|
|
|
|
|
581,056
|
|
|
|
5,811
|
|
|
|
5,514,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,520,032
|
|
Units issued to noncontrolling interest in exchange for investment in unconsolidated affiliated real estate entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,600,000
|
|
|
|
19,600,000
|
|
Note receivable secured by noncontrolling interest units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,640,000
|
)
|
|
|
(17,640,000
|
)
|
BALANCE, December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
30,985,544
|
|
|
|
309,855
|
|
|
|
275,589,300
|
|
|
|
(4,212,454
|
)
|
|
|
(57,173,374
|
)
|
|
|
23,113,983
|
|
|
|
237,627,310
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,194,653
|
)
|
|
|
(908,991
|
)
|
|
|
(66,103,644
|
)
|
Unrealized loss on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
460,809
|
|
|
|
|
|
|
|
48,781
|
|
|
|
509,590
|
|
Reclassification adjustment for loss realized in net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,077,722
|
|
|
|
|
|
|
|
(122
|
)
|
|
|
4,077,600
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,516,454
|
)
|
Distributions declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,334,606
|
)
|
|
|
|
|
|
|
(27,334,606
|
)
|
Distributions paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,736,909
|
)
|
|
|
(4,736,909
|
)
|
Proceeds from SLP units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,982,534
|
|
|
|
6,982,534
|
|
Redemption and cancellation of shares
|
|
|
|
|
|
|
|
|
|
|
(453,167
|
)
|
|
|
(4,532
|
)
|
|
|
(4,277,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,282,082
|
)
|
Shares issued from distribution reinvestment program
|
|
|
|
|
|
|
|
|
|
|
995,976
|
|
|
|
9,960
|
|
|
|
9,451,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,461,768
|
|
Issurance of equity in subsidiary in exchange for payment of acquisition fee (see Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,878,087
|
|
|
|
6,878,087
|
|
Units issued to noncontrolling interest in exchange for investment in unconsolidated affiliated real estate entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,988,411
|
|
|
|
78,988,411
|
|
Note receivable secured by noncontrolling interest units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,857,708
|
)
|
|
|
(70,857,708
|
)
|
BALANCE, December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
31,528,353
|
|
|
$
|
315,283
|
|
|
$
|
280,763,558
|
|
|
$
|
326,077
|
|
|
$
|
(149,702,633
|
)
|
|
$
|
39,508,066
|
|
|
$
|
171,210,351
|
|
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.
F-28
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31, 2009, 2008 and December 31, 2007
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
CASH FLOWS USED IN OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(66,103,644
|
)
|
|
$
|
(28,224,164
|
)
|
|
$
|
(9,242,416
|
)
|
Less net loss discontinued operations
|
|
|
(360,328
|
)
|
|
|
(437,496
|
)
|
|
|
(698,915
|
)
|
Net loss continuing operations
|
|
|
(65,743,316
|
)
|
|
|
(27,786,668
|
)
|
|
|
(8,543,501
|
)
|
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6,839,592
|
|
|
|
7,241,621
|
|
|
|
4,585,394
|
|
Gain on sale of marketable securities
|
|
|
(343,724
|
)
|
|
|
(528,335
|
)
|
|
|
(1,301,949
|
)
|
Impairment of long lived assets and loss on disposal
|
|
|
44,960,802
|
|
|
|
4,866,437
|
|
|
|
|
|
Realized loss on impairment of marketable securities
|
|
|
3,373,716
|
|
|
|
9,830,259
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
365,385
|
|
|
|
447,242
|
|
|
|
124,623
|
|
Amortization of deferred leasing costs
|
|
|
445,606
|
|
|
|
472,050
|
|
|
|
413,329
|
|
Amortization of above and below-market lease intangibles
|
|
|
(114,900
|
)
|
|
|
(444,826
|
)
|
|
|
(229,498
|
)
|
Equity in loss from investments in unconsolidated affiliated real estate entities
|
|
|
10,310,720
|
|
|
|
3,357,267
|
|
|
|
7,267,949
|
|
Provision for bad debts
|
|
|
887,386
|
|
|
|
1,247,222
|
|
|
|
256,548
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in prepaid expenses and other assets
|
|
|
(600,900
|
)
|
|
|
(1,602,463
|
)
|
|
|
(468,327
|
)
|
Decrease/(increase) in tenant accounts receivable
|
|
|
186,717
|
|
|
|
(1,997,306
|
)
|
|
|
(1,462,227
|
)
|
(Decrease)/increase in tenant allowance and security deposits payable
|
|
|
(68,744
|
)
|
|
|
48,123
|
|
|
|
632,974
|
|
Increase in accounts payable and accrued expenses
|
|
|
240,670
|
|
|
|
468,437
|
|
|
|
3,649,426
|
|
Increase in prepaid rental revenues
|
|
|
71,420
|
|
|
|
109,750
|
|
|
|
611,443
|
|
Net cash provided by /(used in) operating activities continuing operations
|
|
|
810,430
|
|
|
|
(4,271,190
|
)
|
|
|
5,536,184
|
|
Net cash provided by operating activities discontinued operations
|
|
|
567,263
|
|
|
|
967,566
|
|
|
|
1,115,805
|
|
Net cash provided by/(used in) operating activities
|
|
|
1,377,693
|
|
|
|
(3,303,624
|
)
|
|
|
6,651,989
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investment property, net
|
|
|
(1,569,664
|
)
|
|
|
(5,575,329
|
)
|
|
|
(196,193,653
|
)
|
Purchase of marketable securities
|
|
|
|
|
|
|
(23,135,006
|
)
|
|
|
(27,689,153
|
)
|
Issuance of note receivable, related party
|
|
|
|
|
|
|
(49,500,000
|
)
|
|
|
|
|
Repayment of note receivable, related party
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
Proceeds from sale of marketable securities
|
|
|
12,166,886
|
|
|
|
10,122,251
|
|
|
|
17,038,915
|
|
Investment in affiliate
|
|
|
|
|
|
|
(11,000,000
|
)
|
|
|
(13,552,623
|
)
|
Purchase of investment in unconsolidated affiliated real estate entity
|
|
|
(30,164,058
|
)
|
|
|
|
|
|
|
|
|
Distribution from investments in unconsolidated affiliates
|
|
|
13,037,494
|
|
|
|
2,001,500
|
|
|
|
|
|
Funding of restricted escrows
|
|
|
910,197
|
|
|
|
999,942
|
|
|
|
(2,031,993
|
)
|
Net cash used in investing activities continuing operations
|
|
|
(5,619,145
|
)
|
|
|
(75,086,642
|
)
|
|
|
(222,428,507
|
)
|
Net cash used in investing activities discontinued operations
|
|
|
(5,846,785
|
)
|
|
|
(22,010,960
|
)
|
|
|
(5,542,879
|
)
|
Net cash used in investing activities
|
|
|
(11,465,930
|
)
|
|
|
(97,097,602
|
)
|
|
|
(227,971,386
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from mortgage financing
|
|
|
|
|
|
|
3,621,384
|
|
|
|
148,159,086
|
|
Mortgage payments
|
|
|
(1,871,214
|
)
|
|
|
(82,758
|
)
|
|
|
|
|
Payment of loan fees and expenses
|
|
|
(22,911
|
)
|
|
|
(42,163
|
)
|
|
|
(1,575,279
|
)
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
167,878,611
|
|
|
|
88,632,296
|
|
Redemption and cancellation of common shares
|
|
|
(4,282,082
|
)
|
|
|
(919,863
|
)
|
|
|
|
|
Proceeds from issuance of special general partnership units
|
|
|
6,982,534
|
|
|
|
10,063,525
|
|
|
|
8,672,567
|
|
Payment of offering costs
|
|
|
|
|
|
|
(17,013,281
|
)
|
|
|
(8,893,651
|
)
|
Note receivable from noncontrolling interests
|
|
|
(22,357,708
|
)
|
|
|
(17,640,000
|
)
|
|
|
|
|
Due from escrow agent
|
|
|
|
|
|
|
|
|
|
|
163,949
|
|
Contribution to discontinued operations
|
|
|
(5,375,914
|
)
|
|
|
(22,025,963
|
)
|
|
|
(4,654,570
|
)
|
Distributions paid to noncontrolling interests
|
|
|
(4,736,909
|
)
|
|
|
(1,779,452
|
)
|
|
|
|
|
Distributions paid to Company's shareholders
|
|
|
(12,315,168
|
)
|
|
|
(6,855,165
|
)
|
|
|
(3,298,407
|
)
|
Net cash (used in)/provided by financing activities continuing operations
|
|
|
(43,979,372
|
)
|
|
|
115,204,875
|
|
|
|
227,205,991
|
|
Net cash provided by financing activities discontinued operations
|
|
|
5,037,862
|
|
|
|
21,712,603
|
|
|
|
4,422,511
|
|
Net cash (used in)/provided by financing activities
|
|
|
(38,941,510
|
)
|
|
|
136,917,478
|
|
|
|
231,628,502
|
|
Net change in cash and cash equivalents
|
|
|
(49,029,747
|
)
|
|
|
36,516,252
|
|
|
|
10,309,105
|
|
Cash and cash equivalents, beginning of year
|
|
|
66,106,067
|
|
|
|
29,589,815
|
|
|
|
19,280,710
|
|
Cash and cash equivalents, end of year
|
|
$
|
17,076,320
|
|
|
$
|
66,106,067
|
|
|
$
|
29,589,815
|
|
See Note 1 for supplemental cash information.
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.
F-29
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
1. Organization
Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (Lightstone REIT and, together with the Operating Partnership (as defined below), the Company) was formed on June 8, 2004 and subsequently qualified as a real estate investment trust (REIT) during the year ending December 31, 2006. The Company was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States and Puerto Rico.
The Lightstone REIT is structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of the Lightstone REITs current and future business is and will be conducted through Lightstone Value Plus REIT, L.P., a Delaware limited partnership formed on July 12, 2004 (the Operating Partnership). The Lightstone REIT is managed by Lightstone Value Plus REIT, LLC (the Advisor), an affiliate of the Lightstone Group (the Sponsor), under the terms and conditions of an advisory agreement. The Sponsor and Advisor are owned and controlled by David Lichtenstein, the Chairman of the
Companys board of directors and its Chief Executive Officer.
The Company sold 20,000 shares to the Advisor on July 6, 2004, for $10 per share. The Company invested the proceeds from this sale in the Operating Partnership, and as a result, held a 99.9% general partnership interest in the Operating Partnership.
On May 23, 2005, the Company commenced an initial public offering to sell a maximum of 30,000,000 shares of common shares, at a price of $10 per share (the Offering). The Offering terminated on October 10, 2008 when all shares offered where sold. The Company continues to sell shares existing stockholders pursuant to the Companys dividend reinvestment plan.
As of December 31, 2009, cumulative gross offering proceeds of approximately $311.3 million, which includes redemptions and $17.1 million of proceeds from the dividend reinvestment plan, have been released to the Lightstone REIT and used for the purchase of a 98.4% general partnership interest in the common units of the Operating Partnership.
Noncontrolling Interest Partners of Operating Partnership
On July 6, 2004, the Advisor also contributed $2,000 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The limited partner has the right to convert operating partnership units into cash or, at the option of the Company, an equal number of common shares of the Company, as allowed by the limited partnership agreement.
Lightstone SLP, LLC, an affiliate of the Advisor, purchased special general partner interests (SLP Units) in the Operating Partnership at a cost of $100,000 per unit for each $1.0 million in offering subscriptions. As of December 31, 2009, the Company has received proceeds of $30.0 million from the sale of SLP Units, of which approximately $7.0 million was received during the three months ended March 31, 2009 and none thereafter.
On June 26, 2008, the Operating Partnership issued (i) 96,000 units of common limited partnership interest in the Operating Partnership (Common Units) and 18,240 Series A preferred limited partnership units in the Operating Partnership (the Series A Preferred Units) with an aggregate liquidation preference of $18,240,000 to Arbor Mill Run JRM, LLC, a Delaware limited liability company (Arbor JRM) and (ii) 2,000 Common Units and 380 Series A Preferred Units with an aggregate liquidation preference of $380,000 to Arbor National CJ, LLC, a New York limited liability company (Arbor CJ) in exchange for a
22.54% membership interest in Mill Run LLC (Mill Run) (See Note 4). The total aggregate value of the Common Units and Series A Preferred Units issued by the Operating Partnership in exchange for the 22.54% membership interest in Mill Run was $19,600,000.
F-30
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
1. Organization (continued)
On March 30, 2009, the Operating Partnership issued 284,209 Common Units and 53,146 Series A Preferred Units with an aggregate liquidation preference of $53,146,000 to AR Prime Holdings LLC, a Delaware limited liability company (AR Prime) in exchange for a 25% membership interest in Prime Outlets Acquisitions Company (POAC) (See Note 4).
On August 25, 2009, the Operating Partnership issued a total of 115,000 Common Units and 21,850 Series A Preferred Units with an aggregate liquidation preference of $21,850,000 to TRAC Central Jersey LLC, a Delaware limited liability company (TRAC), Central Jersey Holdings II, LLC, a New York limited liability company (Central Jersey) and JT Prime LLC, a Delaware limited liability company (JT Prime), in exchange for an additional 14.26% membership interest in Mill Run and for an additional 15% membership interest in POAC (See Note 4).
See Note 12 for further discussion of noncontrolling interests.
Operating Partnership Activity
Acquisitions and Investments:
Through its Operating Partnership, the Company will seek to acquire and operate commercial, residential, and hospitality properties, principally in the United States. The Companys commercial holdings will consist of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial and office properties. All such properties may be acquired and operated by the Company alone or jointly with another party. Since inception, the Company has completed the following acquisitions and investments:
2006
The Company completed the acquisition of the Belz Factory Outlet World in St. Augustine, Florida, four multi-family communities in Southeast Michigan and a retail power center and raw land in Omaha, Nebraska.
2007
The Company has made an investment in a sub-leasehold interest in a ground lease to an office building located at 1407 Broadway in New York, NY, purchased a land parcel in Lake Jackson, TX on which it completed the development of a retail power center in the first quarter of 2008, an 8.5-acre parcel of undeveloped land, including development rights, which is intended to be used for further development of the adjacent Belz Factory Outlet World in St. Augustine, Florida, and a portfolio of industrial and office properties located in New Orleans, LA (5 industrial and 2 office properties), Baton Rouge, LA (3 industrial properties) and San Antonio, TX (4
industrial properties), five apartment communities located in Tampa, FL (one property), Charlotte, North Carolina (two properties) and Greensboro, North Carolina (two properties), and two hotels located in Houston, TX.
2008
The Company has made a preferred equity contribution in exchange for membership interests of a wholly owned subsidiary of Park Avenue Funding, LLC, an affiliated real estate lending company and acquired a 22.54% interest in Mill Run, which consists of two retail properties located in Orlando, Florida.
2009
On March 30, 2009, the Company acquired a 25% interest in POAC which has a portfolio of 18 retail outlet malls and two development projects located in 15 different states across the United States. On August 25, 2009, the Company acquired an additional 14.26% interest in Mill Run and an additional 15% interest in POAC. As of December 31, 2009, the Companys membership interest in Mill Run was 36.8% and 40% in POAC.
F-31
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
1. Organization (continued)
Contribution and Sale Agreement:
On December 8, 2009, the Company entered into a Contribution Agreement with certain affiliates of The Lightstone Group, LLC (the Lightstone Parties), Simon Property Group, Inc., a Delaware corporation (Parent REIT), Simon Property Group, L.P., a Delaware limited partnership (
Parent OP
), Marco Capital Acquisition, LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent OP (Parent Sub, and together with Parent REIT and Parent OP, the Parent Parties) and POAC.
Under the terms of the Contribution Agreement, (i) the Company will contribute to Parent Sub its membership interests in Mill Run and POAC (collectively, the
Contributions
), and (ii) the Operating Partnership will sell to Parent Sub its membership interest in LVP St. Augustine Outlets LLC (St. Augustine), a Delaware limited liability company, and a related parcel of land (the Sale). (Collectively, disposition of our retail outlet assets)
As consideration for the Contributions, the Company is expected to receive approximately $228.5 million in consideration before transaction expenses, twenty percent (20%) of which will consist of common operating partnership units in Parent OP and eighty percent (80%) of which will consist of cash from a debt-financed distribution by Parent OP. The pricing of the common operating partnership units in Parent OP will be based on the volume weighted average closing price of Parent REITs common stock during the ten (10) trading days prior to the date that is three (3) trading days prior to the closing date, subject to a ten percent (10%) collar. As
consideration for the Sale, the Operating Partnership will receive approximately $17.2 million in cash, subject to certain adjustments. A portion of the aggregate consideration to be received by the Company and the Lightstone Parties will be subject to an escrow for eighteen (18) months following closing in respect of certain indemnity obligations to the Parent Parties.
The Contribution Agreement contains representations and warranties and covenants of the Company, the Lightstone Parties, the Parent Parties and POAC, including among others, covenants concerning the conduct of the business of POAC and Mill Run during the period between the execution of the Contribution Agreement and the closing of the Contributions and the Sale. In addition, the Company agreed to refrain from initiating or entering into certain discussions with, or providing certain information to, third parties as it relates POAC and Mill Run.
The closing of the Contributions and the Sale is anticipated to occur in 2010 and is subject to various closing conditions including, among others, with respect to the execution by the Company of a tax protection agreement with the Parent Parties. The Contribution Agreement is subject to certain rights of the parties to terminate the Contribution Agreement, including in the event of certain breaches by the parties of their respective obligations thereunder.
Related Party:
All of the acquired properties and development activities are managed by affiliates of Lightstone Value Plus REIT Management LLC (the Property Manager).
The Companys Advisor, Property Manager and Lightstone Securities, LLC (the Dealer Manager) are each related parties. Each of these entities has received compensation and fees for services related to the offering and will continue to receive compensation and fees and services for the investment and management of the Companys assets. These entities will receive fees during the offering (which was completed on October 10, 2008), acquisition, operational and liquidation stages. The compensation levels during the offering, acquisition and operational stages are based on percentages of the offering proceeds sold, the cost of
acquired properties and the annual revenue earned from such properties, and other such fees outlined in each of the respective agreements (See Note 13).
F-32
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and the Operating Partnership and its subsidiaries (over which Lightstone REIT exercises financial and operating control). As of December 31, 2009, the Company had a 98.4% general partnership interest in the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). GAAP requires the Companys management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, revenue recognition, the collectability of trade accounts receivable and the realizability of deferred tax assets. Application
of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
Investments in affiliated real estate entities where the Company has the ability to exercise significant influence, but does not exercise financial and operating control, and is not considered to be the primary beneficiary will be accounted for using the equity method. Investments in affiliated real estate entities where the Company has virtually no influence will be accounted for using the cost method.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. All cash equivalents are held in commercial paper and money market funds. To date, the Company has not experienced any losses on its cash and cash equivalents.
Supplemental cash flow for the years ended December 31, 2009, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 31,
2009
|
|
December 31,
2008
|
|
December 31,
2007
|
Cash paid for interest
|
|
$
|
13,589,854
|
|
|
$
|
14,213,869
|
|
|
$
|
8,696,812
|
|
Dividends declared
|
|
|
27,334,606
|
|
|
|
9,911,835
|
|
|
|
7,125,331
|
|
Non cash purchase of investment property
|
|
|
103,959
|
|
|
|
5,833,650
|
|
|
|
|
|
Value of shares issued from distribution reinvestment program
|
|
|
9,461,768
|
|
|
|
5,520,032
|
|
|
|
1,964,848
|
|
Issuance of equity for payment of acquisition fee obligation (See Note 12)
|
|
|
6,878,087
|
|
|
|
|
|
|
|
|
|
Issuance of units in exchange for investment in unconsolidated affiliated real estate entities
|
|
$
|
78,988,411
|
|
|
$
|
19,600,000
|
|
|
$
|
|
|
Marketable Securities
Marketable securities consist of equity securities and corporate bonds that are designated as available-for-sale and are recorded at fair value. Unrealized holding gains or losses are reported as a component of accumulated other comprehensive income (loss). Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold. An impairment charge is recognized when the decline in the fair value of a security below the amortized cost basis is determined to be other-than-temporary. We consider various factors in determining whether to recognize an impairment charge, including
the duration and severity of any decline in fair value below our amortized cost basis, any adverse changes in the financial condition of the issuers and our intent and ability to hold the investment for a period
F-33
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
2. Summary of Significant Accounting Policies (continued)
of time sufficient to allow for any anticipated recovery in market value. The Board has authorized the Company from time to time to invest the Companys available cash in marketable securities of real estate related companies. The Board of Directors has approved investments up to 30% of the Companys total assets to be made at the Companys discretion, subject to compliance with any REIT or other restrictions. See Note 6.
Revenue Recognition
Minimum rents are recognized on a straight-line accrual basis, over the terms of the related leases. The capitalized above-market lease values and the capitalized below-market lease values are amortized as an adjustment to rental income over the initial lease term. Percentage rents, which are based on commercial tenants sales, are recognized once the sales reported by such tenants exceed any applicable breakpoints as specified in the tenants leases. Recoveries from commercial tenants for real estate taxes, insurance and other operating expenses, and from residential tenants for utility costs, are recognized as revenues in the period that
the applicable costs are incurred. Room revenue for the hotel properties are recognized as stays occur, using the accrual method of accounting. Amounts paid in advance are deferred until stays occur.
Accounts Receivable
The Company makes estimates of the uncollectability of its accounts receivable related to base rents, expense reimbursements and other revenues. The Company analyzes accounts receivable and historical bad debt levels, customer credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims. The Companys reported net income or loss is directly affected by managements estimate of the collectability of accounts receivable. The total
allowance for doubtful accounts was approximately $0.2 million at December 31, 2009 and 2008.
Investment in Real Estate
Accounting for Acquisitions
The fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their fair values. Purchase accounting is applied to assets and liabilities related to real estate entities acquired based upon the percentage of interest acquired. Fees incurred related to acquisitions are expensed as incurred within general and administrative costs within the consolidated statements of
operation. Transaction costs incurred related to the Companys investment in unconsolidated real estate entities, accounted for under the equity method of accounting, and are capitalized as part of the cost of the investment.
Upon the acquisition of real estate operating properties, the Company estimates the fair value of acquired tangible assets and identified intangible assets and liabilities and assumed debt at the date of acquisition, based on evaluation of information and estimates available at that date. Based on these estimates, the Company allocates the initial purchase price to the applicable assets, liabilities and noncontrolling interests, if any. As final information regarding fair value of the assets acquired, liabilities assumed and noncontrolling interests is received and estimates are refined, appropriate adjustments are made to the purchase price
allocation. The allocations are finalized as soon as all the information necessary is available and in no case later than within twelve months from the acquisition date.
In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) managements estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining
F-34
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
2. Summary of Significant Accounting Policies (continued)
non-cancelable term of the lease. The capitalized above-market lease values and the capitalized below-market lease values are amortized as an adjustment to rental income over the initial non-cancelable lease term.
The aggregate value of in-place leases is determined by evaluating various factors, including an estimate of carrying costs during the expected lease-up periods, current market conditions and similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs. The value assigned to this intangible asset is amortized over the remaining lease terms ranging from one month to
approximately 11 years. Optional renewal periods are not considered.
The aggregate value of other acquired intangible assets includes tenant relationships. Factors considered by management in assigning a value to these relationships include: assumptions of probability of lease renewals, investment in tenant improvements, leasing commissions and an approximate time lapse in rental income while a new tenant is located. The value assigned to this intangible asset is amortized over the remaining lease terms ranging from one month to approximately 11 years.
Impairment Evaluation
Management evaluates the recoverability of its investments in real estate assets at the lowest identifiable level, the individual property level. Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.
The Company evaluates the long-lived assets on a quarterly basis and will record an impairment charge when there is an indicator of impairment and the undiscounted projected cash flows are less than the carrying amount for a particular property. The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on the Companys plans for the respective assets and the Companys views of market and economic conditions. The estimates consider matters such as current and historical rental rates, occupancies for the respective properties and comparable properties, and recent sales data for
comparable properties. Changes in estimated future cash flows due to changes in the Companys plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial. See Note 14.
Assets and Liabilities Held for Sale and Discontinued Operations
Assets and groups of assets and liabilities which comprise disposal groups are classified as 'held for sale' when all of the following criteria are met: a decision has been made to sell, the assets are available for sale immediately, the assets are being actively marketed at a reasonable price in relation to the current fair value, a sale has been or is expected to be concluded within twelve months of the balance sheet date, and significant changes to the plan to sell are not expected. Assets and disposal groups held for sale are valued at the lower of book value or fair value less disposal costs. Assets held for sale are not depreciated.
Additionally, the operating results and cash flows related to these assets and liabilities are included in discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively, for all periods presented, if the operations and cash flows of the disposal group is expected to be eliminated from ongoing operations as a result of the disposal and the Company will not have any significant continuing involvement in the operations of the disposal group after disposal.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
2. Summary of Significant Accounting Policies (continued)
Depreciation and Amortization
Depreciation expense for real estate assets is computed based on the straight-line method using a weighted average composite life of thirty-nine years for buildings and improvements and five to ten years for equipment and fixtures. Expenditures for tenant improvements and construction allowances paid to commercial tenants are capitalized and amortized over the initial term of each lease, currently one month to 11 years. Maintenance and repairs are charged to expense as incurred.
Deferred Costs
The Company capitalizes initial direct costs. The costs are capitalized upon the execution of the loan or lease and amortized over the initial term of the corresponding loan or lease. Amortization of deferred loan costs begins in the period during which the loan was originated. Deferred leasing costs are not amortized to expense until the earlier of the store opening date or the date the tenants lease obligation begins.
Investments in Unconsolidated Affiliated Real Estate Entities
The Company evaluates all joint venture arrangements and investments in real estate entities for consolidation. The percentage interest in the joint venture or investment in real estate entities, evaluation of control and whether a variable interest entity (VIE) exists are all considered in determining if the arrangement qualifies for consolidation.
The Company accounts for its investments in unconsolidated real estate entities using the equity or cost method of accounting, as appropriate. Under the equity method, the cost of an investment is adjusted for the Companys share of equity in net income or loss beginning on the date of acquisition and reduced by distributions received. The income or loss of each joint venture investor is allocated in accordance with the provisions of the applicable operating agreements. The allocation provisions in these agreements may differ from the ownership interest held by each investor. Differences between the carrying amount of the Companys
investment in the respective joint venture and the Companys share of the underlying equity of such unconsolidated entities are amortized over the respective lives of the underlying assets as applicable. These items are reported as a single line item in the consolidated statements of operations as income or loss from investments in unconsolidated affiliated real estate entities. Under the cost of accounting, the dividends earned from the underlying entities are recorded to interest income.
The Company continuously reviews its investment in unconsolidated real estate entities for other than temporary declines in market value. Any decline that is not considered temporary will result in the recording of an impairment charge to the investment.
Income Taxes
The Company made an election in 2006 to be taxed as a real estate investment trust (a REIT) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the Code), beginning with its first taxable year, which ended December 31, 2005.
The Company elected and qualified to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code in conjunction with the filing of the 2006 federal tax return. To maintain its status as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its ordinary taxable income to stockholders. As a REIT, the Company generally will not be subject to federal income tax on taxable income that it distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income at
regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
2. Summary of Significant Accounting Policies (continued)
adversely affect the Companys net income and net cash available for distribution to stockholders. Through December 31, 2009, the Company has complied with the requirements for maintaining its REIT status.
The Company has net operating loss carryforwards of $3.4 million for Federal income tax purposes through the year ended December 31, 2008. The availability of such loss carryforwards will begin to expire in 2026. As the Company does not consider it likely that it will realize any future benefit from its loss carry-forward, any deferred asset resulting from the final determination of its tax loss carryforwards will be fully offset by a valuation allowance of the same amount.
In 2007, to maintain the Companys qualification as a REIT, the Company engages in certain activities through LVP Acquisitions Corp. (LVP Corp), a wholly-owned taxable REIT subsidiary (TRS). As such, the Company is subject to federal and state income and franchise taxes from these activities.
As of December 31, 2009, the Company had no material uncertain income tax positions and its net operating loss carryforward was approximately $3.4 million. The tax years 2005 through 2009 remain open to examination by the major taxing jurisdictions to which the Company is subject.
Organization and Offering Costs
The Companys organization and offering costs associated with its initial public offering which closed on October 10, 2008 were approximately $30.2 million. Subject to limitations in terms of the maximum percentage of costs to offering proceeds that may be incurred by the Company, third-party offering expenses such as registration fees, due diligence fees, marketing costs, and professional fees, along with selling commissions and dealer manager fees paid to the Dealer Manager, were accounted for as a reduction against additional paid-in capital (APIC) as offering proceeds were released to the Company.
Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because of the short maturity of these instruments. The fair value of the mortgage payable as of December 31, 2009 was approximately $235.3 million, which includes $25.6 million related to St. Augustine debt classified as liabilities held for sale compared to the book value of approximately $244.5 million, including $26.4 related to St. Augustine. The fair value of the mortgage payable as of December 31, 2008 was approximately $239.8 million, which includes $25.5 million related to St. Augustine compared to the book value of
approximately $246.7 million, including $26.7 related to St. Augustine. The fair value of the mortgage payable was determined by discounting the future contractual interest and principal payments by a market interest rate.
Accounting for Derivative Financial Investments and Hedging Activities.
The Company may enter into derivative financial instrument transactions in order to mitigate interest rate risk on a related financial instrument. We may designate these derivative financial instruments as hedges and apply hedge accounting. The Company will account for derivative and hedging activities, following Topic 815 Derivative and Hedging in the Accounting Standards Codification (ASC). The Company records all derivative instruments at fair value on the consolidated balance sheet.
Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, will be considered cash flow hedges. The Company will formally document all relationships between hedging instruments and hedged items, as well as our risk- management objective and strategy for undertaking each hedge transaction. The Company will periodically review the effectiveness of each hedging transaction, which involves estimating future cash flows. Cash flow hedges will be accounted for by recording the fair value of the derivative instrument on the consolidated balance sheet
as either an asset or liability, with a corresponding amount recorded in other comprehensive income (loss) within stockholders equity. Amounts will be reclassified from other
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
2. Summary of Significant Accounting Policies (continued)
comprehensive income (loss) to the consolidated statements of operations in the period or periods the hedged forecasted transaction affects earnings. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, will be considered fair value hedges. The effective portion of the derivatives gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the transaction affects earnings. The ineffective portion of the gain or loss is
reported in earnings immediately.
Stock-Based Compensation
The Company has a stock-based incentive award plan for our directors. The Company accounts for the incentive award plan in accordance with Topic 718 Compensation-Stock Compensation in the ASC. Awards are granted at the fair market value on the date of the grant with fair value estimated using the Black-Scholes-Merton option valuation model, which incorporates assumptions surrounding the volatility, dividend yield, the risk-free interest rate, expected life, and the exercise price as compared to the underlying stock price on the grant date. The tax benefits associated with these share-based payments are classified as
financing activities in the consolidated statement of cash flows. For the years ended December 31, 2009, 2008 and 2007, the Company had no material compensation costs related to the incentive award plan.
Concentration of Risk
The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Net Loss per Share
Net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding. As of December 31, 2009, the Company has 27,000 options issued and outstanding, and does not have any warrants outstanding. As such, the numerator and the denominator used in computing both basic and diluted net loss per share allocable to common stockholders for each year presented are equal due to the net operating loss. The 27,000 options are not included in the dilutive calculation as they are anti dilutive as a result of the net loss attributable to Companys common shares.
New Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141R, a revision of SFAS No. 141, Accounting for Business Combinations, which was primarily codified into Topic 805 Business Combinations in the ASC. This standard establishes principles and requirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree and goodwill acquired in a business combination. One significant change includes
expensing acquisition fees instead of capitalizing these fees as part of the purchase price. This will impact the Companys recording of acquisition fees associated with the purchase of wholly-owned entities on a prospective basis. This statement is effective for 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 adopted this standard on January 1, 2009 and the adoption of this statement did not have a material effect on the consolidated results of operations or financial position.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment to ARB No. 51 which was primarily codified into Topic 810 Consolidation in the ASC. This standard establishes and expands accounting and reporting standards for minority interests, which will be recharacterized as noncontrolling interests, in a subsidiary and the deconsolidation of a
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
2. Summary of Significant Accounting Policies (continued)
subsidiary. The Company will also be required to present net income allocable to the noncontrolling interests and net income attributable to the stockholders of the Company separately in its consolidated statements of operations. Prior to the implementation of this standard, noncontrolling interests (minority interests) were reported between liabilities and stockholders equity in the Companys statement of financial position and the related income attributable to minority interests was reflected as an expense/income in arriving at net income/loss. This standard requires retroactive adoption of the presentation and disclosure requirements
for existing minority interests. All other requirements of this standard are to be applied prospectively. The Company adopted this standard on January 1, 2009 and the presentation and disclosure requirements were applied retrospectively. Other than the change in presentation of noncontrolling interests, the adoption of this standard did not have a material effect on the consolidated results of operations or financial position.
In February 2008, the FASB issued Staff Position No. FAS 157-2 which provides for a one-year deferral of the effective date of SFAS No. 157, Fair Value Measurements, which was primarily codified into Topic 820 Fair Value Measurements and Disclosures in the ASC. This guidance is for non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company adopted this guidance and it did not have a material impact to the
Companys financial position or consolidated results of operations.
In November 2008, the FASB ratified EITF Issue No. 08-6, Equity Method Investment Accounting Considerations, which was primarily codified into Topic 323 Investments-Equity Method in the ASC. This guidance clarifies the accounting for certain transactions and impairment considerations involving equity method investments and is effective for fiscal years beginning on or after December 15, 2008 to be applied on a prospective basis. The Company adopted the provisions of this standard on January 1, 2009. The adoption of this guidance changed the Companys accounting for transaction costs related to equity
investments. Prior to the adoption of this guidance, the Company expensed these transaction costs to general and administrative expense as incurred. Beginning January 1, 2009, transaction costs incurred related to the Companys investment in unconsolidated affiliated real estate entities accounted for under the equity method of accounting are capitalized as part of the cost of the investment. For the year ended December 31, 2009, the Company capitalized $26.0 million of transaction costs incurred during the related period related to its investments in POAC and Mill Run (see Note 4).
In April 2009, FASB, issued FASB Staff Position, or FSP, No. FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments,
which was primarily codified into Topic 320 Investments-Debt and Equity Securities in the ASC. This guidance is intended to provide greater clarity to investors about the credit and noncredit component of an other-than-temporary impairment event and to more effectively communicate when an other-than-temporary impairment event has occurred. The guidance applies to fixed maturity securities only and requires separate display of losses related to credit deterioration
and losses related to other market factors. When an entity does not intend to sell the security and it is more likely than not that an entity will not have to sell the security before recovery of its cost basis, it must recognize the credit component of an other-than-temporary impairment in earnings and the remaining portion in other comprehensive income. In addition, upon adoption of the guidance, an entity will be required to record a cumulative-effect adjustment as of the beginning of the period of adoption to reclassify the noncredit component of a previously recognized other-than-temporary impairment from retained earnings to accumulated other comprehensive income. The guidance is effective for the Company for the quarter ended June 30, 2009. The Company adopted the guidance during the quarter ended June 30, 2009 and the adoption did not have a material effect on the consolidated results of operations or financial position.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
2. Summary of Significant Accounting Policies (continued)
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which was primarily codified into Topic 810 in the ASC. This standard requires ongoing assessments to determine whether an entity is a variable entity and requires qualitative analysis to determine whether an enterprises variable interest(s) give it a controlling financial interest in a variable interest entity. In addition, it requires enhanced disclosures about an enterprises involvement in a variable interest entity. This standard is effective for the fiscal year that begins after November 15, 2009. The adoption of this standard is not
expected to have a material impact on the Company's consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, which was primarily codified into Topic 105 Generally Accepted Accounting Standards in the ASC. This standard will become the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants, EITF, and other related accounting literature. This standard condenses the thousands of GAAP pronouncements into approximately 90 accounting topics and displays them using a consistent structure. Also
included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. This guidance became effective for financial statements issued for reporting periods that ended after September 15, 2009. Beginning in the third quarter of 2009, this guidance impacts the Company's financial statements and related disclosures as all references to authoritative accounting literature reflect the newly adopted codification.
In January 2010, the FASB issued FASB Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 amends ASC 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements. This ASU becomes effective for the Company on January 1, 2010. The adoption of this ASU did not have a material impact on the Companys consolidated financial statements.
The Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
3. Acquisitions
The following is summary of the Companys acquisitions during the years ended December 31, 2009, 2008 and 2007.
2009 and 2008 Acquisitions
The Company during 2009 and 2008 did not have any acquisitions. See Notes 4 and 5 for discussion of the Companys investments in unconsolidated affiliated real estate entities the Company acquired during the years ended December 31, 2009 and 2008.
2007 Acquisitions
The Company during the year ended December 31, 2007 completed several acquisitions as discussed below. See Note 4 for discussion of the Companys investments in unconsolidated affiliated real estate entities during the year ended December 31, 2007.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
3. Acquisitions (continued)
Gulf Coast Industrial Portfolio
On February 1, 2007, the Company, through wholly owned subsidiaries of the Operating Partnership, acquired a portfolio of industrial and office properties located in New Orleans, LA (5 industrial and 2 office properties), Baton Rouge, LA (3 industrial properties) and San Antonio, TX (4 industrial properties). As a group, the properties were 92% occupied at the acquisition, and represent approximately 1.0 million leasable square feet principally suitable for flexible industrial (54%), distribution (36%) and office (10%) uses. The properties were independently appraised at $70.7 million.
The acquisition price for the properties was $63.9 million, exclusive of approximately $1.9 million of closing costs, escrow funding for immediate repairs ($0.9 million) and insurance ($0.1 million), and financing related costs of approximately $0.6 million. In connection with the transaction, the Advisor received an acquisition fee equal to 2.75% of the purchase price, or approximately $1.8 million. The acquisition was funded through a combination of $14.4 million in offering proceeds and approximately $53.0 million in loan proceeds from a fixed rate mortgage loan secured by the properties.
Brazos Crossing Mall
On June 29, 2007, a subsidiary of the Operating Partnership acquired a 6.0 acre land parcel in Lake Jackson, Texas for immediate development of a 61,287 square foot power center. The land was purchased for $1.65 million cash and was funded 100% from the proceeds of the Companys offering. In addition, the Company in 2007 entered into a construction loan to the fund the development of the power center for up to $8.2 million. Upon completion of development in March 2008, the center opened and is 100% occupied by three triple net tenants: Pet Smart, Office Depot and Best Buy.
The purchase and sale agreement (the Land Agreement) for this transaction was negotiated between Lake Jackson Crossing Limited Partnership (formerly an affiliate of the Sponsor) and Starplex Operating, LP, an unaffiliated entity (the Land Seller). Prior to the closing, a 99% limited partnership interest in the Lake Jackson Limited Partnership was assigned to the Operating Partnership and the membership interests in Brazos Crossing LLC (the 1% general partner of the Lake Jackson Limited Partnership) were assigned to the Company.
The land parcel was acquired at what represents a $2.1 million discount from the expressed $3.75 million purchase price, with such difference being subsidized and funded by a retail affiliate of the Sponsor. The sale of the land parcel was a condition of the Sellers agreement to execute a new movie theater lease at the Sponsor affiliates nearby retail mall. The Company owns a 100% fee simple interest in the land parcel and retail power center. The Sponsors affiliate will receive no future benefit or ownership interests from this transaction.
Houston Extended Stay Hotels
On October 17, 2007, the Company, through TLG Hotel Acquisitions LLC, a wholly owned subsidiary of our operating partnership (together with such subsidiary, the Houston Partnership), acquired two hotels located in Houston, TX (the Katy Hotel) and Sugar Land, TX (the Sugar Land Hotel and together with the Katy Hotel, the Hotels) from Morning View Hotels Katy, LP, Morning View Hotels Sugar Land, LP and Point of Southwest Gardens, Ltd., pursuant to an Asset Purchase and Sale Agreement. The seller is not an affiliate of the Company or its subsidiaries.
The acquisition price for the Hotels was $16 million inclusive of closing costs. In connection with the transaction, the Companys advisor received an acquisition fee equal to 2.75% of the contract price ($15.2 million), or approximately $0.4 million. The acquisition was funded through a combination of $6.0 million in offering proceeds and approximately $10 million in loan proceeds from a floating rate mortgage loan secured by the Hotels. At the time of acquisition, the Hotels were recently remodeled by the previous owner; however the Company planned to make a $2.8 million dollar investment in capital
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
3. Acquisitions (continued)
expenditures to convert the Hotels to Extended Stay Deluxe (ESD) brand properties. The ESD brand is under license from an affiliate within the Extended Stay Hotels group of companies.
Camden Properties
On November 16, 2007, the Company through wholly owned subsidiaries of the partnership acquired five apartment communities (Camden Properties) located in Tampa, Florida (one property), Charlotte, North Carolina (two properties) and Greensboro, North Carolina (two properties) from Camden Operating, L.P. (the Seller). The Seller is not affiliated with the Company or its subsidiaries.
The Properties, built between 1980 and 1987, are comprised of 1,576 apartment units, in the aggregate, contain a total of 1,124,249 net rentable square feet, and were 94% occupied at acquisition.
The aggregate acquisition price for the Camden Properties was approximately $99.3 million, including acquisition-related transaction costs. Approximately $20.0 million of the acquisition cost was funded with offering proceeds from the sale of the Companys common stock and approximately $79.3 million was funded with five substantially similar fixed rate loans with Fannie Mae secured by each of the Camden Properties.
In connection with the acquisition of the properties, our Advisor received an acquisition fee of 2.75% of the gross contract price for the Camden Properties or approximately $2.65 million.
Sarasota, Florida
On March 1, 2007, the Company entered into an option agreement to participate in a joint-venture with its Sponsor (the JV Option with respect to the potential joint venture, the Joint Venture) for the purchase of a property located at 2150 Whitfield Avenue, Sarasota, Florida (the Sarasota Property). On November 15, 2007, the Company exercised the JV Option and, through a wholly-owned subsidiary of the Companys operating partnership, entered into the Joint Venture and acquired the Sarasota Property.
In July, 2007, CAD Funding, LLC (CAD), an affiliate of Park Avenue Funding, LLC, had the highest bid on the Sarasota Property in a foreclosure action. Park Avenue Funding, LLC, is a real estate lending company founded in 2004 and an affiliate of the Companys Advisor and Sponsor. CAD initiated the foreclosure action following the default of an unaffiliated third party on a loan made to the third party by CAD, for which the Sarasota Property served as security. Prior to the entry of the foreclosure judgment, the Sponsor expressed an interest in bidding at the foreclosure sale in anticipation that the Registrant would exercise the JV
Option. On August 6, 2007, the Sarasota Property was indirectly acquired by the Sponsor. The Sarasota Property was contributed to the Joint Venture prior to the Registrants exercise of the JV Option. The contribution to the Joint Venture by the Company was $13.1 million of offering proceeds used to acquire the Sarasota Property. The property was independently appraised in May of 2006 for $17.4 million. As December 31, 2007, the Company owned 100% of the Sarasota property and its operations are fully consolidated in the Companys financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
3. Acquisitions (continued)
Unaudited Pro Forma Results
The following unaudited pro forma combined condensed statements of operations set forth the consolidated results of operations for the year ended December 31, 2007, as if the above described acquisitions had occurred at January 1, 2007. The unaudited pro forma information does not purport to be indicative of the results that actually would have occurred if the acquisitions had been in effect for the year ended December 31, 2007, or for any future period.
|
|
|
|
|
Year Ended
December 31,
2007
|
|
|
(unaudited)
|
Real estate revenues
|
|
$
|
34,467,938
|
|
Net loss from continuing operations
|
|
$
|
(9,294,417
|
)
|
Net loss from discontinued operations
|
|
|
(698,915
|
)
|
Net loss
|
|
|
(9,993,332
|
)
|
Basic and diluted net loss per Company's common share
|
|
|
|
|
Continuing operations
|
|
$
|
(0.66
|
)
|
Discontinued operations
|
|
|
(0.05
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.71
|
)
|
4. Investments in Unconsolidated Affiliated Real Estate Entities
The entities listed below are partially owned by the Company. The Company accounted for these investments under the equity method of accounting as the Company exercises significant influence, but does not control these entities. A summary of the Companys investments in unconsolidated affiliated real estate entities is as follows:
|
|
|
|
|
|
|
|
|
Real Estate Entity
|
|
Dates Acquired
|
|
Ownership
%
|
|
As of
|
|
December 31,
2009
|
|
December 31,
2008
|
Prime Outlets Acquistions Company
|
|
|
March 30, 2009 & August 25, 2009
|
|
|
|
40.00
|
%
|
|
$
|
84,291,011
|
|
|
$
|
|
|
Mill Run LLC
|
|
|
June 26, 2008 & August 25, 2009
|
|
|
|
36.80
|
%
|
|
|
29,809,641
|
|
|
|
19,279,406
|
|
1407 Broadway Mezz II LLC
|
|
|
January 4, 2007
|
|
|
|
49.00
|
%
|
|
|
1,871,814
|
|
|
|
2,096,502
|
|
Total Investments in unconsolidated affiliated real estate entities
|
|
|
|
|
|
|
|
|
|
$
|
115,972,466
|
|
|
$
|
21,375,908
|
|
Prime Outlets Acquisitions Company
On March 30, 2009, the Operating Partnership acquired a 25% membership interest in POAC from AR Prime in exchange for units in the Operating Partnership (see Note 1). The acquisition price before transaction costs for the 25% membership interest in POAC was approximately $356 million, $56 million in the form of equity and approximately $300 million in the form of indebtedness secured by the POAC properties (18 retail outlet malls and two development projects).
On August 25, 2009, the Operating Partnership acquired an additional 15% membership interest in POAC from JT Prime in exchange for units in the Operating Partnership (see Note 1). The acquisition price before transaction costs for the 15% membership interest in POAC was approximately $195 million, $17 million in the form of equity and approximately $178 million in the form of indebtedness secured by the POAC properties.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
4. Investments in Unconsolidated Affiliated Real Estate Entities (continued)
As of December 31, 2009, the Operating Partnership owns a 40% membership interest in POAC (POAC Interest). The POAC Interest is a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of The Lightstone Group, the Companys sponsor, is the majority owner and manager of POAC. Profit and cash distributions will be allocated in accordance with each investors ownership percentage.
As the Company has recorded this investment in accordance with the equity method of accounting, the indebtedness is not included in the Companys investment. In connection with the transactions, our advisor charged an acquisition fee equal to 2.75% of the acquisition price, or approximately $15.4 million (See Note 13). In addition, during the year ended December 31, 2009, the Company incurred additional transactions costs related to accounting, brokerage, legal and other transaction fees of $8.2 million. The total transaction costs incurred during the year ended December 31, 2009 of $23.6 million were capitalized as part of the cost of the
Companys investment in unconsolidated affiliated real estate entity. Prior to January 1, 2009, the Company incurred and expensed to general and administrative expense transaction costs associated with the investment in POAC of $2.2 million. Total transactions fees associated with the acquisition of the POAC Interest including the advisor acquisition fee as of December 31, 2009 were $25.8 million.
See Note 12 for discussion of loans issued in connection with the contribution of the POAC Interest and payment of advisor fee of $5.6 million associated with the 15% membership interest in POAC. See Note 18 for discussion of the tax protection agreement. The Company, on December 8, 2009, signed a definitive agreement to dispose of its POAC Interest. See Note 1 for discussion.
POAC Financial Information
The Companys carrying value of its POAC Interest differs from its share of members equity reported in the condensed balance sheet of POAC due to the Companys cost of its investments in excess of the historical net book values of POAC. The Companys additional basis allocated to depreciable assets is recognized on a straight-line basis over the lives of the appropriate assets.
The following table represents the condensed income statement for POAC for the following period March 30, 2009 through December 31, 2009:
|
|
|
|
|
For the period
March 30, 2009
through
December 31,
2009
|
Revenue
|
|
$
|
141,544,595
|
|
Property operating expenses
|
|
|
73,744,808
|
|
Depreciation and amortization
|
|
|
29,668,172
|
|
Operating income
|
|
|
38,131,615
|
|
Interest expense and other, net
|
|
|
(44,196,241
|
)
|
Net loss
|
|
$
|
(6,064,626
|
)
|
Companys share of net loss
|
|
$
|
(2,720,784
|
)
|
Additional depreciation and amortization expense
(1)
|
|
|
(9,604,143
|
)
|
Companys loss from investment
|
|
$
|
(12,324,927
|
)
|
|
(1)
|
Additional depreciation and amortization expense relates to the amortization of the difference between the cost of the POAC Interest and the amount of the underlying equity in net assets of the Company.
|
F-44
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
4. Investments in Unconsolidated Affiliated Real Estate Entities (continued)
The following table represents the condensed balance sheet for POAC as of December 31, 2009:
|
|
|
|
|
As of
December 31,
2009
|
Real estate, at cost (net)
|
|
$
|
757,385,791
|
|
Intangible assets
|
|
|
11,384,965
|
|
Cash and restricted cash
|
|
|
44,891,427
|
|
Other assets
|
|
|
59,050,970
|
|
Total Assets
|
|
$
|
872,713,153
|
|
Mortgage payable
|
|
$
|
1,183,285,466
|
|
Other liabilities
|
|
|
46,447,451
|
|
Member capital
|
|
|
(357,019,764
|
)
|
Total liabilities and members capital
|
|
$
|
872,713,153
|
|
Mill Run Interest
On June 26, 2008, the Operating Partnership acquired a 22.54% membership interest in Mill Run from Arbor JRM and Arbor CJ in exchange for units in the Operating Partnership (see Note 1). The acquisition price before transaction costs for the 22.54% membership interest in Mill Run was approximately $85 million, $19.6 million in the form of equity and approximately $65.4 million in the form of indebtedness, which matures November 2010 and is secured by the Mill Run properties.
On August 25, 2009, the Operating Partnership acquired an additional 14.26% membership interest in Mill Run from TRAC and Central Jersey in exchange for units in the Operating Partnership (see Note 1). The acquisition price before transaction costs for the 14.26% membership interest in Mill Run was approximately $56.0 million, $6.0 million in the form of equity, approximately $39.6 million in the form of indebtedness, which matures November 2010 and is secured by the Mill Run properties, plus $10.4 million assumption of TRAC and Central Jersey member interest loans due to Mill Run. Any distributions to the Company from Mill Run related to the 14.26%
membership interest will require the Company to make an equal amount of mandatory repayment on the member interest loans. During the three months ended December 31, 2009, the Company received a distribution of $10.5 million related to its 14.26% membership interest and subsequently paid off these loans. The total amount paid to pay off the loans was $10.5 million, including accrued interest.
As of December 31, 2009, the Operating Partnership owns a 36.8% membership interest in Mill Run (Mill Run Interest). The Mill Run Interest includes Class A and B membership shares and is a non-managing interest, with consent rights with respect to certain major decisions. The Companys sponsor is the managing member and owns 55% of Mill Run. Profit and cash distributions will be allocated in accordance with each investors ownership percentage after consideration of Class B members adjusted capital balance.
As the Company has recorded this investment in accordance with the equity method of accounting, the indebtedness is not included in the Companys investment. In connection with the transaction, our advisor charged an acquisition fee equal to 2.75% of the acquisition price, or approximately $3.6 million. In addition, during the year ended December 31, 2009, the Company incurred additional transactions costs related to accounting, brokerage, legal and other transaction fees of $1.1 million. The total transaction costs incurred during the year ended December 31, 2009 of $2.4 million were capitalized as part of the cost of the Companys
investment in unconsolidated affiliated real estate entity. Prior to January 1, 2009, the Company incurred and expensed to general and administrative expense transaction costs associated with the investment in Mill Run of $4.1 million. Total transactions fees associated with the acquisition of the Mill Run Interest including the advisor acquisition fee as of December 31, 2009 were $6.5 million.
F-45
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
4. Investments in Unconsolidated Affiliated Real Estate Entities (continued)
See Note 12 for discussion of loans issued in connection with the contribution of the Mill Run Interest and payment of advisor fee of $1.3 million associated with the 14.26% membership interest in Mill Run. See Note 18 for discussion of the tax protection agreement. The Company, on December 8, 2009, signed a definitive agreement to dispose of its Mill Run Interest. See Note 1 for discussion.
In connection with the contribution of the 14.26% membership interest in Mill Run and the 15% membership interest in POAC, the Company entered into certain letter agreements with the owners of the membership interests of JT Prime, TRAC and Central Jersey pursuant to which the Company agreed to pay an aggregate amount equal to $6.0 million in consideration for certain restrictive covenants and for brokerage services received by the Company in connection with the contribution of the 14.26% membership interest in Mill Run and the 15% membership interest in POAC. The $6.0 million related to these agreements are included in the total transactions fees
discussed above. $1.1 million of the $6.0 million is included in the total transaction fees of $6.5 million for the Mill Run Interest and $4.9 million of the $6.0 million is included in the total transaction fees of $25.8 million for the POAC Interest discussed above.
Mill Run Financial Information
The Companys carrying value of its Mill Run Interest differs from its share of members equity reported in the condensed balance sheet of Mill Run due to the Companys cost of its investments in excess of the historical net book values of Mill Run. The Companys additional basis allocated to depreciable assets is recognized on a straight-line basis over the lives of the appropriate assets.
The following table represents the condensed income statement for Mill Run for the year ended December 31, 2009 and the period June 26, 2008 through December 31, 2008:
|
|
|
|
|
|
|
For the Year
Ended
December 31,
2009
|
|
For the
Period June 26,
2008 through
December 31,
2008
|
Revenue
|
|
$
|
44,969,704
|
|
|
$
|
20,578,725
|
|
Property operating expenses
|
|
|
13,388,778
|
|
|
|
6,578,144
|
|
Depreciation and amortization
|
|
|
11,160,418
|
|
|
|
5,025,800
|
|
Operating income
|
|
|
20,420,508
|
|
|
|
8,974,781
|
|
Interest expense and other, net
|
|
|
(6,070,646
|
)
|
|
|
(7,639,803
|
)
|
Net income
|
|
$
|
14,349,862
|
|
|
$
|
1,334,978
|
|
Companys share of net income
|
|
$
|
4,064,096
|
|
|
$
|
300,904
|
|
Additional depreciation and amortization expense
(1)
|
|
|
(1,824,196
|
)
|
|
|
(621,647
|
)
|
Companys income/(loss) from investment
|
|
$
|
2,239,900
|
|
|
$
|
(320,743
|
)
|
|
(1)
|
Additional depreciation and amortization expense relates to the amortization of the difference between the cost of the Mill Run Interest and the amount of the underlying equity in net assets of the Company.
|
F-46
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
4. Investments in Unconsolidated Affiliated Real Estate Entities (continued)
The following table represents the unaudited condensed balance sheet for Mill Run as of December 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
As of
December 31,
2009
|
|
As of
December 31,
2008
|
Real estate, at cost (net)
|
|
$
|
257,274,810
|
|
|
$
|
270,591,378
|
|
Intangible assets
|
|
|
644,421
|
|
|
|
1,266,969
|
|
Cash and restricted cash
|
|
|
6,410,480
|
|
|
|
7,836,738
|
|
Other assets
|
|
|
9,755,013
|
|
|
|
26,557,746
|
|
Total Assets
|
|
$
|
274,084,724
|
|
|
$
|
306,252,831
|
|
Mortgage payable
|
|
$
|
265,195,763
|
|
|
$
|
283,261,676
|
|
Other liabilities
|
|
|
22,267,449
|
|
|
|
25,494,446
|
|
Member capital
|
|
|
(13,378,488
|
)
|
|
|
(2,503,291
|
)
|
Total liabilities and members capital
|
|
$
|
274,084,724
|
|
|
$
|
306,252,831
|
|
1407 Broadway
On January 4, 2007, the Company, through LVP 1407 Broadway LLC, a wholly owned subsidiary of the Operating Partnership, entered into a joint venture with an affiliate of the Sponsor (the Joint Venture). On the same date, an indirect, wholly owned subsidiary acquired a sub-leasehold interest in a ground lease to an office building located at 1407 Broadway, New York, New York (the Sublease Interest).
Initial equity from the Sponsor, the Companys co-venturer totaled $13.5 million (representing a 51% ownership interest). The Companys initial capital investment of $13.0 million (representing a 49% ownership interest) was funded with proceeds from the Companys common stock offering. The acquisition was funded through a combination of $26.5 million of capital and a $106.0 million advance on a $127.3 million variable rate mortgage loan funded by Lehman Brothers Holding, Inc. (Lehman). This mortgage loan originally matured on January 9, 2010. In November 2009, the Joint Venture exercised one of its two one-year extension
options for a fee of 0.125% of the amount of the respective loan for each extension. The new maturity date on the loan is January 9, 2011.
Additionally, Lehman will receive a 35% net profit interest in the project, which is contingent upon a capital transaction, as defined as any transaction involving the sale, assignment, transfer, liquidation, condemnation or settlement in lieu thereof, disposition, financing, refinancing or any other conversion to cash of all or any portion of the property or equity or membership interests in Borrower, directly, other than the leasing of space for occupancy and/or any other transaction with respect to the Property or the direct or indirect ownership interests in Borrower outside the ordinary course of business. To date, the Lender did not share in
any net profits of the project. All other income and cash distributions will be allocated in accordance with each investors ownership percentage of the venture. The Joint Venture plans to continue an ongoing renovation project at the property that consists of lobby, elevator and window redevelopment projects.
Under the mortgage loan, the Joint Venture has available credit of approximately $10.5 million, as of December 31, 2009. See Note 18.
The original investment was $13.0 million and will be subsequently adjusted for cash contributions and distributions, and the Companys share of earnings and losses. The Company and the co-venturer contributed an additional $0.6 million in 2007. In addition, during 2008, the Company and the co-venturer each received a distribution of approximately $1.2 million. Earnings for each investment are recognized in accordance with this investment agreement and where applicable, based upon an allocation of the investments net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period.
F-47
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
4. Investments in Unconsolidated Affiliated Real Estate Entities (continued)
1407 Broadway Financial
The following table represents the condensed income statement derived from audited financial statements for 1407 Broadway for the years ended December 31, 2009 and 2008 and for the period from January 4, 2007 (date of inception) through December 31, 2007:
|
|
|
|
|
|
|
|
|
For the Year
Ended
December 31,
2009
|
|
For the Year
Ended
December 31,
2008
|
|
For the period
January 4, 2007
(date of inception)
through
December 31,
2007
|
Total Revenue
|
|
$
|
39,350,451
|
|
|
$
|
39,598,698
|
|
|
$
|
37,447,442
|
|
Property operating expenses
|
|
|
27,392,216
|
|
|
|
27,385,058
|
|
|
|
26,701,479
|
|
Depreciation & Amortization
|
|
|
8,581,715
|
|
|
|
11,448,474
|
|
|
|
16,214,919
|
|
Operating income/(loss)
|
|
|
3,376,520
|
|
|
|
765,166
|
|
|
|
(5,468,956
|
)
|
Interest Expense and other, net
|
|
|
(3,837,117
|
)
|
|
|
(6,962,154
|
)
|
|
|
(9,363,592
|
)
|
Net operating loss
|
|
$
|
(460,597
|
)
|
|
$
|
(6,196,988
|
)
|
|
$
|
(14,832,548
|
)
|
Companys share of net operating loss (49%)
|
|
$
|
(225,693
|
)
|
|
$
|
(3,036,524
|
)
|
|
$
|
(7,267,949
|
)
|
The following table represents the condensed balance sheet derived from audited financial statements for 1407 Broadway as of December 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
As of
December 31,
2009
|
|
As of
December 31,
2008
|
Real estate, at cost (net)
|
|
$
|
111,803,186
|
|
|
$
|
110,425,157
|
|
Intangible assets
|
|
|
1,845,941
|
|
|
|
4,233,365
|
|
Cash and restricted cash
|
|
|
10,226,017
|
|
|
|
10,309,580
|
|
Other assets
|
|
|
11,887,040
|
|
|
|
8,178,293
|
|
Total Assets
|
|
$
|
135,762,184
|
|
|
$
|
133,146,395
|
|
Mortgage payable
|
|
$
|
116,796,263
|
|
|
$
|
113,709,491
|
|
Other liabilities
|
|
|
15,156,202
|
|
|
|
15,166,588
|
|
Member capital
|
|
|
3,809,719
|
|
|
|
4,270,316
|
|
Total liabilities and members capital
|
|
$
|
135,762,184
|
|
|
$
|
133,146,395
|
|
Debt Compliance for Investments in Unconsolidated Affiliated Real Estate Entities
The debt agreements of the unconsolidated affiliated real estate entities, which the Company has an equity investment in, are subject to various financial and reporting covenants and requirements. Noncompliance with these requirements could constitute an event of default, which could allow the lenders to accelerate the repayment of the loan, or to exercise other remedies. Although all of these real estate entities are current on payment of their respective debt obligations as of December 31, 2009, certain of these entities have instances of noncompliance with other requirements stipulated by their applicable debt agreements. These noncompliance
issues do not constitute an event of default until the borrower is notified by the lender. In certain cases, the borrower has an ability to cure the noncompliance within a specified period. To date, these entities have not been notified by the lenders. Should the lender take action to exercise its remedies, it could have an unfavorable impact on these entities cash flows and rights as owner of any investment holdings in the underlying property. Management believes that these entities will satisfactorily resolve these matters with the applicable lender for each instance where noncompliance has occurred.
F-48
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
5. Investment in Affiliate
Park Avenue Funding
On April 16, 2008, the Company made a preferred equity contribution of $11.0 million (the Contribution) to PAF-SUB LLC (PAF), a wholly-owned subsidiary of Park Avenue Funding LLC (Park Avenue), in exchange for membership interests of PAF with certain rights and preferences described below (the Preferred Units). Park Avenue is a real estate lending company making loans, including first or second mortgages, mezzanine loans and collateral pledges of mortgages, to finance real estate transactions. Property types considered include multi-family, office, industrial, retail, self-storage, parking and land.
Both PAF and Park Avenue are affiliates of our Sponsor.
PAFs limited liability company agreement was amended on April 16, 2008 to create the Preferred Units and admit the Company as a member. The Preferred Units are entitled to a cumulative preferred distribution at the rate of 10% per annum, payable quarterly. In the event that PAF fails to pay such distribution when due, the preferred distribution rate will increase to 17% per annum. The Preferred Units are redeemable, in whole or in part, at any time at the option of the Company upon at least 180 days prior written notice (the Redemption). In addition, the Preferred Units are entitled to a liquidation preference senior to any
distribution upon dissolution with respect to other equity interests of PAF in an amount equal to (x) the Contribution plus any accrued but unpaid distributions less (y) any Redemption payments.
In connection with the Contribution, the Company and Park Avenue entered into a guarantee agreement on April 16, 2008, whereby Park Avenue unconditionally and irrevocably guarantees payment of the Redemption amounts when due (the Guarantee). Also, Park Avenue agrees to pay all costs and expenses incurred by the Company in connection with the enforcement of the Guarantee.
The Company does not have any voting rights for this investment, and does not have significant influence or control over this investment. The Company accounts for this investment under the cost method. Total accrued distributions related to this investment totaled $0.1 million at December 31, 2009 and $0.3 million at December 31, 2008, and are included in interest receivable from related parties. Through December 31, 2009, the Company received redemption payments from PAF of $3.3 million, of which $2.5 million was received during the year end December 31, 2009. As of December 31, 2009, the Companys investment in PAF is $7.7 million and is
included in investment in affiliate, at cost in the consolidated balance sheet.
6. Marketable Securities and Fair Value Measurements
The following is a summary of the Companys available for sale securities at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
As of December 31, 2008
|
|
|
Adjusted
Cost
|
|
Unrealized
Gain
|
|
Fair Value
|
|
Adjusted
Cost
|
|
Unrealized
Gain/(Loss)
|
|
Fair Value
|
Corporate Bonds
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,508,760
|
|
|
$
|
147,740
|
|
|
$
|
9,656,500
|
|
Equity Securities, primarily REITs
|
|
|
466,142
|
|
|
|
374,735
|
|
|
|
840,877
|
|
|
|
6,154,259
|
|
|
|
(4,360,194
|
)
|
|
|
1,794,065
|
|
Total Marketable Securities available for sale
|
|
$
|
466,142
|
|
|
$
|
374,735
|
|
|
$
|
840,877
|
|
|
$
|
15,663,019
|
|
|
$
|
(4,212,454
|
)
|
|
$
|
11,450,565
|
|
The Company, in 2008, recorded a write down of $9.8 million for other than temporary declines on certain available-for-sale securities. During the six months ended June 30, 2009, the Companys marketable securities and the overall REIT market continued to experience significant declines, which increased the duration and magnitude of the Companys unrealized losses. The overall challenges in the economic environment, including near term prospects for certain of the Companys securities makes a recovery period difficult to project. Although the Company has the ability to hold these securities until potential recovery, the Company
believes certain of the losses for these securities are other than temporary. As a result, during the
F-49
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
6. Marketable Securities and Fair Value Measurements (continued)
three months ended June 30, 2009, the Company recorded a write-down of $3.4 million for other than temporary declines on certain available-for-sale securities, which are included in Other than temporary impairment marketable securities on the consolidated statements of operations to reflect the additional reduction from 2008 that is considered to be other than temporary. Through December 31, 2009, no additional impairment charge has been recorded.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
|
|
Level 1
Quoted prices in active markets for identical assets or liabilities.
|
|
|
Level 2
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
Assets measured at fair value on a recurring basis as of December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
As of December 31, 2009
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Equity Securities, primarily REITs
|
|
|
840,877
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
840,877
|
|
Total Marketable securities available for sale
|
|
$
|
840,877
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
840,877
|
|
Assets measured at fair value on a recurring basis as of December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
As of December 31, 2008
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Corporate bonds
|
|
$
|
9,656,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,656,500
|
|
Equity Securities, primarily REITs
|
|
|
1,794,065
|
|
|
|
|
|
|
|
|
|
|
|
1,794,065
|
|
Total Marketable securities available for sale
|
|
$
|
11,450,565
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,450,565
|
|
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.
F-50
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
7. Intangible Assets
At December 31, 2009, the Company had intangible assets relating to above-market leases from property acquisitions, intangible assets related to leases in place at the time of acquisition, intangible assets related to leasing costs, and intangible liabilities relating to below-market leases from property acquisitions.
The following table sets forth the Companys intangible assets/ (liabilities) as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
At December 31, 2008
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
Acquired in-place lease intangibles
|
|
$
|
2,115,335
|
|
|
$
|
(1,505,848
|
)
|
|
$
|
609,487
|
|
|
$
|
2,359,814
|
|
|
$
|
(1,327,663
|
)
|
|
$
|
1,032,151
|
|
Acquired above market lease intangibles
|
|
|
841,475
|
|
|
|
(642,127
|
)
|
|
|
199,348
|
|
|
|
898,711
|
|
|
|
(537,950
|
)
|
|
|
360,761
|
|
Deferred intangible leasing costs
|
|
|
1,161,392
|
|
|
|
(783,705
|
)
|
|
|
377,687
|
|
|
|
1,294,064
|
|
|
|
(673,139
|
)
|
|
|
620,925
|
|
Acquired below market lease intangibles
|
|
|
(1,614,988
|
)
|
|
|
1,234,484
|
|
|
|
(380,504
|
)
|
|
|
(1,767,352
|
)
|
|
|
1,110,535
|
|
|
|
(656,817
|
)
|
During the year ended December 31, 2009, the Company wrote off fully amortized acquired intangible assets of approximately $0.6 million, respectively, resulting in a reduction of cost and accumulated amortization of intangible assets at December 31, 2009 compared to the December 31, 2008. There were no additions during year ended December 31, 2009.
The following table presents the projected amortization benefit of the acquired above market lease costs and the below market lease costs during the next five years and thereafter at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense/(benefit) of:
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
Acquired above market lease value
|
|
$
|
74,420
|
|
|
$
|
39,231
|
|
|
$
|
23,379
|
|
|
$
|
14,425
|
|
|
$
|
14,425
|
|
|
$
|
33,468
|
|
|
$
|
199,348
|
|
Acquired below market lease value
|
|
|
(123,986
|
)
|
|
|
(82,669
|
)
|
|
|
(44,748
|
)
|
|
|
(43,462
|
)
|
|
|
(42,819
|
)
|
|
|
(42,820
|
)
|
|
|
(380,504
|
)
|
Projected future net rental income increase
|
|
$
|
(49,566
|
)
|
|
$
|
(43,438
|
)
|
|
$
|
(21,369
|
)
|
|
$
|
(29,037
|
)
|
|
$
|
(28,394
|
)
|
|
$
|
(9,352
|
)
|
|
$
|
(181,156
|
)
|
Amortization benefit of acquired above and below market lease values is included in total revenues in our consolidated statements of operations was $0.1 million, $0.4 million and $0.2 million for the years ended December 31, 2009, 2008 and 2007, respectively.
The following table presents the projected amortization expense of the acquired in-place lease intangibles and acquired leasing costs during the next five years and thereafter at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of:
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
Acquired in-place leases value
|
|
$
|
199,300
|
|
|
$
|
104,441
|
|
|
$
|
71,444
|
|
|
$
|
65,790
|
|
|
$
|
65,565
|
|
|
$
|
102,947
|
|
|
$
|
609,487
|
|
Deferred intangible leasing costs value
|
|
|
121,724
|
|
|
$
|
70,973
|
|
|
$
|
44,209
|
|
|
$
|
39,247
|
|
|
$
|
38,922
|
|
|
$
|
62,612
|
|
|
|
377,687
|
|
Projected future amortization expense
|
|
$
|
321,024
|
|
|
$
|
175,414
|
|
|
$
|
115,653
|
|
|
$
|
105,037
|
|
|
$
|
104,487
|
|
|
$
|
165,559
|
|
|
$
|
987,174
|
|
Actual total amortization expense included in depreciation and amortization expense in our consolidated statements of operations was $0.7 million, $1.1 million and $1.5million for the years ended December 31, 2009, 2008 and 2007, respectively.
F-51
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
8. Assets and Liabilities Held for Sale and Discontinued Operations
On December 8, 2009, the Company signed a definitive agreement to sell its St. Augustine Outlet center (St. Augustine) as part of an agreement to dispose of its interests in its investments in POAC and Mill Run. See Note 1 for further discussion. The Company expects the transaction to be completed during 2010. For the year ended December 31, 2009, the St. Augustine assets and liabilities met the criteria for classification as held for sale and discontinued operations. As of December 31, 2009, the Company did not record an impairment charge related to the expected sale as the St. Augustines net asset carrying value plus the
Companys carrying value of the investments in POAC and Mill Run are lower than the expected proceeds, after consideration of debt to be assumed by buyer.
The following summary presents the operating results of St. Augustine included in discontinued operations in the Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 31,
2009
|
|
December 31,
2008
|
|
December 31,
2007
|
Revenue
|
|
$
|
6,940,566
|
|
|
$
|
4,763,998
|
|
|
$
|
4,788,870
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expense
|
|
|
2,706,616
|
|
|
|
2,690,003
|
|
|
|
2,316,871
|
|
Real estate taxes
|
|
|
475,414
|
|
|
|
380,906
|
|
|
|
416,865
|
|
General and administrative costs
|
|
|
68,106
|
|
|
|
39,615
|
|
|
|
5,762
|
|
Depreciation and amortization
|
|
|
2,458,162
|
|
|
|
1,227,482
|
|
|
|
1,164,714
|
|
Total Operating expense
|
|
|
5,708,298
|
|
|
|
4,338,006
|
|
|
|
3,904,212
|
|
Operating income
|
|
|
1,232,268
|
|
|
|
425,992
|
|
|
|
884,658
|
|
Other income, net
|
|
|
61,181
|
|
|
|
34,510
|
|
|
|
25,020
|
|
Interest income
|
|
|
14,220
|
|
|
|
26,130
|
|
|
|
98,806
|
|
Interest expense
|
|
|
(1,667,997
|
)
|
|
|
(924,128
|
)
|
|
|
(1,707,399
|
)
|
Net loss from discontinued operations
|
|
$
|
(360,328
|
)
|
|
$
|
(437,496
|
)
|
|
$
|
(698,915
|
)
|
Cash flows generated from discontinued operations are presented separately on the Companys Consolidated Statements of Cash Flows.
The following summary presents the major components of assets and liabilities held for sale as of December 31, 2009 and 2008.
|
|
|
|
|
|
|
As of
|
|
|
December 31,
2009
|
|
December 31,
2008
|
Net investment property
|
|
$
|
55,787,190
|
|
|
$
|
57,364,457
|
|
Intangible assets, net
|
|
|
801,818
|
|
|
|
926,279
|
|
Restricted escrows
|
|
|
4,015,945
|
|
|
|
4,828,734
|
|
Other assets
|
|
|
944,631
|
|
|
|
1,925,892
|
|
Total assets
|
|
$
|
61,549,584
|
|
|
$
|
65,045,362
|
|
Mortgage payable
|
|
$
|
26,400,159
|
|
|
$
|
26,738,211
|
|
Other liabilities
|
|
|
1,030,901
|
|
|
|
9,445,872
|
|
Total liabilities
|
|
$
|
27,431,060
|
|
|
$
|
36,184,083
|
|
F-52
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
8. Assets and Liabilities Held for Sale and Discontinued Operations (continued)
For the mortgage payable related to St. Augustine, Lightstone Holdings, LLC (Guarantor), a company wholly owned by the Advisor, has guaranteed to the extent of a $27.2 million mortgage loan on the St. Augustine, the payment of losses that the lender may sustain as a result of fraud, misappropriation, misuse of loan proceeds or other acts of misconduct by the Company and/or its principals or affiliates. Such losses are recourse to the Guarantor under the guaranty regardless of whether the lender has attempted to procure payment from the Company or any other party. Further, in the event of the Company's voluntary bankruptcy, reorganization
or insolvency, or the interference by the Company or its affiliates in any foreclosure proceedings or other remedy exercised by the lender, the Guarantor has guaranteed the payment of any unpaid loan amounts. The Company has agreed, to the maximum extent permitted by its Charter, to indemnify Guarantor for any liability that it incurs under this guaranty.
9. Mortgages Payable
Mortgages payable, totaling approximately $218.1million and $219.9 million at December 31, 2009 and 2008, respectively, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Interest Rate
|
|
Weighted Avg Interest Rate as
December 31,
2009
|
|
Maturity Date
|
|
Amount Due
at Maturity
|
|
Loan Amount as of
|
|
December 31,
2009
|
|
December 31,
2008
|
Southeastern Michigan Multi Family Properties
|
|
|
5.96%
|
|
|
|
5.96
|
%
|
|
|
July 2016
|
|
|
$
|
38,138,605
|
|
|
$
|
40,725,000
|
|
|
$
|
40,725,000
|
|
Oakview Plaza
|
|
|
5.49%
|
|
|
|
5.49
|
%
|
|
|
January 2017
|
|
|
|
25,583,137
|
|
|
|
27,500,000
|
|
|
|
27,500,000
|
|
Gulf Coast Industrial Portfolio
|
|
|
5.83%
|
|
|
|
5.83
|
%
|
|
|
February 2017
|
|
|
|
49,556,985
|
|
|
|
53,025,000
|
|
|
|
53,025,000
|
|
Houston Extended Stay Hotels (Two Individual Loans)
|
|
|
LIBOR + 4.50%
|
|
|
|
3.98
|
%
|
|
|
April 2010
|
|
|
|
10,018,750
|
|
|
|
10,193,750
|
|
|
|
11,986,971
|
|
Brazos Crossing Power Center
|
|
|
Greater of
LIBOR + 3.50%
or 6.75%
|
|
|
|
6.75
|
%
|
|
|
December 2011
|
|
|
|
6,385,788
|
|
|
|
7,338,947
|
|
|
|
7,416,941
|
|
Camden Multi Family Properties (Five Individual Loans)
|
|
|
5.44%
|
|
|
|
5.44
|
%
|
|
|
December 2014
|
|
|
|
74,955,771
|
|
|
|
79,268,800
|
|
|
|
79,268,800
|
|
Total mortgage obligations
|
|
|
|
|
|
|
5.61
|
%
|
|
|
|
|
|
$
|
204,639,036
|
|
|
$
|
218,051,497
|
|
|
$
|
219,922,712
|
|
LIBOR at December 31, 2009 and 2008 was 0.2309% and 0.43625%, respectively. Each of the loans is secured by acquired real estate and is non-recourse to the Company, with the exception of the Houston Extended Stay Hotels loan which is 35% recourse to the Company.
The following table shows the mortgage payable maturing during the next five years and thereafter at December 31, 2009 including St. Augustines debt of $26.4 million reported in liabilities held for sale in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
(1)
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
$53,671,629
|
|
$
|
7,536,569
|
|
|
$
|
2,213,555
|
|
|
$
|
2,501,237
|
|
|
$
|
37,584,958
|
|
|
$
|
140,943,708
|
|
|
$
|
244,451,656
|
|
|
(1)
|
The amount due in 2010 of $53.7 million includes the principal balance of $42.3 million associated with two loans within the Camden portfolio that are in default status.
|
F-53
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
9. Mortgages Payable (continued)
Pursuant to the Companys loan agreements, escrows in the amount of approximately $2.0 million were held in restricted escrow accounts at December 31, 2009. These escrows will be released in accordance with the loan agreements as payments of real estate taxes, insurance and capital improvement transactions, as required. Of the $2.0 million in restricted escrows as of December 31, 2009, $0.2 million was directly held by the lender for two of the Camden properties (See discussion below). Our mortgage debt also contains clauses providing for prepayment penalties.
In connection with the acquisition of the Hotels, the Houston Partnership along with ESD #5051 Houston Sugar Land, LLC and ESD #5050 Houston Katy Freeway, LLC, its wholly owned subsidiaries (the Houston Borrowers) secured a mortgage loan from Bank of America, N.A. in the principal amount of $12.85 million which matured on April 16, 2009 and has been subsequently amended and extended to mature April 16, 2010. The amended mortgage loan bears interest on a daily basis expressed as a floating rate equal to the lesser of (i) the maximum non-usurious rate of interest allowed by
applicable law or (ii) the British Bankers Association Libor Daily Floating Rate plus 450 basis points (4.50%) per annum rate and requires monthly installments of interest plus a principal payment of $43,750. The remaining principal balance, together with all accrued and unpaid interest and all other amounts payable there under will be due on April 16, 2010. The Company intends to repay or refinance this loan upon maturity in April of 2010. The mortgage loan is secured by the Hotels and 35% of the obligation is guaranteed by the Company.
In December 2008, the Company converted its construction loan to fund and the development of the Brazos Crossing Power Center, in Lake Jackson, Texas Location to a term loan maturing on December 4, 2009 which has been subsequently amended and extended to mature December 4, 2011. As part of the amendment to the mortgage, the Company made a lump sum principal payment of $0.7 million in February 2010. The amended mortgage loan bears interest at the greater of 6.75% or libor plus 350 basis points (3.50%) per annum rate and requires monthly installments of interest plus a principal payment of $9,737. The loan is secured by acquired real estate.
On November 16, 2007, in connection with the acquisition of the Camden Properties, the Company through its wholly owned subsidiaries obtained from Fannie Mae five substantially similar fixed rate mortgages aggregating $79.3 million (the Loans). The Loans have a 30 year amortization period, mature in 7 years, and bear interest at a fixed rate of 5.44% per annum. The Loans require monthly installments of interest only through December 2010 and monthly installments of principal and interest throughout the remainder of their stated terms. The Loans will mature on December 1, 2014, at which time a balance of approximately $75.0 million will be
due. During October 2009, the Company decided to not make its required debt service payments of $0.2 million on two of these five loans, which had an outstanding principal balance of $42.3 million as of December 31, 2009. The Company determined that future debt service payments on these loans would no longer be economically beneficial to the Company based upon the current and expected future performance of the locations associated with these two loans. The bank has notified the Company that the Company is in default on these two loans. During the first quarter of 2010, the Company has been notified by the lender that it will be foreclosing on these two properties. The foreclosure sales are not expected to be completed until mid year 2010. Prior to this notification, the Company was in discussions with the lender regarding its default status and potential future remedies, which include transferring the two properties to the lender. Through December 31, 2009, the Company has not recorded
any potential prepayment penalties that it may be assessed by the lender as the Company believes that the payment of this potential liability is remote. During the quarter ended September 30, 2009, the Company recorded an impairment charge on long lived assets of $43.2 million associated with all five properties within the Camden portfolio. See Note 14.
Interest costs capitalized related to the renovation and expansion projects during the year ended December 31, 2009 and 2008 were zero and $0.1 million, respectively.
F-54
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
10. Distributions Payable
On November 3, 2009, the Company declared a dividend for the three-month period ending December 31, 2009 of $5.6 million. The dividend was calculated based on stockholders of record each day during this three-month period at a rate of $0.0019178 per day, and equaled a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. The December 31, 2009 dividend was paid in full in January 15, 2010 using a combination of cash ($3.3 million) and shares ($2.3 million) which represents 0.2 million shares of the Companys common stock issued pursuant to the Companys Distribution
Reinvestment Program, at a discounted price of $9.50 per share.
As of December 31, 2008, the Company paid all dividends declared through December 31, 2008.
11. Companys Stockholders Equity
Preferred Shares
Shares of preferred stock may be issued in the future in one or more series as authorized by the Lightstone REITs board of directors. Prior to the issuance of shares of any series, the board of directors is required by the Lightstone REITs charter to fix the number of shares to be included in each series and the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each series. Because the Lightstone REITs board of directors has the power to establish the preferences, powers and rights of each series of
preferred stock, it may provide the holders of any series of preferred stock with preferences, powers and rights, voting or otherwise, senior to the rights of holders of our common stock. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of the Lightstone REIT, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of the Lightstone REITs common stock. As of December 31, 2009 and 2008, the Lightstone REIT had no outstanding preferred shares.
Common Shares
All of the common stock being offered by the Lightstone REIT will be duly authorized, fully paid and nonassessable. Subject to the preferential rights of any other class or series of stock and to the provisions of its charter regarding the restriction on the ownership and transfer of shares of our stock, holders of the Lightstone REITs common stock will be entitled to receive distributions if authorized by the board of directors and to share ratably in the Lightstone REITs assets available for distribution to the stockholders in the event of a liquidation, dissolution or winding-up.
Each outstanding share of the Lightstone REITs common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors. There is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding common stock can elect all of the directors then standing for election, and the holders of the remaining common stock will not be able to elect any directors.
Holders of the Lightstone REITs common stock have no conversion, sinking fund, redemption or exchange rights, and have no preemptive rights to subscribe for any of its securities. Maryland law provides that a stockholder has appraisal rights in connection with some transactions. However, the Lightstone REITs charter provides that the holders of its stock do not have appraisal rights unless a majority of the board of directors determines that such rights shall apply. Shares of the Lightstone REITs common stock have equal dividend, distribution, liquidation and other rights.
Under its charter, the Lightstone REIT cannot make some material changes to its business form or operations without the approval of stockholders holding at least a majority of the shares of our stock entitled to vote on the matter. These include (1) amendment of its charter, (2) its liquidation or dissolution, (3) its reorganization, and (4) its merger, consolidation or the sale or other disposition of its assets. Share exchanges
F-55
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
11. Companys Stockholders Equity (continued)
in which the Lightstone REIT is the acquirer, however, do not require stockholder approval. The Lightstone REIT had approximately 31.5 million and 31.0 million shares of common stock outstanding as of December 31, 2009 and 2008, respectively.
Dividends
The Board of Directors of the Lightstone REIT declared a dividend for each quarter in 2006, 2007, 2008 and 2009. The dividends have been calculated based on stockholders of record each day during this three-month period at a rate of $0.0019178 per day, which, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00.
The amount of dividends distributed to our stockholders in the future will be determined by our Board of Directors and is dependent on a number of factors, including funds available for payment of dividends, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code.
Stock-Based Compensation
We have adopted a stock option plan under which our independent directors are eligible to receive annual nondiscretionary awards of nonqualified stock options. Our stock option plan is designed to enhance our profitability and value for the benefit of our stockholders by enabling us to offer independent directors stock based incentives, thereby creating a means to raise the level of equity ownership by such individuals in order to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and our stockholders.
We have authorized and reserved 75,000 shares of our common stock for issuance under our stock option plan. The board of directors may make appropriate adjustments to the number of shares available for awards and the terms of outstanding awards under our stock option plan to reflect any change in our capital structure or business, stock dividend, stock split, recapitalization, reorganization, merger, consolidation or sale of all or substantially all of our assets.
Our stock option plan provides for the automatic grant of a nonqualified stock option to each of our independent directors, without any further action by our board of directors or the stockholders, to purchase 3,000 shares of our common stock on the date of each annual stockholders meeting. In July 2007, August 2008 and September 2009, options to purchase 3,000 shares were granted to each of our three independent directors at the annual stockholders meeting on the respective dates. As of December 31, 2009, options to purchase 27,000 shares of stock were outstanding, 9,000 were fully vested, at an exercise price of $10. Through December 31,
2009, there were no forfeitures related to stock options previously granted.
The exercise price for all stock options granted under the stock option plan were fixed at $10 per share until the termination of the Lightstone REITs initial public offering which occurred in October 2008, and thereafter the exercise price for stock options granted to the independent directors will be equal to the fair market value of a share on the last business day preceding the annual meeting of stockholders. The term of each such option will be 10 years. Options granted to non-employee directors will vest and become exercisable on the second anniversary of the date of grant, provided that the independent director is a director on the board
of directors on that date. Notwithstanding any other provisions of the Lightstone REITs stock option plan to the contrary, no stock option issued pursuant thereto may be exercised if such exercise would jeopardize the Lightstone REITs status as a REIT under the Internal Revenue Code.
Compensation expense associated with our stock option plan was not material for the years ended December 31, 2009, 2008 and 2007.
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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
12. Noncontrolling Interests
The noncontrolling interests parties of the Company hold units in the Operating Partnership. These units include SLP units, limited partner units, Series A Preferred Units and Common Units.
Share Description
See Note 13 for discussion of rights related to SLP units. The limited partner and Common Units of the Operating Partnership have similar rights as those of the Companys stockholders including distribution rights.
The Series A Preferred Units holders are entitled to receive cumulative preferential distributions equal to an annual rate 4.6316%, if and when declared by the Company. The Series A Preferred Units have no mandatory redemption or maturity date. The Series A Preferred Units are not redeemable by the Operating Partnership prior to the Lockout Date of June 26, 2013. On or after the Lockout Date, the Series A Preferred Units may be redeemed at the option of the Operating Partnership (which notice may be delivered prior to the Lockout Date as long as the redemption does not occur prior to the Lockout Date), in whole but not in part, on thirty (30)
days prior written notice at the option of the Operating Partnership, at a redemption price per Series A Preferred Unit equal to the sum of the Series A Liquidation Preference plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of redemption, and the redemption price shall be payable in cash. During any redemption notice period, the holders of the Series A Preferred Units may convert, in whole or in part, the Series A Preferred Units into Common Units of the Operating Partnership obtained by dividing the aggregate Series A Liquidation Preference of such Series A Preferred Units by the estimated fair market value of the one common share of the Company. The Series A Preferred Units shall not be subject to any sinking fund or other obligation of the Operating Partnership to redeem or retire the Series A Preferred Units.
Distributions
During the year ended December 31, 2009, the Company paid distributions to noncontrolling interests of $4.7 million. In addition, as of December 31, 2009, the total distributions declared and not paid to noncontrolling interests was $1.7 million, which were subsequently paid on January 15, 2010.
Note Receivable due from Noncontrolling Interests
In connection with the contribution of the Mill Run and POAC membership interests, the Company made loans to Arbor JRM, Arbor CJ, AR Prime, TRAC, Central Jersey and JT Prime (collectively, Noncontrolling Interest Borrowers) in the aggregate principal amount of $88.5 million (the Noncontrolling Interest Loans), of which $22.4 million was issued during the year ended December 31, 2009. These loans are payable semi-annually and accrue interest at an annual rate of 4%. The loans mature through September 2017 and contain customary events of default and default remedies. The loans require the Noncontrolling Interest Borrowers to
prepay their respective loans in full upon redemption of the Series A Preferred Units by the Operating Partnership. The loans are secured by the Series A Preferred Units and Common Units issued in connection with the respective contribution of the Mill Run and the POAC membership interests, as such these loans are classified as a reduction to noncontrolling interests in the consolidated balance sheets.
Accrued interest related to these loans totaled $1.8 million and $1.4 million at December 31, 2009 and 2008, and are included in interest receivable from related parties in the consolidated balance sheets.
Noncontrolling Interest of Subsidiary within the Operating Partnerships
On August 25, 2009, the Operating Partnership acquired an additional 15% membership interest in POAC and an additional 14.26% membership interest in Mill Run. In connection with the transactions, the Advisor charged an acquisition fee equal to 2.75% of the acquisition price, which was approximately $6.9 million ($5.6 million related POAC and $1.3 million related to Mill Run, see Note 4). On August 25, 2009, the Operating Partnership contributed its investments of the 15% membership interest in POAC and the 14.26%
F-57
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
12. Noncontrolling Interests (continued)
membership interest in Mill Run to the newly formed PRO-DFJV Holdings, LLC, a Delaware limited liability company (PRO) in exchange for a 99.99% managing membership interest in PRO. In addition, Lightstone REIT contributed $2,900 cash for a 0.01% non- managing membership interest in PRO. As the Operating Partnership is the managing member with control, PRO is consolidated into the results and financial position of the Company. On September 15, 2009, the Advisor accepted, in lieu of a cash payment of $6.9 million for the acquisition fee, a 19.17% profit membership interest in PRO and assigned its rights to receive payment to the Sponsor, who
assigned the same to David Lichtenstein. Under the terms of the operating agreement of PRO, the 19.17% profit membership interest will not receive any distributions until the Operating Partnership and Lightstone REIT receive distributions equivalent to their capital contributions of approximately $29.0 million, then the 19.17% profit membership interest shall receive distributions to $6.9 million. Any remaining distributions shall be split between the three members in proportion to their profit interests.
13. Related Party Transactions
The Lightstone REIT has agreements with the Dealer Manager, Advisor and Property Manager to pay certain fees, as follows, in exchange for services performed by these entities and other affiliated entities. The Lightstone REITs ability to secure financing and subsequent real estate operations are dependent upon its Advisor, Property Manager, Dealer Manager and their affiliates to perform such services as provided in these agreements.
|
|
|
Fees
|
|
Amount
|
Selling Commission
|
|
The Dealer Manager was paid up to 7% of the gross offering proceeds, or approximately $21.0 million, before reallowance of commissions earned by participating broker-dealers.
|
Dealer Management Fee
|
|
The Dealer Manager was paid up to 1% of gross offering proceeds, or approximately $3.0 million, before reallowance to participating broker-dealers.
|
Reimbursement of Offering Expenses
|
|
Reimbursement of all offering costs, including the commissions and dealer management fees indicated above, up to $30 million based upon maximum offering of 30 million shares. The Lightstone REIT sold a special general partnership interest in the Operating Partnership to Lightstone SLP, LLC (an affiliate of the Sponsor) and applied all the sales proceeds to offset such costs.
|
Acquisition Fee
|
|
The Advisor is paid an acquisition fee equal to 2.75% of the gross contract purchase price (including any mortgage assumed) of each property purchased. The Advisor is also be reimbursed for expenses that it incurs in connection with the purchase of a property. The Lightstone REIT anticipates that acquisition expenses will be between 1% and 1.5% of a property's purchase price, and acquisition fees and expenses are capped at 5% of the gross contract purchase price of the property. The actual amounts of these fees and reimbursements depend upon results of operations and, therefore, cannot be determined at the present time. However, $33,000,000 may be paid as an acquisition fee and for the reimbursement of acquisition expenses as the maximum offering was sold and assuming aggregate long-term permanent leverage of approximately 75%.
|
F-58
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
13. Related Party Transactions (continued)
|
|
|
Fees
|
|
Amount
|
Property Management
Residential/Retail/ Hospitality
|
|
The Property Manager is paid a monthly management fee of up to 5% of the gross revenues from residential, hospitality and retail properties. Lightstone REIT pays the Property Manager a separate fee for i) the development of, ii) the one-time initial rent-up or iii) the leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area.
|
Property Management
Office/Industrial
|
|
The Property Manager is paid monthly property management and leasing fees of up to 4.5% of gross revenues from office and industrial properties. In addition, the Lightstone REIT pays the Property Manager a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area.
|
Asset Management Fee
|
|
The Advisor or its affiliates is paid an asset management fee of 0.55% of the Lightstone REITs average invested assets, as defined, payable quarterly in an amount equal to 0.1375 of 1% of average invested assets as of the last day of the immediately preceding quarter.
|
Reimbursement of Other expenses
|
|
For any year in which the Lightstone REIT qualifies as a REIT, the Advisor must reimburse the Lightstone REIT for the amounts, if any, by which the total operating expenses, the sum of the advisor asset management fee plus other operating expenses paid during the previous fiscal year exceed the greater of 2% of average invested assets, as defined, for that fiscal year, or, 25% of net income for that fiscal year. Items such as property operating expenses, depreciation and amortization expenses, interest payments, taxes, non-cash expenditures, the special liquidation distribution, the special termination distribution, organization and offering expenses, and acquisition fees and expenses are excluded from the definition of total operating expenses, which otherwise includes the aggregate expense of any kind paid or incurred by the Lightstone REIT.
|
|
|
The Advisor or its affiliates are reimbursed for expenses that may include costs of goods and services, administrative services and non-supervisory services performed directly for the Lightstone REIT by independent parties.
|
Lightstone SLP, LLC, an affiliate of our Sponsor, has purchased SLP units in the Operating Partnership. These SLP units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, will entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership. During the year ended December 31, 2009, distributions of $2.6 million were declared and distributions of $2.1 million were paid related to the SLP units and are part of noncontrolling interests. Since inception through December 31, 2009, cumulative distributions declared were $4.4 million, of which
$3.9 million have been paid. Such distributions, paid current at a 7% annualized rate of return to Lightstone SLP, LLC through December 31, 2009 and will always be subordinated until stockholders receive a stated preferred return, as described below.
F-59
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
13. Related Party Transactions (continued)
The special general partner interests will also entitle Lightstone SLP, LLC to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net sale proceeds upon the liquidation of the Lightstone REIT and, therefore, cannot be determined at the present time. Liquidating distributions to Lightstone SLP, LLC will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return, as described below:
|
|
|
Operating Stage Distributions
|
|
Amount of Distribution
|
7% stockholder Return Threshold
|
|
Once a cumulative non-compounded return of 7% return on their net investment is realized by stockholders, Lightstone SLP, LLC is eligible to receive available distributions from the Operating Partnership until it has received an amount equal to a cumulative non-compounded return of 7% per year on the purchase price of the special general partner interests. Net investment refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of the Lightstone REITs assets.
|
12% Stockholder Return Threshold
|
|
Once a cumulative non-compounded return of 12% per year is realized by stockholders on their net investment (including amounts equaling a 7% return on their net investment as described above), 70% of the aggregate amount of any additional distributions from the Operating Partnership will be payable to the stockholders, and 30% of such amount will be payable to Lightstone SLP, LLC.
|
Returns in Excess of 12%
|
|
After the 12% return threshold is realized by stockholders and Lightstone SLP, LLC, 60% of any remaining distributions from the Operating Partnership will be distributable to stockholders, and 40% of such amount will be payable to Lightstone SLP, LLC.
|
|
|
|
Liquidating Stage Distributions
|
|
Amount of Distribution
|
7% Stockholder Return Threshold
|
|
Once stockholders have received liquidation distributions, and a cumulative non-compounded 7% return per year on their initial net investment, Lightstone SLP, LLC will receive available distributions until it has received an amount equal to its initial purchase price of the special general partner interests plus a cumulative non-compounded return of 7% per year.
|
12% Stockholder Return Threshold
|
|
Once stockholders have received liquidation distributions, and a cumulative non-compounded return of 12% per year on their initial net investment (including amounts equaling a 7% return on their net investment as described above), 70% of the aggregate amount of any additional distributions from the Operating Partnership will be payable to the stockholders, and 30% of such amount will be payable to Lightstone SLP, LLC.
|
Returns in Excess of 12%
|
|
After stockholders and Lightstone LP, LLC have received liquidation distributions, and a cumulative non-compounded return of 12% per year on their initial net investment, 60% of any remaining distributions from the Operating Partnership will be distributable to stockholders, and 40% of such amount will be payable to Lightstone SLP, LLC.
|
F-60
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
13. Related Party Transactions (continued)
The Lightstone REIT pursuant to the related party arrangements described above has recorded the following amounts the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 31,
2009
|
|
December 31,
2008
|
|
December 31,
2007
|
Acquisition fees
|
|
$
|
16,656,847
|
|
|
$
|
2,336,565
|
|
|
$
|
6,551,896
|
|
Asset management fees
|
|
|
4,541,195
|
|
|
|
2,203,563
|
|
|
|
1,033,371
|
|
Property management fees
|
|
|
1,812,195
|
|
|
|
1,783,275
|
|
|
|
1,057,272
|
|
Acquisition expenses reimbursed to Advisor
|
|
|
902,753
|
|
|
|
1,265,528
|
|
|
|
635,848
|
|
Development fees and leasing commissions
|
|
|
270,122
|
|
|
|
1,934,107
|
|
|
|
247,942
|
|
Total
|
|
$
|
24,183,112
|
|
|
$
|
9,523,038
|
|
|
$
|
9,526,329
|
|
See Notes 4, 5 and 12 for other related party transactions.
As of December 31, 2009 and 2008, the Company owed the Sponsor $1.3 and $1.2 million, respectively related to asset management fees for the quarters ended December 31, 2009 and 2008, respectively. The payable to the Sponsor is recorded within the Due to Sponsor line item on the consolidated balance sheet.
14. Impairment of Long-Lived Assets
For the year ended December 31, 2009, the Company recorded an asset impairment charge of $45.2 million primarily related to the impairment within the multi-family segment of $43.2 million associated with the five properties within the Camden portfolio and $2.0 million within the retail segment associated with our Brazos Crossing power center, of which all was recorded during the three months ended September 30, 2009. In addition, we recorded $0.2 million gain on disposal of assets offsetting the $45.2 million asset impairment charge.
The Company identified certain indicators of impairment related to these properties such as negative cash flow expectations and change in managements expectations regarding the length of the holding period, which occurred during the three months ended September 30, 2009. These indicators did not exist during the Companys prior reviews of the properties. The Company performed a cash flow valuation analysis and determined that the carrying value of the property exceeded the weighted probability of their undiscounted cash flows. Therefore, the Company has recorded an impairment charge of $45.2 million related to these properties consisting
of the excess carrying value of the asset over its estimated fair values as part of line item impairment of long lived assets, net of gain on disposal within the accompanying consolidated statements of operations. The fair value for these assets was determined to be $60.0 million. The Companys debt obligations outstanding on these properties are approximately $86.6 million. Based upon the Companys year end analysis, no additional impairment exists.
For the year ended December 31, 2008, we recorded an asset impairment charge of $4.6 million primarily related to impairment on one of our industrial properties located in Sarasota, Florida. In addition, we recorded $0.3 million loss on disposal of asset. The Company identified certain indicators of impairment related to this property such as the property is currently vacant and is experiencing negative cash flows and the difficulty in leasing the space. The Company performed a cash flow valuation analysis and determined that the carrying value of the property exceeded its undiscounted cash flows. Therefore, the Company has recorded an impairment
charge related to the property consisting of the excess carrying value of the asset over its estimated fair values within the accompanying consolidated statement of operations.
For the year ended December 31, 2007, the Company did not record an impairment charge.
F-61
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
15. Future Minimum Rentals
As of December 31, 2009, the approximate fixed future minimum rental from the Companys commercial real estate properties, including $23.2 million of future minimum rental from the Companys St. Augustine Outlet Center, which is held for sale as of December 31 2009, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
$10,802,805
|
|
$
|
8,671,558
|
|
|
$
|
7,327,015
|
|
|
$
|
6,029,451
|
|
|
$
|
5,225,474
|
|
|
$
|
16,263,760
|
|
|
$
|
54,320,063
|
|
Pursuant to the lease agreements, tenants of the property may be required to reimburse the Company for some or all of the particular tenant's pro rata share of the real estate taxes and operating expenses of the property. Such amounts are not included in the future minimum lease payments above, but are included in tenant recovery income on the accompanying consolidated statements of operations.
16. Segment Information
The Company currently operates in four business segments as of December 31, 2009: (i) retail real estate, (ii) residential real estate, (iii) industrial real estate and (iv) hospitality. The Companys advisor and its affiliates provide leasing, property and facilities management, acquisition, development, construction and tenant-related services for its portfolio. The Companys revenues for the years ended December 31, 2009, 2008 and 2007 were exclusively derived from activities in the United States. No revenues from foreign countries were received or reported. The Company had no long-lived assets in foreign locations as of December 31,
2009, 2008 and 2007. The accounting policies of the segments are the same as those described in Note 2: Summary of Significant Accounting Policies, excluding depreciation and amortization. Unallocated assets, revenues and expenses relate to corporate related accounts. As of December 31, 2009, the St. Augustine Outlet Center which is part of the retail segment has been classified as discontinued operations in the Consolidated Statements of Operations. The revenue and expenses generated by the St. Augustine Outlet Center are not included in the Retail segment or the consolidated revenues and expenses as these represent revenues and expenses from continuing operations. See Note 8 for information regarding the results of operations for the St. Augustine Outlet Center.
The Company evaluates performance based upon net operating income from the combined properties in each real estate segment.
F-62
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
16. Segment Information (continued)
Selected results of operations for the years ended December 31, 2009, 2008 and 2007, and total assets as of December 31, 2009 and 2008 regarding the Companys operating segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009
|
|
|
Retail
|
|
Multi Family
|
|
Industrial
|
|
Hospitality
|
|
Unallocated
|
|
Total
|
Total revenues
|
|
$
|
4,029,065
|
|
|
$
|
18,942,594
|
|
|
$
|
7,444,840
|
|
|
$
|
3,469,561
|
|
|
$
|
|
|
|
$
|
33,886,060
|
|
Property operating expenses
|
|
|
666,127
|
|
|
|
9,055,212
|
|
|
|
2,006,559
|
|
|
|
1,836,391
|
|
|
|
387
|
|
|
|
13,564,676
|
|
Real estate taxes
|
|
|
644,570
|
|
|
|
1,986,746
|
|
|
|
888,988
|
|
|
|
236,758
|
|
|
|
|
|
|
|
3,757,062
|
|
General and administrative costs
|
|
|
57,751
|
|
|
|
819,599
|
|
|
|
36,417
|
|
|
|
12,351
|
|
|
|
7,701,146
|
|
|
|
8,627,264
|
|
Net operating income (loss)
|
|
|
2,660,617
|
|
|
|
7,081,037
|
|
|
|
4,512,876
|
|
|
|
1,384,061
|
|
|
|
(7,701,533
|
)
|
|
|
7,937,058
|
|
Depreciation and amortization
|
|
|
1,369,244
|
|
|
|
2,919,350
|
|
|
|
2,517,076
|
|
|
|
478,698
|
|
|
|
830
|
|
|
|
7,285,198
|
|
Impairment of long lived assets, net of gain on disposal
|
|
|
2,002,465
|
|
|
|
43,196,149
|
|
|
|
(237,812
|
)
|
|
|
|
|
|
|
|
|
|
|
44,960,802
|
|
Operating income (loss)
|
|
$
|
(711,092
|
)
|
|
$
|
(39,034,462
|
)
|
|
$
|
2,233,612
|
|
|
$
|
905,363
|
|
|
$
|
(7,702,363
|
)
|
|
$
|
(44,308,942
|
)
|
Total purchases of investment property
|
|
$
|
926,397
|
|
|
$
|
1,237,261
|
|
|
$
|
698,167
|
|
|
$
|
(362,279
|
)
|
|
$
|
|
|
|
$
|
2,499,546
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
101,842,972
|
|
|
$
|
97,733,447
|
|
|
$
|
72,032,250
|
|
|
$
|
18,043,757
|
|
|
$
|
139,911,450
|
|
|
$
|
429,563,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
|
Retail
|
|
Multi Family
|
|
Industrial
|
|
Hospitality
|
|
Unallocated
|
|
Total
|
Total revenues
|
|
$
|
4,048,250
|
|
|
$
|
20,304,214
|
|
|
$
|
8,054,802
|
|
|
$
|
3,966,838
|
|
|
$
|
|
|
|
$
|
36,374,104
|
|
Property operating expenses
|
|
|
507,467
|
|
|
|
9,968,631
|
|
|
|
2,346,680
|
|
|
|
2,223,287
|
|
|
|
|
|
|
|
15,046,065
|
|
Real estate taxes
|
|
|
618,625
|
|
|
|
2,053,246
|
|
|
|
921,537
|
|
|
|
213,828
|
|
|
|
|
|
|
|
3,807,236
|
|
General and administrative costs
|
|
|
(221
|
)
|
|
|
1,137,317
|
|
|
|
108,283
|
|
|
|
35,704
|
|
|
|
11,029,054
|
|
|
|
12,310,137
|
|
Net operating income (loss)
|
|
|
2,922,379
|
|
|
|
7,145,020
|
|
|
|
4,678,302
|
|
|
|
1,494,019
|
|
|
|
(11,029,054
|
)
|
|
|
5,210,666
|
|
Depreciation and amortization
|
|
|
1,388,859
|
|
|
|
2,978,312
|
|
|
|
2,923,096
|
|
|
|
423,404
|
|
|
|
|
|
|
|
7,713,671
|
|
Impairment of long lived assets and loss on disposal
|
|
|
|
|
|
|
|
|
|
|
4,866,437
|
|
|
|
|
|
|
|
|
|
|
|
4,866,437
|
|
Operating income (loss)
|
|
$
|
1,533,520
|
|
|
$
|
4,166,708
|
|
|
$
|
(3,111,231
|
)
|
|
$
|
1,070,615
|
|
|
$
|
(11,029,054
|
)
|
|
$
|
(7,369,442
|
)
|
Total purchases of investment property
|
|
$
|
30,009,704
|
|
|
$
|
406,166
|
|
|
$
|
1,427,859
|
|
|
$
|
2,398,016
|
|
|
$
|
|
|
|
$
|
34,241,745
|
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
107,410,907
|
|
|
$
|
142,329,673
|
|
|
$
|
73,794,036
|
|
|
$
|
18,669,330
|
|
|
$
|
159,445,044
|
|
|
$
|
501,648,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007
|
|
|
Retail
|
|
Multi Family
|
|
Industrial
|
|
Hospitality
|
|
Unallocated
|
|
Total
|
Total revenues
|
|
$
|
3,201,794
|
|
|
$
|
9,807,211
|
|
|
$
|
7,530,709
|
|
|
$
|
536,342
|
|
|
$
|
|
|
|
$
|
21,076,056
|
|
Property operating expenses
|
|
|
461,328
|
|
|
|
4,375,567
|
|
|
|
1,805,789
|
|
|
|
607,439
|
|
|
|
|
|
|
|
7,250,123
|
|
Real estate taxes
|
|
|
532,707
|
|
|
|
1,056,977
|
|
|
|
698,489
|
|
|
|
34,828
|
|
|
|
|
|
|
|
2,323,001
|
|
General and administrative costs
|
|
|
443
|
|
|
|
252,591
|
|
|
|
5,919
|
|
|
|
1,568
|
|
|
|
3,444,080
|
|
|
|
3,704,601
|
|
Net operating income
|
|
|
2,207,316
|
|
|
|
4,122,076
|
|
|
|
5,020,512
|
|
|
|
(107,493
|
)
|
|
|
(3,444,080
|
)
|
|
|
7,798,331
|
|
Depreciation and amortization
|
|
|
1,046,237
|
|
|
|
1,306,107
|
|
|
|
2,579,386
|
|
|
|
66,993
|
|
|
|
|
|
|
|
4,998,723
|
|
Impairment of long lived assets and loss on disposal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
1,161,079
|
|
|
$
|
2,815,969
|
|
|
$
|
2,441,126
|
|
|
$
|
(174,486
|
)
|
|
$
|
(3,444,080
|
)
|
|
$
|
2,799,608
|
|
Total purchases of investment property
|
|
$
|
11,983,102
|
|
|
$
|
96,039,586
|
|
|
$
|
77,223,815
|
|
|
$
|
15,839,147
|
|
|
$
|
|
|
|
$
|
201,085,650
|
|
F-63
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
17. Quarterly Financial Data (Unaudited)
The following table presents selected unaudited quarterly financial data for each quarter during the year ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Year ended
December 31,
|
|
Quarter ended
December 31,
|
|
Quarter ended
September 30,
|
|
Quarter ended
June 30,
|
|
Quarter ended
March 31,
|
Total revenue
|
|
$
|
33,886,060
|
|
|
$
|
8,160,258
|
|
|
$
|
8,278,939
|
|
|
$
|
8,646,376
|
|
|
$
|
8,800,487
|
|
Net loss from continuing operations
|
|
|
(65,743,316
|
)
|
|
|
(8,914,111
|
)
|
|
|
(49,215,338
|
)
|
|
|
(6,981,607
|
)
|
|
|
(632,260
|
)
|
Net loss from discontinued operations
|
|
|
(360,328
|
)
|
|
|
(117,617
|
)
|
|
|
(103,732
|
)
|
|
|
(12,935
|
)
|
|
|
(126,044
|
)
|
Net Loss
|
|
|
(66,103,644
|
)
|
|
|
(9,031,728
|
)
|
|
|
(49,319,070
|
)
|
|
|
(6,994,542
|
)
|
|
|
(758,304
|
)
|
Less loss attributable to noncontrolling interest
|
|
|
908,991
|
|
|
|
141,951
|
|
|
|
673,924
|
|
|
|
90,097
|
|
|
|
3,019
|
|
Net Loss applicable to Companys common shares
|
|
|
(65,194,653
|
)
|
|
|
(8,889,777
|
)
|
|
|
(48,645,146
|
)
|
|
|
(6,904,445
|
)
|
|
|
(755,285
|
)
|
Basic and diluted net loss per Companys common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(2.07
|
)
|
|
|
(0.29
|
)
|
|
|
(1.55
|
)
|
|
|
(0.22
|
)
|
|
|
(0.01
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
Net loss per common share, basic and diluted
|
|
|
(2.08
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(1.55
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Year ended
December 31,
|
|
Quarter ended
December 31,
|
|
Quarter ended
September 30,
|
|
Quarter ended
June 30,
|
|
Quarter ended
March 31,
|
Total revenue
|
|
$
|
36,374,104
|
|
|
$
|
9,781,582
|
|
|
$
|
9,155,846
|
|
|
$
|
8,872,924
|
|
|
$
|
8,563,752
|
|
Net loss from continuing operations
|
|
|
(27,786,668
|
)
|
|
|
(8,552,665
|
)
|
|
|
(11,129,269
|
)
|
|
|
(6,237,889
|
)
|
|
|
(1,866,845
|
)
|
Net loss from discontinued operations
|
|
|
(437,496
|
)
|
|
|
(204,784
|
)
|
|
|
(57,495
|
)
|
|
|
19,195
|
|
|
|
(194,412
|
)
|
Net Loss
|
|
|
(28,224,164
|
)
|
|
|
(8,757,449
|
)
|
|
|
(11,186,764
|
)
|
|
|
(6,218,694
|
)
|
|
|
(2,061,257
|
)
|
Less loss attributable to noncontrolling interest
|
|
|
84,805
|
|
|
|
84,483
|
|
|
|
173
|
|
|
|
94
|
|
|
|
55
|
|
Net Loss applicable to Companys common shares
|
|
|
(28,139,359
|
)
|
|
|
(8,672,966
|
)
|
|
|
(11,186,591
|
)
|
|
|
(6,218,600
|
)
|
|
|
(2,061,202
|
)
|
Basic and diluted net loss per Companys common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(1.22
|
)
|
|
|
(0.34
|
)
|
|
|
(0.44
|
)
|
|
|
(0.31
|
)
|
|
|
(0.13
|
)
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
Net loss per common share, basic and diluted
|
|
|
(1.24
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.14
|
)
|
F-64
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
18. Commitments and Contingencies
Legal Proceedings
From time to time in the ordinary course of business, the Lightstone REIT may become subject to legal proceedings, claims or disputes.
On March 29, 2006, Jonathan Gould, a former member of our Board of Directors and Senior Vice-President-Acquisitions, filed a lawsuit against us in the District Court for the Southern District of New York. The suit alleges, among other things, that Mr. Gould was insufficiently compensated for his services to us as director and officer. Mr. Gould sought damages of (i) up to $11,500,000 or (ii) a 2.5% ownership interest in all properties that we acquire and an option to acquire up to 5% of the membership interests of Lightstone SLP, LLC. We filed a motion to dismiss the lawsuit. After review of the motion to dismiss, counsel for Mr. Gould represented
that Mr. Gould was dropping his claim for ownership interest in the properties we acquire and his claim for membership interests. Mr. Goulds counsel represented that he would be suing only under theories of quantum merit and unjust enrichment seeking the value of work he performed. Counsel for the Lightstone REIT made motion to dismiss Mr. Goulds complaint, which was granted by Judge Sweeney. Mr. Gould has filed an appeal of the decision dismissing his case, which is pending. Management believes that this suit is frivolous and entirely without merit and intends to defend against these charges vigorously. The Company believes any unfavorable outcome on this matter will not have a material effect on the consolidated financial statements.
On January 4, 2007, 1407 Broadway Real Estate LLC (Office Owner), an indirect, wholly owned subsidiary of 1407 Broadway Mezz II LLC (Mezz II), consummated the acquisition of a sub-leasehold interest (the Sublease Interest) in an office building located at 1407 Broadway, New York, New York (the Office Property). Mezz II is a joint venture between LVP 1407 Broadway LLC (LVP LLC), a wholly owned subsidiary of our operating partnership, and Lightstone 1407 Manager LLC (Manager), which is wholly owned by David Lichtenstein, the Chairman of our Board of Directors and our Chief
Executive Officer, and Shifra Lichtenstein, his wife.
The Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold Agreement with Gettinger Associates, L.P. (Gettinger). In July 2006, Abraham Kamber Company, as Sublessor under the sublease (Sublessor), served two notices of default on Gettinger (the Default Notices). The first alleged that Gettinger had failed to satisfy its obligations in performing certain renovations and the second asserted numerous defaults relating to Gettinger's purported failure to maintain the Office Property in compliance with its contractual obligations.
In response to the Default Notices, Gettinger commenced legal action and obtained an injunction that extends its time to cure any default, prohibits interference with its leasehold interest and prohibits Sublessor from terminating its sublease pending resolution of the litigation. A motion by Sublessor for partial summary judgment, alleging that certain work on the Office Property required its prior approval, was denied by the Supreme Court, New York County. Subsequently, by agreement of the parties, a stay was entered precluding the termination of the Sublease Interest pending a final decision on Sublessor's claim of defaults under the Sublease
Interest. In addition, the parties stipulated to the intervention of Office Owner as a party to the proceedings. The parties have been directed to engage in and complete discovery. We consider the litigation to be without merit.
Prior to consummating the acquisition of the Sublease Interest, Office Owner received a letter from Sublessor indicating that Sublessor would consider such acquisition a default under the original sublease, which prohibits assignments of the Sublease Interest when there is an outstanding default there under. On February 16, 2007, Office Owner received a Notice to Cure from Sublessor stating the transfer of the Sublease Interest occurred in violation of the Sublease given Sublessor's position that Office Seller is in default. Office Owner will commence and vigorously pursue litigation in order to challenge the default, receive an injunction and toll
the termination period provided for in the Sublease.
F-65
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
18. Commitments and Contingencies (continued)
On September 4, 2007, Office Owner commenced a new action against Sublessor alleging a number claims, including the claims that Sublessor has breached the sublease and committed intentional torts against Office Owner by (among other things) issuing multiple groundless default notices, with the aim of prematurely terminating the sublease and depriving Office Owner of its valuable interest in the sublease. The complaint seeks a declaratory judgment that Office Owner has not defaulted under the sublease, damages for the losses Office Owner has incurred as a result of Sublessors wrongful conduct, and an injunction to prevent Sublessor from issuing
further default notices without valid grounds or in bad faith. The Company believes any unfavorable outcome on this matter will not have a material effect on the consolidated financial statements.
As of the date hereof, we are not a party to any other material pending legal proceedings.
Tax Protection Agreement
In connection with the contribution of the Mill Run Interest (see Note 4) and the POAC Interest (See Note 4), the Operating Partnership entered into Tax Protection Agreements with each of Arbor JRM, Arbor CJ, AR Prime, TRAC, Central Jersey and JT Prime (collectively, the Contributors). Under these Tax Protection Agreements, the Operating Partnership is required to indemnify each of Arbor JRM, Arbor CJ, TRAC and Central Jersey with respect to the Mill Run Properties, and AR Prime and JT Prime, with respect to the POAC Properties, from June 26, 2008 for Arbor JRM, Arbor CJ and AR Prime and from August 25, 2009 for TRAC, Central Jersey and
JT Prime to June 26, 2013 for, among other things, certain income tax liability that would result from the income or gain which Arbor JRM, Arbor CJ, TRAC, Central Jersey on the one hand, or AR Prime, JT Prime, on the other hand, would recognize upon the Operating Partnerships failure to maintain the current level of debt encumbering the Mill Run Properties or the POAC Properties, respectively, or the sale or other disposition by the Operating Partnership of the Mill Run Properties, the Mill Run Interest, the POAC Properties, or the POAC Interest (each, an Indemnifiable Event). Under the terms of the Tax Protection Agreements, the Operating Partnership is indemnifying the Contributors for certain income tax liabilities based on income or gain which the Contributors are deemed to be required to include in their gross income for federal or state income tax purposes (assuming the Contributors are subject to tax at the highest regional, federal, state and local tax rates
imposed on individuals residing in New York City) as a result of an Indemnifiable Event. This indemnity covers income taxes, interest and penalties and is required to be made on a grossed up basis that effectively results in the Contributors receiving the indemnity payment on a net, after-tax basis. The amount of the potential tax indemnity to the Contributors under the Tax Protection Agreements, including a gross-up for taxes on any such payment, using current tax rates, is estimated to be approximately $95.0 million.
Each Tax Protection Agreement imposes certain restrictions upon the Operating Partnership relating to transactions involving the Mill Run Properties and the POAC Properties which could result in taxable income or gain to the Contributors. The Operating Partnership may not dispose or transfer any Mill Run Property or any POAC Property without first proving that the Operating Partnership possesses the requisite liquidity, including the proceeds from any such transaction, to make any payments that would come due pursuant to the Tax Protection Agreement. However, the Operating Partnership may take the following actions: (i) (A) as to the POAC Properties,
commencing with the period one year and thirty-one days following the date of the Tax Protection Agreement, the Operating Partnership can sell on an annual basis part or all of any of the POAC Properties with an aggregate value of ten percent (10%) or less of the total value of the POAC Properties as of the date of contribution (and any amounts of the ten percent (10%) value not sold can be applied to sales in future years); and (B) as to the Mill Run Properties either the same ten percent (10%) test as set forth above in (i)(A) with respect to the Mill Run Properties or the sale of the property known by Design Outlet Center; and (ii) the Operating Partnership can enter into a non-recognition transaction with either the consent of the Contributors or an opinion from an independent law or accounting firm stating that it is more likely than not that the transaction will not give rise to current taxable income or gain.
F-66
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2009, 2008 and 2007
18. Commitments and Contingencies (continued)
Investment Company Act of 1940
The Investment Company Act of 1940 places restrictions on the capital structure and business activities of companies registered thereunder. The Company intends to conduct its operations so that it will not be subject to regulation under the Investment Company Act of 1940. However, based upon changes in the valuation of the Companys portfolio of investments as of September 30, 2009, including with respect to certain investment securities the Company currently holds, the Company may be deemed to have become an inadvertent investment company under the Investment Company Act of 1940. The Company is currently evaluating its response to this
development, including the availability of exemptive or other relief under the Investment Company Act of 1940, and the Company intends to take affirmative steps to ensure compliance with applicable regulatory requirements.
If the Company fails to maintain an exemption or exclusion from registration as an investment company, the Company could, among other things, be required either (a) to substantially change the manner in which the Company conducts its operations to avoid being required to register as an investment company, or (b) to register as an investment company, either of which could have an adverse effect on the Company and the market price of its common stock. If the Company were required to register as an investment company under the Investment Company Act of 1940, the Company would become subject to substantial regulation with respect to its capital structure
(including its ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act of 1940), portfolio composition, including restrictions with respect to diversification and industry concentration and other matters. In addition, if the SEC or a court takes the view that the Company has operated and continues to operate as an unregistered investment company in violation of the Investment Company Act of 1940, and does not provide the Company with a sufficient period to either register as an investment company, obtain exemptive relief, or divest itself of investment securities and/or acquire non-investment securities, the Company may be subject to significant potential penalties and certain of the contracts to which it is a party may be voidable.
The Company intends to continue to monitor its compliance with the exemptions under the Investment Company Act of 1940 on an ongoing basis.
19. Subsequent Events
On March 2, 2010, the Company declared a dividend for the three-month period ending March 31, 2010 of $5.4 million. The dividend was calculated based on stockholders of record each day during this three-month period at a rate of $0.0019178 per day, and equaled a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. The dividend was paid in full on March 30, 2010 using a combination of cash ($3.3 million) and shares ($2.1 million) which represents 0.2 million shares of the Companys common stock issued pursuant to the Companys Distribution Reinvestment Program, at a
discounted price of $9.50 per share.
The Company for the period January 1, 2010 through March 2, 2010 has redeemed shares of $1.6 million. On March 2, 2010, the Board of Directors of the Company temporarily suspended future share redemptions under the Share Redemption Plan (the Plan). The Board of Directors will revisit this decision subsequent to the closing of its previously announced disposition of retail outlet assets and anticipates resuming redeeming shares under the Plan during the second half of 2010.
During the first quarter of 2010, the Company has been notified by the lender of the two Camden properties which were in default status of December 31, 2009 that the lender will be foreclosing on these two properties. The foreclosure sales are not expected to be completed until mid year 2010. See Note 9.
F-67
TABLE OF CONTENTS
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost (A)
|
|
|
|
Gross Amount at Which
Carried at End of Period
|
|
|
|
|
|
|
|
|
Encumbrance
|
|
Land
|
|
Buildings and
Improvements
|
|
Costs
Capitalized
Subsequent to
Acquisition
|
|
Land and
Improvements
|
|
Buildings
and
Improvements
|
|
Total (B)
|
|
Accumulated
Depreciation (C)
|
|
Date
Acquired
|
|
Depreciable
Life (D)
|
Four Residential Communities Southeastern, Michigan
|
|
|
40,725,000
|
|
|
|
8,051,125
|
|
|
|
34,297,538
|
|
|
|
757,782
|
|
|
|
8,242,654
|
|
|
|
34,863,791
|
|
|
|
43,106,445
|
|
|
|
(3,193,702
|
)
|
|
|
6/29/2006
|
|
|
|
(D)
|
|
Oakview Plaza
Omaha, Nebraska
|
|
|
27,500,000
|
|
|
|
6,705,942
|
|
|
|
25,462,968
|
|
|
|
929,777
|
|
|
|
7,355,942
|
|
|
|
25,742,745
|
|
|
|
33,098,687
|
|
|
|
(2,359,818
|
)
|
|
|
12/21/2006
|
|
|
|
(D)
|
|
Gulfcoast Industrial Portfolio New Orleans/Baton Rouge, Louisiana & San Antonio, Texas
|
|
|
53,025,000
|
|
|
|
12,767,476
|
|
|
|
51,648,719
|
|
|
|
1,546,474
|
|
|
|
12,776,431
|
|
|
|
53,186,238
|
|
|
|
65,962,669
|
|
|
|
(4,755,648
|
)
|
|
|
2/1/2007
|
|
|
|
(D)
|
|
Brazos Crossing
Lake Jackson, Texas
|
|
|
7,338,947
|
|
|
|
1,688,326
|
|
|
|
4,337,962
|
|
|
|
(208,398
|
)
|
|
|
1,268,387
|
|
|
|
4,549,503
|
|
|
|
5,817,890
|
|
|
|
(66,018
|
)
|
|
|
6/29/2007
|
|
|
|
(D)
|
|
Houston ES Hotels
Houston, Texas
|
|
|
10,193,750
|
|
|
|
1,900,546
|
|
|
|
14,359,818
|
|
|
|
1,618,879
|
|
|
|
1,916,946
|
|
|
|
15,962,297
|
|
|
|
17,879,243
|
|
|
|
(835,000
|
)
|
|
|
10/17/2007
|
|
|
|
(D)
|
|
Sarasota
Sarasota, Florida
|
|
|
|
|
|
|
2,000,000
|
|
|
|
11,291,586
|
|
|
|
(4,925,915
|
)
|
|
|
2,000,000
|
|
|
|
6,365,671
|
|
|
|
8,365,671
|
|
|
|
(87,039
|
)
|
|
|
11/15/2007
|
|
|
|
(D)
|
|
Camden Apartments
Tampa, Florida
|
|
|
79,268,800
|
|
|
|
19,976,387
|
|
|
|
79,905,549
|
|
|
|
(45,982,396
|
)
|
|
|
11,239,286
|
|
|
|
42,660,254
|
|
|
|
53,899,540
|
|
|
|
(305,763
|
)
|
|
|
11/16/2007
|
|
|
|
(D)
|
|
Total
|
|
$
|
218,051,497
|
|
|
$
|
53,089,802
|
|
|
$
|
221,304,140
|
|
|
$
|
(46,263,797
|
)
|
|
$
|
44,799,646
|
|
|
$
|
183,330,499
|
|
|
$
|
228,130,145
|
|
|
$
|
(11,602,988
|
)
|
|
|
|
|
|
|
|
|
F-68
TABLE OF CONTENTS
Notes to Schedule III:
|
(A)
|
The initial cost to the Company represents the original purchase price of the property, including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired.
|
|
(B)
|
Reconciliation of total real estate owned:
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
Balance at beginning of year
|
|
$
|
338,306,093
|
|
|
$
|
302,253,182
|
|
|
$
|
102,358,472
|
|
Purchases of investment properties
|
|
|
|
|
|
|
36,052,911
|
|
|
|
201,484,789
|
|
Improvements
|
|
|
3,609,575
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
(519,704
|
)
|
|
|
|
|
|
|
|
|
Transfer to assets held for sale
|
|
|
(58,698,871
|
)
|
|
|
|
|
|
|
|
|
Impact of asset impairment continuing operating properties
|
|
|
(54,566,948
|
)
|
|
|
|
|
|
|
|
|
Acquired in-place lease intangibles
|
|
|
|
|
|
|
|
|
|
|
(1,461,731
|
)
|
Acquired in-place lease intangibles (commissions)
|
|
|
|
|
|
|
|
|
|
|
(903,919
|
)
|
Acquired above market lease intangibles
|
|
|
|
|
|
|
|
|
|
|
(526,657
|
)
|
Acquired below market lease intangibles
|
|
|
|
|
|
|
|
|
|
|
1,302,228
|
|
Balance at end of year
|
|
$
|
228,130,145
|
|
|
$
|
338,306,093
|
|
|
$
|
302,253,182
|
|
|
(C)
|
Reconciliation of accumulated depreciation, note amortization is not included for purposes of this disclosure:
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
Balance at beginning of period
|
|
$
|
17,287,242
|
|
|
$
|
5,455,550
|
|
|
$
|
1,184,590
|
|
Depreciation expense
|
|
|
6,338,513
|
|
|
|
7,421,450
|
|
|
|
4,298,367
|
|
Impairment charge
|
|
|
|
|
|
|
4,550,795
|
|
|
|
|
|
Transfer to assets held for sale
|
|
|
(2,134,728
|
)
|
|
|
|
|
|
|
|
|
Impact of asset impairment continuing operating properties
|
|
|
(9,368,335
|
)
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
(519,704
|
)
|
|
|
(140,553
|
)
|
|
|
(27,407
|
)
|
Balance at end of period
|
|
$
|
11,602,988
|
|
|
$
|
17,287,242
|
|
|
$
|
5,455,550
|
|
|
(D)
|
Depreciation is computed based upon the following estimated lives:
|
|
|
|
Buildings and improvements
|
|
|
15 39 years
|
|
Tenant improvements and equipment
|
|
|
5 10 years
|
|
F-69
TABLE OF CONTENTS
APPENDIX A
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.
AMENDED AND RESTATED
DISTRIBUTION REINVESTMENT PROGRAM
Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (the
Company
), has adopted this Amended and Restated Distribution Reinvestment Program (the
DRP
), effective as of January 1, 2009, the terms and conditions of which are set forth below. Capitalized terms are defined in Section 9 unless otherwise defined herein.
An unaffiliated third party (the
Administrator
) acting agent for the Stockholders who elect to participate in the DRP (the
Participants
) will apply all distributions, paid with respect to the Shares held by each Participant (the
Distributions
), including Distributions paid with respect to any full or fractional Shares acquired under the DRP, to the purchase of the Shares for said Participants directly, if permitted under state securities laws and, if not, through the Dealer Manager registered in the Participants state of residence.
1.
Procedure for Participation.
Any Stockholder may elect to become a Participant by completing and executing the Authorization Form as may be available from the Company, the Administrator or the Dealer Manager. Participation in the DRP will begin with the next Distribution payable after receipt of a Participants authorization. Shares will be purchased under the DRP on the record date for the Distribution used to purchase the Shares. Distributions for Shares acquired under the DRP will be paid at the same time as Distributions are paid on Shares purchased outside the DRP and are calculated with a daily record and Distribution
declaration date. Each Participant agrees that if, at any time prior to listing of the Shares on a national stock exchange or inclusion of the Shares for quotation on a national market system, if his or her fails financial condition changes, he or she will promptly so notify the Company in writing.
2.
Purchase of Shares.
Participants will acquire Shares from the Company at a price equal to, at the Companys option, either (i) 95% of the then current net asset value per share as estimated by the Companys board of directors in good faith or (ii) $9.50 per share, regardless of the price per Share paid by the Participant for the Shares in respect of which the Distributions are paid; provided that any discount on the purchase will not exceed 5%. Participants may also purchase fractional Shares so that 100% of the Distributions will be used to acquire Shares. However, a Participant will not be able to acquire Shares under
the DRP to the extent such purchase would cause it to exceed the Ownership Limit or other Share ownership restrictions imposed by the Companys Amended and Restated Charter. No selling commissions or dealer manager fees will be paid for the Shares purchased pursuant to the DRP.
3.
Share Certificates.
The ownership of the Shares will be in book-entry form prior to the issuance of such certificates. The Company will not issue share certificates except to stockholders who make a written request to the Company.
4.
Reports.
Within 90 days after the end of the Companys fiscal year, the Administrator will provide each Participant with an individualized report on his or her investment, including the purchase date(s), purchase price and number of Shares owned, as well as the dates of distribution and amounts of Distributions received during the prior fiscal year. The individualized statement to Stockholders will include receipts and purchases relating to each Participants participation in the DRP including the tax consequences relative thereto.
5.
Termination by Participant.
A Participant may terminate participation in the DRP at any time, without penalty, by delivering written notice to the Administrator. Prior to listing of the Shares on a national stock exchange or inclusion of the Shares for quotation on a national market system, any transfer of Shares by a Participant to a non-Participant will terminate participation in the DRP with respect to the transferred Shares. If a Participant terminates DRP participation, the Company will provide the terminating Participant with a certificate evidencing the whole shares in his or her account and a check for the cash value of
any fractional share in such account. Upon termination of DRP participation, Distributions will be distributed to the Stockholder in cash.
A-1
TABLE OF CONTENTS
6.
Amendment or Termination of DRP by the Company.
The Directors of the Company may by majority vote (including a majority of the independent directors) terminate the DRP for any reason upon 30 days prior written notice to the Participants or amend the DRP for any reason upon 10 days prior written notice to the Participants.
7.
Absence of Liability.
Neither the Company, the Dealer Manager nor the Administrator shall be liable for any act done in good faith, or for any good faith omission to act, including, without limitation, any claims or liability: (a) arising out of failure to terminate a Participants account upon such Participants death prior to receipt of notice in writing of such death; and (b) with respect to the time and the prices at which Shares are purchased or sold for a Participants account. To the extent that indemnification may apply to liabilities arising under the Act or the securities laws of a state, the Company, the
Dealer Manager and the Administrator have been advised that, in the opinion of the Commission and certain state securities commissioners, such indemnification is contrary to public policy and, therefore, unenforceable.
8.
Governing Law.
This DRP shall be governed by the laws of the State of Maryland.
9.
Defined Terms.
a. Act means the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder.
b. Affiliate means, with respect to any other person: (i) any person directly or indirectly owning, controlling or holding, with the power to vote 10% or more of the outstanding voting securities of such other person; (ii) any person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held, with the power to vote, by such other person; (iii) any person directly or indirectly controlling, controlled by or under common control with such other person; (iv) any executive officer, director, trustee or general partner of such other person; and (v) any legal entity for which such person acts as an
executive officer, director, trustee or general partner.
c. Dealer Manager means Lightstone Securities, LLC.
d. Directors means the members of the Board of Directors of the Company, including the Independent Directors.
e. Ownership Limit means the prohibition on beneficial or constructive ownership of more than 9.8% in value of the outstanding shares of capital stock of the Company.
f. Shares means the shares of voting common stock, par value $.01 per share, of the Company, and Share means one of those Shares.
g. Stockholders means the beneficial holders of Shares. LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST
A-2
TABLE OF CONTENTS
APPENDIX B
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST
DISTRIBUTION REINVESTMENT PROGRAM AUTHORIZATION FORM
B-1
TABLE OF CONTENTS
DISBURSEMENT CHANGE AUTHORIZATION
Date:
Account Name:
Lightstone Account #:
Please use this form as your authorization until further notice to change my disbursement from
to:
|
o
|
Send distributions via check to my home address
(not available for qualified plans)
|
|
o
|
Send distributions via check to alternate payee listed here
(not available for qualified plans without custodial approval):
|
Name
Address
Account #
City, State Zip
|
o
|
Direct Deposit
I authorize . or its agent (collectively, REIT) to deposit my distributions to the checking or savings account identified below. The authority will remain in force until I notify REIT in writing to cancel it. In the event that REIT deposits funds erroneously into my account, REIT is authorized to debit my account for an amount not to exceed the amount of the erroneous deposit.
|
Financial Institution Name
ABA/ Routing Number
Please attach a voided check
Account #
Thank you for your assistance in this matter.
Signature:
Signature:
(If this is a Joint account, both parties must sign)
Printed Name(s):
(Internal Authorized Signature)
SEND TO:
LIGHTSTONE VALUE PLUS REIT, INC.
C/O ACS SECURITIES SERVICES, INC.
3988 N. CENTRAL EXPRESSWAY
BUILDING 5 2
ND
FLOOR
DALLAS, TEXAS 75204
B-2
TABLE OF CONTENTS
LIGHTSTONE VALUE PLUS REAL ESTATE
INVESTMENT TRUST, INC.
PROSPECTUS
DISTRIBUTION REINVESTMENT PROGRAM
10,000,000 SHARES OF COMMON STOCK
We have not authorized any dealer, salesperson or other individual to give any information or to make any representations that are not contained in this prospectus. If any such information or statements are given or made, you should not rely upon such information or representation. This prospectus does not constitute an offer to sell any securities other than those to which this prospectus relates, or an offer to sell, or a solicitation of an offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information contained or incorporated by reference herein is correct as of any time subsequent to the date of such information.
, 2010
TABLE OF CONTENTS
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Other Expenses of Issuance and Distribution
The following table sets forth the estimated fees and expenses payable by us in connection with the issuance and distribution of the shares registered hereby:
|
|
|
Securities and Exchange Commission Registration fee
|
|
$
|
6,773.50
|
|
FINRA Fee
|
|
$
|
|
|
Printing and mailing expenses
|
|
$
|
75,000.00
|
|
Legal fees and expenses
|
|
$
|
35,000.00
|
|
Accounting fees and expenses
|
|
$
|
25,000.00
|
|
Blue Sky fees and expenses
|
|
$
|
10,000.00
|
|
Miscellaneous
|
|
$
|
|
|
Total
|
|
$
|
151,773.50
|
|
Indemnification of Directors and Officers
The MGCL permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action. The charter of the Company contains such a provision.
Subject to these restrictions, the charter of the Company requires it to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Company, (b) any individual who, while a director or officer of the Company and at the request of the Company, serves or has served as a director, officer, partner, or trustee of another corporation, real investment trust, partnership, joint venture, trust, employee benefit plan or any other enterprise, and (c) the Advisor and its officers, directors and Affiliates, (such persons and the Advisor and its
officers, directors and Affiliates being referred to herein as an Indemnitee) from and against any claim or liability to which an Indemnitee may become subject or which the Indemnitee may incur by reason of his, her or its service in such capacities.
However, the Company may not indemnify any Indemnitee unless (a) the Indemnitee has determined in good faith that the course of conduct which caused the loss, liability or expense was in the best interests of the Company, (b) the Indemnitee was acting on behalf of the Company or performing services for the Company and (c) the liability, loss or expense was not the result of negligence or misconduct on the part of the Indemnitee, except that if the Indemnitee is or was an independent director, the liability, loss or expense was not the result of gross negligence or willful misconduct. Further, the Company may not indemnify any Indemnitee for losses,
liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless (y) each claim or count involving alleged violations of federal or state securities has been adjudicated in favor of the Indemnitee, or (z) each such claim or count has been dismissed with prejudice by a court of competent jurisdiction, or a court of competent jurisdiction approves a settlement of each such claim or count and finds that indemnification of the settlement and related costs should be made, and the court considering the matter has been advised of the position of the Securities and Exchange Commission and the published position of any applicable state securities regulatory authority as to indemnification for securities law violations.
The Bylaws of the Company obligate it, subject to the limits described above, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to an Indemnitee who is made a party to the proceeding by reason of his service in the capacities described above. The charter and Bylaws also permit the Company to indemnify and advance expenses to any person who served a predecessor of the Company in any of the capacities described above and to any employee or agent of the Company or a predecessor of the Company.
II-1
TABLE OF CONTENTS
The MGCL requires a corporation (unless its charter provides otherwise, which the Companys charter does to the extent described above) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made a party by reason of his service in that capacity. The MGCL permits a corporation to indemnify its 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 unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under the MGCL, a Maryland corporation may 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.
In addition, the MGCL permits a corporation to advance reasonable expenses to a director or officer upon the corporations receipt of (a) a written affirmation by the director or officer of his good faith belief that he has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or on his behalf to repay the amount paid or reimbursed by the corporation if it shall ultimately be determined that the standard of conduct was not met. However, under our charter, the Company may advance amounts to an Indemnitee only if (w) the proceeding relates to acts or omissions relating to the performance
of duties or services for the Company or on its behalf, (x) the proceeding is initiated by a third party who is not a stockholder or is initiated by a stockholder acting in his or her capacity as such, and a court of competent jurisdiction specifically approves the advancement, (y) the Indemnitee provides the Company with written affirmation of his, her or its good faith belief that he, she or it has met the standard of conduct necessary for indemnification, and (z) the Indemnitee undertakes in writing to repay the advanced funds to the Company, together with interest at the applicable legal rate of interest if the Indemnitee is found not to be entitled to indemnification.
Any indemnification payment or reimbursement of expenses will be furnished in accordance with the procedures in Section 2-418(e) of the MGCL or any successor statute.
Our Bylaws provide that neither the amendment, nor the repeal, nor the adoption of any other provision of the Articles or the Bylaws will apply to or affect, in any respect, an indemnified persons right to indemnification for actions or failures to act which occurred prior to such amendment, repeal or adoption.
To the extent that the indemnification may apply to liabilities arising under the Securities Act of 1933, as amended, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is contrary to public policy and, therefore, unenforceable.
Exhibits
The list of exhibits filed as part of this Registration Statement on Form S-11 is submitted in the Exhibit Index following the signature page.
Undertakings.
(a) The Registrant undertakes to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement (1) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the Securities Act); (2) to reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement; and (3) to include any
II-2
TABLE OF CONTENTS
material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that clauses (1), (2) and (3) above do not apply if the registration statement is on Form S-3 and the information required to be included in a post-effective amendment by those clauses is contained in reports filed with or furnished to the Securities and Exchange Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is
contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(b) The Registrant undertakes (1) that, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof and (2) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(c) The Registrant undertakes that, for the purposes of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) under the Securities Act as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B under the Securities Act or other than prospectuses filed in reliance on Rule 430A under the Securities Act, shall be deemed to be part of and included in the Registration Statement as of the date it is first used after effectiveness; provided, however, that no statement made in a registration statement or prospectus that is part of the
Registration Statement or made in a document incorporated or deemed incorporated by reference into the Registration Statement or prospectus that is part of the Registration Statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the Registration Statement or prospectus that was part of the Registration Statement or made in any such document immediately prior to such date of first use.
(d) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrants annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of any employee benefit plans annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona
fide
offering thereof.
(e) The undersigned Registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim financial information.
II-3
TABLE OF CONTENTS
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this Post-Effective Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, State of New York, on this 18th day of May, 2010.
|
|
|
|
|
LIGHTSTONE VALUE PLUS
REAL ESTATE INVESTMENT TRUST, INC.
|
|
|
By:
/s/ David Lichtenstein
David Lichtenstein
Chief Executive Officer and
Chairman of the Board of Directors
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
II-4
TABLE OF CONTENTS
EXHIBIT INDEX
The following exhibits are included in this Form S-11 (and are numbered in accordance with Item 601 of Regulation S-K).
|
|
|
Exhibit No.
|
|
Description
|
3.1
|
|
Amended and Restated Charter of Lightstone Value Plus Real Estate Investment Trust, Inc.
|
3.2
|
|
Bylaws of Lightstone Value Plus Real Estate Investment Trust, Inc.
|
5.1
(1)
|
|
Opinion of Venable LLP
|
8
(1)
|
|
Opinion of Proskauer Rose LLP as to tax matters
|
10.1
|
|
The Advisory Agreement by and among Lightstone Value Plus Real Estate Investment Trust Inc., Lightstone Value Plus REIT LP and Lightstone Value Plus REIT LLC.
|
10.2
|
|
Amendment to the Advisory Agreement by and among Lightstone Value Plus Real Estate Investment Trust, Inc., Lightstone Value Plus REIT LP and Lightstone Value Plus REIT LLC.
|
10.3
|
|
Management Agreement, by and among Lightstone Value Plus Real Estate Investment Trust, Inc., Lightstone Value Plus REIT LP and Lightstone Value Plus REIT Management LLC.
|
10.4
|
|
Form of the Companys Stock Option Plan.
|
10.5
|
|
Form of Indemnification Agreement by and between The Lightstone Group and the directors and executive officers of Lightstone Value Plus Real Estate Investment Trust, Inc.
|
10.6
|
|
Note and Mortgage Modification Agreement Evidencing Renewal Promissory Note Including Future Advance and Amended and Restated Mortgage, Security Agreement and Fixture Filing by LVP St. Augustine Outlets LLC in favor of Wachovia Bank, National Association
|
10.7
|
|
Renewal Promissory Note Including Future Advance by LVP St. Augustine Outlets LLC to the order of Wachovia Bank, National Association
|
10.8
|
|
Guaranty by Lightstone Holdings, LLC for the benefit of Wachovia Bank, National Association
|
10.9
|
|
Contribution Agreement among Scotsdale Borrower, LLC, Carriage Park MI LLC, LLC, Macomb Manor MI LLC, Carriage Hill MI LLC and Citigroup Global Markets Realty Corp.
|
10.10
|
|
Loan and Security Agreement among Scotsdale MI LLC, Carriage Park MI LLC, Macomb Manor MI LLC, Carriage Hill MI LLC and Citigroup Global Markets Realty Corp.
|
10.11
|
|
Promissory Note by Scotsdale MI LLC, Carriage Park MI LLC, Macomb Manor MI LLC and Carriage Hill MI LLC in favor of Citigroup Global Markets Realty Corp.
|
10.12
|
|
Mortgage by Scotsdale MI LLC in favor of Citigroup Global Markets Realty Corp.
|
10.13
|
|
Mortgage by Carriage Park MI LLC in favor of Citigroup Global Markets Realty Corp.
|
10.14
|
|
Mortgage by Macomb Manor MI LLC in favor of Citigroup Global Markets Realty Corp.
|
10.15
|
|
Mortgage by Carriage Hill MI LLC in favor of Citigroup Global Markets Realty Corp.
|
10.16
|
|
Environmental Indemnity Agreement among Scotsdale MI LLC, Carriage Park MI LLC, Macomb Manor MI LLC, Carriage Hill MI LLC and Citigroup Global Markets Realty Corp.
|
10.17
|
|
Exceptions to Non-Recourse Guaranty by Lightstone Value Plus Real Estate Investment Trust, Inc. and Lightstone Value Plus REIT LP for the benefit of Citigroup Global Markets Realty Corp.
|
10.18
|
|
Conditional Assignment of Management Agreement among Scotsdale MI LLC, Carriage Park MI LLC, Macomb Manor MI LLC, Carriage Hill MI LLC and Citigroup Global Markets Realty Corp.
|
10.19
|
|
Promissory Note by LVP Oakview Strip Center LLC in favor of Wachovia Bank, National Association
|
10.20
|
|
Guaranty by Lightstone Value Plus Real Estate Investment Trust, Inc. in favor of Wachovia Bank, National Association
|
10.21
|
|
Assignment of Leases and Rents and Security Deposits by LVP Oakview Strip Center LLC in favor of Wachovia Bank, National Association
|
II-5
TABLE OF CONTENTS
|
|
|
Exhibit No.
|
|
Description
|
10.22
|
|
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing by LVP Oakview Strip Center LLC in favor of Wachovia Bank, National Association
|
10.23
|
|
Consent and Agreement of Beacon Property Management, LLC
|
10.24
|
|
Property Management Agreement between 1407 Broadway Real Estate LLC and Trebor Management Corp.
|
10.25
|
|
Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Financing Statement by 1407 Broadway Real Estate LLC in favor of Lehman Brothers Holdings Inc.
|
10.26
|
|
Promissory Note by 1407 Broadway Real Estate LLC in favor of Lehman Brothers Holdings Inc.
|
10.27
|
|
Guaranty of Recourse Obligations by Lightstone Holdings LLC in favor of Lehman Brothers Holdings Inc.
|
10.28
|
|
Net Profits Agreement between 1407 Broadway Real Estate LLC in favor and Lehman Brothers Holdings Inc.
|
10.29
|
|
Mortgage and Security Agreement by LVP Gulf Coast Industrial Portfolio LLC in favor of Wachovia Bank, National Association
|
10.30
|
|
Promissory Note by LVP Gulf Coast Industrial Portfolio LLC and the other borrowers identified therein in favor of Wachovia Bank, National Association
|
10.31
|
|
Form of Limited Liability Company Agreement of 1407 Broadway Mezz II LLC
|
10.32
|
|
Form of Multifamily Mortgage, Assignment of Rents and Security Agreement for the Camden Portfolio (each property in the Camden Portfolio had substantially similar mortgages).
|
10.33
|
|
Promissory Note made as of June 26, 2008 by Arbor Mill Run JRM, LLC in favor of Lightstone Value Plus Real Estate Investment Trust, Inc. in the original principal amount of $17,280,000.
|
10.34
|
|
Promissory Note made as of June 26, 2008 by Arbor National CJ LLC in favor of Lightstone Value Plus Real Estate Investment Trust, Inc. in the original principal amount of $360,000.
|
10.35
|
|
Promissory Note made as of June 26, 2008 by AR Prime Holdings, LLC in favor of Lightstone Value Plus Real Estate Investment Trust, Inc. in the original principal amount of 49,500,000.
|
10.36
|
|
Exchange Rights Agreement, dated as of June 26, 2008, by and among Lightstone Value Plus Real Estate Investment Trust, Inc., Lightstone Value Plus REIT, LP and the persons named therein.
|
10.37
|
|
First Amendment to Amended and Restated Agreement of Limited Partnership of Lightstone Value Plus REIT LP, dated as of June 26, 2008, by and among Lightstone Value Plus Real Estate Investment Trust, Inc., Lightstone Value Plus REIT LLC, Lightstone SLP, LLC
|
10.38
|
|
Tax Protection Agreement, dated as of June 26, 2008, by and between Lightstone Value Plus REIT, LP and Arbor Mill Run JRM, LLC.
|
10.39
|
|
Tax Protection Agreement, dated as of June 26, 2008, by and between Lightstone Value Plus REIT, LP and Arbor Mill National CJ, LLC.
|
10.40
|
|
Tax Protection Agreement, dated as of June 26, 2008, by and between Lightstone Value Plus REIT, LP, Prime Outlets Acquisition Company LLC and AR Prime Holdings, LLC.
|
10.41
|
|
Contribution and Conveyance Agreement, dated as of June 26, 2008, by and between Arbor Mill Run JRM LLC and Lightstone Value Plus REIT, LP.
|
10.42
|
|
Contribution and Conveyance Agreement, dated as of June 26, 2008, by and between Arbor National CJ, LLC and Lightstone Value Plus REIT, LP.
|
10.43
|
|
Contribution and Conveyance Agreement, dated as of June 26, 2008, by and among AR Prime Holdings, LLC, Lightstone Value Plus REIT, LP and Lightstone Value Plus Real Estate Investment Trust, Inc.
|
II-6
TABLE OF CONTENTS
|
|
|
Exhibit No.
|
|
Description
|
10.44
(2)
|
|
Contribution Agreement, dated as of December 8, 2009, by and among Simon Property Group Inc, Simon Property Group, L.P, Marco Capital Acquisition, LLC, Lightstone Value Plus REIT, LP, Pro-DFJV Holdings LLC, Lightstone Holdings, LLC, Lightstone Prime, LLC, BRM, LLC, Lightstone Real Property Ventures Limited Liability Company, PR Lightstone Manager, LLC, Prime Outlets Acquisition Company LLC, and Lightstone Value Plus Real Estate Investment Trust, Inc.
|
21.1
|
|
Subsidiaries of the Registrant
|
23.1
(1)
|
|
Consent of Venable LLP (included as part of Exhibit 5.1)
|
23.2
(1)
|
|
Consent of Proskauer Rose LLP (included as part of Exhibit 8)
|
23.3
|
|
Consent of Amper, Politziner & Mattia, LLP
|
24
|
|
Power of Attorney
|
|
|
|
(1)
|
To be filed by amendment.
|
|
(2)
|
Certain portions of this exhibit have been omitted in connection with an application for confidential treatment therefor.
|
II-7
Exhibit
3.1
LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.
ARTICLES
OF AMENDMENT AND RESTATEMENT
FIRST
: Lightstone Value Plus
Real Estate Investment Trust, Inc., a Maryland corporation, desires to amend and
restate its charter as currently in effect and as hereinafter
amended.
SECOND
: The following
provisions are all the provisions of the charter currently in effect and as
hereinafter amended:
ARTICLE
I
NAME
The name
of the corporation is Lightstone Value Plus Real Estate Investment Trust, Inc.
(the “
Company
”). So far
as may be practicable, the business of the Company shall be conducted and
transacted under that name. Under circumstances in which the Company’s Board of
Directors determines that the use of the name “Lightstone Value Plus Real Estate
Investment Trust, Inc.” is not practicable, it may use any other designation or
name for the Company.
ARTICLE
II
PURPOSES
AND POWERS
The
purposes for which the Company is formed are to engage in any lawful act or
activity (including, without limitation or obligation, qualifying and engaging
in business 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 the MGCL and the general laws of the State
of Maryland as now or hereafter in force.
ARTICLE
III
RESIDENT
AGENT AND PRINCIPAL OFFICE
The name
and address of the resident agent for service of process of the Company in the
State of Maryland is The Corporation Trust Incorporated, 300 East Lombard
Street, Baltimore, Maryland 21202. The address of the Company’s principal office
in the State of Maryland is 300 East Lombard Street, Baltimore, Maryland 21202.
The Company may have such other offices and places of business within or outside
the State of Maryland as the Board may from time to time determine.
ARTICLE
IV
DEFINITIONS
As used
in the Charter, the following terms shall have the following meanings unless the
context otherwise requires:
“
ACQUISITION EXPENSES
” means
expenses including but not limited to legal fees and expenses, travel and
communications expenses, costs of appraisals, nonrefundable option payments on
property not acquired, accounting fees and expenses, title insurance premiums
and miscellaneous expenses related to selection and acquisition of properties,
whether or not acquired.
“
ACQUISITION FEE
” means the
total of all fees and commissions paid by any Person to any other Person in
connection with making or investing in Mortgages or the purchase, development or
construction of a Property, including real estate commissions, selection fees,
nonrecurring management fees, loan fees, points or any other fees of a similar
nature.
“
ADVISOR
” or “
ADVISORS
” means the Person or
Persons, if any, appointed, employed or contracted with by the Company pursuant
to Section 8.1 hereof and responsible for directing or performing the day-to-day
business affairs of the Company, including any Person to whom the Advisor
subcontracts all or substantially all of such functions.
“
ADVISORY AGREEMENT
” means the
agreement between the Company and the Advisor pursuant to which the Advisor will
direct or perform the day-to-day business affairs of the Company.
“
AFFILIATE
” or “
AFFILIATED
” means, with
respect to any Person, (i) any Person directly or indirectly owning, controlling
or holding, with the power to vote, 10% or more of the outstanding voting
securities of such other Person; (ii) any Person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held, with the power to vote, by such other Person; (iii) any Person directly or
indirectly controlling, controlled by or under common control with such other
Person; (iv) any executive officer, director, trustee or general partner of such
other Person; and (v) any legal entity for which such Person acts as an
executive officer, director, trustee or general partner.
“
ASSET
” means any Property,
Mortgage or other investment (other than investments in bank accounts, money
market funds or other current assets) owned by the Company, directly or
indirectly through one or more of its Affiliates, by the Company and any other
investment made, directly or indirectly through one or more of its
Affiliates.
“
AVERAGE INVESTED ASSETS
”
means, for a specified period, the average of the aggregate book value of the
assets of the Company and the Operating Partnership invested, directly or
indirectly in equity interests in and loans secured by real estate, before
deducting depreciation, bad debts or other non-cash reserves, computed by taking
the average of such values at the end of each month during such
period.
“
BOARD
” means, collectively,
the individuals named in Section 6.1 of the Charter and such other individuals
who may be duly elected and qualified to serve as Directors thereafter to
replace any such person or fill a vacancy caused by the death, removal or
resignation of any such person or caused by an increase in the number of
Directors.
“
BYLAWS
” means the Bylaws of
the Company, as amended from time to time.
“
CHARTER
” means these Articles
of Amendment and Restatement and any Articles of Amendment, Articles
Supplementary or other modification or amendment thereto.
“
CODE
” shall have the meaning
as provided in Article II herein.
“
COMMENCEMENT OF THE INITIAL PUBLIC
OFFERING
” shall mean the date that the Securities and Exchange Commission
declares effective the registration statement filed under the Securities Act for
the Initial Public Offering.
“
COMMON SHARES
” shall have the
meaning as provided in Section 5.1 herein.
“
COMPANY
” shall have the
meaning as provided in Article I herein.
“
COMPETITIVE REAL ESTATE
COMMISSION
” means a real estate or brokerage commission paid for the
purchase or sale of a Property that is reasonable, customary and competitive in
light of the size, type and location of the Property.
“
CONTRACT PURCHASE PRICE
” means
the amount actually paid or allocated in respect of the purchase, development,
construction or improvement of a Property or the amount of funds advanced with
respect to a Mortgage, or the amount actually paid or allocated in respect of
the purchase of other Assets, in each case exclusive of Acquisition Fees and
Acquisition Expenses, but in each case including any indebtedness assumed or
incurred in respect of such Property.
“
DEALER MANAGER
” means
Lightstone Securities, LLC, an Affiliate of the Company, or such other Person
selected by the Board to act as the dealer manager for an Offering.
“
DIRECTOR
” means a member of
the Company’s Board.
“
DISTRIBUTIONS
” means any
distributions of money or other property, pursuant to Section 5.2(iii) hereof,
by the Company to owners of Shares, including distributions that may constitute
a return of capital for federal income tax purposes.
“
GROSS PROCEEDS
” means the
aggregate purchase price of all Shares sold for the account of the Company
through an Offering, without deduction for Selling Commissions, volume
discounts, any marketing support and due diligence expense reimbursement or
Organization and Offering Expenses. For the purpose of computing Gross Proceeds,
the purchase price of any Share purchased by the Company’s Advisor for a
discount, or for which reduced Selling Commissions are paid to the Dealer
Manager or a Soliciting Dealer (where net proceeds to the Company are not
reduced) shall be deemed to be the full amount of the offering price per Share
pursuant to the Prospectus for such Offering without reduction.
“
INDEPENDENT APPRAISER
” means a
Person with no material current or prior business or personal relationship with
the Advisor or the Directors and who is a qualified appraiser of Real Property
of the type held by the Company or of other Assets as determined by the Board of
Directors. Membership in a nationally recognized appraisal society such as the
American Institute of Real Estate Appraisers or the Society of Real Estate
Appraisers shall be conclusive evidence of such qualification as to Real
Property.
“
INDEPENDENT DIRECTOR
” means a
Director who is not on the date of determination, and within the last two years
from the date of determination has not been, directly or indirectly associated
with the Sponsor, the Company, the Advisor or any of their Affiliates by virtue
of (i) ownership of an interest in the Sponsor, the Advisor or any of their
Affiliates, other than the Company, (ii) employment by the Company, the Sponsor,
the Advisor or any of their Affiliates, (iii) service as an officer or director
of the Sponsor, the Advisor or any of their Affiliates, other than as a Director
of the Company, (iv) performance of services, other than as a Director of the
Company, (v) service as a director or Director of more than three real estate
investment trusts organized by the Sponsor or advised by the Advisor, or (vi)
maintenance of a material business or professional relationship with the
Sponsor, the Advisor or any of their Affiliates. A business or professional
relationship is considered “material” if the aggregate gross revenue derived by
the Director from the Sponsor, the Advisor and their Affiliates exceeds five
percent of either the Director’s annual gross income during either of the last
two years or the Director’s net worth on a fair market value basis. An indirect
association with the Sponsor or the Advisor shall include circumstances in which
a Director’s spouse, parent, child, sibling, mother- or father-in-law, son- or
daughter-in-law or brother- or sister-in-law is or has been associated with the
Sponsor, the Advisor, any of their Affiliates or the Company.
“
INITIAL INVESTMENT
” means that
portion of the initial capitalization of the Company contributed by the Sponsor
or its Affiliates pursuant to Section II.A. of the NASAA REIT
Guidelines.
“
INITIAL PUBLIC OFFERING
” means
the first Offering.
“
INVESTED CAPITAL
” means the
amount calculated by multiplying the total number of Shares purchased by
Stockholders by the issue price, reduced by the portion of any Distribution that
is attributable to Net Sales Proceeds and Refinancing Proceeds and by any
amounts paid by the Company to repurchase Shares pursuant to the Company’s plan
for the repurchase of Shares.
“
JOINT VENTURES
” means those
joint venture or partnership arrangements in which the Company or the Operating
Partnership is a co-venturer, limited liability company member, limited partner
or general partner established to acquire or hold Assets.
“
LEVERAGE
” means the aggregate
amount of long-term permanent indebtedness of the Company for money borrowed
(including purchase money mortgage loans) outstanding at any time, both secured
and unsecured.
“
LISTING
” means the listing of
the Shares on a national securities exchange, the quotation of the Shares by The
Nasdaq Stock Market (“Nasdaq”) or the trading of the Shares in the
over-the-counter market. Upon such Listing, the Shares shall be deemed
Listed.
“
MANAGEMENT AGREEMENT
” means
the agreement between the Company and its property manager, which may be an
Affiliate of the Company, pursuant to which such property manager will perform
certain property management services for the Company and its
Assets.
“
MGCL
” means the Maryland
General Corporation Law.
“
MORTGAGES
” means, in
connection with mortgage financing provided, invested in, participated in or
purchased by the Company, all of the notes, deeds of trust, security interests
or other evidences of indebtedness or obligations, which are secured or
collateralized by Real Property owed by the borrowers under such notes, deeds of
trust, security interests or other evidences of indebtedness or
obligations.
“
NASAA REIT GUIDELINES
” means
the Statement of Policy Regarding Real Estate Investment Trusts as adopted by
the North American Securities Administrators Association on September 9,
1993.
“
NET ASSETS
” means the total
assets of the Company and the Operating Partnership (other than intangibles) at
cost, before deducting depreciation, reserves for bad debts or other non-cash
reserves, less total liabilities, calculated quarterly by the Company on a basis
consistently applied.
“
NET INCOME
” means for any
period, the Company’s and the Operating Partnership’s total revenues applicable
to such period, less the total expenses applicable to such period other than
additions to reserves for depreciation, bad debts or other similar non-cash
reserves and excluding any gain from the sale of the Assets.
“
NET SALES PROCEEDS
” means in
the case of a transaction described in clause (i) (A) of the definition of Sale,
the proceeds of any such transaction less the amount of selling expenses
incurred by or on behalf of the Company, including all real estate commissions,
closing costs and legal fees and expenses. In the case of a transaction
described in clause (i) (B) of such definition, Net Sales Proceeds means the
proceeds of any such transaction less the amount of selling expenses incurred by
or on behalf of the Company, including any legal fees and expenses and other
selling expenses incurred in connection with such transaction. In the case of a
transaction described in clause (i) (C) of such definition, Net Sales Proceeds
means the proceeds of any such transaction actually distributed to the Company
from the Joint Venture less the amount of any selling expenses, including legal
fees and expenses incurred by or on behalf of the Company (other than those paid
by the Joint Venture). In the case of a transaction or series of transactions
described in clause (i) (D) of the definition of Sale, Net Sales Proceeds means
the proceeds of any such transaction (including the aggregate of all payments
under a Mortgage
on or in
satisfaction thereof other than regularly scheduled interest payments) less the
amount of selling expenses incurred by or on behalf of the Company, including
all commissions, closing costs and legal fees and expenses. In the case of a
transaction described in clause (i) (E) of such definition, Net Sales Proceeds
means the proceeds of any such transaction less the amount of selling expenses
incurred by or on behalf of the Company, including any legal fees and expenses
and other selling expenses incurred in connection with such transaction. In the
case of a transaction described in clause (ii) of the definition of Sale, Net
Sales Proceeds means the proceeds of such transaction or series of transactions
less all amounts generated thereby which are reinvested in one or more Assets
within 180 days thereafter and less the amount of any real estate commissions,
closing costs, and legal fees and expenses and other selling expenses incurred
by or allocated to the Company in connection with such transaction or series of
transactions. Net Sales Proceeds shall also include any amounts that the Company
determines, in its discretion, to be economically equivalent to proceeds of a
Sale. Net Sales Proceeds shall not include any reserves established by the
Company in its sole discretion.
“
OFFERING
” means any public
offering and sale of Shares pursuant to an effective registration statement
filed under the Securities Act.
“
OPERATING PARTNERSHIP
” means
Lightstone Value Plus REIT LP, an Affiliate of the Company through which the
Company may own Assets.
“
ORGANIZATION and OFFERING
EXPENSES
” means any and all costs and expenses incurred by and to be paid
from the assets of the Company in connection with the formation, qualification
and registration of the Company, and the marketing and distribution of Shares,
including, without limitation, total underwriting and brokerage discounts and
commissions (including fees of the underwriters’ attorneys), expenses for
printing, engraving, amending, supplementing, mailing and distributing costs,
salaries of employees while engaged in sales activity, telephone and other
telecommunications costs, all advertising and marketing expenses (including the
costs related to investor and broker-dealer sales meetings), charges of transfer
agents, registrars, trustees, escrow holders, depositories, experts, fees,
expenses and taxes related to the filing, registration and qualification of the
sale of the Shares under federal and state laws, including taxes and fees,
accountants’ and attorneys’ fees.
“
PERSON
” means an individual,
corporation, partnership, estate, trust (including a trust qualified under
Sections 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section 642(c)
of the Code, association, private foundation within the meaning of Section
509(a) of the Code, joint stock company or other legal entity and also includes
a group as that term is used for purposes of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, and a group to which an Excepted Holder Limit
(as defined in Article V, Section 5.9(i) hereof) applies.
“
PREFERRED SHARES
” shall have
the meaning as provided in Section 5.1 herein.
“
PROPERTY
” or “
PROPERTIES
” means, as the
context requires, any, or all, respectively, of the Real Property acquired by
the Company, directly or indirectly through joint venture arrangements or other
partnership or investment interests.
“
PROSPECTUS
” means the same as
that term is defined in Section 2(10) of the Securities Act, including a
preliminary prospectus and an offering circular as described in Rule 256 of the
General Rules and Regulations under the Securities Act.
“
REAL PROPERTY
” or “
REAL ESTATE
” means land,
rights in land (including leasehold interests), and any buildings, structures,
improvements, furnishings, fixtures and equipment located on or used in
connection with land and rights or interests in land.
“
REFINANCING PROCEEDS
” means
the proceeds of the refinancing of any indebtedness of the Company, less the
amount of expenses incurred by or on behalf of the Company in connection with
such refinancing.
“
REAL ESTATE INVESTMENT TRUST
”
or “
REIT
” means a
corporation, trust, association or other legal entity (other than a real estate
syndication) that is engaged primarily in investing in equity interests in real
estate (including fee ownership and leasehold interests) or in loans secured by
real estate or both as defined pursuant to the REIT Provisions of the
Code.
“
REIT PROVISIONS OF THE CODE
”
means Sections 856 through 860 of the Code and any successor or other provisions
of the Code relating to real estate investment trusts (including provisions as
to the attribution of ownership of beneficial interests therein) and the
regulations promulgated thereunder.
“
ROLL-UP ENTITY
” means a
partnership, real estate investment trust, corporation, trust or similar entity
that would be created or would survive after the successful completion of a
proposed Roll-Up Transaction.
“
ROLL-UP TRANSACTION
” means a
transaction involving the acquisition, merger, conversion or consolidation
either directly or indirectly of the Company and the issuance of securities of a
Roll-Up Entity to the Stockholders of the Company. Such term does not
include:
(a) a
transaction involving securities of the Company that have been for at least
twelve (12) months listed on a national securities exchange or traded through
Nasdaq’s National Market System; or
(b) a
transaction involving the conversion to corporate, trust or association form of
only the Company, if, as a consequence of the transaction, there will be no
significant adverse change in any of the following:
(i)
Stockholders’ voting rights;
(ii) the
term of existence of the Company;
(iii)
Sponsor or Advisor compensation; or
(iv) the
Company’s investment objectives.
“
SALE
” or “
SALES
” means (i) any
transaction or series of transactions whereby: (A) the Company or the Operating
Partnership directly or indirectly (except as described in other subsections of
this definition) sells, grants, transfers, conveys, or relinquishes its
ownership of any Property or portion thereof, including the lease of any
Property consisting of a building only, and including any event with respect to
any Property which gives rise to a significant amount of insurance proceeds or
condemnation awards; (B) the Company or the Operating Partnership directly or
indirectly (except as described in other subsections of this definition) sells,
grants, transfers, conveys, or relinquishes its ownership of all or
substantially all of the interest of the Company or the Operating Partnership in
any Joint Venture in which it is a co-venturer or partner; (C) any Joint Venture
in which the Company or the Operating Partnership as a co-venturer or partner
directly or indirectly (except as described in other subsections of this
definition) sells, grants, transfers, conveys, or relinquishes its ownership of
any Property or portion thereof, including any event with respect to any
Property which gives rise to insurance claims or condemnation awards; or (D) the
Company or the Operating Partnership directly or indirectly (except as described
in other subsections of this definition) sells, grants, conveys or relinquishes
its interest in any Mortgage or portion thereof (including with respect to any
Mortgage, all payments thereunder or in satisfaction thereof other than
regularly scheduled interest payments) of amounts owed pursuant to such Mortgage
and any event which gives rise to a significant amount of insurance proceeds or
similar awards; or (E) the Company or the Operating Partnership directly or
indirectly (except as described in other subsections of this definition) sells,
grants, transfers, conveys, or relinquishes its ownership of any other Asset not
previously described in this definition or any portion thereof, but (ii) not
including any transaction or series of transactions specified in clause (i) (A)
through (E) above in which the proceeds of such transaction or series of
transactions are reinvested in one or more Assets within 180 days
thereafter.
“
SDAT
” shall have the meaning
as provided in Section 5.4 herein.
“
SECURITIES
” means any of the
following issued by the Company, as the text requires: Shares, any other stock,
shares or other evidences of equity or beneficial or other interests, voting
trust certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as “securities” or any certificates of interest,
shares or participations in, temporary or interim certificates for, receipts
for, guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
“
SECURITIES ACT
” means the
Securities Act of 1933, as amended from time to time, or any successor statute
thereto. Reference to any provision of the Securities Act shall mean such
provision as in effect from time to time, as the same may be amended, and any
successor provision thereto, as interpreted by any applicable regulations as in
effect from time to time.
“
SELLING COMMISSIONS
” means any
and all commissions payable to underwriters, dealer managers or other
broker-dealers in connection with the sale of Shares, including, without
limitation, commissions payable to the Dealer Manager and any Soliciting
Dealer.
“
SHARES
” means shares of
capital stock of the Company of any class or series, including Common Shares or
Preferred Shares.
“
SOLICITING DEALERS
” means
those broker-dealers that are members of the National Association of Securities
Dealers, Inc., or that are exempt from broker-dealer registration, and that, in
either case, enter into participating broker or other agreements with the Dealer
Manager to sell Shares.
“
SPONSOR
” means any Person
which (i) is directly or indirectly instrumental in organizing, wholly or in
part, the Company, (ii) will manage or participate in the management of the
Company, and any Affiliate of any such Person, other than a Person whose only
relationship with the Company is that of an independent property manager and
whose only compensation is as such, (iii) takes the initiative, directly or
indirectly, in founding or organizing the Company, either alone or in
conjunction with one or more other Persons, (iv) receives a material
participation in the Company in connection with the founding or organizing of
the business of the Company, in consideration of services or property, or both
services and property, (v) has a substantial number of relationships and
contacts with the Company, (vi) possesses significant rights to control
Properties, (vii) receives fees for providing services to the Company which are
paid on a basis that is not customary in the industry, or (viii) provides goods
or services to the Company on a basis which was not negotiated at arm’s-length
with the Company. The term “Sponsor” shall not include third parties wholly
independent of the Company, such as attorneys, accountants and underwriters
whose only compensation is for professional services.
“
STOCKHOLDERS
” means the
holders of record of the Company’s Shares as maintained in the books and records
of the Company or its transfer agent.
“
TERMINATION DATE
” means the
date of termination of the Advisory Agreement.
“
TERMINATION OF THE INITIAL PUBLIC
OFFERING
” shall mean the earlier of (i) the date on which the Initial
Public Offering expires or is terminated by the Company or (ii) the date on
which all shares offered in the Initial Public Offering are sold, excluding
warrants offered thereunder and shares that may be acquired upon exercise of
such warrants and shares offered thereunder that may be acquired pursuant to the
Reinvestment Plan (as hereafter defined).
“
TOTAL OPERATING EXPENSES
”
means all costs and expenses paid or incurred by the Company, as determined
under generally accepted accounting principles, that are in any way related to
the operation of the Company or to Company business, including advisory fees,
but excluding (i) the expenses of raising capital such
as
Organization and Offering Expenses, legal, audit, accounting, underwriting,
brokerage, listing, registration, and other fees, printing and other such
expenses and tax incurred in connection with the issuance, distribution,
transfer, registration and Listing of the Shares, (ii) interest payments, (iii)
taxes, (iv) non-cash expenditures such as depreciation, amortization and bad
debt reserves, (v) incentive fees paid in compliance with the NASAA REIT
Guidelines; (vi) Acquisition Fees and Acquisition Expenses, (vii) real estate
commissions on the Sale of Property, and (viii) other fees and expenses
connected with the acquisition, disposition, management and ownership of real
estate interests, mortgage loans or other property (including the costs of
foreclosure, insurance premiums, legal services, maintenance, repair, and
improvement of property).
“
UNIMPROVED REAL PROPERTY
”
means Property in which the Company has an equity interest that was not acquired
for the purpose of producing rental or other operating income, that has no
development or construction in process and for which no development or
construction is planned, in good faith, to commence within one
year.
ARTICLE
V
STOCK
SECTION 5.1 AUTHORIZED SHARES.
The total number of Shares that the Company shall have authority to issue is
70,000,000 Shares, of which (i) 60,000,000 shall be designated as common stock,
$0.01 par value per Share (the “
Common Shares
”); and (ii)
10,000,000 shall be designated as preferred stock, $0.01 par value per Share
(the “
Preferred
Shares
”). The aggregate par value of all authorized shares of stock
having par value is $700,000. If shares of one class of stock are classified or
reclassified into shares of another class of stock pursuant to Section 5.2(ii)
or Section 5.3 of this Article V, the number of authorized shares of the former
class shall be automatically decreased and the number of shares of the latter
class shall be automatically increased, in each case by the number of shares so
classified or reclassified, as the case may be, so that the aggregate number of
Shares of all classes that the Company has authority to issue shall not be more
than the total number of Shares set forth in the first sentence of this Article.
The Board, with the approval of a majority of the entire Board and without any
action by the Stockholders, may amend the Charter from time to time to increase
or decrease the aggregate number of Shares or the number of Shares of any class
or series that the Company has authority to issue.
SECTION
5.2 COMMON SHARES.
(i)
COMMON SHARES SUBJECT TO TERMS OF PREFERRED SHARES. The Common Shares shall be
subject to the express terms of any series of Preferred Shares.
(ii)
DESCRIPTION. Subject to Section 5.9 of this Article V and except as may
otherwise be specified in the terms of any class or series of Common Shares,
each Common Share shall entitle the holder thereof to one vote per share on all
matters upon which Stockholders are entitled to vote pursuant to Section 11.2
hereof. Shares of a particular class of Common Shares shall have equal dividend,
distribution, liquidation and other rights, and shall have no preference,
cumulative, preemptive, conversion or exchange rights. The Board may classify or
reclassify any unissued Common Shares from time to time in one or more classes
or series of stock.
(iii)
DISTRIBUTION RIGHTS. The Board from time to time may authorize and the Company
may pay to Stockholders such dividends or other Distributions in cash or other
property as the Board in its discretion shall determine. The Board shall
endeavor to authorize, and the Company may pay, such dividends and Distributions
as shall be necessary for the Company to qualify as a REIT under the REIT
Provisions of the Code unless the Board has determined, in its sole discretion,
that qualification as a REIT is not in the best interests of the Company;
provided, however, Stockholders shall have no right to any dividend or
Distribution unless and until authorized by the Board and declared by the
Company. The exercise of the powers and rights of the Board pursuant to this
section shall be subject to the provisions of any class or series of Shares at
the time outstanding. The receipt by any Person in whose name any Shares are
registered on the records of the Company or by his or her duly authorized agent
shall be a sufficient discharge for all dividends or Distributions payable or
deliverable in respect
of such
Shares and from all liability to see to the application thereof. Distributions
in kind shall not be permitted, except for distributions of readily marketable
securities, distributions of beneficial interests in a liquidating trust
established for the dissolution of the Company and the liquidation of its assets
in accordance with the terms of the Charter or distributions in which (i) the
Board advises each Stockholder of the risks associated with direct ownership of
the property, (ii) the Board offers each Stockholder the election of receiving
such in-kind distributions, and (iii) in-kind distributions are made only to
those Stockholders that accept such offer.
(iv)
RIGHTS UPON LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution or winding up, or any distribution of the assets of the
Company, the aggregate assets available for distribution to holders of the
Common Shares shall be determined in accordance with applicable law. Each holder
of Common Shares shall be entitled to receive, ratably with each other holder of
Common Shares, that portion of such aggregate assets available for distribution
as the number of outstanding Common Shares held by such holder bears to the
total number of outstanding Common Shares then outstanding.
(v)
VOTING RIGHTS. Except as may be provided otherwise in the Charter, and subject
to the express terms of any series of Preferred Shares, the holders of the
Common Shares shall have the exclusive right to vote on all matters (as to which
a common stockholder shall be entitled to vote pursuant to applicable law) at
all meetings of the Stockholders of the Company.
SECTION 5.3 PREFERRED SHARES.
The Board may classify any unissued Preferred Shares and reclassify any
previously classified but unissued Preferred Shares of any series from time to
time, in one or more classes or series of Shares. The voting rights of the
holders of shares of any series of Preferred Shares shall not exceed voting
rights that bear the same relationship to the voting rights of the holders of
Common Shares as the consideration paid to the Company for each Preferred Share
bears to the book value of each outstanding Common Share.
SECTION 5.4 CLASSIFIED OR
RECLASSIFIED SHARES.
Prior to issuance of classified or reclassified
shares of any class or series, the Board by resolution shall: (a) designate that
class or series to distinguish it from all other classes and series of stock of
the Company; (b) specify the number of shares to be included in the class or
series; (c) set or change, subject to the provisions of Section 5.9 and subject
to the express terms of any class or series of Stock outstanding at the time,
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms and
conditions of redemption for each class or series; and (d) cause the Company to
file articles supplementary with the State Department of Assessments and
Taxation of Maryland (“
SDAT
”). Any of the terms of
any class or series of stock set or changed pursuant to clause (c) of this
Section 5.4 may be made dependent upon facts or events ascertainable outside the
Charter (including determinations by the Board or other facts or events within
the control of the Company) and may vary among holders thereof, provided that
the manner in which such facts, events or variations shall operate upon the
terms of such class or series of Stock is clearly and expressly set forth in the
articles supplementary filed with the SDAT.
SECTION 5.5 STOCKHOLDERS’ CONSENT IN
LIEU OF MEETING.
Any action required or permitted to be taken at any
meeting of the Stockholders may be taken without a meeting by consent, in
writing or by electronic transmission, in any manner permitted by the MGCL and
set forth in the Bylaws.
SECTION 5.6 CHARTER AND
BYLAWS.
The rights of all Stockholders and the terms of all Shares are
subject to the provisions of the Charter and the Bylaws.
SECTION 5.7 NO ISSUANCE OF SHARE
CERTIFICATES.
Until Listing, the Company shall not issue stock
certificates. A Stockholder’s investment shall be recorded on the books of the
Company. To transfer his or her Shares, a Stockholder shall submit an executed
form to the Company, which form shall be provided by the Company upon request.
Such transfer will also be recorded on the books of the Company. Upon issuance
or
transfer
of Shares, the Company will provide the Stockholder with information concerning
his or her rights with regard to such Shares, as required by the Bylaws and the
MGCL or other applicable law.
SECTION
5.8 SUITABILITY OF STOCKHOLDERS.
Until
Listing, the following provisions shall apply:
(i)
INVESTOR SUITABILITY STANDARDS. Subject to suitability standards established by
individual states, to become a Stockholder in the Company, if such prospective
Stockholder is an individual (including an individual beneficiary of a
purchasing Individual Retirement Account), or if the prospective Stockholder is
a fiduciary (such as a trustee of a trust or corporate pension or profit sharing
plan, or other tax-exempt organization, or a custodian under a Uniform Gifts to
Minors Act), such individual or fiduciary, as the case may be, must represent to
the Company, among other requirements as the Company may require from time to
time:
(a) that
such individual (or, in the case of a fiduciary, that the fiduciary account or
the donor who directly or indirectly supplies the funds to purchase the Shares)
has a minimum annual gross income of $45,000 and a net worth (excluding home,
furnishings and automobiles) of not less than $45,000; or
(b) that
such individual (or, in the case of a fiduciary, that the fiduciary account or
the donor who directly or indirectly supplies the funds to purchase the Shares)
has a net worth (excluding home, furnishings and automobiles) of not less than
$150,000.
(ii)
DETERMINATION OF SUITABILITY OF SALE. The Sponsor and each Person selling Shares
on behalf of the Sponsor or the Company shall make every reasonable effort to
determine that the purchase of Shares is a suitable and appropriate investment
for each Stockholder. In making this determination, the Sponsor or each Person
selling Shares on behalf of the Sponsor or the Company shall ascertain that the
prospective Stockholder: (a) meets the minimum income and net worth standards
established for the Company; (b) can reasonably benefit from the Company based
on the prospective Stockholder’s overall investment objectives and portfolio
structure; (c) is able to bear the economic risk of the investment based on the
prospective Stockholder’s overall financial situation; and (d) has apparent
understanding of (1) the fundamental risks of the investment; (2) the risk that
the Stockholder may lose the entire investment; (3) the lack of liquidity of the
Shares; (4) the restrictions on transferability of the Shares; (5) the
background and qualifications of the Sponsor or the Advisor; and (6) the tax
consequences of the investment.
The
Sponsor or each Person selling shares on behalf of the Sponsor or the Company
shall make this determination on the basis of information it has obtained from a
prospective Stockholder. Relevant information for this purpose will include at
least the age, investment objectives, investment experiences, income, net worth,
financial situation, and other investments of the prospective Stockholder, as
well as any other pertinent factors.
The
Sponsor or each Person selling Shares on behalf of the Sponsor or the Company
shall maintain records of the information used to determine that an investment
in Shares is suitable and appropriate for a Stockholder. The Sponsor or each
Person selling Shares on behalf of the Sponsor or the Company shall maintain
these records for at least six years.
(iii)
MINIMUM INVESTMENT. The Company will sell shares of its common stock only to
investors who initially purchase a minimum of 100 shares for an aggregate price
of $1,000 or tax-exempt entities which purchase 300 shares for an aggregate
price of $3,000.
SECTION
5.9 RESTRICTIONS ON OWNERSHIP AND TRANSFER.
(i)
DEFINITIONS. For purposes of Section 5.9, the following terms shall have the
following meanings:
“
AGGREGATE SHARE OWNERSHIP
LIMIT
” means not more than 9.8% in value of the aggregate of the
outstanding Shares.
“
BENEFICIAL OWNERSHIP
” means
ownership of Shares by a Person, whether the interest in the Shares is held
directly or indirectly (including by a nominee), and shall include interests
that would be treated as owned
through
the application of Section 544 of the Code, as modified by Section 856(h)(1)(B)
of the Code. The terms “Beneficial Owner,” “Beneficially Owns” and “Beneficially
Owned” shall have the correlative meanings.
“
BUSINESS DAY
” means any day,
other than a Saturday or Sunday, that is neither a legal holiday nor a day on
which banking institutions in New York City are authorized or required by law,
regulation or executive order to close.
“
CHARITABLE BENEFICIARY
” means
one or more beneficiaries of the Trust as determined pursuant to Section
5.9(iii)(f), provided that each such organization must be described in Section
501(c)(3) of the Code and contributions to each such organization must be
eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the
Code.
“
CONSTRUCTIVE OWNERSHIP
” means
ownership of Shares by a Person, whether the interest in the Shares is held
directly or indirectly (including by a nominee), and shall include interests
that would be treated as owned through the application of Section 318(a) of the
Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive
Owner,” “Constructively Owns” and “Constructively Owned” shall have the
correlative meanings.
“
EQUITY SHARES
” means shares of
stock of all classes or series, including, without limitation, Common Shares and
Preferred Shares.
“
EXCEPTED HOLDER
” means a
Stockholder for whom an Excepted Holder Limit is created by this Charter or by
the Board pursuant to Section 5.9(ii)(g).
“
EXCEPTED HOLDER LIMIT
” means,
provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board pursuant to Section 5.9(ii)(g), and
subject to adjustment pursuant to Section 5.9(ii)(h), the percentage limit
established by the Board pursuant to Section 5.9(ii)(g).
“
MARKET PRICE
” on any date
means, with respect to any class or series of outstanding Shares, the Closing
Price for such Shares on such date. The “Closing Price” on any date shall mean
the last sale price for such Shares, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
for such Shares, in either case as reported on the principal national securities
exchange on which such Shares are Listed or admitted to trading or, if such
Shares are not Listed or admitted to trading on any national securities
exchange, the last quoted price, or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System or,
if such system is no longer in use, the principal other automated quotation
system that may then be in use or, if such Shares are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such Shares selected by the Board
or, in the event that no trading price is available for such Shares, the fair
market value of the Shares, as determined in good faith by the
Board.
“
NYSE
” means the New York Stock
Exchange.
“
PROHIBITED OWNER
” means, with
respect to any purported Transfer, any Person who, but for the provisions of
Section 5.9(ii)(a), would Beneficially Own or Constructively Own Shares, and if
appropriate in the context, shall also mean any Person who would have been the
record owner of the Shares that the Prohibited Owner would have so
owned.
“
RESTRICTION TERMINATION DATE
”
means the first day after the Commencement of the Initial Public Offering on
which the Company determines pursuant to Section 7.3 of the Charter that it is
no longer in the best interests of the Company to attempt to, or continue to,
qualify as a REIT or that compliance with the restrictions and limitations on
Beneficial Ownership, Constructive Ownership and Transfers of Shares set forth
herein is no longer required in order for the Company to qualify as a
REIT.
“
TRANSFER
” means any issuance,
sale, transfer, gift, assignment, devise or other disposition, as well as any
other event that causes any Person to acquire Beneficial Ownership or
Constructive Ownership, or any agreement to take any such actions or cause any
such events, of Shares or the right to vote or receive dividends on Shares,
including (a) the granting or exercise of any option (or any disposition of any
option), (b) any disposition of any securities or rights convertible into or
exchangeable for Shares or any interest in Shares or any exercise of any such
conversion or exchange right and (c) Transfers of interests in other entities
that result in changes in Beneficial or Constructive Ownership of Shares; in
each case, whether voluntary or involuntary, whether owned of record,
Constructively Owned or Beneficially Owned and whether by operation of law or
otherwise. The terms “Transferring” and “Transferred” shall have the correlative
meanings.
“
TRUST
” means any trust
provided for in Section 5.9(iii)(a).
“
TRUSTEE
” means the Person
unaffiliated with the Company and a Prohibited Owner, that is appointed by the
Company to serve as trustee of the Trust.
(ii)
SHARES.
(a)
OWNERSHIP LIMITATIONS. During the period commencing on the date of the Company’s
qualification as a REIT and prior to the Restriction Termination Date, but
subject to Section 5.10:
(I) BASIC
RESTRICTIONS.
(A) (1)
No Person, other than an Excepted Holder, shall Beneficially Own or
Constructively Own Shares in excess of the Aggregate Share Ownership Limit and
(2) no Excepted Holder shall Beneficially Own or Constructively Own Shares in
excess of the Excepted Holder Limit for such Excepted Holder.
(B) No
Person shall Beneficially or Constructively Own Shares to the extent that such
Beneficial or Constructive Ownership of Shares would result in the Company being
“closely held” within the meaning of Section 856(h) of the Code (without regard
to whether the ownership interest is held during the last half of a taxable
year), or otherwise failing to qualify as a REIT (including, but not limited to,
Beneficial or Constructive Ownership that would result in the Company owning
(actually or Constructively) an interest in a tenant that is described in
Section 856(d)(2)(B) of the Code if the income derived by the Company from such
tenant would cause the Company to fail to satisfy any of the gross income
requirements of Section 856(c) of the Code).
(C) Any
Transfer of Shares that, if effective, would result in Shares being beneficially
owned by less than 100 Persons (determined under the principles of Section
856(a)(5) of the Code) shall be void
ab initio
, and the intended
transferee shall acquire no rights in such Shares.
(II)
TRANSFER IN TRUST. If any Transfer of Shares (whether or not such Transfer is
the result of a transaction entered into through the facilities of the NYSE or
any other national securities exchange or automated inter-dealer quotation
system) occurs which, if effective, would result in any Person Beneficially
Owning or Constructively Owning Shares in violation of Section 5.9(ii)(a)(I)(A)
or (B),
(A) then
that number of Shares the Beneficial or Constructive Ownership of which
otherwise would cause such Person to violate Section 5.9(ii)(a)(I)(A) or (B)
(rounded to the nearest whole share) shall be automatically transferred to a
Trust for the benefit of a Charitable Beneficiary, as described in Section
5.9(iii), effective as of the close of business on the Business Day prior to the
date of such Transfer, and such Person shall acquire no rights in such shares;
or
(B) if
the transfer to the Trust described in clause (A) of this sentence would not be
effective for any reason to prevent the violation of Section 5.9(ii)(a)(I)(A) or
(B) then the Transfer of that number of Shares that otherwise would cause any
Person to violate Section 5.9(ii)(a)(I)(A) or (B) shall be void
ab initio
, and the intended
transferee shall acquire no rights in such Shares.
(b)
REMEDIES FOR BREACH. If the Board or any duly authorized committee thereof shall
at any time determine in good faith that a Transfer or other event has taken
place that results in a violation of Section 5.9(ii)(a) or that a Person intends
to acquire or has attempted to acquire Beneficial or Constructive Ownership of
any Shares in violation of Section 5.9(ii)(a) (whether or not such violation is
intended), the Board or a committee thereof shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer or other
event, including, without limitation, causing the Company to redeem Shares,
refusing to give effect to such Transfer on the books of the Company or
instituting proceedings to enjoin such Transfer or other event; provided,
however, that any Transfer or attempted Transfer or other event in violation of
Section 5.9(ii)(a) shall automatically result in the transfer to the Trust
described above, and, where applicable, such Transfer (or other event) shall be
void ab initio as provided above irrespective of any action (or non-action) by
the Board or a committee thereof.
(c)
NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or attempts or intends to
acquire Beneficial Ownership or Constructive Ownership of Shares that will or
may violate Section 5.9(ii)(a)(I)(A) or (B) or any Person who would have owned
Shares that resulted in a transfer to the Trust pursuant to the provisions of
Section 5.9(ii)(a)(II) shall immediately give written notice to the Company of
such event, or in the case of such a proposed or attempted transaction, give at
least 15 days prior written notice, and shall provide to the Company such other
information as the Company may request in order to determine the effect, if any,
of such Transfer on the Company’s status as a REIT.
(d)
OWNERS REQUIRED TO PROVIDE INFORMATION. From the Commencement of the Initial
Public Offering and prior to the Restriction Termination Date:
(I) every
owner of more than five percent (or such lower percentage as required by the
Code or the Treasury Regulations promulgated thereunder) of the outstanding
Shares, within 30 days after the end of each taxable year, shall give written
notice to the Company stating the name and address of such owner, the number of
Shares Beneficially Owned and a description of the manner in which such Shares
are held. Each such owner shall provide to the Company such additional
information as the Company may request in order to determine the effect, if any,
of such Beneficial Ownership on the Company’s status as a REIT and to ensure
compliance with the Aggregate Share Ownership Limit; and
(II) each
Person who is a Beneficial or Constructive Owner of Shares and each Person
(including the stockholder of record) who is holding Shares for a Beneficial or
Constructive Owner shall provide to the Company such information as the Company
may request, in good faith, in order to determine the Company’s status as a REIT
and to comply with requirements of any taxing authority or governmental
authority or to determine such compliance.
(e)
REMEDIES NOT LIMITED. Subject to Section 7.3 of the Charter, nothing contained
in this Section 5.9(ii)(e) shall limit the authority of the Board to take such
other action as it deems necessary or advisable to protect the Company and the
interests of its stockholders in preserving the Company’s status as a
REIT.
(f)
AMBIGUITY. In the case of an ambiguity in the application of any of the
provisions of this Section 5.9(ii), Section 5.9(iii), or any definition
contained in Section 5.9(i), the Board shall have the power to determine the
application of the provisions of this Section 5.9(ii) or Section 5.9(iii) or any
such definition with respect to any situation based on the facts known to it. In
the event Section 5.9(ii) or (iii) requires an action by the Board and the
Charter fails to provide specific guidance with respect to such action, the
Board shall have the power to determine the action to be taken so long as such
action is not contrary to the provisions of Section 5.9. Absent a decision to
the contrary by the Board (which the Board may make in its sole and absolute
discretion), if a Person would have (but for the remedies set forth in Section
5.9(ii)(b)) acquired Beneficial or Constructive Ownership of Shares in violation
of Section 5.9(ii)(a), such remedies (as applicable) shall apply first to the
Shares which, but for such remedies, would have been Beneficially Owned or
Constructively Owned (but not actually owned) by such Person, pro rata among the
Persons who actually own such Shares based upon the relative number of the
Shares held by each such Person.
(g)
EXCEPTIONS.
(I)
Subject to Section 5.9(ii)(a)(I)(B), the Board, in its sole discretion, may
(prospectively or retroactively) exempt a Person from the Aggregate Share
Ownership Limit and may establish or increase an Excepted Holder Limit for such
Person if:
(A) the
Board obtains such representations and undertakings from such Person as are
reasonably necessary to ascertain that no individual’s Beneficial or
Constructive Ownership of such Shares will violate Section
5.9(ii)(a)(I)(B);
(B) such
Person does not and represents that it will not own, actually or Constructively,
an interest in a tenant of the Company (or a tenant of any entity owned or
controlled by the Company) that would cause the Company to own, actually or
Constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B)
of the Code) in such tenant and the Board obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain this fact
(for this purpose, a tenant from whom the Company (or an entity owned or
controlled by the Company) derives (and is expected to continue to derive) a
sufficiently small amount of revenue such that, in the opinion of the Board,
rent from such tenant would not adversely affect the Company’s ability to
qualify as a REIT, shall not be treated as a tenant of the Company);
and
(C) such
Person agrees that any violation or attempted violation of such representations
or undertakings (or other action which is contrary to the restrictions contained
in Section 5.9(ii)(a) through Section 5.9(ii)(f)) will result in such Shares
being automatically transferred to a Trust in accordance with Section
5.9(ii)(A)(II) and Section 5.9(iii).
(II)
Prior to granting any exception pursuant to Section 5.9(ii)(g)(I), the Board may
require a ruling from the Internal Revenue Service, or an opinion of counsel, in
either case in form and substance satisfactory to the Board in its sole
discretion, as it may deem necessary or advisable in order to determine or
ensure the Company’s status as a REIT. Notwithstanding the receipt of any ruling
or opinion, the Board may impose such conditions or restrictions as it deems
appropriate in connection with granting such exception.
(III)
Subject to Section 5.9(ii)(a)(I)(B), an underwriter which participates in an
Offering or a private placement of Shares (or Securities convertible into or
exchangeable for Shares) may Beneficially Own or Constructively Own Shares (or
Securities convertible into or exchangeable for Shares) in excess of the
Aggregate Share Ownership Limit but only to the extent necessary to facilitate
such Offering or private placement.
(IV) The
Board may only reduce the Excepted Holder Limit for an Excepted Holder: (1) with
the written consent of such Excepted Holder at any time, or (2) pursuant to the
terms and conditions of the agreements and undertakings entered into with such
Excepted Holder in connection with the establishment of the Excepted Holder
Limit for that Excepted Holder. No Excepted Holder Limit shall be reduced to a
percentage that is less than the Aggregate Share Ownership Limit.
(h)
INCREASE IN AGGREGATE SHARE OWNERSHIP LIMIT. Subject to Section
5.9(ii)(a)(I)(B), the Board may from time to time increase the Aggregate Share
Ownership Limit for one or more Persons and decrease the Aggregate Share
Ownership Limit for all other Persons; provided, however, that the decreased
Aggregate Share Ownership Limit will not be effective for any Person whose
percentage ownership of Shares is in excess of such decreased Aggregate Share
Ownership Limit until such time as such Person’s percentage of Shares equals or
falls below the decreased Aggregate Share Ownership Limit, but any further
acquisition of Shares in excess of such percentage ownership of Shares will be
in violation of the Aggregate Share Ownership Limit and, provided further, that
the new Aggregate Share Ownership Limit would not allow five or fewer Persons to
Beneficially Own or Constructively Own more than 49.9% in value of the
outstanding Shares.
(i)
NOTICE TO STOCKHOLDERS UPON ISSUANCE OR TRANSFER. Upon issuance or transfer of
Shares prior to the Restriction Termination Date, the Company shall provide the
recipient with a notice containing information about the Shares purchased or
otherwise transferred, in lieu of issuance of a share certificate, in a form
substantially similar to the following:
The
securities of Lightstone Value Plus Real Estate Investment Trust, Inc. (the
“Company”) are subject to restrictions on Beneficial and Constructive Ownership
and Transfer for the purpose, among others, of the Company’s maintenance of its
status as a real estate investment trust under the Internal Revenue Code of
1986, as amended (the “Code”). Subject to certain further restrictions and
except as expressly provided in the Charter, (i) no Person may Beneficially or
Constructively Own Shares in excess of 9.8% of the value of the total
outstanding Shares unless such Person is an Excepted Holder (in which case the
Excepted Holder Limit shall be applicable); (ii) no Person may Beneficially or
Constructively Own Shares that would result in the Company being “closely held”
under Section 856(h) of the Code or otherwise cause the Company to fail to
qualify as a REIT; and (iii) no Person may Transfer Shares if such Transfer
would result in the Shares of the Company being owned by fewer than 100 Persons.
Any Person who Beneficially or Constructively Owns or attempts to Beneficially
or Constructively Own Shares which causes or will cause a Person to Beneficially
or Constructively Own Shares in excess or in violation of the above limitations
must immediately notify the Company. If any of the restrictions on transfer or
ownership are violated, the Shares represented hereby will be automatically
transferred to a Trustee of a Trust for the benefit of one or more Charitable
Beneficiaries. In addition, the Company may redeem shares upon the terms and
conditions specified by the Board in its sole discretion if the Board determines
that ownership or a Transfer or other event may violate the restrictions
described above. Furthermore, upon the occurrence of certain events, attempted
Transfers in violation of the restrictions described above may be void
ab initio
. All capitalized
terms in this notice have the meanings defined in the Charter, as the same may
be amended from time to time, a copy of which, including the restrictions on
transfer and ownership, will be furnished to each holder of Shares of the
Company on request and without charge.
(iii)
TRANSFER OF SHARES IN TRUST.
(a)
OWNERSHIP IN TRUST. Upon any purported Transfer or other event described in
Section 5.9(ii)(a)(III) that would result in a transfer of Shares to a Trust,
such Shares shall be deemed to have been transferred to the Trustee as trustee
of a Trust for the exclusive benefit of one or more Charitable Beneficiaries.
Such transfer to the Trustee shall be deemed to be effective as of the close of
business on the Business Day prior to the purported Transfer or other event that
results in the transfer to the Trust pursuant to Section 5.9(ii)(a)(III). The
Trustee shall be appointed by the Company and shall be a Person unaffiliated
with the Company and any Prohibited Owner. Each Charitable Beneficiary shall be
designated by the Company as provided in Section 5.9(iii)(f).
(b)
STATUS OF SHARES HELD BY THE TRUSTEE. Shares held by the Trustee shall be issued
and outstanding Shares of the Company. The Prohibited Owner shall have no rights
in the shares held by the Trustee. The Prohibited Owner shall not benefit
economically from ownership of any Shares held in trust by the Trustee, shall
have no rights to dividends or other distributions and shall not possess any
rights to vote or other rights attributable to the Shares held in the
Trust.
(c)
DIVIDEND AND VOTING RIGHTS. The Trustee shall have all voting rights and rights
to dividends or other distributions with respect to Shares held in the Trust,
which rights shall be exercised for the exclusive benefit of the Charitable
Beneficiary. Any dividend or other distribution paid prior to the discovery by
the Company that the Shares have been transferred to the Trustee shall be paid
by the recipient of such dividend or distribution to the Trustee upon demand and
any dividend or other distribution authorized but unpaid shall be paid when due
to the Trustee. Any dividend or distribution so paid to the Trustee shall be
held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to shares held in the Trust and, subject to Maryland
law, effective as of the date that the Shares have been transferred to the
Trustee, the Trustee shall have the authority (at the Trustee’s sole
discretion)
(i) to rescind as void any vote cast by a Prohibited Owner prior to the
discovery by the Company that the Shares have been transferred to the Trustee
and (ii) to recast such vote in accordance with the desires of the Trustee
acting for the benefit of the Charitable Beneficiary; provided, however, that if
the Company has already taken irreversible corporate action, then the Trustee
shall not have the authority to rescind and recast such vote. Notwithstanding
the provisions of this Section 5.9, until the Company has received notification
that Shares have been transferred into a Trust, the Company shall be entitled to
rely on its share transfer and other stockholder records for purposes of
preparing lists of stockholders entitled to vote at meetings, determining the
validity and authority of proxies and otherwise conducting votes of
stockholders.
(d) SALE
OF SHARES BY TRUSTEE. Within 20 days of receiving notice from the Company that
Shares have been transferred to the Trust, the Trustee shall sell the Shares
held in the Trust to a person, designated by the Trustee, whose ownership of the
Shares will not violate the ownership limitations set forth in Section
5.9(ii)(a)(I) or (II). Upon such sale, the interest of the Charitable
Beneficiary in the Shares sold shall terminate and the Trustee shall distribute
the net proceeds of the sale to the Prohibited Owner and to the Charitable
Beneficiary as provided in this Section 5.9(iii)(d). The Prohibited Owner shall
receive the lesser of (1) the price paid by the Prohibited Owner for the Shares
or, if the Prohibited Owner did not give value for the Shares in connection with
the event causing the Shares to be held in the Trust (e.g., in the case of a
gift, devise or other such transaction), the Market Price of the Shares on the
day of the event causing the Shares to be held in the Trust and (2) the price
per Share received by the Trustee from the sale or other disposition of the
Shares held in the Trust. The Trustee may reduce the amount payable to the
Prohibited Owner by the amount of dividends and distributions which have been
paid to the Prohibited Owner and are owed by the Prohibited Owner to the Trustee
pursuant to Section 5.9(c). Any net sales proceeds in excess of the amount
payable to the Prohibited Owner shall be immediately paid to the Charitable
Beneficiary. If, prior to the discovery by the Company that Shares have been
transferred to the Trustee, such Shares are sold by a Prohibited Owner, then (i)
such Shares shall be deemed to have been sold on behalf of the Trust and (ii) to
the extent that the Prohibited Owner received an amount for such Shares that
exceeds the amount that such Prohibited Owner was entitled to receive pursuant
to this Section 5.9, such excess shall be paid to the Trustee upon
demand.
(e)
PURCHASE RIGHT IN STOCK TRANSFERRED TO THE TRUSTEE. Shares transferred to the
Trustee shall be deemed to have been offered for sale to the Company, or its
designee, at a price per Share equal to the lesser of (i) the price per Share in
the transaction that resulted in such transfer to the Trust (or, in the case of
a devise or gift, the Market Price at the time of such devise or gift) and (ii)
the Market Price on the date the Company, or its designee, accepts such offer.
The Company may reduce the amount payable to the Prohibited Owner by the amount
of dividends and distributions which has been paid to the Prohibited Owner and
is owed by the Prohibited Owner to the Trustee pursuant to Section 5.9(c). The
Company may pay the amount of such reduction to the Trustee for the benefit of
the Charitable Beneficiary. The Company shall have the right to accept such
offer until the Trustee has sold the shares held in the Trust pursuant to
Section 5.9(iii)(d). Upon such a sale to the Company, the interest of the
Charitable Beneficiary in the Shares sold shall terminate and the Trustee shall
distribute the net proceeds of the sale to the Prohibited Owner.
(f)
DESIGNATION OF CHARITABLE BENEFICIARIES. By written notice to the Trustee, the
Company shall designate one or more nonprofit organizations to be the Charitable
Beneficiary of the interest in the Trust such that (i) the Shares held in the
Trust would not violate the restrictions set forth in Section 5.9(ii)(a)(I) or
(II) in the hands of such Charitable Beneficiary and (ii) each such organization
must be described in Section 501(c)(3) of the Code and contributions to each
such organization must be eligible for deduction under each of Sections
170(b)(1)(A), 2055 and 2522 of the Code.
SECTION 5.10 SETTLEMENTS.
Nothing in Section 5.9 shall preclude the settlement of any transaction entered
into through the facilities of the NYSE or any other national securities
exchange or automated inter-dealer quotation system. The fact that the
settlement of any transaction occurs shall not negate the effect of any
provision
of Sections 5.9, and any transfer in such a transaction shall be subject to all
of the provisions and limitations set forth in Section 5.9.
SECTION 5.11 SEVERABILITY.
If
any provision of Section 5.9 or any application of any such provision is
determined to be void, invalid or unenforceable by any court having jurisdiction
over the issue, the validity and enforceability of the remaining provisions of
Section 5.9 shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
SECTION 5.12 ENFORCEMENT.
The
Company is authorized specifically to seek equitable relief, including
injunctive relief, to enforce the provisions of Section 5.9.
SECTION 5.13 NON-WAIVER.
No
delay or failure on the part of the Company or the Board in exercising any right
hereunder shall operate as a waiver of any right of the Company or the Board, as
the case may be, except to the extent specifically waived in
writing.
SECTION 5.14 REPURCHASE OF
SHARES.
The Board may establish, from time to time, a program or programs
by which the Company voluntarily repurchases Shares from its Stockholders;
provided, however, that such repurchase does not impair the capital or
operations of the Company. The Sponsor, Advisor, members of the Board or any
Affiliates thereof may not receive any fees arising out of the repurchase of
Shares by the Company.
SECTION 5.15 DISTRIBUTION
REINVESTMENT PLANS.
The Board may establish, from time to time, a
Distribution reinvestment plan or plans (each, a “
Reinvestment Plan
”). Under any
such Reinvestment Plan, (i) all material information regarding Distributions to
the Stockholders and the effect of reinvesting such Distributions, including the
tax consequences thereof, shall be provided to the Stockholders not less often
than annually, and (ii) each Stockholder participating in such Reinvestment Plan
shall have a reasonable opportunity to withdraw from the Reinvestment Plan not
less often than annually after receipt of the information required in clause (i)
above.
SECTION 5.16 PREEMPTIVE AND APPRAISAL
RIGHTS.
Except as may be provided by the Board in setting the terms of
classified or reclassified Shares pursuant to Section 5.4 or as may otherwise be
provided by contract, no holder of Shares shall, as such holder, have any
preemptive right to purchase or subscribe for any additional Shares or any other
security of the Company which it may issue or sell. The Company shall not issue
non-voting or assessable Common Shares or warrants, options or similar evidences
of the right to buy Shares unless the same are issued (i) to all holders of
Shares ratably as part of a financing arrangement or (ii) as part of a stock
option plan for the benefit of some or all directors, officers or employees of
the Company or its Affiliates. Holders of Shares shall not be entitled to
exercise any rights of an objecting stockholder provided for under Title 3,
Subtitle 2 of the MGCL or any successor statute unless the Board, upon the
affirmative vote of a majority of the Board, shall determine that such rights
apply, with respect to all or any classes or series of Shares, to one or more
transactions occurring after the date of such determination in connection with
which holders of such Shares would otherwise be entitled to exercise such
rights.
ARTICLE
VI
BOARD
OF DIRECTORS
SECTION 6.1 NUMBER OF
DIRECTORS.
The number of Directors of the Company shall be five, which
number may be increased or decreased from time to time pursuant to the Bylaws;
provided, however, that the total number of Directors shall be not fewer than
three; provided, further, however, that until such date as the Company’s
Prospectus as filed with the Securities and Exchange Commission shall become
effective, the number of Directors of the Company shall be two. After the date
of the final prospectus, a majority of the Board will be Independent Directors
except for a period of up to 60 days after the death, removal or resignation of
an Independent Director. The Company elects, at such time as it becomes eligible
to make the election provided for
under
Section 3-802(b) of the MGCL, that, except as may be provided by the Board in
setting the terms of any class or series of Shares, any and all vacancies on the
Board may be filled only by the affirmative vote of a majority of the remaining
Directors in office, even if the remaining Directors do not constitute a quorum,
and any Director elected to fill a vacancy shall serve for the remainder of the
full term of the directorship in which such vacancy occurred. Notwithstanding
the foregoing sentence, Independent Directors shall nominate replacements for
vacancies among the Independent Directors’ positions. No reduction in the number
of Directors shall cause the removal of any Director from office prior to the
expiration of his term, except as may otherwise be provided in the terms of any
Preferred Shares issued by the Company. For the purposes of voting for
Directors, each Share of stock may be voted for as many individuals as there are
Directors to be elected and for whose election the Share is entitled to be
voted. Cumulative voting for Directors is prohibited.
The names
of the Directors who shall serve on the Board until the first annual meeting of
the Stockholders and until their successors are duly elected and qualify,
subject to an increase in the number of Directors prior to the first annual
meeting of the Stockholders, are:
David
Lichtenstein
Jonathan
Gould
SECTION 6.2 EXPERIENCE.
Each
Director shall have at least three years of relevant experience demonstrating
the knowledge and experience required to successfully acquire and manage the
type of assets being acquired by the Company. At least one of the Independent
Directors shall have three years of relevant real estate experience, and at
least one of the Independent Directors shall be a financial expert with at least
three years of relevant finance experience.
SECTION 6.3 COMMITTEES.
Subject to the MGCL, the Board may establish such committees as it deems
appropriate, in its discretion, provided that the majority of the members of
each committee are Independent Directors. Any Audit Committee established by the
Board shall be composed solely of Independent Directors.
SECTION 6.4 TERM.
Each
Director shall hold office for one year, until the next annual meeting of
Stockholders and until his successor is duly elected and qualifies. Directors
may be elected to an unlimited number of successive terms.
SECTION 6.5 FIDUCIARY
OBLIGATIONS.
The Directors and the Advisor serve in a fiduciary capacity
to the Company and have a fiduciary duty to the Stockholders of the Company,
including, with respect to the Directors, a specific fiduciary duty to supervise
the relationship of the Company with the Advisor.
SECTION 6.6 RESIGNATION, REMOVAL OR
DEATH.
Any Director may resign by written notice to the Board, effective
upon execution and delivery to the Company of such written notice or upon any
future date specified in the notice. A Director may be removed from office with
or without cause only at a meeting of the Stockholders called for that purpose,
by the affirmative vote of the holders of not less than a majority of the Shares
then outstanding and entitled to vote generally in the election of directors,
subject to the rights of any Preferred Shares to vote for such Directors. The
notice of such meeting shall indicate that the purpose, or one of the purposes,
of such meeting is to determine if a Director should be removed.
ARTICLE
VII
POWERS
OF THE BOARD OF DIRECTORS
SECTION 7.1 GENERAL.
The
business and affairs of the Company shall be managed under the direction of the
Board, and the Board shall have full, exclusive and absolute power, control and
authority over the Company’s assets and over the business of the Company as if
it, in its own right, was the sole owner thereof, except as otherwise limited by
the Charter. In accordance with the policies on investments and borrowing set
forth in this Article VII and Article IX hereof, the Board shall monitor the
administrative procedures, investment operations and performance of the Company
and the Advisor to assure that such policies are carried out. The Board may take
any action that, in its sole judgment and discretion, is necessary or desirable
to conduct the business of the Company.
At or
before the first meeting of the Board, the Charter shall be reviewed and
ratified by a majority of the Directors and of the Independent Directors. The
Charter shall be construed with a presumption in favor of the grant of power and
authority to the Board. Any construction of the Charter or determination made in
good faith by the Board concerning its powers and authority hereunder shall be
conclusive. The enumeration and definition of particular powers of the Board
included in this Article VII shall in no way be limited or restricted by
reference to or inference from the terms of this or any other provision of the
Charter or construed or deemed by inference or otherwise in any manner to
exclude or limit the powers conferred upon the Board under the general laws of
the State of Maryland as now or hereafter in force.
SECTION 7.2 AUTHORIZATION BY BOARD OF
STOCK ISSUANCE.
The Board may authorize the issuance from time to time of
Shares of any class or series, whether now or hereafter authorized, or
securities or rights convertible into Shares of any class or series, whether now
or hereafter authorized, for such consideration as the Board may deem advisable
(or without consideration in the case of a stock split or stock dividend),
subject to such restrictions or limitations, if any, as may be set forth in the
Charter or the Bylaws.
SECTION 7.3 FINANCINGS.
The
Board shall have the power and authority to borrow or, in any other manner,
raise money for the purposes and on the terms it determines, which terms may (i)
include evidencing the same by issuance of Securities of the Company and (ii)
have such provisions as the Board may determine (a) to reacquire such
Securities; (b) to enter into other contracts or obligations on behalf of the
Company; (c) to guarantee, indemnify or act as surety with respect to payment or
performance of obligations of any Person and (d) to mortgage, pledge, assign,
grant security interests in or otherwise encumber the Company’s assets to secure
any such Securities of the Company, contracts or obligations (including
guarantees, indemnifications and suretyships); and to renew, modify, release,
compromise, extend, consolidate or cancel, in whole or in part, any obligation
to or of the Company or participate in any reorganization of obligors to the
Company.
SECTION 7.4 REIT
QUALIFICATION.
If the Company elects to qualify for federal income tax
treatment as a REIT, the Board shall use its reasonable best efforts to take
such actions as are necessary or appropriate to preserve the status of the
Company as a REIT; however, if the Board determines that it is no longer in the
best interests of the Company to continue to be qualified as a REIT, the Board
may revoke or otherwise terminate the Company’s REIT election pursuant to
Section 856(g) of the Code. The Board also may determine that compliance with
any restriction or limitation on stock ownership and transfers set forth in
Section 5.9 of Article V is no longer required for REIT
qualification.
SECTION 7.5 DETERMINATIONS BY
BOARD.
The determination as to any of the following matters, made in good
faith by or pursuant to the direction of the Board consistent with the Charter,
shall be final and conclusive and shall be binding upon the Company and every
holder of Shares: the amount of the net income of the Company for any period and
the amount of assets at any time legally available for the payment of dividends,
redemption of Shares or the payment of other distributions on Shares; the amount
of paid in surplus, net assets, other surplus, annual or other cash flow, funds
from operations, net profit, net assets in excess of capital, undivided profits
or excess of profits over losses on sales of assets; the amount, purpose, time
of creation, increase or decrease, alteration or cancellation of any reserves or
charges and the propriety thereof (whether or not any obligation or liability
for which such reserves or charges shall have been created shall have been paid
or
discharged);
any interpretation of the terms, preferences, conversion or other rights, voting
powers or rights, restrictions, limitations as to dividends or distributions,
qualifications or terms or conditions of redemption of any class or series of
Shares; the fair value, or any sale, bid or asked price to be applied in
determining the fair value, of any asset owned or held by the Company or of any
Shares; the number of Shares of any class of the Company; any matter relating to
the acquisition, holding and disposition of any assets by the Company; or any
other matter relating to the business and affairs of the Company or required or
permitted by applicable law, the Charter or Bylaws or otherwise to be determined
by the Board.
SECTION 7.6 STOCKHOLDER CONCURRENCE
REQUIRED.
Notwithstanding the foregoing, without concurrence of a
majority of the outstanding Shares, the Board may not (i) amend these Articles
of Amendment and Restatement, except for amendments that do not adversely affect
the rights, preferences and privileges of Stockholders (including amendments to
provisions relating to Director qualifications, fiduciary duty, liability and
indemnification, conflicts of interest, investment policies or investment
restrictions), (ii) sell all or substantially all of the Company’s assets other
than in the ordinary course of the Company’s business or in connection with
liquidation and dissolution, (iii) cause the merger or other reorganization of
the Company or (iv) dissolve or liquidate the Company, other than before
the Company’s initial investment in property.
SECTION 7.7 VOTE OF MAJORITY OF
INDEPENDENT DIRECTORS REQUIRED.
Notwithstanding the foregoing, the
Directors and Independent Directors are bound by, and a majority of the
Independent Directors must approve matters relating to, the following
restrictions on and obligations of the Directors and the Independent Directors:
(i) the requirement that a majority of Directors and of Independent Directors
review and ratify the Charter at or before the first meeting of the Board; (ii)
the duty of the Board to establish written policies on investments and borrowing
and to monitor the administrative procedures, investment operations and
performance of the Company and the Advisor to assure that such policies are
carried out; (iii) the Company’s minimum capitalization; (iv) the Advisory
Agreement; (v) liability and indemnification; (vi) reasonableness of the
Company’s fees and expenses; (vii) limitations on Organization and Offering
Expenses; (viii) limitations on Acquisition Fees and Acquisition Expenses;
(viii) limitations on Total Operating Expenses; (ix) limitations on Real Estate
commissions on resale of property; (x) limitations on incentive fees; (xi)
Advisor compensation; (xii) the Independent Directors’ periodic duty to review
the Company’s investment policies; (xiii) the authority of a majority of
the Independent Directors to select an Independent Appraiser to determine the
fair market value that the Company pays for Real Estate that it acquires both
(a) when a majority of the Independent Directors determine to appoint an
Independent Appraiser to determine fair market value in connection with any
acquisition by the Company and (b) whenever the Company acquires property from
the Advisor, Directors, the Sponsor or their Affiliates; (xiv) the restrictions
and procedures contained herein relating to meetings of Stockholders; (xv) the
authority of a majority of Stockholders present in person or by proxy at an
annual meeting at which a quorum is present, without the necessity for
concurrence by the Board, to vote to elect the Directors; (xvi) those
requirements of any Reinvestment Plan that the Board establishes, contained
herein, relating to periodic distribution of certain material information to
Stockholders and opportunity for participating Stockholders to withdraw; and
(xvii) the requirement that a majority of Independent Directors must approve
matters relating to the duties and restrictions enumerated in this Section
7.7.
ARTICLE
VIII
ADVISOR
SECTION 8.1 APPOINTMENT AND INITIAL
INVESTMENT OF ADVISOR.
The Board is responsible for setting the general
policies of the Company and for the general supervision of its business
conducted by officers, agents, employees, advisors or independent contractors of
the Company. However, the Board is not required personally to conduct the
business of the Company, and it may (but need not) appoint, employ or contract
with any Person (including a Person Affiliated with any Director) as an Advisor
and may
grant or
delegate such authority to the Advisor as the Board may, in its sole discretion,
deem necessary or desirable. The term of retention of any Advisor shall not
exceed one (1) year, although there is no limit to the number of times that a
particular Advisor may be retained. The Advisor or its Affiliates have made an
initial investment of $200,000 in the Company. The Advisor or any such Affiliate
may not sell this initial investment while the Advisor remains a Sponsor but may
transfer the initial investment to other Affiliates.
SECTION 8.2 SUPERVISION OF
ADVISOR.
The Board shall evaluate the performance of the Advisor before
entering into or renewing an Advisory Agreement, and the criteria used in such
evaluation shall be reflected in the minutes of the meetings of the Board. The
Board may exercise broad discretion in allowing the Advisor to administer and
regulate the operations of the Company, to act as agent for the Company, to
execute documents on behalf of the Company and to make executive decisions that
conform to general policies and principles established by the Board. The Board
shall monitor the Advisor to assure that the administrative procedures,
operations and programs of the Company are in the best interests of the
Stockholders and are fulfilled. The Independent Directors are responsible for
reviewing the fees and expenses of the Company at least annually or with
sufficient frequency to determine that the expenses incurred are reasonable in
light of the investment performance of the Company, its Net Assets, its Net
Income and the fees and expenses of other comparable unaffiliated REITs. Each
such determination shall be reflected in the minutes of the meetings of the
Board. In addition, from time to time, but not less often than annually, a
majority of the Independent Directors and a majority of Directors not otherwise
interested in the transaction must approve each transaction with the Advisor or
its Affiliates. The Independent Directors also will be responsible for
reviewing, from time to time and at least annually, the performance of the
Advisor and determining that compensation to be paid to the Advisor is
reasonable in relation to the nature and quality of services performed and the
investment performance of the Company and that the provisions of the Advisory
Agreement are being carried out. Specifically, the Independent Directors will
consider factors such as (i) the amount of the fee paid to the Advisor in
relation to the size, composition and performance of the Assets, (ii) the
success of the Advisor in generating opportunities that meet the investment
objectives of the Company, (iii) rates charged to other REITs and to investors
other than REITs by advisors performing the same or similar services, (iv)
additional revenues realized by the Advisor and its Affiliates through their
relationship with the Company, including loan administration, underwriting or
broker commissions, servicing, engineering, inspection and other fees, whether
paid by the Company or by others with whom the Company does business, (v) the
quality and extent of service and advice furnished by the Advisor, (vi) the
performance of the Assets, including income, conservation or appreciation of
capital, frequency of problem investments and competence in dealing with
distress situations, and (vii) the quality of the Assets relative to the
investments generated by the Advisor for its own account. The Independent
Directors may also consider all other factors that it deems relevant, and the
findings of the Independent Directors on each of the factors considered shall be
recorded in the minutes of the Board. The Board shall determine whether any
successor Advisor possesses sufficient qualifications to perform the advisory
function for the Company and whether the compensation provided for in its
contract with the Company is justified.
SECTION 8.3 FIDUCIARY
OBLIGATIONS.
The Advisor shall have a fiduciary responsibility and duty
to the Company and to the Stockholders.
SECTION 8.4 AFFILIATION AND
FUNCTIONS.
The Board, by resolution or in the Bylaws, may provide
guidelines, provisions or requirements concerning the affiliation and functions
of the Advisor.
SECTION 8.5 TERMINATION.
Either a majority of the Independent Directors or the Advisor may
terminate the Advisory Agreement on sixty (60) days’ written notice without
cause or penalty, and, in such event, the Advisor will cooperate with the
Company and the Board in making an orderly transition of the advisory
function.
SECTION 8.6 DISPOSITION FEE ON SALE
OF PROPERTY.
The Company may pay the Advisor a real estate disposition
fee upon Sale of one or more Properties, in an amount equal to the lesser of (i)
one-half (1/2) of the brokerage commission paid, or (ii) three percent (3%) of
the sales price of such Property or
Properties.
Payment of such fee may be made only if the Advisor provides a substantial
amount of services in connection with the Sale of a Property or Properties, as
determined by a majority of the Independent Directors. In addition, the amount
paid when added to all other real estate commissions paid to unaffiliated
parties in connection with such Sale shall not exceed the lesser of the
Competitive Real Estate Commission or an amount equal to 6% of the sales price
of such Property or Properties.
SECTION 8.7 INCENTIVE FEES.
The Company may pay the Advisor an interest in the gain from the Sale of Assets,
for which full consideration is not paid in cash or property of equivalent
value, provided the amount or percentage of such interest is reasonable. Such an
interest in gain from the Sale of Assets shall be considered presumptively
reasonable if it does not exceed 15% of the balance of such net proceeds
remaining after payment to Stockholders, in the aggregate, of an amount equal to
100% of the Invested Capital, plus an amount equal to 6% of the original issue
price of Shares per annum cumulative. The original issue price may be reduced by
the portion of any Distribution that is attributable to Net Sales Proceeds. In
the case of multiple Advisors, such Advisor and any of their Affiliates shall be
allowed such fees provided such fees are distributed by a proportional method
reasonably designed to reflect the value added to the Company assets by each
respective Advisor or any Affiliate.
SECTION 8.8 ORGANIZATION AND OFFERING
EXPENSES LIMITATION.
The Company shall reimburse the Advisor and its
Affiliates for Organization and Offering Expenses incurred by the Advisor or its
Affiliates up to 10% of the Gross Proceeds of all offerings; provided, however,
that the total amount of all Organization and Offering Expenses shall be
reasonable and shall in no event exceed 15% of the Gross Proceeds of each
Offering.
SECTION 8.9 ACQUISITION FEES.
The Company may pay the Advisor and its Affiliates fees for the review and
evaluation of potential investments in Assets; provided, however, that the total
of all Acquisition Fees and Acquisition Expenses be reasonable, and shall not
exceed an amount equal to 6% of the Contract Purchase Price, or, in the case of
a Mortgage, 6% of the funds advanced; provided, however, that a majority of the
Directors (including a majority of the Independent Directors) not otherwise
interested in the transaction may approve fees and expenses in excess of this
limit if they determine the transaction to be commercially competitive, fair and
reasonable to the Company
SECTION 8.10 ASSET MANAGEMENT
FEE.
The Company may pay the Advisor and its Affiliates quarterly fees
for the Advisor’s management of the Company’s Assets; provided, however, that
the total of all such asset management fees shall not exceed 0.1375% of the
average, at the end of each calendar month during the calendar quarter in
respect of which such asset management fee is being calculated, of the aggregate
book value of the Company’s Assets invested in equity interests and loans
secured by real estate, before reserves for depreciation or bad debt or other
similar non-cash reserves.
SECTION 8.11 TERMINATION OF
ADVISOR.
If the Advisory Agreement is terminated, the special general
partnership interests will be converted into cash equal to the aggregate amount
of cash contributed by Lightstone SLP, LLC for the special general partnership
interests.
SECTION 8.12 REIMBURSEMENT FOR TOTAL
OPERATING EXPENSES.
The Company may reimburse the Advisor, at the end of
each fiscal quarter, for Total Operating Expenses incurred by the Advisor;
provided, however, that the Company shall not reimburse the Advisor at the end
of any fiscal quarter for Total Operating Expenses that, in the four consecutive
fiscal quarters then ended, exceed the greater of 2% of Average Invested Assets
or 25% of Net Income (the “
2%/25% Guidelines
”) for such
year. The Independent Directors shall have the responsibility of limiting Total
Operating Expenses to amounts that do not exceed the 2%/25% Guidelines unless
they have made a finding that, based on such unusual and non-recurring factors
that they deem sufficient, a higher level of expenses (an “Excess Amount”) is
justified. Within 60 days after the end of any fiscal quarter of the Company for
which there is an Excess Amount there shall be sent to the Stockholders a
written
disclosure
of such fact, together with, if the Independent Directors determine that the
Excess Amount is justified, an explanation of the factors the Independent
Directors considered in determining that such Excess Amount was justified. Any
such finding and the reasons in support thereof shall be reflected in the
minutes of the meetings of the Board. In the event that the Independent
Directors do not determine that excess expenses are justified, the Advisor,
within 60 days after the end of such fiscal quarter, shall reimburse the Company
the amount by which the expenses exceeded the 2%/25% Guidelines.
SECTION 8.13 REIMBURSEMENT
LIMITATION.
The Company shall not reimburse the Advisor or its Affiliates
for services for which the Advisor or its Affiliates are entitled to
compensation in the form of a separate fee.
SECTION 8.14 LIMITATIONS ON
COMPENSATION.
In no event will the Acquisition Fees, Acquisition Expenses
and Asset Management Fee paid to the Advisor, plus the subordinated payments
payable by the Operating Partnership to the Sponsor (“Program Structure”) exceed
the sum of (i) an amount equal to 6 percent of the gross Contract Purchase Price
of all Properties acquired by the Company; (ii) an amount determined annually
(“Asset Management Amount”) equal in the aggregate to the greater of 2 percent
of the Average Invested Assets or 25 percent of the Net Income of the Company
after reducing such Asset Management Amount by those Total Operating Expenses as
defined in the Guidelines that exclude the asset management amount; (iii) an
amount equal to the Disposition Fees, if any, but not to exceed 3 percent of the
contract sales price of all Properties sold by the Company; and (iv) an amount
equal to 15 percent of the Net Sales Proceeds, if any, remaining after the
payment to the shareholders in the aggregate of an amount equal to 100 percent
of the original issue price of their Shares plus an amount equal to 6 percent of
the original issue price of the Company’s Shares per annum, cumulative
(“Guideline Structure”).
For
purposes of determining compliance with this undertaking, the comparison between
the Program Structure and the Guideline Structure shall be determined on an
annual basis at the end of each fiscal year of the Company (“Comparison Date”).
To the extent that at the Comparison Date the Program Structure amount exceeds
the Guideline Structure amount, the Sponsor shall return such excess to the
shareholders within 30 days after the Comparison Date.
ARTICLE
IX
INVESTMENT
OBJECTIVES AND LIMITATIONS
SECTION 9.1 REVIEW OF
OBJECTIVES.
The Independent Directors shall review the investment
policies of the Company with sufficient frequency (not less often than annually)
to determine that the policies being followed by the Company are in the best
interests of its Stockholders. Each such determination and the basis therefor
shall be set forth in the minutes of the meetings of the Board.
SECTION
9.2 CERTAIN PERMITTED INVESTMENTS.
(i) The
Company may invest in Assets, as defined in Article IV hereof.
(ii) The
Company may invest in Joint Ventures with the Sponsor, Advisor, one or more
Directors or any of their Affiliates, only if a majority of Directors (including
a majority of Independent Directors) not otherwise interested in the
transaction, approve such investment as being fair and reasonable to the Company
and on substantially the same terms and conditions as those received by the
other joint venturers.
(iii)
Subject to any limitations in Section 9.3, the Company may invest in equity
securities only if a majority of Directors (including a majority of Independent
Directors) not otherwise interested in the transaction approve such investment
as being fair, competitive and commercially reasonable.
SECTION 9.3 INVESTMENT
LIMITATIONS.
In addition to other investment restrictions imposed by the
Board from time to time, consistent with the Company’s objective of qualifying
as a REIT, the following shall apply to the Company’s investments:
(i) Not
more than 10% of the Company’s total assets shall be invested in Unimproved Real
Property or mortgage loans on Unimproved Real Property.
(ii) The
Company shall not invest in commodities or commodity future contracts. This
limitation is not intended to apply to futures contracts, when used solely for
hedging purposes in connection with the Company’s ordinary business of investing
in real estate assets and mortgages.
(iii)
Except for Mortgages insured or guaranteed by a government or government agency,
the Company shall not invest in or make any Mortgage unless an appraisal is
obtained concerning the underlying property. Mortgage indebtedness on any
property shall not exceed the appraised value of the property. In cases in which
a majority of Independent Directors so determine, and in all cases in which the
transaction is with the Advisor, Sponsor, or any Affiliates thereof, such
appraisal of the underlying property must be obtained from an Independent
Appraiser. Such appraisal shall be maintained in the Company’s records for at
least five (5) years and shall be available for inspection and duplication by
any Stockholder. In addition to the appraisal, a mortgagee’s or owner’s title
insurance policy or commitment as to the priority of the mortgage or condition
of the title must be obtained.
(iv) The
Company shall not make or invest in any Mortgage, including a construction loan,
on any one property if the aggregate amount of all mortgage loans outstanding on
the property, including the loans of the Company, would exceed an amount equal
to 85% of the appraised value of the property as determined by appraisal unless
substantial justification exists because of the presence of other underwriting
criteria and the loans would not exceed the appraised value of the property. For
purposes of this subsection, the “aggregate amount of all mortgage loans
outstanding on the property, including the loans of the Company” shall include
all interest (excluding contingent participation in income and/or appreciation
in value of the mortgaged property), the current payment of which may be
deferred pursuant to the terms of such loans, to the extent that deferred
interest on each loan exceeds five percent per annum of the principal balance of
the loan.
(v) The
Company shall not invest in indebtedness secured by a mortgage on real property
which is subordinate to any mortgage or equity interest of the Advisor, the
Sponsor or their Affiliates.
(vi) The
Company shall not issue (A) equity Securities redeemable solely at the option of
the holder (except that Stockholders may offer their Common Shares to the
Company pursuant to any redemption plan adopted by the Board on terms outlined
in the Prospectus relating to any Offering, as such plan is thereafter amended
in accordance with its terms); (B) debt Securities unless the historical debt
service coverage (in the most recently completed fiscal year) as adjusted for
known changes is sufficient to properly service that higher level of debt; (C)
equity Securities on a deferred payment basis or under similar arrangements; or
(D) options or warrants to purchase Shares to the Advisor, Directors, Sponsor or
any Affiliate thereof except on at least the same terms as Shares are sold to
the general public. Options or warrants may be issued to persons other than the
Advisor, Directors, Sponsor or any Affiliate thereof, but not at exercise prices
less than the fair market value of the underlying Securities on the date of
grant and not for consideration (which may include services) that in the
judgment of the Independent Directors has a market value less than the value of
such option or warrant on the date of grant. Options or warrants issuable to the
Advisor, Directors, Sponsor or any Affiliate thereof shall not exceed ten
percent of the outstanding Shares on the date of grant. The voting rights per
share of Shares of the Company (other than the publicly held Shares of the
Company) sold in a private offering shall not exceed the voting rights which
bear the same relationship to the voting rights of the publicly held Shares as
the consideration paid to the Company for each privately offered Share of the
Company bears to the book value of each outstanding publicly held
Share.
(vii) A
majority of the Directors shall authorize the consideration to be paid for each
Asset, ordinarily based on the fair market value of the Asset. If a majority of
the Independent Directors determines, or if the Asset is acquired from the
Advisor, a Director, the Sponsor or their Affiliates, such fair market value
shall be determined
by a
qualified Independent Appraiser selected by the Independent Directors. The
Advisor may purchase an Asset on behalf of the Company without seeking the prior
written consent of the Board if and to the extent that:
(a) The
aggregate purchase price of such Asset is less than $15,000,000;
(b) The
acquisition of such Asset would not, if consummated, violate or conflict with
the investment guidelines of the Company as set forth in the Company’s
Prospectus as filed with the Securities and Exchange Commission;
(c) The
acquisition of such Asset would not, if consummated, violate the limitations on
Leverage contained in Section 9.3(viii) below; and
(d) The
consideration to be paid for such Asset does not exceed the fair market value of
such Asset, as determined by a qualified independent real estate appraiser
selected in good faith by the Advisor and acceptable to the Independent
Directors.
(viii)
The aggregate Leverage of the Company shall be reasonable in relation to the Net
Assets of the Company and shall be reviewed by the Board at least quarterly.
Subject to the immediately following sentence, the maximum amount of such
Leverage shall not exceed seventy-five percent (75%) of the aggregate fair
market value of the Company’s assets as of the date of any borrowing, provided,
that Leverage on any individual Asset may exceed such limit. Any excess in
borrowing over such 75% level shall be approved by a majority of the Independent
Directors and disclosed to Stockholders in the next quarterly report of the
Company, along with justification for such excess.
(ix) The
Company will continually review its investment activity to attempt to ensure
that it is not classified as an “investment company” under the Investment
Company Act of 1940, as amended.
(x) The
Company will not make any investment that the Company believes will be
inconsistent with its objectives of qualifying and remaining qualified as a REIT
unless and until the Board determines, in its sole discretion, that REIT
qualification is not in the best interests of the Company.
(xi) The
Company shall not invest in real estate contracts of sale unless such contracts
are in recordable form and appropriately recorded in the chain of
title.
(xii) The
Company will not, directly or indirectly, including through any subsidiary,
extend or maintain credit, arrange for the extension of credit, or renew an
extension of credit, in the form of a personal loan to or for any of the
Company’s directors or executive officers.
(xiii)
The Company will not invest in any equity securities unless a majority of
disinterested directors, including a majority of disinterested independent
directors, approves the transaction as being fair, competitive and commercially
reasonable. Investments in entities affiliated with the Advisor, the Sponsor,
any director, or any of their Affiliates shall be subject to the restrictions on
joint venture investments set forth in Section 9.2(ii) of the
charter.
(xiv) The
Company shall not engage in any short sale.
(xv) The
consideration for any investment by the Company in properties must be approved
by a majority of the directors, including a majority of the independent
directors, based on the fair market value of the properties. If determined by a
majority of the independent directors, the fair market value will be determined
by a qualified independent real estate appraiser selected by the independent
directors. The acquisition of any property from the Sponsor, the Advisor, any
director, or any of their Affiliates shall be subject to the provisions on
transactions with Affiliates set forth in Section 12.6 of the
Charter.
(xvi) The
Company shall not invest in debt secured by a mortgage on real property that is
subordinate to the lien of other debt, except where the total amount of all such
debt, including the investment by the Company, does not exceed 90% of the
appraised value of the property. The value of all such investments shall not
exceed 25% of the Company’s tangible assets.
(xvii)
The Company shall not engage in trading, as opposed to investment
activities.
(xviii)
The Company shall not engage in underwriting activities or distribute, as agent,
securities issued by others.
(xix) The
Company shall not invest in foreign currency or bullion.
(xx) The
aggregate amount of borrowing shall not exceed 300% of the Company’s and the
Operating Partnership’s net assets as of the date of the borrowing unless the
excess is approved by a majority of the Independent Directors and disclosed to
the stockholders in the Company’s next quarterly report to stockholders
following such borrowing along with justification for such excess.
The
Company shall not acquire securities in any entity holding investments or
engaging in activities prohibited by the restrictions on investments set forth
in the foregoing clauses (i) through (xix) of this
Section 9.3.
ARTICLE
X
CONFLICTS
OF INTEREST
SECTION 10.1 SALES AND LEASES TO
COMPANY.
The Company may purchase or lease an Asset or Assets from the
Sponsor, the Advisor, a Director, or any Affiliate thereof only upon a finding
by a majority of Directors (including a majority of Independent Directors) not
otherwise interested in the transaction (i) that such transaction is fair and
reasonable to the Company and (ii) that such transaction is at a price to the
Company no greater than the cost of the Asset to such Sponsor, Advisor, Director
or Affiliate, or, if the price to the Company is in excess of such cost,
substantial justification exists for the excess and the price is no greater than
appraised value, that the Affiliate has taken significant action or made an
additional investment after purchase which has increased the value of the
property.
SECTION 10.2 SALES AND LEASES TO THE
SPONSOR, ADVISOR, DIRECTORS OR AFFILIATES.
An Advisor, Sponsor, Director
or Affiliate thereof may only purchase or lease Assets from the Company if a
majority of Directors (including a majority of Independent Directors) not
otherwise interested in the transaction determine that the transaction is fair
and reasonable to the Company.
SECTION
10.3 OTHER TRANSACTIONS.
(i)
Except pursuant to the Advisory Agreement or the Management Agreement, no goods
or services will be provided by the Advisor or its Affiliates to the Company
unless a majority of the Directors (including a majority of the Independent
Directors) not otherwise interested in such transaction approve such transaction
as fair and reasonable to the Company and on terms and conditions not less
favorable to the Company than those available from unaffiliated third
parties.
(ii) The
Company shall not make loans to the Sponsor, Advisor, or any Affiliates thereof
except Mortgages pursuant to Section 9.3(iii) hereof or loans to wholly owned
subsidiaries of the Company. The Sponsor, Advisor, Directors and any Affiliates
thereof shall not make loans to the Company, or to joint ventures in which the
Company is a co-venturer, unless approved by a majority of the Directors
(including a majority of the Independent Directors) not otherwise interested in
such transaction as fair, competitive, and commercially reasonable, and no less
favorable to the Company than comparable loans between unaffiliated
parties.
SECTION
10.4 CONFLICT RESOLUTION PROCEDURES.
(i)
Before the Advisor may take advantage of an investment opportunity for its own
account or recommend it to others, the Advisor is obligated to present such
opportunity to the Company if (i) such opportunity is compatible with the
Company’s investment objectives and policies, (ii) such opportunity is of a
character which could be taken by the Company, and (iii) the Company has the
financial resources to take advantage of such opportunity. In addition, the
Advisor and its Affiliates may not make any investment in industrial facilities,
retail space, office buildings, or residential apartment communities where the
investment objective is substantially
similar
to the Company’s investment objectives, nor recommend such investment
opportunity to others, until such time as 75% of the Gross Proceeds have been
invested or committed for investment.
(ii) In
the event that an investment opportunity becomes available that is suitable for
both the Company and a public or private entity with which the Advisor or its
Affiliates are affiliated for which both entities have sufficient uninvested
funds, and the requirements of Section 10.4(i) above have been satisfied, then
the entity that has had the longest period of time elapse since it was offered
an investment opportunity will first be offered the investment opportunity. An
investment opportunity will not be considered suitable for an entity if the
2%/25% Guidelines could not be satisfied if the entity were to make the
investment. In determining whether or not an investment opportunity is suitable
for more than one entity, the Board and the Advisor will examine such factors,
among others, as the cash requirements of each entity, the effect of the
acquisition both on diversification of each entity’s investments by type of
property and geographic area and on diversification of the tenants of its
properties, the policy of each entity relating to leverage of properties, the
anticipated cash flow of each entity, the income tax effects of the purchase to
each entity, the size of the investment and the amount of funds available to
each program and the length of time such funds have been available for
investment. If a subsequent development, such as a delay in the closing of the
acquisition of such investment or a delay in the construction of a property,
causes any such investment, in the opinion of the Board and the Advisor, to be
more appropriate for an entity other than the entity that committed to make the
investment, the Advisor may determine that the other entity affiliated with the
Advisors or its Affiliates will make the investment. It shall be the duty of the
Board, including the Independent Directors, to ensure that the method used by
the Advisor for the allocation of the acquisition of investments by two or more
affiliated programs seeking to acquire similar types of Assets is applied fairly
to the Company.
ARTICLE
XI
STOCKHOLDERS
SECTION 11.1 MEETINGS OF
STOCKHOLDERS.
There shall be an annual meeting of the Stockholders, to be
held at such time and place as shall be determined by or in the manner
prescribed in the Bylaws, at which the Directors shall be elected and any other
proper business may be conducted. The Directors, including the Independent
Directors, shall be required to take reasonable steps to insure that this
requirement is met. The annual meeting will be held on a date that is a
reasonable period of time following the distribution of the Company’s annual
report to Stockholders but not less than thirty (30) days after delivery of such
report. A majority of Stockholders present in person or by proxy at an annual
meeting at which a quorum is present may, without the necessity for concurrence
by the Board, vote to elect the Directors. A quorum shall be half of the then
outstanding Shares. Special meetings of Stockholders may be called in the manner
provided in the Bylaws, including by the president or by a majority of the
Directors or a majority of the Independent Directors, and shall be called by an
officer of the Company upon written request of Stockholders holding in the
aggregate not less than ten percent of the outstanding Shares entitled to be
voted on any issue proposed to be considered at any such special meeting. Notice
of any special meeting of Stockholders shall be given as provided in the Bylaws,
and the special meeting shall be held not less than 15 days nor more than 60
days after the delivery of such notice. If the meeting is called by written
request of Stockholders as described in this Section 11.1, the special meeting
shall be held at the time and place specified in the Stockholder request;
provided, however, that if none is so specified, at such time and place
convenient to the Stockholders. If there are no Directors, the officers of the
Company shall promptly call a special meeting of the Stockholders entitled to
vote for the election of successor Directors. Any meeting may be adjourned and
reconvened as the Board may determine or as otherwise provided in the
Bylaws.
SECTION 11.2 VOTING RIGHTS OF
STOCKHOLDERS.
A majority of the then outstanding Shares may, without any
necessity of concurrence of the Board, vote to (i) amend the Charter, (ii)
dissolve the Company and (iii) remove Directors. Pursuant to the provisions of
any class or series of Shares then outstanding, the Stockholders shall be
entitled to vote only on the following matters: (a) election or removal of
Directors, without the necessity for concurrence by the Board, as provided in
Sections 11.1, 6.4 and 6.6 hereof; (b) amendment of
the
Charter, as provided in Article XIII hereof; (c) dissolution or liquidation of
the Company; (d) merger or consolidation of the Company or sale or other
disposition of all or substantially all of the Company’s assets; and (e) such
other matters with respect to which the Board has adopted a resolution declaring
that a proposed action is advisable and directing that the matter be submitted
to the Stockholders for approval or ratification.
SECTION 11.3 EXTRAORDINARY
ACTIONS.
Notwithstanding any provision of law permitting or requiring any
action to be taken or approved by the affirmative vote of the holders of Shares
entitled to cast a greater number of votes, any such action shall be effective
and valid if declared advisable by the Board and taken or approved by the
affirmative vote of holders of Shares entitled to cast a majority of all the
votes entitled to be cast on the matter.
SECTION 11.4 VOTING LIMITATIONS ON
SHARES HELD BY THE ADVISOR, DIRECTORS AND AFFILIATES.
With respect to
Shares owned by the Advisor, any Director, or any of their Affiliates, neither
the Advisor, nor such Director(s), nor any of their Affiliates may vote or
consent on matters submitted to the Stockholders regarding the removal of the
Advisor, such Director(s) or any of their Affiliates or any transaction between
the Company and any of them. In determining the requisite percentage in interest
of Shares necessary to approve a matter on which the Advisor, such Director(s)
and any of their Affiliates may not vote or consent, any Shares owned by any of
them shall not be included.
SECTION 11.5 RIGHT OF
INSPECTION.
Any Stockholder and any designated representative thereof
shall be permitted access to all of the records of the Company at all reasonable
times, and may inspect and copy any of them for a reasonable charge. Inspection
of the Company books and records by the office or agency administering the
securities laws of a jurisdiction shall be provided upon reasonable notice and
during normal business hours.
SECTION 11.4 ACCESS TO STOCKHOLDER
LIST.
An alphabetical list of the names, addresses and telephone numbers
of the Stockholders of the Company, along with the number of Shares held by each
of them (the “Stockholder List”), shall be maintained as part of the books and
records of the Company and shall be available for inspection by any Stockholder
or the Stockholder’s designated agent at the home office of the Company upon the
request of the Stockholder. The Stockholder List shall be updated at least
quarterly to reflect changes in the information contained therein. A copy of
such list shall be mailed to any Stockholder so requesting within ten days of
receipt by the Company of the request. The copy of the Stockholder List shall be
printed in alphabetical order, on white paper, and in a readily readable type
size (in no event smaller than 10-point type). The Company may impose a
reasonable charge for expenses incurred in reproduction pursuant to the
Stockholder request. A Stockholder may request a copy of the Stockholder List in
connection with matters relating to Stockholders’ voting rights, and the
exercise of Stockholder rights under federal proxy laws.
If the
Advisor or the Board neglects or refuses to exhibit, produce or mail a copy of
the Stockholder List as requested, the Advisor and/or the Board, as the case may
be, shall be liable to any Stockholder requesting the list for the costs,
including reasonable attorneys’ fees, incurred by that Stockholder for
compelling the production of the Stockholder List, and for actual damages
suffered by any Stockholder by reason of such refusal or neglect. It shall be a
defense that the actual purpose and reason for the requests for inspection or
for a copy of the Stockholder List is to secure such list of Stockholders or
other information for the purpose of selling such list or copies thereof, or of
using the same for a commercial purpose other than in the interest of the
applicant as a Stockholder relative to the affairs of the Company. The Company
may require the Stockholder requesting the Stockholder List to represent that
the list is not requested for a commercial purpose unrelated to the
Stockholder’s interest in the Company. The remedies provided hereunder to
Stockholders requesting copies of the Stockholder List are in addition, to and
shall not in any way limit, other remedies available to Stockholders under
federal law, or the laws of any state.
SECTION 11.5 REPORTS.
The
Directors, including the Independent Directors, shall take reasonable steps to
insure that the Company shall cause to be prepared and mailed or delivered to
each Stockholder as of a record
date
after the end of the fiscal year and each holder of other publicly held
Securities within one hundred twenty (120) days after the end of the fiscal year
to which it relates an annual report for each fiscal year ending after the
Commencement of the Initial Public Offering that shall include: (i) financial
statements prepared in accordance with generally accepted accounting principles
which are audited and reported on by independent certified public accountants;
(ii) the ratio of the costs of raising capital during the period to the capital
raised; (iii) the aggregate amount of advisory fees and the aggregate amount of
other fees paid to the Advisor and any Affiliate of the Advisor by the Company
and including fees or charges paid to the Advisor and any Affiliate of the
Advisor by third parties doing business with the Company; (iv) the Total
Operating Expenses of the Company, stated as a percentage of Average Invested
Assets and as a percentage of its Net Income; (v) a report from the Independent
Directors that the policies being followed by the Company are in the best
interests of its Stockholders and the basis for such determination; and (vi)
separately stated, full disclosure of all material terms, factors and
circumstances surrounding any and all transactions involving the Company,
Directors, Advisors, Sponsors and any Affiliate thereof occurring in the year
for which the annual report is made, and the Independent Directors shall be
specifically charged with a duty to examine and comment in the report on the
fairness of such transactions.
ARTICLE
XII
LIABILITY
OF STOCKHOLDERS, DIRECTORS, ADVISORS AND AFFILIATES;
TRANSACTIONS
BETWEEN AFFILIATES AND THE COMPANY
SECTION 12.1 LIMITATION OF
STOCKHOLDER LIABILITY.
No Stockholder shall be liable for any debt,
claim, demand, judgment or obligation of any kind of, against or with respect to
the Company by reason of his being a Stockholder, nor shall any Stockholder be
subject to any personal liability whatsoever, in tort, contract or otherwise, to
any Person in connection with the Company’s assets or the affairs of the Company
by reason of being a Stockholder.
SECTION 12.2 LIMITATION OF DIRECTOR
AND OFFICER LIABILITY.
To the maximum extent that Maryland law in effect
from time to time permits limitation of the liability of directors and officers
of a corporation, no director or officer of the Company shall be liable to the
Company or its Stockholders for money damages. Neither the amendment nor repeal
of this Section 12.2, nor the adoption or amendment of any other provision of
the Charter or Bylaws inconsistent with this Section 12.2, shall apply to or
affect in any respect the applicability of the preceding sentence with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption.
SECTION
12.3 INDEMNIFICATION.
Subject
to the provisions of subparagraphs (a) (b) and (c) below), the Company shall
indemnify, and pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (i) any individual who is a present or former
director or officer of the Company, (ii) any individual who, while a director or
officer of the Company and at the request of the Company, serves or has served
as a director, officer, partner, or trustee of another corporation, real
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise, and (iii) the Advisor and its officers, directors and
Affiliates, (such persons and the Advisor and its officers, directors and
Affiliates being referred to herein as the “Indemnitee”) from and against any
claim or liability to which the Indemnitee may become subject or which the
Indemnitee may incur by reason of his, her or its service in such capacities.
The Company may, with the approval of the Board, provide such indemnification
and advance for expenses to a person who served a predecessor of the Company in
any of the capacities described in (a) or (b) above and to any employee or agent
of the Company or a predecessor of the Company or Lightstone Value Plus REIT
LLC.
(a) The
Company shall not indemnify Indemnitees for any liability loss suffered by the
Indemnitees, nor shall it hold harmless for any loss or liability suffered by
the Company, any Indemnitee, unless all of the following conditions are met: (i)
the Indemnitees determined, in good faith, that the course of conduct which
caused
the loss or liability was in the best interests of the Company, (ii) the
Indemnitee were acting on behalf of the Company or performing services for the
Company, (iii) such liability or loss or expense was not the result of
negligence or misconduct on the part of Indemnitees, excluding independent
Advisors, Affiliates or Independent Directors, and the liability, loss or
expense was not the result of gross negligence or willful misconduct by
Independent Directors and (iv) such indemnification or agreement to hold
harmless shall be recoverable only out of the net assets of the Company and not
from Stockholders.
(b)
Notwithstanding anything to the contrary in subsection (a), the Company shall
not indemnify Indemnitees or any persons acting as a broker-dealer for any
losses, liabilities or expenses arising from or out of an alleged violation of
federal or state securities laws by such party unless one or more of the
following conditions are met: (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular Indemnitee, (ii) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular Indemnitee
or (iii) a court of competent jurisdiction approves a settlement of the claims
against a particular Indemnitee and finds that indemnification of the settlement
and related costs should be made, and the court considering the matter has been
advised of the position of the Securities and Exchange Commission and the
published position of any state securities regulatory authority as to
indemnification for violations of securities law.
(c) The
Company will advance amounts to Indemnitees for legal expenses and other costs
incurred as a result of any legal action for which indemnification is being
sought is permissible only if all of the following conditions are satisfied: (i)
the legal action relates to acts or omissions with respect to the performance of
duties or services on behalf of the Company, (ii) the legal action is initiated
by a third party who is not a Stockholder or is initiated by a Stockholder
acting in his or her capacity as such and a court of competent jurisdiction
specifically approves the advancement and (iii) the Indemnitees undertake in
writing to repay the advanced funds to the Company, together with the applicable
legal rate of interest thereon, in cases in which such Indemnitees are found not
to be entitled to indemnification.
(d) The
Company may purchase and maintain insurance or provide similar protection on
behalf of any director, officer, employee, agent or the Advisor, or any of his,
her or its Affiliates, against any claim or liability asserted or incurred by
reason of or arising out of such status; provided, however, that the Company
shall not incur the cost of any liability insurance which insures any person
against any claim or liability for which he, she or it could not be indemnified
under the charter of the Company.
(e) The
Board may take such action as is necessary to carry out this Section 12.3 and is
expressly empowered to adopt, approve and amend from time to time Bylaws,
resolutions or contracts implementing such provisions. No amendment of the
Charter or repeal of any of its provisions shall limit or eliminate the right of
indemnification provided hereunder with respect to acts or omissions occurring
prior to such amendment or repeal.
SECTION 12.4 PAYMENT OF
EXPENSES.
Subject to the provisions of Section 12.3(c) of this Article
XII, the Company shall pay or reimburse reasonable legal expenses and other
costs incurred by an Indemnitee in advance of final disposition of a proceeding
upon receipt by the Company of (i) a written affirmation by the Indemnitee of
his, her or its good faith belief that the Indemnitee has met the standard of
conduct necessary for indemnification as authorized by Section 2-418 of the MGCL
and (ii) a written undertaking by or on behalf of the Indemnitee to repay the
amount paid or reimbursed by the Company if it is ultimately determined that the
standard of conduct has not been met. Any indemnification payment or
reimbursement of expenses will be furnished in accordance with the procedures in
Section 2-418(e) of the MGCL or any successor statute.
SECTION 12.5 EXPRESS EXCULPATORY
CLAUSES IN INSTRUMENTS.
Neither the Stockholders nor the Directors,
officers, employees or agents of the Company shall be liable under any written
instrument creating an obligation of the Company by reason of their being
Stockholders, Directors, officers, employees or agents of the Company, and all
Persons shall look solely to the Company’s assets for the payment of any claim
under or for the performance of that instrument. The omission of the foregoing
exculpatory language from any instrument shall not affect the validity or
enforceability of such instrument and shall not render any Stockholder,
Director,
officer, employee or agent liable thereunder to any third party, nor shall the
Directors or any officer, employee or agent of the Company be liable to anyone
as a result of such omission.
SECTION 12.6 TRANSACTIONS WITH
AFFILIATES.
Subject to the provisions of Article X of this Charter, the
Company shall not engage in transactions with the Advisor, the Sponsor, a
Director or any of their Affiliates, except to the extent that each such
transaction has, after disclosure of such affiliation, been approved or ratified
by the affirmative vote of a majority of the Directors (including a majority of
the Independent Directors) not Affiliated with the Person who is party to the
transaction as being fair and reasonable to the Company.
ARTICLE
XIII
AMENDMENTS
The
Company reserves the right from time to time to make any amendment to its
Charter, now or hereafter authorized by law, including any amendment altering
the terms or contract rights, as expressly set forth in the Charter, of any
outstanding Shares. All rights and powers conferred by the Charter on
Stockholders, Directors and officers are granted subject to this reservation.
Any amendment to the Charter shall be valid only if approved by the affirmative
vote of a majority of all votes entitled to be cast on the matter, including,
without limitation, (i) any amendment which would adversely affect the rights,
preferences and privileges of the Stockholders and (ii) any amendment to
Sections 6.2, 6.5 and 6.6 of Article VI, Article IX, Article X, Article XII,
Article XIV, Article XV and this Article XIII (or any other amendment of the
Charter that would have the effect of amending such provisions).
ARTICLE
XIV
ROLL-UP
TRANSACTIONS
(i) In
connection with any proposed Roll-Up Transaction, an appraisal of all of the
Company’s assets shall be obtained from a competent Independent Appraiser
substantially engaged in the business of rendering valuation opinions of assets
of the kind held by the Company. The Company’s assets shall be appraised on a
consistent basis, and the appraisal shall be based on the evaluation of all
relevant information and shall indicate the value of the assets as of a date
immediately prior to the announcement of the proposed Roll-Up Transaction. The
appraisal shall assume an orderly liquidation of the assets over a 12-month
period. The terms of the engagement of the Independent Appraiser shall clearly
state that the engagement is for the benefit of the Company and the
Stockholders. A summary of the appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to Stockholders in
connection with a proposed Roll-Up Transaction. If the appraisal is included in
a prospectus used to offer the securities of a Roll-Up Entity, the appraisal
shall be filed with the Securities Exchange Commission and applicable state
securities regulatory authorities as an exhibit to the registration statement
for the offering. In connection with a proposed Roll-Up Transaction, the person
sponsoring the Roll-Up Transaction shall offer to Stockholders who vote against
the proposed Roll-Up Transaction the choice of:
(a)
accepting the securities of a Roll-Up Entity offered in the proposed Roll-Up
Transaction; or
(b) one
of the following:
(I)
remaining as Stockholders of the Company and preserving their interests therein
on the same terms and conditions as existed previously; or
(II)
receiving cash in an amount equal to the Stockholder’s pro rata share of the
appraised value of the net assets of the Company.
(ii)
The Company is prohibited from participating in any proposed Roll-Up
Transaction:
(a) that
would result in the Stockholders having voting rights in a Roll-Up Entity that
are less than the rights provided for in Sections 11 and 12.1
hereof;
(b) that
includes provisions that would operate as a material impediment to, or
frustration of, the accumulation of Shares by any purchaser of the securities of
the Roll-Up Entity (except to the minimum extent necessary to preserve the tax
status of the Roll-Up Entity), or which would limit the ability of an investor
to exercise the voting rights of its securities of the Roll-Up Entity on the
basis of the number of Shares held by that investor;
(c) in
which investor’s rights to access of records of the Roll-Up Entity will be less
than those described in Sections 11.5 and 11.6 hereof;
(d) which
would result in the stockholders having rights which are more restrictive than
those provide in the charter, including any restriction on the frequency of
meetings,
(e) which
would result in the stockholders having greater liability than provided in the
Charter,
(f) which
would result in the stockholders having fewer rights to receive reports than
provided in the charter, or
(g) in
which any of the costs of the Roll-Up Transaction would be borne by the Company
if the Roll-Up Transaction is not approved by the Stockholders.
ARTICLE
XV
DURATION
In the
event that Listing does not occur on or before the tenth anniversary of the
Termination of the Initial Public Offering, then the Board must either (a) adopt
a resolution that sets forth a proposed amendment to the Charter extending or
eliminating this deadline (the “Extension Amendment”), declaring that the
Extension Amendment is advisable and directing that the proposed Extension
Amendment be submitted for consideration at either an annual or special meeting
of the Stockholders, or (b) adopt a resolution that declares that a proposed
liquidation and dissolution is advisable on substantially the terms and
conditions set forth in, or referred to, in the resolution (the “Plan of
Liquidation”), and directs that the proposed Plan of Liquidation be submitted
for consideration at either an annual or special meeting of the Stockholders. If
the Board seeks the Extension Amendment as described above and the Stockholders
do not approve such amendment, then the Board shall seek the Plan of Liquidation
as described above. If the Stockholders do not then approve the Plan of
Liquidation, the Company shall continue its business. If the Board of Directors
seeks the Plan of Liquidation as described above and the Stockholders do not
approve such resolution, then the Board shall seek the Extension Amendment as
described above. If the Stockholders do not then approve the Extension
Amendment, the Company shall continue its business. In the event that Listing
occurs on or before the tenth anniversary of the Termination of the Initial
Public Offering, the Company shall continue perpetually unless dissolved
pursuant to any applicable provision of the MGCL.
THIRD:
In accordance with
Section 2-603(c) of the MGCL, the amendment to and restatement of the Charter as
hereinabove set forth have been duly approved by the Board of Directors of the
Company as required by law.
FOURTH:
The current address of
the principal office of the Company is as set forth in Article III of the
foregoing amendment and restatement of the Charter.
FIFTH:
The name and address of
the Company’s current resident agent are as set forth in Article III of the
foregoing amendment and restatement of the Charter.
SIXTH:
The number of directors
of the Company and the names of the Directors currently in office are as set
forth in Section 6.1 of Article VI of the foregoing amendment and restatement of
the Charter.
SEVENTH:
The total number of
Shares of stock which the Company had authority to issue immediately prior to
this amendment and restatement was 1,000 Shares all of one class, $0.01 par
value per share. The aggregate par value of all Shares of stock having par value
was $10. The total number of Shares of stock which the Company has authority to
issue pursuant to the foregoing amendment and restatement of the Charter is
70,000,000, consisting of 60,000,000 Common Shares, $0.01 par value per share,
and 10,000,000 Preferred Shares, $0.01 par value per share. The aggregate par
value of all authorized Shares of stock having par value is
$700,000.
EIGHTH:
The undersigned Chief
Executive Officer acknowledges these Articles of Amendment and Restatement to be
the corporate act of the Company and, as to all matters or facts required to be
verified under oath, the undersigned Chief Executive Officer acknowledges that,
to the best of his knowledge, information and belief, these matters and facts
are true in all material respects and that this statement is made under the
penalties for perjury.
[SIGNATURES
ON FOLLOWING PAGE]
IN
WITNESS WHEREOF, Lightstone Value Plus Real Estate Investment Trust, Inc. has
caused these Articles of Amendment and Restatement to be signed in its name and
on its behalf by its Chief Executive Officer, and attested by its Secretary, on
this 11th day of May , 2005.
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ATTEST:
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By:
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/ B
RUNO
DE
V
INCK
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By:
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/ D
AVID
L
ICHTENSTEIN
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Secretary
Bruno
de Vinck
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Chief
Executive Officer
David
Lichtenstein
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Exhibit 3.2
LIGHTSTONE VALUE PLUS REAL ESTATE
INVESTMENT TRUST, INC.
AMENDED AND RESTATED
BYLAWS
ARTICLE I
OFFICES
Section
1.
PRINCIPAL
OFFICE
. The
principal office of the Corporation in the State of Maryland shall be located at
such place as the Board of Directors may designate.
Section
2.
ADDITIONAL
OFFICES
. The
Corporation may have additional offices, including a principal executive office,
at such places as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF
STOCKHOLDERS
Section
1.
PLACE
. All
meetings of stockholders shall be held at the principal executive office of the
Corporation or at such other place as shall be set by the Board of Directors and
stated in the notice of the meeting.
Section
2.
ANNUAL
MEETING
. An
annual meeting of the stockholders for the election of directors and the
transaction of any business within the powers of the Corporation shall be held
in the month of July on a date and at the time set by the Board of Directors,
but in no event shall such annual meeting be held less than 30 days after
delivery of the Corporation's annual report to its stockholders.
Section
3.
SPECIAL
MEETINGS
. The
chairman of the Board, the president, the chief executive officer, a majority of
the Board of Directors or a majority of the Independent Directors (as defined in
the charter of the Corporation (the “Charter”)) may call a special meeting of
the stockholders. A special meeting of stockholders shall also be called by the
secretary of the Corporation upon the written request of the stockholders
entitled to cast not less than ten percent of all the votes entitled to be cast
at such meeting. The written request must be delivered in person or by mail and
must state the purpose of the meeting and the matters proposed to be acted upon
at the meeting. Within ten days after receipt of such written request, either in
person or by mail, the secretary of the Corporation shall inform the
stockholders who made such request of the reasonably estimated cost of preparing
and mailing a notice of the proposed meeting; and within ten days of his or her
receipt of payment of such costs, the secretary of the Corporation shall provide
all stockholders with written notice, either in person or by mail, of such
meeting and the purpose of such meeting. Notwithstanding anything to the
contrary herein, such meeting shall be held not less than 15 days nor more than
60 days after the secretary’s delivery of such notice. Subject to the foregoing
sentence, such meeting shall be held at the time and place specified in the
stockholder request; provided, however, that if none is so specified, such
meeting shall be held at a time and place convenient to the
stockholders.
Section
4.
NOTICE
. Not
less than ten nor more than 90 days before each meeting of stockholders, the
secretary shall give to each stockholder entitled to vote at such meeting and to
each stockholder not entitled to vote who is entitled to notice of the meeting
written or printed notice stating the time and place of the meeting and, in the
case of a special meeting or as otherwise may be required by any statute, the
purpose for which the meeting is called either by mail, by electronic mail, by
presenting it to such stockholder personally, by leaving it at the stockholder’s
residence or usual place of business or by any other means permitted by Maryland
law. If mailed, such notice shall be deemed to be given when deposited in the
United States mail addressed to the stockholder at the stockholder’s address as
it appears on the records of the Corporation, with postage thereon prepaid.
Electronic mail notice shall be deemed to be given upon transmission of the
message to the electronic mail address given to the Corporation by the
stockholder.
Subject
to Section 11(a) of this Article II, any business of the Corporation may be
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of stockholders except as specifically designated in the notice.
Section
5.
ORGANIZATION AND
CONDUCT
. Every
meeting of stockholders shall be conducted by an individual appointed by the
Board of Directors to be chairman of the meeting or, in the absence of such
appointment, by the chairman of the board or, in the case of a vacancy in the
office or absence of the chairman of the board, by one of the following officers
present at the meeting: the vice chairman of the board, if there be one, the
president, the vice presidents in their order of rank and seniority, or, in the
absence of such officers, a chairman chosen by the stockholders by the vote of a
majority of the votes cast by stockholders present in person or by proxy. The
secretary, or, in the secretary’s absence, an assistant secretary, or in the
absence of both the secretary and assistant secretaries, a person appointed by
the Board of Directors or, in the absence of such appointment, a person
appointed by the chairman of the meeting shall act as secretary. In the event
that the secretary presides at a meeting of the stockholders, an assistant
secretary, or in the absence of assistant secretaries, an individual appointed
by the Board of Directors or the chairman of the meeting, shall record the
minutes of the meeting. The order of business and all other matters of procedure
at any meeting of stockholders shall be determined by the chairman of the
meeting. The chairman of the meeting may prescribe such rules, regulations and
procedures and take such action as, in the discretion of such chairman, are
appropriate for the proper conduct of the meeting, including, without
limitation, (a) restricting admission to the time set for the commencement of
the meeting; (b) limiting attendance at the meeting to stockholders of record of
the Corporation, their duly authorized proxies and other such individuals as the
chairman of the meeting may determine; (c) limiting participation at the meeting
on any matter to stockholders of record of the Corporation entitled to vote on
such matter, their duly authorized proxies and other such individuals as the
chairman of the meeting may determine; (d) limiting the time allotted to
questions or comments by participants; (e) determining when the polls should be
opened and closed; (f) maintaining order and security at the meeting; (g)
removing any stockholder or any other individual who refuses to comply with
meeting procedures, rules or guidelines as set forth by the chairman of the
meeting; and (h) concluding a meeting or recessing or adjourning the meeting to
a later date and time and at a place announced at the meeting. Unless otherwise
determined by the chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with the rules of parliamentary procedure.
Section
6.
QUORUM
. At any
meeting of stockholders, the presence in person or by proxy of stockholders
entitled to cast a majority of all the votes entitled to be cast at such meeting
on any matter shall constitute a quorum; but this section shall not affect any
requirement under any statute or the Charter of the Corporation for the vote
necessary for the adoption of any measure. If, however, such quorum shall not be
present at any meeting of the stockholders, the chairman of the meeting shall
have the power to adjourn the meeting from time to time to a date not more than
120 days after the original record date without notice other than announcement
at the meeting. At such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally notified.
The
stockholders present either in person or by proxy, at a meeting which has been
duly called and convened, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section
7.
VOTING
. A
majority of all the votes cast at a meeting of stockholders duly called and at
which a quorum is present shall be sufficient to elect a director. Each share
may be voted for as many individuals as there are directors to be elected and
for whose election the share is entitled to be voted. A majority of the votes
cast at a meeting of stockholders duly called and at which a quorum is present
shall be sufficient to approve any other matter which may properly come before
the meeting, unless more than a majority of the votes cast is required by
statute or by the Charter. Each share may be voted for as many individuals as
there are directors to be elected and for whose election the share is entitled
to be voted. Unless otherwise provided in the charter, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of stockholders. Voting on any question or in any election may
be viva voce unless the chairman of the meeting shall order that voting be by
ballot.
Section
8.
PROXIES
. A
stockholder may cast the votes entitled to be cast by the shares of stock owned
of record by the stockholder in person or by proxy executed by the stockholder
or by the stockholder’s duly authorized agent in any manner permitted by law.
Such proxy or evidence of authorization of such proxy shall be filed with the
secretary of the Corporation before or at the meeting. No proxy shall be valid
more than eleven months after its date unless otherwise provided in the
proxy.
Section
9.
VOTING OF STOCK BY CERTAIN
HOLDERS
. Stock
of the Corporation registered in the name of a corporation, partnership, trust
or other entity, if entitled to be voted, may be voted by the president or a
vice president, a general partner or trustee thereof, as the case may be, or a
proxy appointed by any of the foregoing individuals, unless some other person
who has been appointed to vote such stock pursuant to a bylaw or a resolution of
the governing body of such corporation or other entity or agreement of the
partners of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his or her name as such fiduciary, either
in person or by proxy.
Shares of
stock of the Corporation directly or indirectly owned by it shall not be voted
at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given
time.
The Board
of Directors may adopt by resolution a procedure by which a stockholder may
certify in writing to the Corporation that any shares of stock registered in the
name of the stockholder are held for the account of a specified person other
than the stockholder. The resolution shall set forth the class of stockholders
who may make the certification, the purpose for which the certification may be
made, the form of certification and the information to be contained in it; if
the certification is with respect to a record date or closing of the stock
transfer books, the time after the record date or closing of the stock transfer
books within which the certification must be received by the Corporation; and
any other provisions with respect to the procedure which the Board of Directors
considers necessary or desirable. On receipt of such certification, the person
specified in the certification shall be regarded as, for the purposes set forth
in the certification, the stockholder of record of the specified stock in place
of the stockholder who makes the certification.
Section
10.
INSPECTORS
. The
Board of Direc-tors, in advance of any meeting, may, but need not, appoint one
or more individual inspectors or one or more entities that designate individuals
as inspectors to act at the meeting or any adjourn-ment thereof. If an inspector
or inspectors are not appointed, the person presiding at the meeting may, but
need not, appoint one or more inspectors. In case any person who may be
appointed as an inspector fails to appear or act, the vacancy may be filled by
appointment made by the Board of Directors in advance of the meeting or at the
meeting by the chairman of the meeting. The inspectors, if any, shall determine
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
Each such report shall be in writing and signed by him or her or by a majority
of them if there is more than one inspector acting at such meeting. If there is
more than one inspector, the report of a majority shall be the report of the
inspectors. The report of the inspector or inspectors on the number of shares
represented at the meeting and the results of the voting shall be
prima
facie
evidence
thereof.
Section
11.
ADVANCE NOTICE OF
STOCKHOLDER NOMINEES FOR DIRECTOR AND OTHER STOCKHOLDER
PROPOSALS
.
(a)
Annual Meetings of
Stockholders
. (1)
Nominations of individuals for election to the Board of Directors and the
proposal of other business to be considered by the stockholders may be made at
an annual meeting of stockholders (i) pursuant to the Corporation’s notice of
meeting, (ii) by or at the direction of the Board of Directors or (iii) by any
stockholder of the Corporation who was a stockholder of record both at the time
of giving of notice by the stockholder as provided for in this Section 11(a) and
at the time of the annual meeting, who is entitled to vote at the meeting and
who has complied with this Section 11(a).
(2)
For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (iii) of paragraph (a)(1) of this Section 11,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation and such other business must otherwise be a proper
matter for action by the stockholders. To be timely, a stockholder’s notice
shall set forth all information required under this Section 11 and shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the 150
th
day nor
later than 5:00 p.m. Eastern Time, on the 120
th
day
prior to the first anniversary of the date of mailing of the notice for the
preceding year’s annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced or delayed by more than 30 days from the
first anniversary of the date of the preceding year’s annual meeting, notice by
the stockholder to be timely must be so delivered not earlier than the
150
th
day
prior to the date of such annual meeting and not later than 5:00 p.m. Eastern
Time, on the later of the 120
th
day
prior to the date of such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made. The public
announcement of a postponement or adjournment of an annual meeting shall not
commence a new time period for the giving of a stockholder’s notice as described
above. Such stockholder’s notice shall set forth (i) as to each individual whom
the stockholder proposes to nominate for election or reelection as a director,
(A) the name, age, business address and residence address of such individual,
(B) the class, series and number of any shares of stock of the Corporation that
are beneficially owned by such individual, (C) the date such shares were
acquired and the investment intent of such acquisition and (D) all other
information relating to such individual that is required to be disclosed in
solicitations of proxies for election of directors in an election contest (even
if an election contest is not involved), or is otherwise required, in each case
pursuant to Regulation 14A (or any successor provision) under the Exchange Act
and the rules thereunder (including such individual’s written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); (ii) as to any other business that the stockholder proposes to bring
before the meeting, a description of such business, the reasons for proposing
such business at the meeting and any material interest in such business of such
stockholder and any Stockholder Associated Person (as defined below),
individually or in the aggregate, including any anticipated benefit to the
stockholder and the Stockholder Associated Person therefrom; (iii) as to the
stockholder giving the notice and any Stockholder Associated Person, the class,
series and number of all shares of stock of the Corporation which are owned by
such stockholder and by such Stockholder Associated Person, if any, and the
nominee holder for, and number of, shares owned beneficially but not of record
by such stockholder and by any such Stockholder Associated Person; (iv) as to
the stockholder giving the notice and any Stockholder Associated Person covered
by clauses (ii) or (iii) of this paragraph (2) of this Section 11(a), the name
and address of such stockholder, as they appear on the Corporation’s stock
ledger and current name and address, if different, and of such Stockholder
Associated Person; and (v) to the extent known by the stockholder giving the
notice, the name and address of any other stockholder supporting the nominee for
election or reelection as a director or the proposal of other business on the
date of such stockholder’s notice.
(3)
Notwithstanding
anything in this subsection (a) of this Section 11 to the contrary, in the event
the Board of Directors increases or decreases the maximum or minimum number of
directors in accordance with Article III, Section 2 of these Bylaws, and there
is no public announcement of such action at least 130 days prior to the first
anniversary of the date of mailing of the notice of the preceding year’s annual
meeting, a stockholder’s notice required by this Section 11(a) shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive office of the Corporation not later than 5:00 p.m.,
Eastern Time on the tenth day following the day on which such public
announcement is first made by the Corporation.
(4)
For
purposes of this Section 11, “Stockholder Associated Person” of any stockholder
shall mean (i) any person controlling, directly or indirectly, or acting in
concert with, such stockholder, (ii) any beneficial owner of shares of stock of
the Corporation owned of record or beneficially by such stockholder and (iii)
any person controlling, controlled by or under common control with such
Stockholder Associated Person.
(b)
Special Meetings of
Stockholders
. Only
such business shall be conducted at a special meeting of stockholders as shall
have been brought before the meeting pursuant to the Corporation’s notice of
meeting. Nominations of individuals for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be
elected (i) pursuant to the Corporation’s notice of meeting, (ii) by or at the
direction of the Board of Directors or (iii) provided that the Board of
Directors has determined that directors shall be elected at such special
meeting, by any stockholder of the Corporation who is a stockholder of record
both at the time of giving of notice provided for in this Section 11 and at the
time of the special meeting, who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section 11. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more individuals to the Board of Directors, any such stockholder
may nominate an individual or individuals (as the case may be) for election as a
director as specified in the Corporation’s notice of meeting, if the
stockholder’s notice required by paragraph (2) of Section 11(a) shall be
delivered to the Secretary at the principal executive office of the Corporation
not earlier than the 120
th
day
prior to such special meeting and not later than 5:00 p.m., Eastern Time on
the later of the 90
th
day
prior to such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. The
public announcement of a postponement or adjournment of a special meeting shall
not commence a new time period for the giving of a stockholder’s notice as
described above.
(c)
General
. (1)
Upon written request by the secretary or the Board of Directors or any committee
thereof, any stockholder proposing a nominee for election as a director or any
proposal for other business at a meeting of stockholders shall provide, within
five Business Days of delivery of such request (or such other period as may be
specified in such request), written verification, satisfactory, in the
discretion of the Board of Directors or any committee thereof or any authorized
officer of the Corporation, to demonstrate the accuracy of any information
submitted by the stockholder pursuant to this Section 11. If a stockholder fails
to provide such written verification within such period, the information as to
which written verification was requested may be deemed not to have been provided
in accordance with this Section 11.
(2)
Only such
individuals who are nominated in accordance with this Section 11 shall be
eligible for election by stockholders as directors, and only such business shall
be conducted at a meeting of stockholders as shall have been brought before the
meeting in accordance with this Section 11. The chairman of the meeting shall
have the power to determine whether a nomination or any other business proposed
to be brought before the meeting was made or proposed, as the case may be, in
accordance with this Section 11.
(3)
For
purposes of this Section 11, (a) the “date of mailing of the notice” shall mean
the date of the proxy statement for the solicitation of proxies for election of
directors and (b) “public announcement” shall mean disclosure (i) in a press
release reported by the Dow Jones News Service, Associated Press, Business Wire,
PR Newswire or comparable news service or (ii) in a document publicly filed by
the Corporation with the United States Securities and Exchange Commission
pursuant to the Exchange Act.
(4)
Notwithstanding
the foregoing provisions of this Section 11, a stockholder shall also comply
with all applicable requirements of state law and of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Section 11. Nothing in this Section 11 shall be deemed to affect any right of a
stockholder to request inclusion of a proposal in, nor the right of the
Corporation to omit a proposal from, the Corporation’s proxy statement pursuant
to Rule 14a-8 (or any successor provision) under the Exchange Act.
Section
12.
STOCKHOLDERS’ CONSENT IN
LIEU OF MEETING
. Any
action required or permitted to be taken at any meeting of stockholders may be
taken without a meeting if a unanimous consent setting forth the action is given
in writing or by electronic transmission by each stockholder entitled to vote on
the matter and filed with the minutes of proceedings of the
stockholders.
Section
13.
CONTROL SHARE ACQUISITION
ACT
.
Notwithstanding any other provision of the Charter or these Bylaws,
Title 3, Subtitle 7 of the Maryland General Corporation Law (the
“MGCL”) (or any successor statute) shall not apply to any acquisition by any
person of shares of stock of the Corporation. This section may be repealed, in
whole or in part, at any time, whether before or after an acquisition of control
shares and, upon such repeal, may, to the extent provided by any successor
bylaw, apply to any prior or subsequent control share acquisition.
ARTICLE III
DIRECTORS
Section
1.
GENERAL
POWERS
. The
business and affairs of the Corporation shall be managed under the direction of
its Board of Directors.
Section
2.
NUMBER, TENURE AND
QUALIFICATIONS
. At any
regular meeting or at any special meeting called for that purpose, a majority of
the entire Board of Directors may establish, increase or decrease the number of
directors, provided that the number thereof shall never be less than three, nor
more than nine, and further provided that the tenure of office of a director
shall not be affected by any decrease in the number of directors. A majority of
the directors shall be Independent Directors.
Section 3.
ANNUAL AND REGULAR
MEETINGS
. An
annual meeting of the Board of Directors shall be held immediately after and at
the same place as the annual meeting of stockholders, no notice other than this
Bylaw being necessary. In the event such meeting is not so held, the meeting may
be held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors. The Board
of Directors may provide, by resolution, the time and place for the holding of
regular meetings of the Board of Directors without other notice than such
resolution.
Section
4.
SPECIAL
MEETINGS
. Special
meetings of the Board of Directors may be called by or at the request of the
chairman of the board, the chief executive officer, the president or by a
majority of the directors or Independent Directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place as the place for holding any special meeting of the Board of Directors
called by them. The Board of Directors may provide, by resolution, the time and
place for the holding of special meetings of the Board of Directors without
other notice than such resolution.
Section
5.
NOTICE
. Notice
of any special meeting of the Board of Directors shall be delivered personally
or by telephone, electronic mail, facsimile transmission, United States mail or
courier to each director at his or her business or residence address. Notice by
personal delivery, telephone, electronic mail or facsimile transmission shall be
given at least 24 hours prior to the meeting. Notice by United States mail shall
be given at least three days prior to the meeting. Notice by courier shall be
given at least two days prior to the meeting. Telephone notice shall be deemed
to be given when the director or his or her agent is personally given such
notice in a telephone call to which the director or his or her agent is a party.
Electronic mail notice shall be deemed to be given upon transmission of the
message to the electronic mail address given to the Corporation by the director.
Facsimile transmission notice shall be deemed to be given upon completion of the
transmission of the message to the number given to the Corporation by the
director and receipt of a completed answer-back indicating receipt. Notice by
United States mail shall be deemed to be given when deposited in the United
States mail properly addressed, with postage thereon prepaid. Notice by courier
shall be deemed to be given when deposited with or delivered to a courier
properly addressed. Neither the business to be transacted at, nor the purpose
of, any annual, regular or special meeting of the Board of Directors need be
stated in the notice, unless specifically required by statute or these
Bylaws.
Section
6.
QUORUM
. A
majority of the directors shall constitute a quorum for transaction of business
at any meeting of the Board of Directors, provided that, if less than a majority
of such directors are present at said meeting, a majority of the directors
present may adjourn the meeting from time to time without further notice, and
provided further that if, pursuant to applicable law, the Charter of the
Corporation or these Bylaws, the vote of a majority of a particular group of
directors is required for action, a quorum must also include a majority of such
group.
The
directors present at a meeting which has been duly called and convened may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough directors to leave less than a quorum.
Section
7.
VOTING
. The
action of the majority of the directors present at a meeting at which a quorum
is present shall be the action of the Board of Directors, unless the concurrence
of a greater proportion is required for such action by applicable law, the
Charter, or these Bylaws. If enough directors have withdrawn from a meeting to
leave less than a quorum but the meeting is not adjourned, the action of the
majority of that number of directors necessary to constitute a quorum at such
meeting shall be the action of the Board of Directors, unless the concurrence of
a greater proportion is required for such action by applicable law, the Charter
or these Bylaws.
Section
8.
ORGANIZATION
. At each
meeting of the Board of Directors, the chairman of the board or, in the absence
of the chairman, the vice chairman of the board, if any, shall act as chairman
of the meeting. In the absence of both the chairman and vice chairman of the
board, the chief executive officer or in the absence of the chief executive
officer, the president or in the absence of the president, a director chosen by
a majority of the directors present, shall act as chairman of the meeting. The
secretary or, in his or her absence, an assistant secretary of the Corporation,
or in the absence of the secretary and all assistant secretaries, a person
appointed by the Chairman, shall act as Secretary of the meeting.
Section
9.
TELEPHONE
MEETINGS
.
Directors may participate in a meeting by means of a conference telephone or
other communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section
10.
CONSENT BY
DIRECTORS
. Any
action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting, if a consent in writing or by
electronic transmission to such action is given by each director and is filed
with the minutes of proceedings of the Board of Directors.
Section
11.
VACANCIES
. If for
any reason any or all the directors cease to be directors, such event shall not
terminate the Corporation or affect these Bylaws or the powers of the remaining
directors hereunder (even if fewer than three directors remain). Any vacancy on
the Board of Directors for any cause shall be filled by a majority of the
directors in office, even if such majority is less than a quorum; provided,
however, upon any vacancy created by the death, resignation or incapacity of an
Independent Director, the remaining Independent Directors must nominate the
proposed replacement. Any individual so elected as director shall serve until
the next annual meeting of stockholders and until his or her successor is
elected and qualifies.
Section
12.
COMPENSATION
.
Directors shall not receive any stated salary for their services as directors
but, by resolution of the Board of Directors, may receive compensation per year
and/or per meeting and/or per visit to real property or other facilities owned
or leased by the Corporation and for any service or activity they performed or
engaged in as directors. Directors may be reimbursed for expenses of attendance,
if any, at each annual, regular or special meeting of the Board of Directors or
of any committee thereof and for their expenses, if any, in connection with each
property visit and any other service or activity they performed or engaged in as
directors; but nothing herein contained shall be construed to preclude any
directors from serving the Corporation in any other capacity and receiving
compensation therefor.
Section
13.
LOSS OF
DEPOSITS
. No
director shall be liable for any loss which may occur by reason of the failure
of the bank, trust company, savings and loan association, or other institution
with whom moneys or stock have been deposited.
Section
14.
SURETY
BONDS
. Unless
required by law, no director shall be obligated to give any bond or surety or
other security for the performance of any of his or her duties.
Section
15.
RELIANCE
. Each
director, officer, employee and agent of the Corporation shall, in the
performance of his or her duties with respect to the Corporation, be fully
justified and protected with regard to any act or failure to act in reliance in
good faith upon the books of account or other records of the Corporation, upon
an opinion of counsel or upon reports made to the Corporation by any of its
officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Board of Directors or officers of the
Corporation, regardless of whether such counsel or expert may also be a
director.
Section
16.
CERTAIN RIGHTS OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
. The
directors shall have no responsibility to devote their full time to the affairs
of the Corporation. Any director or officer, employee or agent of the
Corporation, in his or her personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to or in
competition with those of or relating to the Corporation.
ARTICLE IV
COMMITTEES
Section
1.
NUMBER, TENURE AND
QUALIFICATIONS
. The
Board of Directors shall appoint from among its members an Audit Committee
composed of three Independent Directors (one of whom must be an expert in the
field of finance) and may appoint an Executive Committee, an Audit Committee, a
Compensation Committee and any other committees that the Directors deem
appropriate, composed of one or more directors (the majority of whom shall at
all times be Independent Directors) to serve at the pleasure of the Board of
Directors.
Section
2.
POWERS
. The
Board of Directors may delegate to committees appointed under Section 1 of this
Article any of the powers of the Board of Directors, except as prohibited by
law.
Section
3.
MEETINGS
. Notice
of committee meetings shall be given in the same manner as notice for special
meetings of the Board of Directors. A majority of the members of the committee
shall constitute a quorum for the transaction of business at any meeting of the
committee. The act of a majority of the committee members present at a meeting
shall be the act of such committee. The Board of Directors may designate a
chairman of any committee, and such chairman or, in the absence of a chairman,
any two members of any committee (if there are at least two members of the
Committee) may fix the time and place of its meeting unless the Board shall
otherwise provide. In the absence of any member of any such committee, the
members thereof present at any meeting, whether or not they constitute a quorum,
may appoint another director to act in the place of such absent member. Each
committee shall keep minutes of its proceedings.
Section
4.
TELEPHONE
MEETINGS
. Members
of a committee of the Board of Directors may participate in a meeting by means
of a conference telephone or other communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means shall constitute presence in person at the
meeting.
Section
5.
CONSENT BY
COMMITTEES
. Any
action required or permitted to be taken at any meeting of a committee of the
Board of Directors may be taken without a meeting, if a consent in writing or by
electronic transmission to such action is given by each member of the committee
and such written consent is filed with the minutes of proceedings of such
committee.
Section
6.
VACANCIES
. Subject
to the provisions hereof, the Board of Directors shall have the power at any
time to change the membership of any committee, to fill all vacancies, to
designate alternate members to replace any absent or disqualified member or to
dissolve any such committee.
ARTICLE V
OFFICERS
Section
1.
GENERAL
PROVISIONS
. The
officers of the Corporation shall include
a
president, a secretary and a treasurer and may include a chairman of the board,
a vice chairman of the board, a chief executive officer, one or more vice
presidents, a chief operating officer, a chief financial officer, one or more
assistant secretaries, one or more assistant treasurers and a general counsel, .
In addition, the Board of Directors may from time to time elect such other
officers with such powers and duties as they shall deem necessary or desirable.
The officers of the Corporation shall be elected annually by the Board of
Directors, except that the chief executive officer may from time to time appoint
one or more vice presidents, assistant secretaries and assistant treasurers or
other officers. Each officer shall hold office until his or her successor is
elected and qualifies or until his or her death, or his or her resignation or
removal in the manner hereinafter provided. Any two or more offices except
president and vice president may be held by the same person. Election of an
officer or agent shall not of itself create contract rights between the
Corporation and such officer or agent.
Section
2.
REMOVAL AND
RESIGNATION
. Any
officer or agent of the Corporation may be removed, with or without cause, by
the Board of Directors if in its judgment the best interests of the Corporation
would be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Any officer of the
Corporation may resign at any time by giving written notice of his or her
resignation to the Board of Directors, the chairman of the board, the president
or the secretary. Any resignation shall take effect immediately upon its receipt
or at such later time specified in the notice of resignation. The acceptance of
a resignation shall not be necessary to make it effective unless otherwise
stated in the resignation. Such resignation shall be without prejudice to the
contract rights, if any, of the Corporation.
Section
3.
VACANCIES
. A
vacancy in any office may be filled by the Board of Directors for the balance of
the term.
Section
4.
CHIEF EXECUTIVE
OFFICER
. The
Board of Directors may designate a chief executive officer. In the absence of
such designation, the chairman of the board shall be the chief executive officer
of the Corporation. The chief executive officer shall have general
responsibility for implementation of the policies of the Corporation, as
determined by the Board of Directors, and for the management of the business and
affairs of the Corporation. In the absence of a designation of a chief operating
officer by the Board of Directors, the chief executive officer shall be the
chief operating officer. He or she may execute any deed, mortgage, bond,
contract or other instrument, except in cases where the execution thereof shall
be expressly delegated by the Board of Directors or by these Bylaws to some
other officer or agent of the Corporation or shall be required by law to be
otherwise executed; and in general shall perform all duties incident to the
office or chief executive officer and such other duties as may be prescribed by
the board of Directors from time to time.
Section
5.
CHIEF OPERATING
OFFICER
. The
Board of Directors may designate a chief operating officer. The chief operating
officer shall have the responsibilities and duties as set forth by the Board of
Directors or the chief executive officer.
Section
6.
CHIEF FINANCIAL
OFFICER
. The
Board of Directors may designate a chief financial officer. The chief financial
officer shall have the responsibilities and duties as set forth by the Board of
Directors or the chief executive officer.
Section
7.
CHAIRMAN OF THE
BOARD
. The
Board of Directors shall designate a chairman of the board. The chairman of the
board shall preside over the meetings of the Board of Directors and of the
stockholders at which he shall be present. The chairman of the board shall
perform such other duties as may be assigned to him or her by the Board of
Directors.
Section
8.
PRESIDENT
. In the
absence of a chief executive officer, the president shall in general supervise
and control all of the business and affairs of the Corporation. He or she may
execute any deed, mortgage, bond, contract or other instrument, for which he or
she receives authorization to execute from the Board of Directors; and in
general shall perform all duties incident to the office of president and such
other duties as may be prescribed by the Board of Directors from time to
time.
Section
9.
VICE
PRESIDENTS
. In the
absence of the president or in the event of a vacancy in such office, the vice
president (or in the event there be more than one vice president, the vice
presidents in the order designated at the time of their election or, in the
absence of any designation, then in the order of their election) shall perform
the duties of the president and when so acting shall have all the powers of and
be subject to all the restrictions upon the president; and shall perform such
other duties as from time to time may be assigned to such vice president by the
president or by the Board of Directors. The Board of Directors may designate one
or more vice presidents, senior vice president, as executive vice president or
as vice president for particular areas of responsibility.
Section
10.
SECRETARY
. The
secretary shall (a) keep the minutes of the proceedings of the stockholders, the
Board of Directors and committees of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the Corporation; (d) keep a register of
the post office address of each stockholder which shall be furnished to the
secretary by such stockholder; (e) have general charge of the stock transfer
books of the Corporation; and (f) in general perform such other duties as from
time to time may be assigned to him by the chief executive officer, the
president or by the Board of Directors.
Section
11.
TREASURER
. The
treasurer shall have the custody of the funds and securities of the Corporation
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. In the absence of a designation of
a chief financial officer by the Board of Directors, the treasurer shall be the
chief financial officer of the Corporation.
The
treasurer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the president and Board of Directors, at the regular meetings of the
Board of Directors or whenever it may so require, an account of all his or her
transactions as treasurer and of the financial condition of the
Corporation.
If
required by the Board of Directors, the treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his or her
office and for the restoration to the Corporation, in case of his or her death,
resignation, retirement or removal from office, of all books, papers, vouchers,
moneys and other property of whatever kind in his or her possession or under his
or her control belonging to the Corporation.
Section
12.
ASSISTANT SECRETARIES AND
ASSISTANT
TREASURERS
. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the Board of Directors. The assistant treasurers shall,
if required by the Board of Directors, give bonds for the faithful performance
of their duties in such sums and with such surety or sureties as shall be
satisfactory to the Board of Directors.
Section
13.
GENERAL
COUNSEL
.
The
general counsel shall be the chief legal officer of the Corporation and shall be
responsible for all legal affairs of the Corporation, and shall have such
further powers and duties as are incident to the position of general
counsel.
Section
14.
SALARIES
. The
salaries and other compensation of the officers shall be fixed from time to time
by the Board of Directors and no officer shall be prevented from receiving such
salary or other compensation by reason of the fact that he is also a
director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND
DEPOSITS
Section
1.
CONTRACTS
. The
Board of Directors, the Executive Committee or another committee of the Board of
Directors within the scope of its delegated authority may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Corporation and such authority may be general
or confined to specific instances. Any agreement, deed, mortgage, lease or other
document shall be valid and binding upon the Corporation when authorized or
ratified by action of the Board of Directors or the Executive Committee or such
other committee
and
executed by an authorized person.
Section
2.
CHECKS AND
DRAFTS
. All
checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or agent of the Corporation in such manner as shall from time to
time be determined by the Board of Directors.
Section
3.
DEPOSITS
. All
funds of the Corporation not otherwise employed shall be deposited from time to
time to the credit of the Corporation in such banks, trust companies or other
depositories as the Board of Directors may designate.
ARTICLE VII
STOCK
Section
1.
CERTIFICATES
. Except
as otherwise provided in these Bylaws, this Section shall not be interpreted to
limit the authority of the Board of Directors to issue some or all of the shares
of any or all of its classes or series without certificates. Each stockholder,
upon written request to the secretary of the Corporation, shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the Corporation. Each certificate
shall be signed by the chairman of the board, the president or a vice president
and countersigned by the secretary or an assistant secretary or the treasurer or
an assistant treasurer and may be sealed with the seal, if any, of the
Corporation. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Corporation shall, from time to
time, issue several classes of stock, each class may have its own number series.
A certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of stock and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the certificate may
state that the Corporation will furnish a full statement of such information to
any stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transferability, the certificate shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restrictions to the stockholder on request and
without charge.
Section
2.
TRANSFERS
. Upon
surrender to the Corporation or the transfer agent of the Corporation of a stock
certificate duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the Corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
The
Corporation shall be entitled to treat the holder of record of any share of
stock as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share or on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding
the foregoing, transfers of shares of any class of stock will be subject in all
respects to the Charter of the Corporation and all of the terms and conditions
contained therein.
Section
3.
REPLACEMENT
CERTIFICATE
. Any
officer designated by the Board of Directors may direct a new certificate to be
issued in place of any certificate previously issued by the Corporation alleged
to have been lost, stolen or destroyed upon the making of an affidavit of that
fact by the person claiming the certificate to be lost, stolen or destroyed.
When authorizing the issuance of a new certificate, an officer designated by the
Board of Directors may, in his or her discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or the owner’s legal representative to advertise the same in such
manner as he shall require and/or to give bond, with sufficient surety, to the
Corporation to indemnify it against any loss or claim which may arise as a
result of the issuance of a new certificate.
Section
4.
CLOSING OF TRANSFER BOOKS OR
FIXING OF RECORD DATE
. The
Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders of record is to
be held or taken.
In lieu
of fixing a record date, the Board of Directors may provide that the stock
transfer books shall be closed for a stated period but not longer than 20 days.
If the stock transfer books are closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders, such
books shall be closed for at least ten days before the date of such
meeting.
If no
record date is fixed and the stock transfer books are not closed for the
determination of stockholders, (a) the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30
th
day
before the meeting, whichever is the closer date to the meeting; and (b) the
record date for the determination of stockholders entitled to receive payment of
a dividend or an allotment of any other rights shall be the close of business on
the day on which the resolution of the directors, declaring the dividend or
allotment of rights, is adopted.
When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof, except when (i) the determination has been made through the
closing of the transfer books and the stated period of closing has expired or
(ii) the meeting is adjourned to a date more than 120 days after the record date
fixed for the original meeting, in either of which case a new record date shall
be determined as set forth herein.
Section
5.
STOCK
LEDGER
. The
Corporation shall maintain at its principal office or at the office of its
counsel, accountants or transfer agent, an original or duplicate share ledger
containing the name and address of each stockholder and the number of shares of
each class held by such stockholder.
Section
6.
FRACTIONAL STOCK; ISSUANCE
OF UNITS
. The
Board of Directors may issue fractional stock or provide for the issuance of
scrip, all on such terms and under such conditions as they may determine.
Notwithstanding any other provision of the Charter or these Bylaws, the Board of
Directors may issue units consisting of different securities of the Corporation.
Any security issued in a unit shall have the same characteristics as any
identical securities issued by the Corporation, except that the Board of
Directors may provide that for a specified period securities of the Corporation
issued in such unit may be transferred on the books of the Corporation only in
such unit.
ARTICLE VIII
ACCOUNTING YEAR
The
fiscal year of the Corporation shall end on December 31 of each calendar year,
unless otherwise determined by the Board of Directors by a duly adopted
resolution.
ARTICLE IX
DISTRIBUTIONS
Section
1.
AUTHORIZATION
.
Dividends and other distributions upon the stock of the Corporation may be
authorized by the Board of Directors, subject to the provisions of law and the
charter of the Corporation. Dividends and other distributions may be paid in
cash, property or stock of the Corporation, subject to the provisions of law and
the Charter.
Section
2.
CONTINGENCIES
. Before
payment of any dividends or other distributions, there may be set aside out of
any assets of the Corporation available for dividends or other distributions
such sum or sums as the Board of Directors may from time to time, in its
absolute discretion, think proper as a reserve fund for contingencies, for
equalizing dividends or other distributions, for repairing or maintaining any
property of the Corporation or for such other purpose as the Board of Directors
shall determine to be in the best interest of the Corporation, and the Board of
Directors may modify or abolish any such reserve.
ARTICLE X
INVESTMENT POLICY
Subject
to the provisions of the Charter of the Corporation, the Board of Directors may
from time to time adopt, amend, revise or terminate any policy or policies with
respect to investments by the Corporation as it shall deem appropriate in its
sole discretion.
ARTICLE XI
SEAL
Section
1.
SEAL
. The
Board of Directors may authorize the adoption of a seal by the Corporation. The
seal shall contain the name of the Corporation and the year of its incorporation
and the words “Incorporated Maryland.” The Board of Directors may authorize one
or more duplicate seals and provide for the custody thereof.
Section
2.
AFFIXING
SEAL
.
Whenever the Corporation is permitted or required to affix its seal to a
document, it shall be sufficient to meet the requirements of any law, rule or
regulation relating to a seal to place the word “(SEAL)” adjacent to the
signature of the person authorized to execute the document on behalf of the
Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF
EXPENSES
(a)
To the
maximum extent permitted by Maryland law in effect from time to time (but
subject to the provisions of Sections 12(a), (b) and (c) below), the Corporation
shall indemnify and, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any individual
who is a present or former director or officer of the Corporation and who is
made or threatened to be made a party to the proceeding by reason of his or her
service in that capacity, or (b) any individual who, while a director or officer
of the Corporation and at the request of the Corporation, serves or has served
as a director, officer, partner or trustee of such corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made or threatened to be made a party to the
proceeding by reason of his or her service in that capacity, and (c) Lightstone
Value Plus REIT LLC and its affiliates from and against any claim, liability or
expense to which they may become subject or which it may incur reason of its
service in its capacity as an advisor of the REIT. The Corporation may, with the
approval of its Board of Directors, provide such indemnification and advance for
expenses to a person who served a predecessor of the Corporation in any of the
capacities described in (a) or (b) above and to any employee or agent of the
Corporation or a predecessor of the Corporation or Lightstone Value Plus REIT
LLC. The indemnification and payment of expenses provided in these Bylaws shall
not be deemed exclusive of or limit any way other rights to which any person
seeking indemnification or payment of expenses may be or may become entitled
under any bylaw, regulation, insurance, agreement or otherwise.
(b)
The
Corporation shall not indemnify Indemnitees for any liability loss suffered by
the Indemnitees, nor shall it hold harmless for any loss or liability suffered
by the Corporation, any Indemnitee, unless all of the following conditions are
met: (i) the Indemnitees determined, in good faith, that the course of conduct
which caused the loss or liability was in the best interests of the Corporation,
(ii) the Indemnitees were acting on behalf of the Corporation or performing
services for the Corporation, (iii) such liability or loss or expense was not
the result of negligence or misconduct on the part of Indemnitees, excluding
independent Advisors, Affiliates or Independent Directors, and the liability,
loss or expense was not the result of gross negligence or willful misconduct by
Independent Directors and (iv) such indemnification or agreement to hold
harmless shall be recoverable only out of the net assets of the Corporation and
not from Stockholders.
(c)
Notwithstanding
anything to the contrary in subsection (a), the Corporation shall not indemnify
Indemnitees or any persons acting as a broker-dealer for any losses, liabilities
or expenses arising from or out of an alleged violation of federal or state
securities laws by such party unless one or more of the following conditions are
met: (i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular Indemnitee,
(ii) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular Indemnitee or (iii) a court of
competent jurisdiction approves a settlement of the claims against a particular
Indemnitee and finds that indemnification of the settlement and related costs
should be made, and the court considering the matter has been advised of the
position of the Securities and Exchange Commission and the published position of
any state securities regulatory authority as to indemnification for violations
of securities law.
(d)
The
Corporation will advance amounts to Indemnitees for legal expenses and other
costs incurred as a result of any legal action for which indemnification is
being sought is permissible only if all of the following conditions are
satisfied: (i) the legal action relates to acts or omissions with respect to the
performance of duties or services on behalf of the Corporation, (ii) the legal
action is initiated by a third party who is not a Stockholder or is initiated by
a Stockholder acting in his or her capacity as such and a court of competent
jurisdiction specifically approves the advancement and (iii) the Indemnitees
undertake in writing to repay the advanced funds to the Corporation, together
with the applicable legal rate of interest thereon, in cases in which such
Indemnitees are found not to be entitled to indemnification.
(e)
Neither
the amendment nor repeal of this Article, nor the adoption or amendment of any
other provision of the Bylaws or Charter of the Corporation inconsistent with
this Article, shall apply to or affect in any respect the applicability of the
preceding paragraph with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.
ARTICLE XIII
WAIVER OF NOTICE
Whenever
any notice is required to be given pursuant to the Charter of the Corporation or
these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of such notice.
Neither the business to be transacted at nor the purpose of any meeting need be
set forth in the waiver of notice, unless specifically required by statute. The
attendance of any person at any meeting shall constitute a waiver of notice of
such meeting, except where such person attends a meeting for the express purpose
of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF
BYLAWS
The Board
of Directors, by majority vote, shall have the exclusive power to adopt, alter
or repeal any provision of these Bylaws and to make new Bylaws in a manner not
inconsistent with the Corporation’s Charter.
Exhibit
10.1
ADVISORY
AGREEMENT AMONG
LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.,
LIGHTSTONE
VALUE PLUS REIT LP
and
LIGHTSTONE
VALUE PLUS REIT LLC
This
Advisory Agreement (this “Agreement”) dated as of April 22, 2005 is among
Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation
(the “Company”), Lightstone Value Plus REIT LP, a Delaware limited partnership
(the “OP”), and Lightstone Value Plus REIT LLC, a Delaware limited liability
company (the “Advisor”). The Company and the OP are sometimes referred to herein
collectively as the “Advisees” and each individually as an
“Advisee.”
W
I T N E S S E T H:
WHEREAS,
the Company is a Maryland corporation created in accordance with applicable
provisions of the Maryland General Corporation Law, as amended from time to time
(the “Maryland GCL”); and
WHEREAS,
the purposes of the Company are, as determined from time to time by the board of
directors of the Company (the “Board of Directors”), to engage in any lawful
business or activity for which a corporation may be created under the Maryland
GCL; and
WHEREAS,
the Company is the general partner of the OP; and
WHEREAS,
the Company desires, on its own behalf and as general partner of the OP, to
avail itself of the experience, sources of information, advice and assistance of
the Advisor and to have the Advisor undertake the duties and responsibilities
hereinafter set forth, on behalf of and subject to the supervision of the Board
of Directors, all as provided herein; and
WHEREAS,
the Advisor is willing to render such services, subject to the supervision of
the Board of Directors, on the terms and conditions hereinafter set
forth;
NOW,
THEREFORE, in consideration of the mutual covenants herein contained, IT IS
AGREED as follows:
1.
Definitions
. Capitalized
terms used but not defined herein shall have the meaning ascribed to them in the
Company’s Charter (as herein defined), and the following terms, as used herein,
shall have the meanings set forth below:
(a)
“
Acquisition Expenses
”
shall mean expenses related to the Advisee’s selection of, and investment in,
real properties and mortgage investments and other investments, whether or not
acquired or made, including but not limited to advertising costs, brokerage
fees, environmental, engineering and other due diligence expenses, legal fees
and expenses, travel and communications expenses, cost of appraisals, accounting
fees and expenses, title insurance and miscellaneous other
expenses.
(b)
“
Acquisition Fee
” shall
have the meaning set forth in Section 11(a)(i).
(c)
“
Affiliate
” means a
Person who is (i) in the case of an individual, any relative of such Person,
(ii) any officer, director, trustee, partner, manager, employee or holder of ten
percent (10%) or more of any class of the voting securities of or equity
interest in such Person; (iii) any corporation, partnership, limited liability
company, trust or other entity controlling, controlled by or under common
control with such Person; or (iv) any officer, director, trustee, partner,
manager, employee or holder of ten percent (10%) or more of the outstanding
voting securities of any corporation, partnership, limited liability company,
trust or other entity controlling, controlled by or under common control with
such Person. For purposes of this definition,
the term
“controls,” “is controlled by,” or “is under common control with” shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of an entity, whether through the ownership of
voting rights, by contract or otherwise.
(d)
“
Asset Management Fee
”
shall have the meaning set forth in Section 11(a)(ii).
(e)
“
Average Invested
Assets
” shall mean the average, at the end of each calendar month during
the calendar quarter in respect of which an Asset Management Fee is being
calculated, of the aggregate book value of the Advisees’ assets invested in
equity interests in and loans secured by real estate, before reserves for
depreciation or bad debt or other similar non-cash reserves.
(f)
“
Board of Directors
”
shall have the meaning set forth in the recitals hereto.
(g)
“
Cause
” shall mean (x)
fraud, criminal conduct, willful misconduct or illegal or negligent breach of
fiduciary duty by the Advisor or a breach of this Agreement by the Advisor; or
(y) if any of the following events occur: (i) the Advisor shall violate any
material provision of this Agreement, and after written notice of such
violation, shall not cure such default within 30 days or have begun action
within 30 days to cure the default which shall be completed with reasonable
diligence, (ii) the Advisor shall be adjudged bankrupt or insolvent by a court
of competent jurisdiction, or an order shall be made by a court of competent
jurisdiction for the appointment of a receiver, liquidator, or trustee of the
Advisor, for all or substantially all of its property by reason of the
foregoing, or if a court of competent jurisdiction approves any petition filed
against the Advisor for reorganization, and such adjudication or order shall
remain in force or unstayed for a period of 30 days, (iii) the Advisor shall
institute proceedings for voluntary bankruptcy or shall file a petition seeking
reorganization under the federal bankruptcy laws, or for relief under any law
for relief of debtors, or shall consent to the appointment of a receiver for
itself or for all or substantially all of its property, or shall make a general
assignment for the benefit of its creditors, or shall admit in writing its
inability to pay its debts, generally, as they become due.
(h)
“
Change of Control
”
shall mean a change of control of the Company of a nature that would be required
to be reported in response to the disclosure requirements of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), as enacted and in force on the date hereof, whether or not
the Company is then subject to such reporting requirements; provided, however,
that, without limitation, a Change of Control shall be deemed to have occurred
if: (i) any “person” (within the meaning of Section 13(d) of the Exchange Act,
as enacted and in force on the date hereof) is or becomes the “beneficial owner”
(as that term is defined in Rule 13d-3, as enacted and in force on the date
hereof, under the Exchange Act) of securities of the Company representing 9.8%
or more of the combined voting power of the Company’s securities then
outstanding; (ii) there occurs a merger, consolidation or other reorganization
of the Company which is not approved by the Board of Directors; (iii) there
occurs a sale, exchange, transfer or other disposition of substantially all of
the assets of the Company to another entity, which disposition is not approved
by the Board of Directors; or (iv) there occurs a contested proxy solicitation
of the Shareholders of the Company that results in the contesting party electing
candidates to a majority of the Board of Directors’ positions next up for
election.
(i)
“
Charter
” shall mean
the Articles of Incorporation of the Company dated as of 30, 2004, as amended
from time to time.
(j)
“
Cumulative Non-Compound
Return
” shall mean, for any period for which a calculation thereof is
being paid, the percentage resulting from dividing (i) the total distributions
paid on each distribution payment date during such period by (ii) the product of
(x) the daily average adjusted investor capital for such period and (b) the
number of years (including fractional years) elapsed during such period (based
on a year of 365 days).
(k)
“
Election Notice
” shall
have the meaning set forth in Section 13(b).
(l)
“
Funds From Operations
”
shall mean net income (computed in accordance with GAAP), excluding gains or
losses from debt restructuring and sales of properties, plus depreciation of
real property and amortization, and after adjustments for unconsolidated
partnerships and joint ventures.
2
(m)
“
Funds From Operations Per
Weighted Average Share
” shall mean the amount equal to four (4) times the
Funds From Operations per weighted average Share for the Company for the quarter
in which an Election Notice is delivered, based on and as described in the
quarterly report of the Company delivered to its stockholders for such
quarter.
(n)
“
GAAP
” shall mean
United States generally accepted accounting principals, consistently
applied.
(o)
“
Good Reason
” shall
mean, with respect to the termination of this Agreement, (x) any failure to
obtain a satisfactory agreement from any successor to an Advisee to assume and
agree to perform such Advisee’s obligations under this Agreement; or (y) any
material breach of this Agreement of any nature whatsoever by an
Advisee.
(p)
“
Independent Director
”
shall have the meaning set forth in the By-laws of the Company, as amended from
time to time.
(q)
“
Initial Term
” shall
have the meaning set forth in Section 17(a).
(r)
“
Partnership Agreement
”
shall mean the Agreement of Limited Partnership of the OP dated as of 30, 2004,
as amended and restated from time to time.
(s)
“
Person
” shall mean an
individual, corporation, partnership, joint venture, association, company
(whether of limited liability or otherwise), trust, bank or other entity, or
government or any agency or political subdivision of a government.
(t)
“
Preferred Return
”
shall mean the receipt by the stockholders of the Company of (i) a Cumulative
Non-Compound Return of 7% per year on such stockholders’ net investment, and
(ii) the amount of such net investment.
(u)
“
Prospectus
” shall mean
the final prospectus of the Company in connection with the initial registration
of the Shares filed with the SEC on Form S-11, as amended and supplemented from
time to time.
(v)
“
SEC
” shall mean the
United States Securities and Exchange Commission.
(w)
“
Share
” shall mean a
share of the Common Stock, par value $0.01, of the Company.
(x)
“
Special General
Partner
” shall have the meaning set forth in the Partnership
Agreement.
(y)
“
Special Liquidation
Distribution
” shall mean the liquidation distributions received by the
Special General Partner pursuant to Section 13.2 of the Partnership
Agreement.
(aa)
“
Total Operating
Expenses
” of a Person means the aggregate of all expenses paid or
incurred by such Person, but excluding organization and offering expenses,
interest payments, taxes, non-cash expenditures, any Acquisition Fee or other
acquisition expenses.
2.
Duties of Advisor
. The
Company, on its own behalf, and as general partner of the OP, hereby retains and
appoints the Advisor as the advisor of the Company and the OP to perform the
services hereinafter set forth, and the Advisor hereby accepts such appointment,
all subject to the terms and conditions hereinafter set forth. In the
performance of this undertaking, subject to the supervision of the Board of
Directors and consistent with the provisions of the Company’s Charter and the
Agreement of Limited Partnership of the OP (the “Partnership Agreement”), the
Advisor shall devote sufficient resources to the administration of the Company
to discharge is obligations hereunder and shall:
a. obtain
for the Advisees, furnish and/or supervise the services necessary to perform any
ministerial functions in connection with the management of the day-to-day
operations of the Advisees;
3
b. use
its best efforts to seek out, present and recommend to the Advisees, whether
through its own efforts or those of third parties retained by it, suitable
investment opportunities that are consistent with the Advisees’ respective
investment objectives and policies and acquisition strategy and objectives, as
adopted by the Board of Directors from time to time, and negotiate on behalf of
the Advisees with respect to potential investments or the disposition
thereof;
c.
exercise absolute discretion, subject to the Board of Directors’ review, in
decisions to originate, acquire, retain or sell real properties,
provided
,
that
, the Advisor may acquire
on behalf of the Advisees any real property with purchase price that is less
than $15,000,000, or finance such an acquisition on the Advisees’ behalf,
without the prior approval of the Board of Directors if and to the extent
that:
i. the
proposed acquisition or financing would not, if consummated, violate or conflict
with the investment guidelines of the Advisees as set forth in the
Prospectus;
ii. the
proposed acquisition or financing would not, if consummated, violate the
restriction set forth in section 2(f) below; and
iii. the
consideration proposed to be paid for such real property does not exceed the
fair market value of such property, as determined by a qualified independent
real estate appraiser selected in good faith by the Advisor and acceptable to
the Independent Directors;
d.
recommend investment opportunities consistent with the Advisees’ respective
investment objectives and policies and negotiate on behalf of the Advisees with
respect to potential investments or the disposition thereof;
e.
structure the terms and conditions pursuant to which acquisitions of properties
will be made, subject to the Board of Directors’ review;
f.
arrange for financing and refinancing of properties, subject to the Board of
Directors’ prior approval if such financing or refinancing, when consummated
causes the total leverage on each such property or on all such properties in the
aggregate to exceed 75% of such property’s or properties’, as the case may be,
fair market value;
g. obtain
for the Advisees such other services as may be required in acquiring or
disposing of investments, disbursing and collecting the funds of the Advisees,
paying the debts and fulfilling the obligations of the Advisees, and handling,
prosecuting and settling any claims of the Advisees;
h. obtain
for the Advisees such services as may be required for property management,
leasing, mortgage brokerage and servicing, and other activities relating to the
investment portfolio of the Advisees;
i.
supervise the servicing of the Advisees’ loan portfolios;
j.
administer the Advisee’s respective bookkeeping and accounting functions, and
prepare, or cause to be prepared, statements and other relevant information for
distribution to stockholders or partners, as the case may be, including annual
and quarterly reports and any filings required by regulatory
authorities;
k.
monitor operations and expenses of the Advisees;
l. from
time to time, or as requested by the Board of Directors, make reports to the
Advisees as to its performance of the foregoing services;
m.
perform any other powers of the Board of Directors or the Company (as general
partner of the OP) which (with respect to the Company) are set forth in the
Charter and the Partnership Agreement, as applicable, which may be delegated to
it by the Board of Directors from time to time;
n. render
such other services as the Board of Directors deems appropriate;
and
o. do all
things necessary to assure its ability to render the services contemplated
herein.
3.
Fiduciary Relationship
. The
Advisor, as a result of its relationship with the Advisees pursuant to this
Agreement, stands in a fiduciary relationship with the stockholders of the
Company and the partners of the OP.
4
4.
No Partnership or Joint
Venture
. The Advisees and the Advisor are not partners or joint venturers
with each other and nothing herein shall be construed to make them partners or
joint venturers or impose any liability as such on either of them.
5.
Records
. At all times, the
Advisor shall keep books of account and records relating to services performed
hereunder, which books of account and records shall be accessible for inspection
by the Advisees and the Advisee’s appointees at any time during the ordinary
business hours of the Advisor.
6.
REIT Qualification; Other
Limitations on Advisor Actions
. Anything else in this Agreement to the
contrary notwithstanding, the Advisor shall refrain from any action which, in
its sole judgment made in good faith, or, in the judgment of the Board of
Directors provided that the Board of Directors give the Advisor written notice
to such effect, would (a) adversely affect the status of the Company as a real
estate investment trust pursuant to Section 856 of the Code; (b) cause the
Advisees to be classified as an “investment company” for purposes of the
Investment Company Act of 1940, as amended, (c) cause the OP to be classified
other than as a partnership for purposes of the Code; (d) violate any law, rule,
regulation or statement of policy of any governmental body or agency having
jurisdiction over the Advisees or over their securities, or (e) be prohibited by
the Company’s Charter or the Partnership Agreement of the OP.
7.
Bank Accounts
. The Advisor
may establish and maintain one or more bank accounts in the name of the Advisees
or in its own name as agent for the Advisees and may collect and deposit in and
disburse from any such account, any money on behalf of the Advisees, under such
terms and conditions as the Board of Directors may approve, provided that no
funds in such account shall be commingled with funds of the Advisor. From time
to time and upon appropriate request, the Advisor shall render appropriate
accounting of such collections and payments to the Board of Directors and the
auditors of the Advisees.
8.
Bond
. If required by the
Board of Directors, the Advisor will maintain a fidelity bond with a responsible
surety company in such amounts as may be required by the Board of Directors,
covering all members or partners thereof together with employees and agents of
the advisor handling funds of the Advisees and investment documents or records
pertaining to investments of the Advisees. Such bonds shall inure to the benefit
of the Advisees in respect of losses from acts of such partners, employees and
agents through theft, embezzlement, fraud, negligence, error or omission or
otherwise. The premiums on such bonds shall be paid by the
Advisees.
9.
Information Furnished to
Advisor
. The Board of Directors shall, at all times, keep the Advisor
fully informed with regard to the investment policies of the Advisees, including
any specific types of real properties, mortgage investments and mortgage
securities desired, and any criteria or conditions established by the Board of
Directors as to whether the Advisees will make a particular investment, the
capitalization policy of the Advisees (including the policy with regard to the
incurrence of indebtedness by the Advisees) and their intentions as to the
future operations of the Advisees. In particular, the Board of Directors shall
notify the Advisor promptly of their intention to either sell or otherwise
dispose of any of the Advisees’ investments, to make any new investment, to
incur any indebtedness or to issue any additional shares of Common Stock or
Preferred Stock of the Company or any partnership interests in the
OP.
10.
Consultation and Advice
. In
addition to the services described above, the Advisor shall consult with the
Board of Directors and shall, at the request of the Board of Directors of the
Company, furnish advice and recommendations with respect to other aspects of the
business and affairs of the Advisees.
11.
Fees and Other Compensation of the
Advisor
.
a. The
Advisor or its designees shall be entitled to receive from the respective
Advisees (except those payable by others as noted below) the following fees and
other compensation, which shall be paid to the Advisor by the OP on its own
behalf or on behalf of the Company:
(i)
Acquisition
Fee.
The Advisor or its Affiliates shall receive an acquisition fee (the
“
Acquisition Fee
”) of
two percent and three quarters (2.75%) of the gross contract purchase price of
each property
5
acquired
by an Advisee, including the amount of any mortgage securing such property,
payable by the OP on behalf of the applicable Advisee upon consummation of the
investment;
provided
,
that
, the Acquisition
Fee, together with any and all Acquisition Expenses and other acquisition fees
paid to the Advisor or to any third parties, whether or not affiliated with the
Advisor or the Advisees, shall not exceed, in the aggregate, six percent (6.0%)
of the gross contract purchase price of a particular property, including the
amount of any mortgage securing such property. In the event that such
acquisition fees and expenses, including the Acquisition Fee, exceed such
limitation, the Acquisition Fee shall be reduced by such excess
amount.
(ii)
Asset Management
Fee.
The Advisor or its Affiliates shall receive an asset management fee
(the “
Asset Management
Fee
”) in an amount equal to fifty five basis points (0.55%) per annum of
Average Invested Assets. The Asset Management Fee is payable quarterly, in
arrears at the end of each calendar quarter, in an amount of 0.1375% of Average
Invested Assets in the immediately preceding quarter.
(iii)
Fees for
Additional Services.
Subject to Section 15 below, the Advisor shall be
entitled to receive compensation for any additional services requested from time
to time by the Advisees on separate agreed-upon terms, subject to approval by a
majority of the Independent Directors as being fair and reasonable to the
Company.
b.
No Property
Disposition Fee.
The Advisor
shall not be entitled to
receive any fee in connection with property sold or otherwise disposed of by any
Advisee, although independent third parties may be compensated in such
circumstances.
c.
Stockholder/Partner
Interests Distributions.
The Advisor shall be
entitled to receive distributions from the Advisees in respect of any shares of
Common Stock of the Company or partner interests of the OP which it holds, along
with the other holders of such shares or interests.
12.
Statements
. Prior to the
payment of any fees hereunder, the Advisor shall furnish to the Advisees a
statement showing the computation of the fees, if any, payable under Section 11
hereof.
13.
Business Combination of the Company
and the Advisor
.
a. The
Company shall have the option at any time, after the initial date of
effectiveness of the Prospectus upon prior written notice, during the term of
this Agreement without any consent of the Advisor, the Board of Directors or the
Company’s stockholders to cause the business conducted by the Advisor
(including, in such event, all of its assets) to be acquired by or consolidated
into the Company. The Advisor and/or its members or stockholders will receive in
connection with such acquisition and in exchange for terminating this Agreement
and the release or waiver of all fees (including any fees that have accrued
during the term of this Agreement) payable under the provisions of this
Agreement until its stated termination, but not paid, that number of Shares
determined in accordance with subsection (b) below. The Company will be
obligated to pay any fees accrued under this Agreement for services rendered
through the closing of such acquisition.
b. The
number of Shares to be issued by the Company to the Advisor in the event of a
transaction of the type described in subsection (a) above shall be determined as
follows. The Company shall first send notice (the “
Election Notice
”) to the
Advisor of its election to proceed with such a transaction. Next, the net income
of the Advisor, for the six month period immediately preceding the month in
which the Election Notice is delivered, as determined by an independent audit
conducted in accordance with GAAP, shall be annualized. The Advisor shall bear
the cost of any such audit. Such amount shall than be multiplied by nine-tenths
(0.90) and then divided by the Funds From Operations Per Weighted Average Share.
The resulting quotient shall constitute the number of Shares to be issued by the
Company to the Advisor or its members or stockholders, with delivery thereof and
the closing of the transaction to occur within ninety (90) days of delivery of
the Election Notice. Any such transaction will occur, if at all, only if the
Board of Directors obtains a fairness opinion from a recognized financial
advisor or institution providing valuation services to the effect that the
consideration to be paid therefor is fair, from a financial point of view, to
the stockholders of the Company.
6
c. The
Company shall not terminate this Agreement solely for the purpose of avoiding
such a business combination, such as in anticipation of the listing of the
Shares on a national stock exchange or their inclusion in a national market
system, including, without limitation, Nasdaq.
14.
Expenses of the
Company
.
a. The
OP, on its own behalf and on behalf of the Company, shall pay all of the
Advisees’ expenses. Without limiting the foregoing, it is specifically agreed
that the following expenses of an Advisee shall be paid by the OP on its own
behalf or on behalf of the Company and shall not be borne by the Advisor unless
such expense is a fee or other service for which the Advisor is otherwise
receiving a fee from the Advisees:
(i) the
cost of money borrowed by the Advisee;
(ii) all
taxes applicable to the Advisee including, without limitation, taxes on income
and on assessments of real property;
(iii)
fees and expenses paid to independent contractors, unaffiliated mortgage
servicers, consultants, managers and other agents employed by or no behalf of
the Advisee;
(iv)
Acquisition Expenses and expenses directly connected with the ownership and
disposition of real property or other investments, and with the purchase or
origination of real property and mortgage investments (including the costs of
foreclosure, insurance premiums, legal services, brokerage and sales commission,
maintenance, repair and improvement of property);
(v)
expenses of maintaining and managing real estate equity interests, processing
and servicing mortgage and other loans and managing the Advisee’s other
investments;
(vi)
insurance coverage in connection with the business of the Advisee (including
officers’, directors’ and partners’ liability insurance);
(vii) the
expenses of dissolving and liquidating the Advisee or revising, amending or
modifying its organizational documents;
(viii)
expenses connected with payments of dividends or interest or distribution in
cash or any other form made or caused to be made by the Board of Directors to
the stockholders or partners, as the case may be, of such Advisee.
(ix) all
expenses connected with communications to stockholders or partners, as the case
may be, and other bookkeeping and clerical work necessary in maintaining
relations with the stockholders or partners, as the case may be, including the
cost of printing and mailing certificates for securities, proxy solicitation
materials and reports to holders of the Advisee’s securities;
(x) the
cost of any accounting, statistical or bookkeeping equipment necessary for the
maintenance of the books and records of the Advisee;
(xi)
transfer agent’s and registrar’s fees and charges; and
(xii)
other legal, accounting and auditing fees and expenses as well as any costs
incurred in connection with any litigation in which the Advisee is involved and
the examination, investigation or other proceedings conducted by any regulatory
agency with respect to the Advisee.
b. The
Advisor shall bear the expenses it incurs in connection with performing its
duties under the advisory agreement. These include salaries and fringe benefits
of its directors and officers and travel and other administrative expenses of
its directors or officers.
c. The OP
shall reimburse the Advisor and its Affiliates on its own behalf or on behalf of
the Company for (i) advertising expenses, expense reimbursements, and legal and
accounting fees; (ii) the actual cost of goods and materials used by the
Advisees and obtained from entities not affiliated with the Advisor; (iii)
administrative services (including personnel costs; provided, however, that no
reimbursement shall be made
7
for costs
of personnel to the extent that such personnel perform services in transactions
for which the Advisor receives a separate fee); (iv) acquisition expenses, which
include travel and expenses related to the selection and acquisition of
properties, for goods and services provided by the Advisor; (v) rent, leasehold
improvement costs, utilities or other administrative items generally
constituting Advisor’s overhead; and (vi) expenses related to negotiating and
servicing mortgage loans. In no event shall the OP reimburse the Advisor for any
services for which the Advisor shall receive a separate fee. The amounts charged
to an Advisee for services performed shall not exceed the lesser of (a) the
actual cost of such services, or (b) the amount which such Advisee would be
required to pay to independent parties for comparable services.
d.
Notwithstanding the foregoing, reimbursements of expenses and payment of fees
under this Agreement will be subject to approval by the Board of Directors
(including the approval of the majority of Independent Directors).
15.
Reimbursement by Advisor
. For
any year which the Company qualifies as a real estate investment trust under the
Internal Revenue Code of 1986, as amended, the Advisor shall be obligated to
reimburse the Advisees for the amounts, if any, by which the sum of Advisees’
Total Operating Expenses and Asset Management Fees paid during the immediately
prior fiscal year exceed the greater of (i) 2.0% of the Company’s and the OP’s
Average Invested Assets during the four quarters of such fiscal year, or (ii)
25.0% of the Company’s and the OP’s net income for such fiscal year;
provided
,
however
, that the Board of
Directors (including a majority of the Independent Directors) may require a
lower amount which the Advisor shall be obligated to reimburse the Company, upon
a determination that such lower reimbursement amount is justified in light of
such unanticipated, unusual or non-recurring factors which may have occurred
within sixty (60) days after the end of the quarter for which the excess
occurred, and there shall be sent to the stockholders of the Company a written
disclosure of such determination, together with an explanation of the factors
the Board of Directors considered in arriving at the conclusion that the higher
Total Operating Expenses were justified.
16.
Other Activities of
Advisor
.
(a)
Except as set forth in this Section 16, nothing in this Agreement shall prevent
the Advisor or any of its Affiliates from engaging in other business activities
related to real estate, mortgage investments or other investments whether
similar or dissimilar to those made by any of the Advisees or from acting as
advisor to any other person or entity having investment policies whether similar
or dissimilar to those of the Company or the OP (including other REITs or
partnerships);
provided
,
that
, before the Advisor and
all Persons controlled by the Advisor may take advantage of an opportunity for
their own account or present or recommend it to others, they are obligated to
present an investment opportunity to an Advisee if (i) such opportunity is
compatible with such Advisee’s investment objectives and policies (including
such Advisee’s requirements relating to all pertinent factors, including
diversification, property type and location), (ii) such opportunity is of a
character which could be taken by such Advisee, and (iii) the Advisee has the
financial resources to take advantage of such opportunity. In furtherance, and
not in limitation, of the immediately preceding sentence, neither the Advisor
nor any Affiliate of the Advisor may make any investment in residential, retail,
industrial and office properties where the investment objective is substantially
similar to the investment objectives of the Advisees until such time as seventy
five percent (75.0%) of the total gross proceeds from the offering of the
Company’s shares offered for sale pursuant to a registration statement on form
S-11 filed with the SEC, following final closing of such offering, have been
invested or committed for investment in such properties.
(b) The
Advisor will use its best efforts to present suitable investments to the
Advisees consistent with their investment procedures, objectives and policies.
If the Advisor or any of its Affiliates is presented with a potential investment
in a property which might be made by more than one investment entity which it
advises or manages, the decision as to the suitability of the property for
investment by a particular entity will be based upon a review of the investment
portfolio of each entity and upon factors such as: (i) cash flow from the
property; (ii) the effect of the acquisition of the property on the
diversification of each entity’s portfolio; (iii) rental payments during any
renewal period; (iv) the amount of equity required to make the
8
investment;
(v) the policies of each entity relating to leverage; (vi) the funds of each
entity available for investment; and (vii) the length of time the funds have
been available for investment and the manner in which the potential investment
can be structured by each entity. To the extent that a particular property might
be determined to be suitable for more than one investment entity, priority
generally will be given to the investment entity having uninvested funds for the
longest period of time.
17.
Term; Termination of
Agreement.
This Agreement shall continue in force for a period of one
year from the date hereof (the “Initial Term”) and thereafter it may be renewed
from year to year by written consent of the parties hereto. Notwithstanding any
other provision to the contrary, this Agreement may be terminable by the Advisor
or by the Advisees (upon determination of the majority of the Independent
Directors) at any time upon 60 days’ prior written notice to the non-terminating
party. In the event of the termination of this Agreement, the Advisor will
cooperate with the Advisees and take all reasonable steps requested to assist
the Advisees in making an orderly transition of the advisory
function.
18.
[RESERVED]
19.
Amendments
. This Agreement
shall not be changed, modified, terminated or discharged in whole or in part
except by an instrument in writing signed by all parties hereto, or their
respective successors or permitted assigns, or otherwise as provided
herein.
20.
Assignment
. This Agreement
may not be assigned by the Advisor, except to an Affiliate of the Advisor, and
then only upon the consent of the Advisees and the approval of a majority of the
Independent Directors. Any assignee of the Advisor shall be bound hereunder to
the same extent as the Advisor. This Agreement shall not be assigned by any
Advisee without the written consent of the Advisor, except to a corporation,
association, trust or other organization which is a successor to such Advisee.
Such successor shall be bound hereunder to the same extent as such Advisee.
Notwithstanding anything to the contrary contained herein, the economic rights
of the Advisor hereunder, including the right to receive all compensation
hereunder, may be sold, transferred or assigned by the Advisor without the
consent of the Advisees.
21.
Action Upon Termination.
From
and after the effective date of termination of this Agreement, pursuant to
Section 17 hereof, the Advisor shall not be entitled to compensation for further
service rendered hereunder but shall be paid all compensation and reimbursed for
all expenses accrued through the date of termination within thirty (30) days of
such termination. The Advisor shall forthwith upon such
termination:
(a) Pay
over to the Advisees all moneys collected and held for the account of such
Advisees pursuant to this Agreement, after deducting any accrued compensation
and reimbursement for its expenses to which it is then entitled;
(b)
Deliver to the Advisees a full accounting, including a statement showing all
payments collected by it and a statement of all moneys held by it, covering the
period following the date of the last accounting furnished to the Advisees;
and
(c)
Deliver to the Advisees all property and documents of the Advisees then in the
custody of the Advisor.
22.
Incorporation of the Charter and the
Partnership Agreement.
To the extent the Charter or the Partnership
Agreement impose obligations or restrictions on the Advisor or grant the Advisor
certain rights which are not set forth in this Agreement, the Advisor shall
abide by such obligations or restrictions and such rights shall inure to the
benefit of the Advisor with the same force and effect as if they were set forth
herein.
23
. Standard of
Care
.
a. The
Advisor assumes no responsibility under this Agreement other than to render the
services called for hereunder in good faith, and shall not be responsible for
any action of the Advisees in following or
9
declining
to follow any advice or recommendations of the Advisor. Neither the advisor nor
its directors, officers, partners, members, and employees shall be liable to the
Advisees, or to the stockholders, partners or directors of the Advisees, as the
case may be, or to any successor or assignee of the Advisees, except by reason
of acts constituting bad faith, gross negligence or willful misconduct. This
shall in no way affect the standard for indemnification but shall only
constitute a standard of liability. The duties to be performed by the Advisor
pursuant to this Agreement may be performed by it or by officers, members or
directors or by Affiliates of the foregoing under the direction of the Advisor
or delegated to unaffiliated third parties under its direction.
b. The
Advisor shall look solely to the assets of the Advisees for satisfaction of all
claims against the Advisees, and in no event shall any stockholder, partner or
director of the Advisees, as the case may be, have any personal liability for
the obligations of the Advisees under this Agreement.
24
. Indemnification of
Advisor
.
a.
Subject to sections (b)-(d) below, the Advisees shall indemnify the Advisor and
its Affiliates for any loss arising out of any of their acts or omissions in
connection with this Agreement and the Advisor and its Affiliates will be held
harmless for any loss of liability suffered by the Advisees.
b. The
Advisees shall not indemnify the Advisor or its Affiliates for any liability
loss suffered by the Advisor or its Affiliates, nor shall it hold the Advisor or
its Affiliates harmless for any loss or liability suffered by the Advisees
unless all of the following conditions are met: (i) the Advisor or its
Affiliates determined in good faith that the course of conduct which caused the
loss or liability was in the best interests of the Advisees, (ii) the Advisor or
its Affiliates were acting on behalf of the Advisees or performing services for
the Advisees, (iii) such liability or loss or expense was not the result of
negligence or misconduct on the part of the Advisor or its Affiliates and (iv)
such indemnification or agreement to hold harmless shall be recoverable only out
of the net assets of the Advisees and not from the stockholders, partners or
members of the Advisees.
c. Not
withstanding anything to the contrary in subsection b, the Advisees shall not
indemnify the Advisor or its Affiliates or any persons acting as a broker-dealer
for any losses, liabilities or expenses arising from or out of an alleged
violation of federal or state securities laws by such party unless one or more
of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular Indemnitee, (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnitee or (iii) a court of competent jurisdiction approves a
settlement of the claims against a particular Indemnitee and finds that
indemnification of the settlement and related costs should be made, and the
court considering the matter has been advised of the position of the Securities
and Exchange Commission and the published position of any state securities
regulatory authority as to indemnification for violations of securities
law.
d. The
Advisees will advance amounts to the Advisor or its Affiliates for legal
expenses and other costs incurred as a result of any legal action for which
indemnification is being sought is permissible only if all of the following
conditions are satisfied: (i) the legal action relates to acts or omissions with
respect to the performance of duties or services on behalf of the Advisees, (ii)
the legal action is initiated by a third party who is not a Stockholder or is
initiated by a Stockholder acting in his or her capacity as such and a court of
competent jurisdiction specifically approves the advancement and (iii) the
Advisor or its Affiliates undertake in writing to repay the advanced funds to
the Advisees, together with the applicable legal rate of interest thereon, in
cases in which such the Advisor or its Affiliates are found not to be entitled
to indemnification.
10
25.
Notices
. Any notice, report
or other communication required or permitted to be given hereunder shall be in
writing, and shall be given by delivering such notice by hand or by certified
mail, return receipt requested, postage pre-paid, at the following addresses of
the parties hereto:
Advisees
:
The Company
:
Lightstone
Value Plus Real Estate Investment Trust, Inc.
326 Third
Street
Lakewood,
New Jersey 08701
Attn:
David Lichtenstein
Chief Executive Officer
With a
copy to:
Proskauer
Rose LLP
1585
Broadway
New York,
New York 10036
Attention:
Peter M. Fass, Esq.
The OP
Lightstone
Value Plus Reit LP
[326
Third Street
Lakewood,
New Jersey 08701]
With a
copy to:
Proskauer
Rose LLP
1585
Broadway
New York,
New York 10036
Attention:
Peter M. Fass, Esq.
The Advisor
:
Lightstone
Value Plus Reit LLC
326 Third
Street
Lakewood,
New Jersey 08701
Attn:
David Lichtenstein
Chief Executive Officer
With a
copy to:
Proskauer
Rose LLP
1585
Broadway
New York,
New York 10036
Attention:
Peter M. Fass, Esq.
Any party
may at any time change its address for the purpose of this Section 25 by like
notice.
26.
Headings
. The section
headings herein have been inserted for convenience of reference only and shall
not be construed to affect the meaning, construction or effect of this
Agreement.
27.
No Waivers
. Neither the
failure nor any delay on the party of a party to exercise any right, remedy,
power or privilege under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise
11
of any
right, remedy, power or privilege preclude any other or further exercise of the
same or of any other right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrences. No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver.
28.
Counterparts
. This Agreement
may be executed in any number of counterparts, each of which shall be deemed to
be an original, and all of which shall together constitute one and the same
instrument.
29.
Entire Agreement
. This
Agreement contains the entire agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, inducements and conditions, express
or implied, oral or written, of any nature whatsoever with respect to the
subject matter hereof.
30
. Governing Law.
The
provisions of this Agreement shall be construed and interpreted in accordance
with the laws of the State of New York as at the time in effect.
[END OF
TEXT]
12
Exhibit
10.1
IN
WITNESS WHEREOF, the undersigned have caused this Agreement to be signed as of
the day and year first above written.
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LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.
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By:
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/
S
/ D
AVID
L
ICHTENSTEIN
|
|
|
Name:
David Lichtenstein
|
|
|
Title:
Chief Executive Officer
|
|
LIGHTSTONE
VALUE PLUS REIT LP
|
|
|
By:
|
|
Lightstone
Value Plus Real Estate
Investment
Trust, Inc.,
|
|
|
its
General Partner
|
|
|
By:
|
|
/
S
/ D
AVID
L
ICHTENSTEIN
|
|
|
Name:
David Lichtenstein
|
|
|
Title:
Chief Executive Officer
|
|
LIGHTSTONE
VALUE PLUS REIT LLC
|
|
|
By:
|
|
/
S
/ D
AVID
L
ICHTENSTEIN
|
|
|
Name:
David Lichtenstein
|
|
|
Title:
Authorized
Person
|
Exhibit
10.2
FORM
OF
MANAGEMENT
AGREEMENT
This
management agreement (this “Management Agreement”) is made and entered into as
of the 22nd day of April, 2005, by and among LIGHTSTONE VALUE PLUS REAL ESTATE
INVESTMENT TRUST, INC., a Maryland corporation (the “Company”), LIGHTSTONE VALUE
PLUS REIT LP, a Delaware limited partnership (the “OP”, and together with the
Company, the “Owner”), and LIGHTSTONE VALUE PLUS REIT MANAGEMENT LLC, a Delaware
limited liability company (the “Manager”).
WHEREAS,
the OP was organized to acquire, own, operate, lease and manage real estate
properties on behalf of the Company; and
WHEREAS,
the Company intends to continue to raise money from the sale of its common stock
to be used, net of payment of certain offering costs and expenses, for
investment in the acquisition or rehabilitation of income-producing real estate
to be acquired and held by the Company or by the OP on behalf of the Company;
and
WHEREAS,
Owner wishes to retain Manager to manage and coordinate the leasing of the real
estate properties acquired by Owner, and the Manager wishes to be so retained,
all under the terms and conditions set forth in this Management
Agreement.
NOW,
THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, do hereby agree as
follows:
ARTICLE
I.
DEFINITIONS
Except as
otherwise specified or as the context may otherwise require, the following terms
have the respective meanings set forth below for all purposes of this Management
Agreement, and the definitions of such terms are equally applicable both to the
singular and plural forms thereof
1.1
“
Account
” has the
meaning set forth in Section 2.3(i) hereof.
1.2
“
Affiliate
” means a
person who is (i) in the case of an individual, any relative of such person,
(ii) any officer, director, trustee, partner, manager, employee or holder of ten
percent (10%) or more of any class of the voting securities of or equity
interest in such person; (iii) any corporation, partnership, limited liability
company, trust or other entity controlling, controlled by or under common
control with such person; or (iv) any officer, director, trustee, partner,
manager, employee or holder of ten percent (10%) or more of the outstanding
voting securities of any corporation, partnership, limited liability company,
trust or other entity controlling, controlled by or under common control with
such person. For purposes of this definition, the term “controls,” “is
controlled by,” or “is under common control with” shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of an entity, whether through the ownership of voting
rights, by contract or otherwise.
1.3
“
Director
” means a
member of the board of directors of the Company.
1.4
“
Election Notice
” has
the meaning set forth in Section 7.2 hereof.
1.5
“
Funds From Operations
”
shall mean net income (computed in accordance with GAAP), excluding gains or
losses from debt restructuring and sales of Properties, plus depreciation of
real property and amortization, and after adjustments for unconsolidated
partnerships and joint ventures.
1.6
“
Funds From Operations Per
Weighted Average Share
” shall mean the amount equal to four (4) times the
Funds From Operations per weighted average Share for the Company for the quarter
in which an Election Notice is delivered, based on and as described in the
quarterly report of the Company delivered to its stockholders for such
quarter.
1.7
“
GAAP
” shall mean
United States generally accepted accounting principals, consistently
applied.
1.8
“
Gross Revenues
” means
all amounts actually collected as rents or other charges for the use and
occupancy of the Properties, but shall exclude interest and other investment
income of Owner and proceeds received by Owner for a sale, exchange,
condemnation, eminent domain taking, casualty or other disposition of assets of
Owner.
1.9
“
Improvements
” means
buildings, structures, equipment from time to time located on the Properties and
all parking and common areas located on the Properties.
1.10
“
Independent Director
”
shall have the meaning set forth in the by-laws of the Company as in effect from
time to time.
1.11
“
Management Fees
” has
the meaning set forth in Section 4.1 hereof.
1.12
“
Properties
” means all
real estate properties owned by Owner and all tracts as yet unspecified but to
be acquired by Owner containing income-producing Improvements or on which Owner
will rehabilitate income-producing Improvements. Properties shall be classified
under four categories, residential, retail, industrial and office
properties.
1.13
“
Share
” shall mean a
share of the Common Stock, par value $0.01, of the Company.
ARTICLE
II.
APPOINTMENT
OF MANAGER; SERVICES TO BE PERFORMED
2.1
Appointment of Manager
. Owner
hereby engages and retains Manager as the sole and exclusive manager and agent
of the Properties, and Manager hereby accepts such appointment, all on the terms
and conditions hereinafter set forth, it being understood that this Management
Agreement shall cause Manager to be, at law, Owner’s agent upon the terms
contained herein.
2.2
General Duties
. Manager shall
devote its best efforts to performing its duties hereunder to manage, operate,
maintain and lease the Properties in a diligent, careful and vigilant manner.
The services of Manager are to be of scope and quality not less than those
generally performed by professional property managers of other similar
properties in the area. Manager shall make available to Owner the full benefit
of the judgment, experience and advice of the members of Manager’s organization
and staff with respect to the policies to be pursued by Owner relating to the
operation and leasing of the Properties.
2.3
Specific Duties
. Manager’s
duties include the following:
(a)
Lease
Obligations
. Manager shall perform all duties of the landlord under all
leases insofar as such duties relate to operation, maintenance, and day-to-day
management. Manager shall also provide or cause to be provided, at Owner’s
expense, all services normally provided to tenants of like premises, including,
where applicable and without limitation, gas, electricity or other utilities
required to be furnished to tenants under leases, normal repairs and
maintenance, and cleaning, and janitorial service. Manager shall arrange for and
supervise the performance of all installations and improvements in space leased
to any tenant which are either expressly required under the terms of the lease
of such space or which are customarily provided to tenants.
(b)
Maintenance
.
Manager shall cause the Properties to be maintained in the same manner as
similar properties in the area. Manager’s duties and supervision in this respect
shall include, without limitation, cleaning of the interior and the exterior of
the Improvements and the public common areas on the Properties and the making
and supervision of repair, alterations, and decoration of the Improvements,
subject to and in strict compliance with this Management Agreement and any
applicable leases. Construction and rehabilitation activities undertaken by the
Manager, if any, will be limited to activities related to the management,
operation, maintenance, and leasing of the Property (e.g., repairs, renovations,
and leasehold improvements).
(c)
Leasing
Functions
. Manager shall coordinate the leasing of the Properties and
shall negotiate and use its best efforts to secure executed leases from
qualified tenants, and to execute same on behalf of Owner, if requested, for
available space in the Properties, such leases to be in form and on terms
approved by Owner and Manager, and to bring about complete leasing of the
Properties. Manager shall be responsible for the hiring of all leasing agents,
as necessary for the leasing of the Properties, and to otherwise oversee and
manage the leasing process on behalf of the Owner.
(d)
Notice of
Violations
. Manager shall forward to Owner promptly upon receipt all
notices of violation or other notices from any governmental authority, and board
of fire underwriters or any insurance company, and shall make such
recommendations regarding compliance with such notice as shall be
appropriate.
(e)
Personnel
.
Any personnel hired by Manager to maintain, operate and lease the Property shall
be the employees or independent contractors of Manager and not of the Owner.
Manager shall use due care in the selection and supervision of such employees or
independent contractors. Manager shall be responsible for the preparation of and
shall timely file all payroll tax reports and timely make payments of all
withholding and other payroll taxes with respect to each employee.
(f)
Utilities and
Supplies
. Manager shall enter into or renew contracts for electricity,
gas, steam, landscaping, fuel, oil, maintenance and other services as are
customarily furnished or rendered in connection with the operation of similar
rental property in the area.
(g)
Expenses
.
Manager shall analyze all bills received for services, work and supplies in
connection with the maintaining and operating the Properties, pay all such
bills, and, if requested by Owner, pay, when due, utility and water charges,
sewer rent and assessments, any applicable taxes, including, without limitation,
any real estate taxes, and any other amount payable in respect to the
Properties. All bills shall be paid by Manager within the time required to
obtain discounts, if any. Owner may from time to time request that Manager
forward certain bills to Owner promptly after receipt, and Manager shall comply
with any such request. It is understood that the payment of real property taxes
and assessment and insurance premiums will be paid out of the Account (as
hereinafter defined) by Manager. All expenses shall be billed at net cost (i.e.,
less all rebates, commissions, discounts and allowances, however
designed).
(h)
Monies
Collected
. Manager shall collect all rent and other monies from tenants
and any sums otherwise due Owner with respect to the Properties in the ordinary
course of business. In collecting such monies, Manager shall inform tenants of
the Properties that all remittances are to be in the form of a check or money
order. Owner authorizes Manager to request, demand, collect and receipt for all
such rent and other monies and to institute legal proceedings in the name of
Owner for the collection thereof and for the dispossession of any tenant in
default under its lease.
(i)
Banking
Accommodations
. Manager shall establish and maintain a separate checking
account (the “
Account
”)
for funds relating to the Properties. All monies deposited from time to time in
the Account shall be deemed to be trust funds and shall be and remain the
property of Owner and shall be withdrawn and disbursed by Manager for the
account of Owner only as expressly permitted by this Management Agreement for
the purposes of performing the obligations of Manager hereunder. No monies
collected by Manager on Owner’s behalf shall be commingled with funds of
Manager. The Account shall be maintained, and monies shall be deposited therein
and withdrawn therefrom, in accordance with the following:
(i) All
sums received from rents and other income from the Properties shall be promptly
deposited by Manager in the Account. Manager shall have the right to designate
two or more persons who shall be authorized to draw against the Account, but
only for purposes authorized by this Management Agreement.
(ii)
All sums due to Manager hereunder, whether for compensation, reimbursement for
expenditures, or otherwise, as herein provided, shall be a charge against the
operating revenues of the Properties and shall be paid and/or withdrawn by
Manager from the Account prior to the making of any other disbursements
therefrom.
(iii) By
the 30th day of the first month following each calendar quarter, Manager shall
forward to Owner net operating proceeds from the preceding quarter, retaining at
all times, however a reserve of $5,000, in addition to any amounts otherwise
provided in the budget.
(j)
Tenant
Complaints
. Manager shall maintain business-like relations with the
tenants of the Properties.
(k)
Ownership
Agreements
. Manager has received copies of the Agreement of Limited
Partnership of the OP and the constitutive documents of the Company
(collectively, the “Ownership Agreements”) and is familiar with the terms
thereof. Manager shall use reasonable care to avoid any act or omission which,
in the performance of its duties hereunder, shall in any way conflict with the
terms of the Ownership Agreements.
(l)
Signs
.
Manager shall place and remove, or cause to be placed and removed, such signs
upon the Properties as Manager deems appropriate, subject, however, to the terms
and conditions of the leases and to any applicable ordinances and
regulations.
2.4
Approval of Leases, Contracts,
Etc
. In fulfilling its duties to the Owner, Manager may and hereby is
authorized to enter into any leases, contracts or agreements on behalf of the
Owner in the ordinary course of the management, operation, maintenance and
leasing of the Property.
2.5
Accounting, Records and
Reports.
(a)
Records
.
Managers shall maintain all office records and books of account and shall record
therein, and keep copies of, each invoice received from services, work and
supplies ordered in connection with the maintenance and operation of the
Properties. Such records shall be maintained on a double entry basis. Owner and
persons designated by Owner shall at all reasonable time have access to and the
right to audit and make independent examinations of such records, books and
accounts and all vouchers, files and all other material pertaining to the
Properties and this Management Agreement, all of which Manager agrees to keep
safe, available and separate from any records not pertaining to the Properties,
at a place recommended by Manager and approved by Owner.
(b)
Quarterly
Reports
. On or before the 30th day of the first month following each
calendar quarter for which such report or statement is prepared and during the
term of this Management Agreement, Manager shall prepare and submit to Owner the
following reports and statements:
(i)
Rental collection record;
(ii)
Quarterly operating statement;
(iii)
Copy of cash disbursements ledger entries for such period, if
requested;
(iv) Copy
of cash receipts ledger entries for such period, if requested;
(v) The
original copies of all contracts entered into by Manager on behalf of Owner
during such period, if requested; and
(vi) Copy
of ledger entries for such period relating to security deposits maintained by
Manager, if requested.
(c)
Budgets and
Leasing Plans
. Not later than November 15 of each calendar year, Manager
shall prepare and submit to Owner for its approval an operating budget and a
marketing and leasing plan on the Properties for the calendar year immediately
following such submission. The budget and leasing plan shall be in the form of
the budget and plan approved by Owner prior to the date thereof. As often as
reasonably necessary during the period covered by any such budget, Manager may
submit to Owner for its approval an
updated
budget or plan incorporating such changes as shall be necessary to reflect cost
over-runs and the like during such period. If Owner does not disapprove any such
budget within 30 days after receipt thereof by Owner, such budget shall be
deemed approved. If Owner shall disapprove any such budget or plan, it shall so
notify Manager within said 30-day period and explain the reasons therefor.
Manager will not incur any costs other than those estimated in any budget except
for:
(i)
maintenance or repair costs under $5,000;
(ii)
costs incurred in emergency situations in which action is immediately necessary
for the preservation or safety of the Property, or for the safety of occupant or
other person (or to avoid the suspension of any necessary service of the
Property);
(iii)
expenditures for real estate taxes and assessment; and
(iv)
maintenance supplies calling for an aggregate purchase price less than
$25,000.
(d)
Returns Required
by Law
. Manager shall execute and file when due all forms, reports, and
returns required by law relating to the employment of its
personnel.
(e)
Notices
.
Promptly after receipt, Manager shall deliver to Owner all notices, from any
tenant, or any governmental authority, that are not a routine nature. Managers
shall also report expeditiously to Owner notice of any extensive damage to any
part of the Properties.
2.6
Subcontracting
.
Notwithstanding anything to the contrary contained in this Agreement, the
Manager may subcontract any of its duties hereunder, without the consent of the
Owner being required, for a fee that may be less than the Management Fees paid
hereunder. In the event that the Manager does so contract any its duties
hereunder, such fees payable to such third parties may, at the instruction of
the Manager, be deducted from the monthly Management Fee payable to the Manager
hereunder and paid by the Owner to such parties, or paid directly by the Manager
to such parties, in its discretion.
ARTICLE
III.
EXPENSES
3.1
Owner’s Expenses
. Except as
otherwise specifically provided, all costs and expenses incurred hereunder by
Manager in fulfilling its duties to Owner shall be for the account of and on
behalf of Owner. Such costs and expenses may include reasonable wages and
salaries and other employee-related expenses of all on-site and off-site
employees of Manager who are engaged in the operation, management, maintenance
and leasing or access control of the Properties, including taxes, insurance and
benefits relating to such employees, and legal, travel and other out-of-pocket
expenses which are directly related to the management of specific Properties.
All costs and expenses for which Owner is responsible under this Management
Agreement shall be paid by Manager out of the Account. In the event said account
does not contain sufficient funds to pay all said expenses, Owner shall fund all
sums necessary to meet such additional costs and expenses.
3.2
Manager’s Expenses
. Manager
shall, out of its own funds, pay all of its general overhead and administrative
expenses.
ARTICLE
IV.
MANAGER’S
COMPENSATION
4.1
Management Fees
. Manager
shall provide the services described in Article II in return for fees (the
“
Management Fees
”),
which shall be payable by the OP on a monthly basis, and shall
equal
(a) 5% of
Gross Revenues from residential and retail Properties, including all rent-up,
leasing, and re-leasing fees and bonuses paid to any person; and
(b)
4.5% of Gross Revenues for office and industrial Properties. The Manager may
charge a separate fee for the one-time initial rent-up or leasing-up of newly
constructed office and industrial Properties in an amount not to exceed the fee
customarily charged in arm’s length transactions by others rendering similar
services in the same geographic area for similar properties as determined by a
survey of brokers and agents in such area (customarily equal to up to two months
rent).
Notwithstanding
the foregoing, Manager may be entitled to receive higher fees in the event
Manager can demonstrate to the satisfaction of the board of directors of the
Company (including a majority of the Independent Directors) through empirical
data that a higher competitive fee is justified for the services rendered and
the type of Property managed. As described in section 2.6 above, in the event
that Manager properly engages one or more third parties to perform the services
described herein, the fees payable to such parties for such services will be
deducted from the monthly Management Fees payable by the OP to Manager, or paid
directly by Manager, at Manager’s option. Manager’s compensation under this
Section 4.1 shall apply to all renewals, extensions or expansions of leases
which Manager has originally negotiated.
4.2
Additional Fees
. In the event
that the Manager provides services other than those specified herein, the OP
shall pay to Manager a monthly fee equal to no more than that which the OP would
pay to a third party that is not an Affiliate of the Owner or the Manager to
provide such services.
4.3
Audit Adjustment
. If any
audit of the records, books or accounts relating to the Properties discloses an
overpayment or underpayment of Management Fees, Owner or Manager shall promptly
pay to the other party the amount of such overpayment or underpayment, as the
case may be. If such audit discloses an overpayment of Management Fees for any
fiscal year of more than the correct Management Fees for such fiscal year,
Manager shall bear the cost of such audit.
ARTICLE
V.
INSURANCE
AND INDEMNIFICATION
5.1
Insurance to be
Carried.
(c)
Manager shall obtain and keep in full force and effect insurance on the
Properties against such hazards as Owner and Manager shall deem appropriate, but
in any event insurance sufficient to comply with the leases and the Ownership
Agreements shall be maintained. All liability policies shall provide sufficient
insurance satisfactory to both Owner and Manager and shall contain waivers of
subrogation for the benefit of Manager.
(d)
Manager shall obtain and keep in full force and effect, in accordance with the
laws of the state in which each Property is located, employer’s liability
insurance applicable to and covering all employees of Manager at the Properties
and all persons engaged in the performance of any work required hereunder, and
Manager shall furnish Owner certificates of insurers naming Owner as a
co-insured and evidencing that such insurance is in effect. If any work under
this Management Agreement is subcontracted as permitted herein, Manager shall
include in each subcontract a provision that the subcontractor shall also
furnish Owner with such a certificate.
5.2
Cooperation with Insurers
.
Manager shall cooperate with and provide reasonable access to the Properties to
representatives of insurance companies and insurance brokers or agents with
respect to insurance which is in effect or for which application has been made.
Manager shall use its best efforts to comply with all requirements of
insurers.
5.3
Accidents and Claims
. Manager
shall promptly investigate and shall report in detail to Owner all accidents,
claims for damage relating to the ownership, operation or maintenance of the
Properties, and any damage or destruction to the Properties and the estimated
costs of repair thereof, and shall prepare for approval
by Owner
all reports required by an insurance company in connection with any such
accident, claim, damage, or destruction. Such reports shall be given to Owner
promptly and any report not so given within 10 days after the occurrence of any
such accident, claim, damage or destruction shall be noted in the monthly report
delivered to Owner pursuant to section 2.5(b). Manager is authorized to settle
any claim against an insurance company arising out of any policy and, in
connection with such claim, to execute proofs of loss and adjustments of loss
and to collect and receipt for loss proceeds.
5.4
Indemnification
. Manager
shall hold Owner harmless from and indemnify and defend Owner against any and
all claims or liability for any injury or damage to any person or property
whatsoever for which Manager is responsible occurring in, on, or about the
Properties, including, without limitation, the Improvements when such injury or
damage shall be caused by the negligence of Manager, its agents, servants, or
employees, except to the extent that Owner recovers insurance proceeds with
respect to such matter. Owner will indemnify and hold Manager harmless against
all liability for injury to persons and damage to property caused by Owner’s
negligence and which did not result from the negligence of misconduct of
Manager, except to the extent Manager recovers insurance proceeds with respect
to such matter.
ARTICLE
VI.
TERM,
TERMINATION
6.1
Term
. This Management
Agreement shall commence on the date first above written and shall continue
until terminated in accordance with the earliest to occur of the
following:
(a) One
year from the date of the commencement of the term hereof. However, this
Management Agreement will be automatically extended for an additional one year
period at the end of each year unless any party gives sixty (60) days written
notice to the others of its intention to terminate this Management Agreement;
or
(b)
Immediately upon the occurrence of any of the following:
(i) A
decree or order is rendered by a court having jurisdiction (A) adjudging Manager
as bankrupt or insolvent, or (B) approving as properly filed a petition seeking
reorganization, readjustment, arrangement, composition or similar relief for
Manager under the federal bankruptcy laws or any similar applicable law or
practice, or (C) appointing a receiver or liquidator or trustee or assignee in
bankruptcy or insolvency of Manager or a substantial part of the property of
Manager, or for the winding up or liquidation of its affairs, or
(ii)
Manager (A) institutes proceedings to be adjudicated a voluntary bankrupt or an
insolvent, (B) consents to the filing of a bankruptcy proceeding against it, (C)
files a petition or answer or consent seeking reorganization, readjustment,
arrangement, composition or relief under any similar applicable law or practice,
(D) consents to the filing of any such petition, or to the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or insolvency for it
or for a substantial part of its property, (E) makes an assignment for the
benefit of creditors, (F), is unable to or admits in writing its inability to
pay its debts generally as they become due unless such inability shall be the
fault of Owner, or (G) takes corporate or other action in furtherance of any of
the aforesaid purposes.
(c) Upon
written notice from the Owner in the event that the Manager commits an act of
gross negligence or willful misconduct in the performance of its duties
hereunder.
Upon
termination, the obligations of the parties hereto shall cease, provided that
Manager shall comply with the provisions hereof applicable in the event of
termination and shall be entitled to receive all compensation which may be due
Manager hereunder up to the date of such termination, and provided, further,
that if this Management Agreement terminates pursuant to clauses (b) or (c)
above, Owner shall have other remedies as may be available at law or in
equity.
6.2
Manager’s Obligations after
Termination
. Upon the termination of this Management Agreement, Manager
shall have the following duties:
(a)
Manager shall deliver to Owner, or its designee, all books and records with
respect to the Properties.
(b)
Manager shall transfer and assign to Owner, or its designee, all service
contracts and personal property relating to or used in the operation and
maintenance of the Properties, except personal property paid for and owned by
Manager. Manager shall also, for a period of sixty (60) days immediately
following the date of such termination, make itself available to consult with
and advise Owner, or its designee, regarding the operation, maintenance and
leasing of the Properties.
(c)
Manager shall render to Owner an accounting of all funds of Owner in its
possession and shall deliver to Owner a statement of Management Fees claimed to
be due Manager and shall cause funds of Owner held by Manager relating to the
Properties to be paid to Owner or its designee.
ARTICLE
VII.
BUSINESS
COMBINATION OF THE COMPANY AND THE MANAGER
7.1 The
Company shall have the option at any time, after the initial date of
effectiveness of the Prospectus upon prior written notice, during the term of
this Agreement without any consent of the Manager, the board of directors of the
Company or the Company’s stockholders to cause the business conducted by the
Manager (including, in such event, all of its assets) to be acquired by or
consolidated into the Company. The Manager and/or its members or stockholders
will receive in connection with such acquisition and in exchange for terminating
this Agreement and the release or waiver of all fees (including any fees that
have accrued during the term of this Agreement) payable under the provisions of
this Agreement until its stated termination, but not paid, that number of Shares
determined in accordance with Section 7.2 below below. The Company will be
obligated to pay any fees accrued under this Agreement for services rendered
through the closing of such acquisition.
7.2 The
number of Shares to be issued by the Company to the Manager in the event of a
transaction of the type described in Section 7.1 above shall be determined as
follows. The Company shall first send notice (the “
Election Notice
”) to the
Manager of its election to proceed with such a transaction. Next, the net income
of the Manager, for the six month period immediately preceding the month in
which the Election Notice is delivered, as determined by an independent audit
conducted in accordance with GAAP, shall be annualized. The Manager shall bear
the cost of any such audit. Such amount shall than be multiplied by nine-tenths
(0.90) and then divided by the Funds From Operations Per Weighted Average Share.
The resulting quotient shall constitute the number of Shares to be issued by the
Company to the Manager or its members or stockholders, with delivery thereof and
the closing of the transaction to occur within ninety (90) days of delivery of
the Election Notice. Any such transaction will occur, if at all, only if the
board of directors of the Company obtains a fairness opinion from a recognized
financial advisor or institution providing valuation services to the effect that
the consideration to be paid therefor is fair, from a financial point of view,
to the stockholders of the Company.
7.3 The
Company shall not terminate this Agreement solely for the purpose of avoiding
such a business combination, such as in anticipation of the listing of the
Shares on a national stock exchange or their inclusion in a national market
system, including, without limitation, NASDAQ.
ARTICLE
VIII.
MISCELLANEOUS
8.1
Notices
. All notices,
approvals, consents and other communications hereunder shall be in writing, and,
except when receipt is required to start the running of a period of time, shall
be deemed given when delivered in
person or
on the fifth day after its mailing by either party by registered or certified
United States mail, postage prepaid and return receipt requested, to the other
party, at the addresses set forth after their respect name below or at such
different addresses as either party shall have theretofore advised the other
party in writing in accordance with this Section 8.1.
Owner
:
Lightstone
Value Plus Real Estate Investment Trust, Inc.
326 Third
Street
Lakewood,
New Jersey 08701
Attn:
David Lichtenstein
Chief
Executive Officer
Lightstone
Value Plus REIT LP
326 Third
Street
Lakewood,
New Jersey 08701
Attn:
David Lichtenstein
With a
copy to:
Proskauer
Rose LLP
1585
Broadway
New York,
New York 10036
Attention:
Peter M. Fass, Esq.
Manager:
Lightstone
Value Plus REIT Management LLC
326 Third
Street
Lakewood,
New Jersey 08701
Attn:
David Lichtenstein
With a
copy to:
Proskauer
Rose LLP
1585
Broadway
New York,
New York 10036
Attention:
Peter M. Fass, Esq.
8.2
Governing Law
. This
Management Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
8.3
Assignment
. Without
derogating from Section 2.6 hereof, this Management Agreement may not be
assigned by the Manager, except to an Affiliate of the Manager, and then only
upon the consent of the Owner and the approval of a majority of the Independent
Directors. Any assignee of the Manager shall be bound hereunder to the same
extent as the Manager. This Agreement shall not be assigned by either Owner
without the written consent of the Manager, except to a corporation,
association, trust or other organization which is a successor to such Owner.
Such successor shall be bound hereunder to the same extent as such Owner.
Notwithstanding anything to the contrary contained herein, the economic rights
of the Manager hereunder, including the right to receive all compensation
hereunder, may be sold, transferred or assigned by the Manager without the
consent of the Owners.
8.4
No Waiver
. Neither the
failure nor any delay on the party of a party to exercise any right, remedy,
power or privilege under this Management Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same or of any
other
right, remedy, power or privilege, nor shall any waiver of any right, remedy,
power or privilege with respect to any occurrence be construed as a waiver of
such right, remedy, power or privilege with respect to any other occurrences. No
waiver shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.
8.5
Amendments
. This Management
Agreement may be amended only by an instrument in writing signed by the party
against whom enforcement of the amendment is sought.
8.6
Headings
. The headings of the
various subdivisions of this Management Agreement are for reference only and
shall not define or limit any of the terms or provisions hereof.
8.7
Counterparts
. This Management
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, and it shall not be necessary in making proof of this
Management Agreement to produce or account for more than one such
counterpart.
8.8
Entire Agreement
. This
Management Agreement contains the entire agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, inducements and
conditions, express or implied, oral or written, of any nature whatsoever with
respect to the subject matter hereof.
8.9
Disputes
. If there shall be a
dispute between Owner and Manager relating to this Management Agreement
resulting in litigation, the prevailing party in such litigation shall be
entitled to recover from the other party to such litigation such amount as the
court shall fix as reasonable attorneys’ fees.
8.10
Activities of Manager
.
The obligations of Manager pursuant to the terms and provisions of this
Management Agreement shall not be construed to preclude Manager from engaging in
other activities or business ventures, whether or not such other activities or
ventures are in competition with the Owner or the business of
Owner.
8.11
Independent Contractor
.
Manager and Owner shall not be construed as joint venturers or partners of each
other pursuant to this Management Agreement, and neither shall have the power to
bind or obligate the other except as set forth herein. In all respects, the
status of Manager to Owner under this Management Agreement is that of an
independent contractor.
[Signatures
appear on next page]
IN
WITNESS WHEREOF, the parties have executed this Management Agreement as of the
date first above written.
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LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.
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By:
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S
/ D
AVID
L
ICHTENSTEIN
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Title:
Chief
Executive Officer
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LIGHTSTONE
VALUE PLUS REIT LP
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By:
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Lightstone
Value Plus Real Estate
Investment
Trust, Inc.,
its
General Partner
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By:
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S
/ D
AVID
L
ICHTENSTEIN
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Title:
Chief
Executive Officer
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LIGHTSTONE
VALUE PLUS REIT MANAGEMENT LLC
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By:
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S
/ D
AVID
L
ICHTENSTEIN
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Title:
Authorized
Person
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Exhibit
10.3
LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.
FORM
OF 2005 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Effective
as of [
],
2005
TABLE
OF CONTENTS
Page
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1.
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Purpose
of the Plan.
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1
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2.
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Definitions.
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1
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3.
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Effective
Date/Expiration of Plan.
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3
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4.
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Administration.
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3
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5.
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Shares;
Adjustment Upon Certain Events.
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4
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6.
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Awards
and Terms of Options.
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6
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7.
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Effect
of Termination of Service.
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9
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8.
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Nontransferability
of Options.
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10
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9.
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Rights
as a Stockholder.
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10
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10.
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Determinations.
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10
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11.
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Termination,
Amendment and Modification.
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10
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12.
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Non-Exclusivity.
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11
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13.
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Use
of Proceeds.
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11
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14.
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General
Provisions.
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11
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15.
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Issuance
of Stock Certificates; Legends and Payment of Expenses.
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12
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16.
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Listing
of Shares and Related Matters.
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13
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17.
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Governing
Law.
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13
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LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.
FORM
OF 2005 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Effective
as of [
],
2005
1.
Purpose of the Plan.
The
purpose of this Lightstone Value Plus Real Estate Investment Trust, Inc. 2005
Non-Employee Director Stock Option Plan is to enhance the Company’s
profitability and value for the benefit of stockholders to enable the Company to
attract, retain and motivate Non-Employee Directors and who are important to the
success of the Company and to create and strengthen a mutuality of interest
between the Non-Employee Directors and the stockholders of the Company by
granting such directors options to purchase Common Stock of the
Company.
2.
Definitions.
(a)
“Acquisition
Event”
means a merger or consolidation in which the Company is not the
surviving entity, or any transaction that results in the acquisition of all or
substantially all of the Company’s outstanding Common Stock by a single person
or entity or by a group of persons and/or entities in concert, or the sale or
transfer of all or substantially all of the Company’s assets.
(b)
“Act”
means the Securities Exchange Act of 1934, as amended and the rules and
regulations promulgated thereunder.
(c)
Annual Date of
Grant”
has the meaning set forth in Section 6(a).
(d)
“Board”
means the Board of Directors of the Company.
(e)
“Cause”
has the meaning set forth in Section 7(b).
(f)
“Change of
Control”
has the meaning set for in Section 6(d).
(g)
“Code”
means the Internal Revenue Code of 1986, as amended.
(h)
“Committee”
means the Board of a duly appointed committee of the Board to which the Board
has delegated its powers and functions hereunder.
(i)
“Common
Stock”
means the voting common stock of the Company, par value $.01, any
common stock into which the common stock may be converted and any common stock
resulting from any reclassification of the common stock.
(j)
“Company”
means Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland
corporation.
(k)
“Company Voting
Securities”
has the meaning set forth in Section 6(d)(i).
(l)
“Corporate
Transaction”
has the meaning set forth in Section 6(d)(i).
(m)
“Disability”
means a permanent and total disability, as determined by the Committee in its
sole discretion, provided that in no event shall any disability that is not
permanent and total disability within the meaning of Section 22(e)(3) of the
Code be treated as a Disability. A Disability shall be deemed to occur at the
time of the determination by the Committee of the Disability.
(n)
“Effective
Date”
has the meaning set forth in Section 3.
(o)
“Fair Market
Value”
means, for purposes of this Plan, unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, as of any
date and except as provided below, the last sales price reported for the Common
Stock on the applicable date: (i) as reported on the principal national
securities exchange in the United States on which it is then traded or The
Nasdaq Stock Market; or (ii) if not traded on any such national securities
exchange or The Nasdaq Stock Market, as quoted on an automated quotation system
sponsored by the National Association of Securities Dealers, Inc. or if the
Common Stock shall not have been reported or quoted on such date, on the first
day prior thereto on which the Common Stock was reported or quoted; provided,
that the Committee may modify the definition of Fair Market Value to reflect any
changes in the trading practices of any exchange on which the Common Stock is
listed or traded. If the Common Stock is not readily tradable on a national
securities exchange, The Nasdaq Stock Market or any automated quotation system
sponsored by the National Association of Securities Dealers, Inc., its Fair
Market Value shall be set in good faith by the Committee. For purposes of the
grant of any Option, the applicable date shall be the date on which the Stock
Option is granted.
(p)
“Incumbent
Board”
has the meaning set forth in Section 6(d)(ii).
(q)
“Non-Employee
Directors”
means, except for purposes of the definition of Committee,
directors of the Company who are not employees of the Company or its
subsidiaries.
(r)
“Option”
means the right to purchase the number of Shares granted in the Option agreement
at a prescribed purchase price on the terms specified in the Plan and the Option
agreement. No Option awarded under this Plan is intended to be an “incentive
stock option” within the meaning of Section 422 of the Code.
(s)
“Participant”
means a Non-Employee Director who is granted an Option under the Plan, which
Option has not expired or been cancelled.
(t)
“Person”
means an individual, entity or group within the meaning of Section l3d-3 or
14d-1 of the Act.
(u)
“Plan”
means the Lightstone Value Plus Real Estate Investment Trust, Inc. 2005
Non-Employee Director Stock Option Plan, as amended from time to
time.
(v)
“Purchase
Price”
means the purchase price per Share.
(w)
“Securities
Act”
means the Securities Act of 1933, as amended.
(x)
“Share”
means a share of Common Stock.
(y)
“Termination of
Service”
means termination of the relationship with the Company so that
an individual is no longer a director of the Company.
3.
Effective Date/Expiration of Plan.
The Plan
became effective
[
]
2005 (the “Effective Date”). No Option shall be granted under the Plan on or
after the tenth anniversary of the Effective Date, but Options previously
granted may extend beyond that date.
4.
Administration.
(a)
Duties of the Committee
. The
Plan shall be administered by the Committee. The Committee shall have full
authority to interpret the Plan and to decide any questions and settle all
controversies and disputes that may arise in connection with the Plan; to
establish, amend, and rescind rules for carrying out the Plan, to administer the
Plan, subject to its provisions; to prescribe the form or forms of instruments
evidencing Options and any other instruments required under the Plan (which need
not be uniform) and to change such forms from time to time; and to make all
other determinations and to take all such steps in connection with the Plan and
the Options as the Committee, in its sole discretion, deems necessary or
desirable;
provided
, that all
such determinations shall be in accordance with the express provisions, if any,
contained in the Plan or Option agreement. The Committee shall not be bound to
any standards of uniformity or similarity of action, interpretation or conduct
in the discharge of its duties hereunder, regardless of the apparent similarity
of the matters coming before it. The determination, action or conclusion of the
Committee in connection with the foregoing shall be final, conclusive and
binding on all parties.
(b)
Advisors
. The Committee may
designate the Secretary of the Company, other employees of the Company or
competent professional advisors to assist the Committee in the administration of
the Plan, and may grant authority to such persons (other than professional
advisors) to grant an Option or to execute Option agreements or other documents
on behalf of the Committee, provided that no Participant may grant an Option or
execute any Option agreement granting Options to such Participant. The Committee
may employ such legal counsel, consultants and agents as it may deem desirable
for the administration of the Plan, and may rely upon any opinion received from
any such counsel or consultant and any computation received from any such
consultant or agent. Expenses incurred by the Committee in the engagement of
such counsel, consultant or agent shall be paid by the Company.
(c)
Indemnification
. To the
maximum extent permitted by law, no officer, member or former officer or member
of the Committee or the Board shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted under it. To
the maximum extent permitted by applicable law or the Certificate of
Incorporation or By-Laws of the Company and to the extent not covered by
insurance, each officer, member or former officer
or member
of the Committee or of the Board shall be indemnified and held harmless by the
Company against any cost or expense (including reasonable fees of counsel
reasonably acceptable to the Company) or liability (including any sum paid in
settlement of a claim with the approval of the Company), and advanced amounts
necessary to pay the foregoing at the earliest time and to the fullest extent
permitted, arising out of any act or omission to act in connection with the
Plan, except to the extent arising out of such officer’s, member’s or former
officer’s or member’s own fraud or bad faith. Such indemnification shall be in
addition to any rights of indemnification the officers, members or former
officers or members may have as directors under applicable law or under the
Certificate of Incorporation or By-Laws of the Company or
otherwise.
(d)
Meetings of the Committee
.
The Committee shall select one of its members as a Chairman and shall adopt such
rules and regulations, as it shall deem appropriate, concerning the holding of
its meetings and the transaction of its business. Any member of the Committee
may be removed at any time either with or without cause by resolution adopted by
the Board, and any vacancy on the Committee may at any time be filled by
resolution adopted by the Board. All determinations by the Committee shall be
made by the affirmative vote of a majority of its members. Any such
determination may be made at a meeting duly called and held at which a majority
of the members of the Committee were in attendance in person or through
telephonic communication. Any determination set forth in writing and signed by
all of the members of the Committee shall be as fully effective as if it had
been made by a vote of such members at a meeting duly called and
held.
5.
Shares; Adjustment Upon Certain Events.
(a)
Shares to be Delivered; Fractional
Shares
. Shares to be issued under the Plan shall be made available, at
the discretion of the Board, either from authorized but unissued Shares or from
issued Shares reacquired by the Company and held in treasury. No fractional
Shares will be issued or transferred upon the exercise of any Option. In lieu
thereof, the Company shall pay a cash adjustment equal to the same fraction of
the Fair Market Value of one Share on the date of exercise.
(b)
Number of Shares
. Subject to
adjustment as provided in this Section 5, the maximum aggregate number of Shares
authorized for issuance under the Plan shall be 75,000 Shares. If an Option is
for any reason canceled, or expires or terminates unexercised, the Shares
covered by such Option shall again be available for the grant of Options, within
the limits provided by the preceding sentence. In addition, if Common Stock has
been exchanged by a Participant as full or partial payment to the Company of the
Purchase Price or if the number of shares of Common Stock otherwise deliverable
has been reduced for full or partial payment to the Company of the Purchase
Price, the number of shares of Common Stock exchanged or reduced shall again be
available under the Plan.
(c)
Adjustments; Recapitalization,
etc.
The existence of the Plan and the Options granted hereunder shall
not affect in any way the right or power of the Board or the stockholders 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 bonds, debentures, preferred or prior
preference stocks ahead of or
affecting
Common Stock, the dissolution or liquidation of the Company or any sale or
transfer of all or part of its assets or business or any other corporate act or
proceeding. If and whenever the Company takes any such action, however, the
following provisions, to the extent applicable, shall govern:
(i) If
and whenever the Company shall effect a stock split, stock dividend,
subdivision, recapitalization or combination of Shares or other changes in the
Company’s Common Stock, (x) the Purchase Price (as defined herein) per Share and
the number and class of Shares and/or other securities with respect to which
outstanding Options thereafter may be exercised, and (y) the total number and
class of Shares and/or other securities that may be issued under this Plan,
shall be proportionately adjusted by the Committee. The Committee may also make
such other adjustments as it deems necessary to take into consideration any
other event (including, without limitation, accounting changes) if the Committee
determines that such adjustment is appropriate to avoid distortion in the
operation of the Plan.
(ii)
Subject to Section 5(c)(iii), if the Company merges or consolidates with one or
more corporations, then from and after the effective date of such merger or
consolidation, upon exercise of an Option theretofore granted, the Participant
shall be entitled to purchase under such Option, in lieu of the number of Shares
as to which such Option shall then be exercisable but on the same terms and
conditions of exercise set forth in such Option, the number and class of Shares
and/or other securities or property (including cash) to which the Participant
would have been entitled pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or consolidation, the
Participant had been the holder of record of the total number of Shares
receivable upon exercise of such Option (whether or not then exercisable). In
connection with any event described in this paragraph, the Committee may
provide, in its sole discretion, for the cancellation of any outstanding Options
and payment in cash or other property in exchange therefor.
(iii) In
the event of an Acquisition Event, the Committee may, in its discretion, and
without any liability to any Participant, terminate all outstanding Options as
of the consummation of the Acquisition Event by delivering notice of termination
to each Participant at least 20 days prior to the date of consummation of the
Acquisition Event; provided that, during the period from the date on which such
notice of termination is delivered to the consummation of the Acquisition Event,
each Participant shall have the right to exercise in full all of the Options
that are then outstanding (without regard to limitations on exercise otherwise
contained in the Options) but any such exercise shall be contingent upon and
subject to the occurrence of the Acquisition Event, provided that if the
Acquisition Event does not take place within a specified period after giving
such notice for any reason whatsoever, the notice and exercise pursuant thereto
shall be null and void. If the Acquisition Event does take place after giving
such notice, any Option not exercised prior to the date of the consummation of
such Acquisition Event shall be forfeited simultaneous with the consummation of
the Acquisition Event. If an Acquisition Event occurs and the Committee does not
terminate the outstanding Options pursuant to the foregoing provisions, then the
provisions of Section 5(c)(ii) shall apply.
(iv) If,
as a result of any adjustment made pursuant to the preceding paragraphs of this
Section 5, any Participant shall become entitled upon exercise of an Option to
receive any securities other than Common Stock, then the number and class of
securities so receivable thereafter shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock set forth in this Section 5, as
determined by the Committee in its discretion.
(v)
Except as hereinbefore expressly provided, the issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or other securities, and in any case whether or not for fair value, shall
not affect, and no adjustment by reason thereof shall be made with respect to
the number and class of Shares and/or other securities or property subject to
Options theretofore granted of the Purchase Price per Share.
6.
Awards and Terms of Options.
(a)
Grant
. Without further action
by the Board or the stockholders (except as provided in Section 11) of the
Company, each year, as of the date of the annual meeting of the stockholders of
the Company (each such date, an “Annual Date of Grant”), each Participant shall
be automatically granted an Option to purchase 3,000 Shares (subject to any
increase or decrease pursuant to Section 5(c)), subject to the terms of the
Plan, provided that no such Option shall be granted if on the date of grant the
Company has liquidated, dissolved or merged or consolidated with another entity
in such a manner that it is not the surviving entity (unless the Plan has been
assumed by such surviving entity with regard to future grants).
(b)
Purchase Price
. The Purchase
Price deliverable upon the exercise of an Option shall equal 100% of the Fair
Market Value on the last business day preceding the Annual Date of Grant.
Notwithstanding the foregoing, the Purchase Price for all Options granted under
the Plan will be $10 per Share until the termination of the Company’s initial
public offering.
(c)
Exercisability.
Except as
otherwise provided herein, any Option granted to a Participant shall vest and
become exercisable on the second anniversary of the date of grant, subject to
the Participant’s continued service as a Non-Employee Director through such
date. No Option shall be exercisable after the expiration of ten (10) years from
the date of grant.
(d)
Acceleration of Exercisability on
Change of Control.
All Options granted and not previously exercisable
shall become exercisable immediately upon a Change of Control (as defined
herein). For this purpose, a “Change of Control” shall be deemed to have
occurred upon:
(i) an
acquisition by any Person of beneficial ownership (within the meaning of Rule
l3d-3 promulgated under the Act) of 33% or more of either (A) the then
outstanding Shares or (B) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the
“Company Voting
Securities”
); excluding, however, the following: (w) any acquisition
directly
from the Company, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself acquired
directly from the Company, (x) any acquisition by the Company, (y) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or (z) any acquisition by any corporation pursuant to
a reorganization, merger, consolidation or similar corporate transaction (in
each case, a
“Corporate
Transaction”
), if, pursuant to such Corporate Transaction, the conditions
described in clauses (A), (B) and (C) of paragraph (iii) of this Section are
satisfied; or
(ii) a
change in the composition of the Board such that the individuals who, as of the
Effective Date hereof, constitute the Board (the Board as of the date hereof
shall be hereinafter referred to as the
“Incumbent
Board”
) cease for any reason to constitute at least a majority of the
Board; provided that for purposes of this subsection any individual who becomes
a member of the Board subsequent to the date hereof whose election, or
nomination for election by the Company’s stockholders, was approved by a vote of
at least a majority of those individuals who are members of the Board and who
are also members of the Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a member of the
Incumbent Board; but, provided further, that any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Act) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board shall not be so
considered as a member of the Incumbent Board; or
(iii) the
approval by the stockholders of the Company of a Corporate Transaction or, if
consummation of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding, however, such a Corporate Transaction pursuant to
which (A) all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the outstanding Shares and Company Voting
Securities immediately prior to such Corporate Transaction will beneficially
own, directly or indirectly, more than 60% of, respectively, the outstanding
shares of common stock of the corporation resulting from such Corporate
Transaction and the combined voting power of the outstanding voting securities
of such corporation entitled to vote generally in the election of directors, in
substantially the same proportions as their ownership, immediately prior to such
Corporate Transaction, of the outstanding Shares and Company Voting Securities,
as the case may be, (B) no Person (other than the Company, any employee benefit
plan (or related trust) of the Company or the corporation resulting from such
Corporate Transaction and any Person beneficially owning, immediately prior to
such Corporate Transaction, directly or indirectly, 33% or more of the
outstanding Shares or Company Voting Securities, as the case may be) will
beneficially own, directly or indirectly, 33% or more of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the election of
directors and (C) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of directors of the
corporation
resulting
from such Corporate Transaction; notwithstanding the foregoing, no Change of
Control will occur if two-thirds (
2
/
3
) of the
Incumbent Board approves the Corporate Transaction; or
(iv) the
approval of the stockholders of the Company of (A) a complete liquidation or
dissolution of the Company or (B) the sale or other disposition of all or
substantially all of the assets of the Company; excluding; however, such a sale
or other disposition to a corporation with respect to which, following such sale
or other disposition, (x) more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors will be then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners respectively, of the outstanding Shares and Company
Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the outstanding Shares and Company Voting
Securities, as the case may be, (y) no Person (other than the Company and any
employee benefit plan (or related trust) of the Company or such corporation and
any Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 33% or more of the outstanding Shares or
Company Voting Securities, as the case may be) will beneficially own, directly
or indirectly, 33% or more of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors and (z) individuals who were members of the Incumbent
Board will constitute at least a majority of the members of the board of
directors of such corporation.
(e)
Exercise of
Options.
(i) A
Participant may elect to exercise an Option by giving written notice to the
Committee of such election and of the number of Shares such Participant has
elected to purchase pursuant to the Option, accompanied by payment in full of
the aggregate Purchase Price for the number of Shares for which the Option is
being exercised.
(ii)
Shares purchased pursuant to the exercise of an Option shall be paid for at the
time of exercise as follows:
(A) in
cash or by check, bank draft or money order payable to the order of the
Company;
(B) if so
permitted by the Committee: (x) through the delivery of unencumbered Shares
(including Shares being acquired pursuant to the Option then being exercised),
provided such Shares (or such Option) have been owned by the Participant for
such period as may be required by applicable accounting standards to avoid a
charge to earnings or (y) through a combination of Shares and cash as provided
above, provided, that, if the Shares delivered upon exercise of the Option is an
original issue of authorized Shares, at least so much of the Purchase Price as
represents the par value of such Shares shall be paid in cash or by a
combination of cash and Shares;
(C) if
the Common Stock is traded on a national securities exchange, the Nasdaq Stock
Market, Inc. or quoted on a national quotation system sponsored by the National
Association of Securities Dealers, through the delivery of irrevocable
instructions to a broker to deliver promptly to the Company an amount equal to
the aggregate Purchase Price; or
(D) on
such other terms and conditions as may be acceptable to the Committee and in
accordance with applicable law. As soon as practicable after receipt of payment,
the Company shall deliver to the Participant a certificate or certificates for
the Shares then purchased.
(iii)
REIT Status.
Notwithstanding anything herein to the contrary, no Option granted under this
Plan may be exercised if such exercise would jeopardize the Company’s status as
a “real estate investment trust” as defined under the Code.
7.
Effect of Termination of Service.
(a)
Death, Disability, or Retirement.
Except as otherwise provided in the Participant’s Option agreement or in
this Plan, upon a Termination of Service, all outstanding Options then
exercisable and not exercised by the Participant prior to such Termination of
Service shall remain exercisable by the Participant to the extent not
theretofore exercised for the following time periods (subject to Section
6(c)):
(i) in
the event of the Participant’s death, such Options shall remain exercisable (by
the Participant’s estate or by the person given authority to exercise such
Options by the Participant’s will or by operation of law) for a period of one
(1) year from the date of the Participant’s death; and
(ii) in
the event the Participant retires at or after age 65 (or, with the consent of
the Committee, before age 65), or, if the Participant’s services terminate due
to Disability, such Options shall remain exercisable for one (1) year from the
date of the Participant’s Termination of Service.
(b)
Cause
. Upon the Termination
of Service of a Participant for Cause (as defined herein) or if it is discovered
after a Termination of Service that such Participant had engaged in conduct that
would have justified a Termination of Service for Cause, all outstanding Options
(whether vested or unvested) shall immediately be canceled, provided that upon
any such termination the Committee may, in its discretion, require the
Participant to promptly pay to the Company (and the Company shall have the right
to recover) any gain the Participant realized as a result of the exercise of any
Option that occurred within one (1) year prior to such Termination of Service or
the discovery of conduct that would have justified a Termination of Service for
Cause. Termination of Service shall be deemed to be for “Cause” for purposes of
this Section 7(b) if the Participant shall have committed fraud or any felony in
connection with the Participant’s duties as a director of the Company or willful
misconduct or any act of disloyalty, dishonesty, fraud or breach of trust,
confidentiality or fiduciary duties as to the Company or the
commission
of any other act which causes or may reasonably be expected to cause economic or
reputational injury to the Company or any other act or failure to act that
constitutes “cause” for removal of a director under applicable Maryland
law.
(c)
Other Termination
. In the
event of a Termination of Service for any reason other than as provided in
Sections 7(a) and 7(b), all outstanding Options then exercisable and not
exercised by the Participant prior to such Termination of Service shall remain
exercisable (to the extent exercisable by such Participant immediately before
such termination) for a period of three (3) months after such termination, but
not beyond the original stated term of the Option.
8.
Nontransferability of Options.
No Option
shall be transferable by the Participant otherwise than by will or under
applicable laws of descent and distribution, and during the lifetime of the
holder may be exercised only by the holder or his or her guardian or legal
representative. In addition, no Option shall be assigned, negotiated, pledged or
hypothecated in any way (whether by operation of law or otherwise), and no
Option shall be subject to execution, attachment or similar process. Upon any
attempt to transfer, assign, negotiate, pledge or hypothecate any Option, or in
the event of any levy upon any Option by reason of any execution, attachment or
similar process contrary to the provisions hereof, such Option shall immediately
be cancelled. Notwithstanding the foregoing, the Committee may determine at the
time of grant or thereafter, that an Option that is otherwise non transferable
is transferable in whole or in part and in such circumstances, and under such
conditions, as specified by the Committee.
9.
Rights as a Stockholder.
A holder
of an Option shall have no rights as a stockholder with respect to any Shares
covered by such holder’s Option until such holder shall have become the holder
of record of such Shares, and no adjustments shall be made for dividends in cash
or other property or distributions or other rights in respect to any such
Shares, except as otherwise specifically provided for in this Plan.
10.
Determinations.
Each
determination, interpretation or other action made or taken pursuant to the
provisions of this Plan by the Committee shall be final, conclusive and binding
for all purposes and upon all persons, including, without limitation, the
holders of any Options and Non-Employee Directors and their respective heirs,
executors, administrators, personal representatives and other successors in
interest.
11.
Termination, Amendment and Modification.
Notwithstanding
any other provision of this Plan, the Board or the Committee may at any time,
and from time to time, amend, in whole or in part, any or all of the provisions
of this Plan, or suspend or terminate it entirely, retroactively or otherwise;
provided, however, that, unless otherwise required by law or specifically
provided herein, the rights of a Participant with respect to Options granted
prior to such amendment, suspension or termination, may not be impaired without
the consent of such Participant; provided further, that no amendment may be
made,
without
stockholder approval if stockholder approval is required under applicable
law.
The
Committee may amend the terms of any Option theretofore granted, prospectively
or retroactively, but, subject to Section 5 above or as otherwise specifically
provided herein, no such amendment or other action by the Committee shall impair
the rights of any holder without the holder’s consent.
12.
Non-Exclusivity.
Neither
the adoption of the Plan by the Board shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including, without limitation, the granting or
issuance of Options, Shares and/or other incentives otherwise than under the
Plan, and such arrangements may be either generally applicable or limited in
application.
13.
Use of Proceeds.
The
proceeds of the sale of Shares subject to Options under the Plan are to be added
to the general funds of the Company and used for its general corporate purposes
as the Board shall determine.
14.
General Provisions.
(a)
Right to Terminate Services
.
Neither the adoption of the Plan nor the grant of Options shall impose any
obligations on the Company to retain any Participant as a director nor shall it
impose any obligation on the part of any Participant to remain a
director.
(b)
Purchase for Investment.
If
the Board determines that the law so requires, the holder of an Option granted
hereunder shall, upon any exercise or conversion thereof, execute and deliver to
the Company a written statement, in form satisfactory to the Company,
representing and warranting that such Participant is purchasing or accepting the
Shares then acquired for such Participant’s own account and not with a view to
the resale or distribution thereof, that any subsequent offer for sale or sale
of any such Shares shall be made either pursuant to (i) a registration statement
on in appropriate form under the Securities Act, which registration statement
shall have become effective and shall be current with respect to the Shares
being offered and sold, or (ii) a specific exemption from the registration
requirements of the Securities Act, and that in claiming such exemption the
holder will, prior to any offer for sale or sale of such Shares, obtain a
favorable written opinion, satisfactory in form and substance to the Company,
from counsel approved by the Company as to the availability of such
exception.
(c)
Trusts, etc.
Nothing
contained in the Plan and no action taken pursuant to the Plan (including,
without limitation, the grant of any Option thereunder) shall create or be
construed to create a trust of any kind, or a fiduciary relationship, between
the Company and any Participant or the executor, administrator or other personal
representative or designated beneficiary of such Participant, or any other
persons. Any reserves that may be established by
the
Company in connection with the Plan shall continue to be part of the general
funds of the Company, and no individual or entity other than the Company shall
have any interest in such funds until paid to a Participant. If and to the
extent that any Participant or such Participant’s executor, administrator, or
other personal representative, as the case may be, acquires a right to receive
any payment from the Company pursuant to the Plan, such right shall be no
greater than the right of an unsecured general creditor of the
Company.
(d)
Notices.
Each Participant
shall be responsible for furnishing the Committee with the current and proper
address for the mailing to such Participant of notices and the delivery to such
Participant of agreements, Shares and payments. Any notices required or
permitted to be given shall be deemed given if directed to the person to whom
addressed at such address and mailed by regular United States mail, first class
and prepaid. If any item mailed to such address is returned as undeliverable to
the addressee, mailing will be suspended until the Participant furnishes the
proper address.
(e)
Severability of Provisions
.
If any provisions of the Plan shall be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provisions of the
Plan, and the Plan shall be construed and enforced as if such provisions had not
been included.
(f)
Payment to Minors, Etc.
Any
benefit payable to or for the benefit of a minor, an incompetent person or other
person incapable of receipting therefor shall be deemed paid when paid to such
person’s guardian or to the party providing or reasonably appearing to provide
for the care of such person, and such payment shall fully discharge the
Committee, the Company and their employees, agents and representatives with
respect thereto.
(g)
Readings and Captions
. The
headings and captions herein are provided for reference and convenience only.
They shall not be considered part of the Plan and shall not be employed in the
construction of the Plan.
(h)
Other Benefits
. No award
under this Plan shall be deemed compensation for purposes of computing benefits
under any retirement plan of the Company or its subsidiaries nor affect any
benefits under any other benefit plan now or subsequently in effect under which
the availability or amount of benefits is related to the level of
compensation.
(i)
409A
. To the extent
applicable, the Plan is intended to comply with the applicable requirements of
Section 409A of the Code and shall be limited, construed and interpreted in a
manner so as to comply therewith. Notwithstanding anything herein to the
contrary, any provision in the plan that is inconsistent with Section 409A of
the Code shall be deemed to be amended to comply with Section 409A and to the
extent such provision cannot be amended to comply therewith, such provision
shall be null and void.
15.
Issuance of Stock Certificates; Legends and Payment of Expenses.
(a)
Stock Certificates
. Upon any
exercise of an Option and payment of the exercise price as provided in such
Option, a certificate or certificates for the Shares as to which such Option has
been exercised shall be issued by the Company in the name of the person or
persons exercising such Option and shall be delivered to or upon the order of
such person or persons.
(b)
Legends.
Certificates for
Shares issued upon exercise of an Option shall bear such legend or legends as
the Committee, in its discretion, determines to be necessary or appropriate to
prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act or to implement the provisions of any
agreements between the Company and the Participant with respect to such
Shares.
(c)
Payment of Expenses
. The
Company shall pay all issue or transfer taxes with respect to the issuance or
transfer of Shares, as well as all fees and expenses necessarily incurred by the
Company in connection with such issuance or transfer and with the administration
of the Plan.
(d)
Section 16(b) of the Act.
All
elections and transactions under the Plan by persons subject to Section 16 of
the Act involving Shares are intended to comply with any applicable condition
under Rule 16b-3, provided, however, noncompliance with the requirements of Rule
16b-3 shall not affect the validity of an Option granted under this Plan. To the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed null and void. The Committee may establish and adopt written
administrative guidelines, designed to facilitate compliance with Section 16(b)
of the Act, as it may deem necessary or proper for the administration and
operation of the Plan and the transaction of business thereunder.
16.
Listing of Shares and Related Matters.
If at any
time the Board shall determine in its sole discretion that the listing,
registration or qualification of the Shares covered by the, Plan upon any
national securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the award or sale of Shares under the Plan,
no Shares will be delivered unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained, or
otherwise provided for, free of any conditions not acceptable to the
Board.
17.
Governing Law.
This Plan
shall be governed and construed in accordance with the laws of the State of
Maryland (regardless of the law that might otherwise govern under applicable
principles of conflict of laws).
Exhibit
10.4
FORM OF
INDEMNIFICATION AGREEMENT
This
Indemnification Agreement (this “
Agreement
”) is made
as of the
day of
,
2005, by and among [
]
(the “
Indemnitee
”), David
Lichtenstein and Lightstone Value Plus Real Estate Trust, Inc., a Maryland
corporation (the “
Company
” and,
together with David Lichtenstein, the “
Indemnitors
”).
WHEREAS,
David Lichtenstein indirectly owns and controls, and acts as Chairman of the
Board of Directors, Chief Executive Officer and President of, the
Company;
WHEREAS,
the Indemnitee has been elected to serve as a member of the Board (each
individual serving in such capacity, a “
Director
”);
WHEREAS,
the Company intends to obtain and provide directors’ and officers’ liability
insurance (the “
D&O Policy
”) to
each Director, including the Indemnitee;
WHEREAS,
to the fullest extent permitted by applicable law, the Amended and Restated
Articles of Incorporation (the “
Charter
”) and the
Bylaws of the Company (together with the Charter, the “
Organizational
Documents
”), the Indemnitors desire to provide the Indemnitee with
indemnification from and exculpation for liability that he incurs in his service
as a Director but which the D&O Policy does not satisfy, as an inducement to
procure and retain the service of the Indemnitee as a Director;
WHEREAS,
the Organizational Documents permit the Company to indemnify and exculpate each
Director to the fullest extent permitted by Maryland and other applicable
law;
WHEREAS,
the Company does not have any significant assets to apply against operational
expenses, including indemnification and exculpation liabilities, and will depend
upon proceeds from its forthcoming public offering of up to 30,000,000 shares of
common stock (the “
Offering
”) for a
period of one year (the “
Offering
Period
”);
NOW,
THEREFORE, in consideration of the foregoing and the mutual premises, covenants
and agreements contained herein, the parties hereto, intending to be legally
bound hereby, agree as follows:
1.1
During the Offering Period, to the maximum extent permitted by Maryland law,
other applicable law and the Organizational Documents, as in effect from time to
time, and to the extent that the D&O Policy does not satisfy such claim or
liability, David Lichtenstein shall save, defend, indemnify, hold harmless and,
without requiring a preliminary determination of the ultimate entitlement to
indemnification, shall pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to the Indemnitee, from and against any claim or
liability to which Indemnitee may become subject or which the Indemnitee may
incur by reason of service in his capacity as a director of the
Company.
1.2 After
the Offering Period and
provided
that
the Company
receives Offering proceeds of at least $100,000,000, to the maximum extent
permitted by Maryland law, other applicable law and the Organizational
Documents, as in effect from time to time, and to the extent that the D&O
Policy does not satisfy such claim or liability, the Company shall save, defend,
indemnify, hold harmless and, without requiring a preliminary determination of
the ultimate entitlement to indemnification, shall pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to the Indemnitee, from
and against any claim or liability to which Indemnitee may become subject or
which the Indemnitee may incur by reason of service in his capacity as a
director of the Company.
2.
Claims
. If any
action, suit, proceeding or investigation is commenced as to which the
Indemnitee proposes to demand indemnification or exculpation, he shall promptly
notify the Indemnitors; provided, however, that failure to give prompt notice to
the Indemnitors shall not affect the indemnification obligations of the
Indemnitors hereunder. The Indemnitee shall have the right to retain counsel of
its own choice to represent it and, so long as all Indemnitees retain the same
counsel with respect to a particular claim or count, the Indemnitors shall pay
the fees at standard hourly rates, expenses and disbursements of such counsel as
and when incurred; and such counsel shall, to the extent consistent with its
professional responsibilities, cooperate with the Indemnitors and any counsel
designated by the Indemnitors. The Indemnitors shall be liable for any
settlement of any claim against an Indemnitee made with the Indemnitors’ written
consent, which consent shall not be unreasonably withheld. The Indemnitors shall
not, without the prior written consent of an Indemnitee, settle or compromise
any claim, or permit a default or consent to the entry of any judgment in
respect thereof, unless such settlement, compromise or consent includes, as an
unconditional term thereof, the giving by the claimant to such Indemnitee of an
unconditional release from all liability in respect of such claim.
3.1 This
agreement may be amended only by written instrument duly executed by the parties
hereto.
3.2 This
Agreement will be governed by, and construed and enforced in accordance with,
the laws of the State of New York, without regard to its choice of law
rules.
3.3 This
Agreement may be executed in counterparts, each of which shall be deemed to be
an original, but all of which, taken together, shall constitute one and the same
instrument.
3.4
Nothing in this Agreement, express or im plied, is intended to confer upon any
person other than the Indemnitee any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
3.5 If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction or a federal or state regulatory agency to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
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LIGHTSTONE
VALUE PLUS
REAL
ESTATE INVESTMENT TRUST, INC.,
a
Maryland corporation
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By:
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Documentary
stamp taxes in the amount of $
17,151.40
and intangible taxes in the amount of $
9,800.80,
based on the Loan Amount of $
27,250,000.00
secured hereby, have been paid upon the recording of this
Mortgage
|
NOTE AND MORTGAGE MODIFICATION
AGREEMENT EVIDENCING RENEWAL PROMISSORY NOTE INCLUDING FUTURE ADVANCE AND
AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT AND FIXTURE
FILING
LVP ST.
AUGUSTINE OUTLETS LLC,
BORROWER
IN FAVOR
OF
WACHOVIA
BANK, NATIONAL ASSOCIATION,
LENDER
DATED: AS
OF MARCH ____, 2006
Property
Address
2700
State Road 16
St.
Augustine, Florida
Record and Return
to:
Winston
& Strawn LLP
200 Park
Avenue
New York,
New York 10166
Attention:
Corey A. Tessler
St.
Augustine
Loan. No.
1000045
THIS NOTE
AND MORTGAGE MODIFICATION AGREEMENT EVIDENCING RENEWAL PROMISSORY NOTE INCLUDING
FUTURE ADVANCE AND AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT AND FIXTURE
FILING
(this
“
Security
Instrument
”) dated
as of March ____, 2006, by
LVP ST.
AUGUSTINE OUTLETS LLC, a Delaware limited liability company (“
Borrower
”),
having their chief executive offices c/o The Lightstone Group, 326 Third Street,
Lakewood, New Jersey 08701,
to
WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association
(“
Lender
”), whose
address is Commercial Real Estate Services, 8739 Research Drive URP - 4, NC
1075, Charlotte, North Carolina 28262.
W I T N E
S S E T H:
WHEREAS,
Lender is the present owner and holder of (i) that certain Promissory Note dated
June 30, 1998 executed in favor of Nationsbank of Tennessee, N.A. (n/k/a Bank of
America, N.A.) in the amount of $32,000,000.00, as amended and reduced by that
certain Assumption and Release Agreement and as assigned to Wells Fargo Bank,
N.A. (formerly known as Wells Fargo Bank Minnesota, N.A.), as Trustee for the
Registered Holders of GE Capital Commercial Mortgage Corporation, Commercial
Mortgage Pass-Through Certificates Series 2002-3 and in its capacity as Lead
Lender on Behalf of the Holders of the Related Companion Loans (the
“
Original
Lender
”) in the
original principal amount of TWENTY FOUR MILLION and 00/100 Dollars
($24,000,000.00) (the “
Existing
Note
").
WHEREAS,
the Existing Note is secured by that certain Mortgage, Assignment of Leases and
Rents, Security Agreement and Fixture Filing dated June 30, 1998, encumbering
certain lands in St. John’s County, Florida, recorded in Official Records Book
1333, Page 498, together with an Assumption and Release Agreement dated
September 24, 1999 recorded in Official Records Book 1443, Page 1645, as
assigned to Original Lender pursuant to that certain Assignment of Mortgage
recorded in Official Records Book 1586, Page 247 (the “
Existing
Mortgage
”).
WHEREAS,
the Existing Note and the Existing Mortgage were previously assigned by Original
Lender to Lender pursuant to that certain Assignment of Mortgage (the
“Assignment”) recorded immediately prior to this Agreement, and pursuant to the
Assignment, the Lender is the current owner and holder of the Existing Note and
Existing Mortgage.
WHEREAS,
the current aggregate principal balance of the Existing Note is $22,349,685.19
(the "
OPB
");
WHEREAS,
Borrower has applied to Lender for a future advance in the amount of
$4,900,314.81
pursuant
to the future advance clauses in the Existing Mortgage, which Lender has agreed
to provide in consideration of the modification and amendment of the Existing
Note and the modification, amendment and restatement of the Existing Mortgage by
Borrower as set forth herein;
WHEREAS,
Lender and Borrower desire to replace, modify, amend, spread, consolidate and
restate the Existing Mortgage as set forth herein.
NOW
THEREFORE, in consideration for the mutual covenants and agreements contained in
this Mortgage, the parties covenant and agree as follows:
1.
All the
foregoing statements are true and correct.
2.
This
Mortgage contains a waiver of defenses and estoppel language from Borrower as to
the continuing enforceability of the Existing Mortgage.
3.
Contemporaneously
herewith, Borrower has executed and delivered to Lender that certain Renewal
Promissory Note Including Future Advance which will have a maturity date of
April 11, 2016 (such promissory note, together with any renewals, modifications,
consolidations and extensions thereof, is hereinafter referred to as the
"
Note
") dated
the date hereof in the original principal amount of $27,250,000
, which
combines, consolidates, amends and restates the terms of the Existing Note. The
terms and conditions of repayment of the Existing Note shall, from and after the
date of this Mortgage, be governed by the terms and conditions of the Note and
shall be secured by this Mortgage, as modified hereby. The principal sums
advanced or to be advanced pursuant to the terms of the Note consist of: (i) the
OPB and (ii) $
4,900,314.81
of new
loan proceeds (hereinafter referred to as the "
Future Advance
"). The
Note is given, in part, to renew the Existing Note. As to the renewal of the
Existing Note, the Note is intended to comply with the requirements of 201.09,
Florida Statutes, and is intended to be exempt from Florida documentary stamp
taxation thereunder. Accordingly, pursuant to 201.09, Florida Statutes, Florida
documentary stamp taxes in the amount of $17,151.40
based
upon the amount of the Future Advance, have been paid and affixed to this
Mortgage.
4.
Pursuant
to F.S. 697.04 and the terms of the Existing Mortgage, as modified and restated
herein, this Mortgage is modified and amended to change the principal sum that
is secured hereby from the OPB to $27,250,000
Borrower
covenants that it has not executed or delivered any documentation or made any
promises or covenants to limit the maximum principal amount that may be secured
by the Existing Mortgage as authorized by F.S. 697.04.
5.
The
Existing Mortgage is modified and amended to modify and restate the terms of the
Existing Mortgage in its entirety as follows:
Lender
has authorized a loan (hereinafter referred to as the “
Loan
”) to the
Borrower in the maximum principal sum of TWENTY SEVEN
MILLION
TWO HUNDRED FIFTY THOUSAND and NO/100 DOLLARS ($27,250,000
)
(hereinafter referred to as the “
Loan
Amount
”),
together with interest as therein provided, with a maturity date of April 11,
2016, which Loan is evidenced by the Note;
WHEREAS,
in consideration of the Loan, the Borrower has agreed to make payments in
amounts sufficient to pay and redeem, and provide for the payment and redemption
of the principal of, premium, if any, and interest on the Note when
due;
WHEREAS,
Borrower desires by this Security Instrument to provide for, among other things,
the issuance of the Note and for the mortgage by Borrower with, and the creation
of a security interest in favor of, Lender, as security for the Borrower’s
obligations to Lender from time to time pursuant to the Note and the other Loan
Documents, but specifically excluding the Guaranty (as hereinafter defined);
and
WHEREAS,
Borrower and Lender intend these recitals to be a material part of this Security
Instrument.
WHEREAS,
all things necessary to make this Security Instrument the valid and legally
binding obligation of Borrower in accordance with its terms, for the uses and
purposes herein set forth, have been done and performed.
NOW
THEREFORE, to secure the payment of the principal of, prepayment premium (if
any) and interest on the Note and all other obligations, liabilities or sums due
or to become due under, or advanced in accordance herewith to protect the
security of, this Security Instrument, the Note or any other Loan Document,
including, without limitation, interest on said obligations, liabilities or sums
(said principal, premium, interest and other sums being hereinafter referred to
as the “
Debt
”), and
the performance of all other covenants, obligations and liabilities of the
Borrower pursuant to the Loan Documents but specifically excluding the Guaranty,
and any and all other indebtedness now owing or which may hereafter be owing by
Borrower to Lender, now existing or hereafter coming into existence, however and
whenever incurred or evidenced, whether express or implied, direct or indirect,
absolute or contingent, or due or to become due, and all renewals,
modifications, consolidations, replacements and extensions thereof, Borrower has
executed and delivered this Security Instrument; and Borrower has irrevocably
mortgage, warrant and grant a security interest in favor of Lender, forever in
trust WITH POWER OF SALE, all right, title and interest of Borrower in and to
all of the following property, rights, interests and estates, whether now owned
or hereafter acquired, together with the rights, privileges and appurtenances
thereto belonging:
(a)
the
plot(s), piece(s) or parcel(s) of real property described in
Exhibit A
attached
hereto and made a part hereof (individually and collectively, hereinafter
referred to as the “
Premises
”);
(b)
(i) all
buildings, foundations, structures, fixtures, additions, enlargements,
extensions, modifications, repairs, replacements and improvements of every kind
or nature now or hereafter located on the Premises (hereinafter collectively
referred to as the “
Improvements
”); and
(ii) to the extent permitted by law, the name or names, if any, as may now or
hereafter be used for each Improvement, and the goodwill associated
therewith;
(c)
all
easements, servitudes, rights-of-way, strips and gores of land, streets, ways,
alleys, passages, sewer rights, water, water courses, water rights and powers,
ditches, ditch rights, reservoirs and reservoir rights, air rights and
development rights, lateral support, drainage, gas, oil and mineral rights,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating or pertaining to the Premises or the Improvements and the
reversion and reversions, remainder and remainders, whether existing or
hereafter acquired, and all land lying in the bed of any street, road or avenue,
opened or proposed, in front of or adjoining the Premises to the center line
thereof and any and all sidewalks, drives, curbs, passageways, streets, spaces
and alleys adjacent to or used in connection with the Premises and/or
Improvements and all the estates, rights, titles, interests, property,
possession, claim and demand whatsoever, both in law and in equity, of Borrower
of, in and to the Premises and Improvements and every part and parcel thereof,
with the appurtenances thereto;
(d)
all
machinery, equipment, fittings, apparatus, appliances, furniture, furnishings,
tools, fixtures (including, but not limited to, all heating, air conditioning,
ventilating, waste disposal, sprinkler and fire and theft protection equipment,
plumbing, lighting, communications and elevator fixtures) and other property of
every kind and nature whatsoever owned by Borrower, or in which Borrower has or
shall have an interest, now or hereafter located upon, or in, and located on the
Premises or the Improvements, or appurtenant thereto, and all building
equipment, materials and supplies of any nature whatsoever owned by Borrower, or
in which Borrower has or shall have an interest, now or hereafter located upon,
or in the Premises or the Improvements or appurtenant thereto (hereinafter, all
of the foregoing items described in this paragraph (d), along with all
replacement and additional items installed as contemplated in Section 8.01(e),
are collectively called the “
Equipment
”), all
of which, and any replacements, modifications, alterations and additions
thereto, to the extent permitted by applicable law, shall be deemed to
constitute fixtures (herein, collectively, the “
Fixtures
”), and
are part of the real estate and security for the payment of the Debt and the
performance of Borrower’s obligations. To the extent any portion of the
Equipment is not real property or Fixtures under applicable law, it shall be
deemed to be personal property, and this Security Instrument shall constitute a
security agreement creating a security interest therein in favor of Lender under
the UCC;
(e)
all
awards or payments, including interest thereon, which may hereafter be made with
respect to the Premises, the Improvements, the Fixtures, or the Equipment,
whether from the exercise of the right of eminent domain (including but not
limited to any transfer made in lieu of or in anticipation of the exercise of
said right), or for a change of grade, or for any other injury to or decrease in
the value of the Premises, the Improvements or the Equipment or refunds with
respect to the payment of property taxes and assessments, and all other proceeds
of the conversion, voluntary or involuntary, of the Premises, Improvements,
Equipment, Fixtures or any other Property or part thereof into cash or
liquidated claims;
(f)
all
leases, tenancies, licenses and other agreements affecting the use, enjoyment or
occupancy of the Premises, the Improvements, the Fixtures, or the Equipment or
any portion thereof now or hereafter entered into, whether before or after the
filing by or against Borrower of any petition for relief under the Bankruptcy
Code and all reciprocal easement agreements, license agreements and other
agreements with Pad Owners (hereinafter collectively referred to as the
“
Leases
”),
together with all cash or security deposits, lease termination payments, advance
rentals and payments of similar nature and guarantees or other security held by,
or issued in favor of, Borrower in connection therewith to the extent of
Borrower’s right or interest therein and all remainders, reversions and other
rights and estates appurtenant thereto, and all base, fixed, percentage or
additional rents, and other rents, oil and gas or other mineral royalties, and
bonuses, issues, profits and rebates and refunds or other payments made by any
Governmental Authority from or relating to the Premises, the Improvements, the
Fixtures or the Equipment plus all rents, common area charges and other payments
now existing or hereafter arising, whether paid or accruing before or after the
filing by or against Borrower of any petition for relief under the Bankruptcy
Code (herein, collectively, the “
Rents
”) and
all proceeds from the sale or other disposition of the Leases and the right to
receive and apply the Rents to the payment of the Debt;
(g)
all
proceeds of and any unearned premiums on any insurance policies covering the
Premises, the Improvements, the Fixtures, the Rents or the Equipment, including,
without limitation, the right to receive and apply the proceeds of any
insurance, judgments, or settlements made in lieu thereof, for damage to the
Premises, the Improvements, the Fixtures or the Equipment and all refunds or
rebates of Impositions, and interest paid or payable with respect
thereto;
(h)
all
deposit accounts, securities accounts, funds or other accounts maintained or
deposited with Lender, or its assigns, in connection herewith, including,
without limitation, the Security Deposit Account (to the extent permitted by
law), the Engineering Escrow Account, the Central Account, the Basic Carrying
Costs Sub-Account, the Basic Carrying Costs Escrow Account, the Debt Service
Payment Sub-Account, the Recurring Replacement Reserve Sub-Account, the
Recurring Replacement Reserve Escrow Account, the Reletting Reserve Sub-Account,
the Reletting Reserve Escrow Account, the Operation and Maintenance Expense
Sub-Account, the Operation and Maintenance Expense Escrow Account, the
Curtailment Reserve Escrow Account and the Curtailment Reserve Sub-Account, the
Holdback Reserve Escrow Account, the Holdback Reserve Sub-Account, the Debt
Service Reserve Escrow Account, the Debt Service Reserve Sub-Account, the Yield
Maintenance Reserve Escrow Account, the Yield Maintenance Reserve Sub-Account,
and all monies and investments deposited or to be deposited in such
accounts;
(i)
all
accounts receivable, contract rights, franchises, interests, estate or other
claims, both at law and in equity, now existing or hereafter arising, and
relating to the Premises, the Improvements, the Fixtures or the Equipment, not
included in Rents;
(j)
all now
existing or hereafter arising claims against any Person with respect to any
damage to the Premises, the Improvements, the Fixtures or the Equipment,
including, without limitation, damage arising from any defect in or with respect
to the design or construction of the Improvements, the Fixtures or the Equipment
and any damage resulting therefrom;
(k)
all
deposits or other security or advance payments, including rental payments now or
hereafter made by or on behalf of Borrower to others, with respect to (i)
insurance policies, (ii) utility services, (iii) cleaning, maintenance, repair
or similar services, (iv) refuse removal or sewer service, (v) parking or
similar services or rights and (vi) rental of Equipment, if any, relating to or
otherwise used in the operation of the Premises, the Improvements, the Fixtures
or the Equipment;
(l)
all
intangible property now or hereafter relating to the Premises, the Improvements,
the Fixtures or the Equipment or its operation, including, without limitation,
software, letter of credit rights, trade names, trademarks (including, without
limitation, any licenses of or agreements to license trade names or trademarks
now or hereafter entered into by Borrower), logos, building names and
goodwill;
(m)
all now
existing or hereafter arising advertising material, guaranties, warranties,
building permits, other permits, licenses, plans and specifications, shop and
working drawings, soil tests, appraisals and other documents, materials and/or
personal property of any kind now or hereafter existing in or relating to the
Premises, the Improvements, the Fixtures, and the Equipment;
(n)
all now
existing or hereafter arising drawings, designs, plans and specifications
prepared by architects, engineers, interior designers, landscape designers and
any other consultants or professionals for the design, development,
construction, repair and/or improvement of the Property, as amended from time to
time;
(o)
the
right, in the name of and on behalf of Borrower, to appear in and defend any now
existing or hereafter arising action or proceeding brought with respect to the
Premises, the Improvements, the Fixtures or the Equipment as set forth herein
and to commence any action or proceeding to protect the interest of Lender in
the Premises, the Improvements, the Fixtures or the Equipment as set forth
herein;
(p)
all
agreements, grants of easements and/or rights-of-way, reciprocal easement
agreements, permits, declarations of covenants, conditions and restrictions,
disposition and development agreements, planned unit development agreements,
management or parking agreements, party wall agreements or other instruments
affecting the Property and all proceeds or income received with respect thereto;
and
(q)
all
proceeds, products, substitutions and accessions (including claims and demands
therefor) of each of the foregoing.
All of
the foregoing items (a) through (q), together with all of the right, title and
interest of Borrower therein, are collectively referred to as the “
Property
”.
PROVIDED,
ALWAYS, and these presents are upon this express condition, if Borrower shall
well and truly pay and discharge the Debt and perform and observe the terms,
covenants and conditions set forth in the Loan Documents, then these presents
and the estate hereby granted shall cease and be void.
AND
Borrower covenants with and warrants to Lender that:
ARTICLE I:
DEFINITIONS
Section
1.01.
Certain
Definitions
.
For all
purposes of this Security Instrument, except as otherwise expressly provided or
unless the context clearly indicates a contrary intent:
(i)
the
capitalized terms defined in this Section have the meanings assigned to them in
this Section, and include the plural as well as the singular;
(ii)
all
accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with GAAP; and
(iii)
the words
“herein”, “hereof”, and “hereunder” and other words of similar import refer to
this Security Instrument as a whole and not to any particular Section or other
subdivision.
“
Adjusted Net Cash
Flow
” shall
mean on any determination date, the Pro-Forma Net Operating Income less (a) the
Recurring Replacement Monthly Installment multiplied by twelve (12), (b) the
Reletting Reserve Monthly Installment multiplied by twelve (12), and (c) Net
Capital Expenditures to be incurred (as estimated by Lender, in its reasonable
discretion) for the subsequent twelve (12) month period. The Adjusted Net Cash
Flow shall be calculated by Lender in accordance with the terms of this Security
Instrument.
“
Affiliate
” of any
specified Person shall mean any other Person directly or indirectly Controlling
or Controlled by or under direct or indirect common Control with such specified
Person.
“
Annual
Budget
” shall
mean an annual budget submitted by Borrower to Lender in accordance with the
terms of Section 2.09 hereof.
“
Appraisal
” shall
mean the appraisal of the Property and all supplemental reports or updates
thereto previously delivered to Lender in connection with the Loan.
“
Appraiser
” shall
mean the Person who prepared the Appraisal.
“
Approved Annual
Budget
” shall
mean each Annual Budget approved by Lender in accordance with terms
hereof.
“
Approved Manager
Standard
” shall
mean the standard of business operations, practices and procedures customarily
employed by entities which possess the Minimum Manager Credentials.
“
Architect
” shall
have the meaning set forth in Section 3.04(b)(i) hereof.
“
Assignment
” shall
mean the Assignment of Leases and Rents and Security Deposits of even date
herewith relating to the Property given by Borrower to Lender.
“
Bank
” shall
mean the bank, trust company, savings and loan association or savings bank
designated by Lender, in its sole and absolute discretion, in which the Central
Account shall be located.
“
Bankruptcy
Code
” shall
mean 11 U.S.C. §101 et seq., as amended from time to time.
“
Basic Carrying
Costs
” shall
mean the sum of the following costs associated with the Property: (a) Real
Estate Taxes and (b) insurance premiums.
“
Basic Carrying Costs Escrow
Account
” shall
mean the Escrow Account maintained pursuant to Section 5.06 hereof.
“
Basic Carrying Costs Monthly
Installment
” shall
mean Lender’s reasonable estimate of one-twelfth (1/12th) of the annual amount
for Basic Carrying Costs. “Basic Carrying Costs Monthly Installment” shall also
include, if required by Lender, a sum of money which, together with such monthly
installments, will be sufficient to make the payment of each such Basic Carrying
Cost at least thirty (30) days prior to the date initially due. Should such
Basic Carrying Costs not be ascertainable at the time any monthly deposit is
required to be made, the Basic Carrying Costs Monthly Installment shall be
determined by Lender in its reasonable discretion on the basis of the aggregate
Basic Carrying Costs for the prior Fiscal Year or month or the prior payment
period for such cost. As soon as the Basic Carrying Costs are fixed for the then
current Fiscal Year, month or period, the next ensuing Basic Carrying Costs
Monthly Installment shall be adjusted to reflect any deficiency or surplus in
prior monthly payments. If at any time during the term of the Loan Lender
determines that there will be insufficient funds in the Basic Carrying Costs
Escrow Account to make payments when they become due and payable, Lender shall
have the right to adjust the Basic Carrying Costs Monthly Installment such that
there will be sufficient funds to make such payments.
“
Basic Carrying Costs
Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
into which the Basic Carrying Costs Monthly Installments shall be
deposited.
“
Borrower
” shall
mean Borrower named herein and any successor to the obligations of
Borrower.
“
Borrower
Account
” shall
mean an Eligible Account maintained in the name of Borrower.
“
Business
Day
” shall
mean any day other than (a) a Saturday or Sunday, or (b) a day on which banking
and savings and loan institutions in the State of New York or the State of North
Carolina are authorized or obligated by law or executive order to be closed, or
at any time during which the Loan is an asset of a Securitization, the cities,
states and/or commonwealths used in the comparable definition of “Business Day”
in the Securitization documents.
“
Capital
Expenditures
” shall
mean for any period, the amount expended for items capitalized under GAAP
including expenditures for building improvements or major repairs, leasing
commissions and tenant improvements.
“
Cash
Expenses
” shall
mean for any period, the operating expenses for the Property as set forth in an
Approved Annual Budget to the extent that such expenses are actually incurred by
Borrower minus payments into the Basic Carrying Costs Sub-Account, the Debt
Service Payment Sub-Account, the Reletting Reserve Sub-Account and the Recurring
Replacement Reserve Sub-Account.
“
Central
Account
” shall
mean an Eligible Account, maintained at the Bank, in the name of Lender or its
successors or assigns (as secured party) as may be designated by
Lender.
“
Closing
Date
” shall
mean the date of the Note.
“
Code
” shall
mean the Internal Revenue Code of 1986, as amended and as it may be further
amended from time to time, any successor statutes thereto, and applicable U.S.
Department of Treasury regulations issued pursuant thereto.
“
Condemnation
Proceeds
” shall
mean all of the proceeds in respect of any Taking or purchase in lieu
thereof.
“
Contractual
Obligation
” shall
mean, as to any Person, any provision of any security issued by such Person or
of any agreement, instrument or undertaking to which such Person is a party or
by which it or any of the property owned by it is bound.
“
Control
” means,
when used with respect to any specific Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person whether through ownership of voting securities,
beneficial interests, by contract or otherwise. The definition is to be
construed to apply equally to variations of the word “Control” including
“Controlled,” “Controlling” or “Controlled by.”
“
CPI
” shall
mean “The Consumer Price Index (New Series) (Base Period 1982-84=100) (all items
for all urban consumers)” issued by the Bureau of Labor Statistics of the United
States Department of Labor (the “
Bureau
”). If
the CPI ceases to use the 1982-84 average equaling 100 as the basis of
calculation, or if a change is made in the term, components or number of items
contained in said index, or if the index is altered, modified, converted or
revised in any other way, then the index shall be adjusted to the figure that
would have been arrived at had the change in the manner of computing the index
in effect at the date of this Security Instrument not been altered. If at any
time during the term of this Security Instrument the CPI shall no longer be
published by the Bureau, then any comparable index issued by the Bureau or
similar agency of the United States issuing similar indices shall be used in
lieu of the CPI.
“
Current
Month
” shall
mean the period from the eleventh (11
th
) day of
each month through and including the tenth (10
th
) day of
the following month.
"
Curtailment Reserve Escrow
Account
" shall
mean the Escrow Account maintained pursuant to Section 5.11 hereof into which
sums shall be deposited during an O&M Operative Period.
"
Curtailment Reserve
Sub-Account
" shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof.
“
Debt
” shall
have the meaning set forth in the Recitals hereto.
“
Debt Service
Coverage
” shall
mean the quotient obtained by dividing Adjusted Net Cash Flow for the specified
period by the sum of the aggregate payments of interest and principal due for
such specified period under the Note (determined as of the date the calculation
of Debt Service Coverage is required or requested hereunder).
“
Debt Service Payment
Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which the Required Debt Service Payment shall be
deposited.
“
Debt Service Reserve Escrow
Account
” shall
mean the Escrow Account maintained pursuant to Section 5.16 hereof relating to
the payment of debt service on the Loan.
“
Debt Service Reserve
Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which the Initial Debt Service Reserve Deposit shall be
deposited.
“
Default
” shall
mean any Event of Default or event which would constitute an Event of Default if
all requirements in connection therewith for the giving of notice, the lapse of
time, and the happening of any further condition, event or act, had been
satisfied.
“
Default
Rate
” shall
mean the lesser of (a) the highest rate allowable at law and (b) five percent
(5%) above the interest rate set forth in the Note.
“
Default Rate
Interest
” shall
mean, to the extent the Default Rate becomes applicable, interest in excess of
the interest which would have accrued on (a) the Principal Amount and (b) any
accrued but unpaid interest, if the Default Rate was not
applicable.
“
Development
Laws
” shall
mean all applicable subdivision, zoning, environmental protection, wetlands
protection, or land use laws or ordinances, and any and all applicable rules and
regulations of any Governmental Authority promulgated thereunder or related
thereto.
“
Eligible
Account
” shall
mean a segregated account which is either (a) an account or accounts maintained
with a federal or state chartered depository institution or trust company the
long term unsecured debt obligations of which are rated by each of the Rating
Agencies (or, if not rated by Fitch, Inc. (“
Fitch
”),
otherwise acceptable to Fitch, as confirmed in writing that such account would
not, in and of itself, result in a downgrade, qualification or withdrawal of the
then current ratings assigned to any certificates issued in connection with a
Securitization) in its second highest rating category at all times (or, in the
case of the Basic Carrying Costs Escrow Account, the long term unsecured debt
obligations of which are rated at least “AA” (or its equivalent)) by each of the
Rating Agencies (or, if not rated by Fitch, otherwise acceptable to Fitch, as
confirmed in writing that such account would not, in and of itself, result in a
downgrade, qualification or withdrawal of the then current ratings assigned to
any certificates issued in connection with a Securitization) or, if the funds in
such account are to be held in such account for less than thirty (30) days, the
short term obligations of which are rated by each of the Rating Agencies (or, if
not rated by Fitch, otherwise acceptable to Fitch, as confirmed in writing that
such account would not, in and of itself, result in a downgrade, qualification
or withdrawal of the then current ratings assigned to any certificates issued in
connection with a Securitization) in its second highest rating category at all
times or (b) a segregated trust account or accounts maintained with a federal or
state chartered depository institution or trust company acting in its fiduciary
capacity which, in the case of a state chartered depository institution is
subject to regulations substantially similar to 12 C.F.R. § 9.10(b), having in
either case a combined capital and surplus of at least $100,000,000 and subject
to supervision or examination by federal and state authority, or otherwise
acceptable (as evidenced by a written confirmation from each Rating Agency that
such account would not, in and of itself, cause a downgrade, qualification or
withdrawal of the then current ratings assigned to any certificates issued in
connection with a Securitization) to each Rating Agency, which may be an account
maintained by Lender or its agents. Eligible Accounts may bear interest. The
title of each Eligible Account shall indicate that the funds held therein are
held in trust for the uses and purposes set forth herein.
“
Engineer
” shall
have the meaning set forth in Section 3.04(b)(i) hereof.
“
Engineering Escrow
Account
” shall
mean an Escrow Account established and maintained pursuant to Section 5.12
hereof relating to payments for any Required Engineering Work.
“
Engineering
Report
” shall
mean the engineering report for the Property and any supplements or updates
thereto, previously delivered to Lender in connection with the
Loan.
“
Environmental
Problem
” shall
mean any of the following:
(a)
the
presence of any Hazardous Material on, in, under, or above all or any portion of
the Property;
(b)
the
release or threatened release of any Hazardous Material from or onto the
Property;
(c)
the
violation or threatened violation of any Environmental Statute with respect to
the Property; or
(d)
the
failure to obtain or to abide by the terms or conditions of any permit or
approval required under any Environmental Statute with respect to the
Property.
A
condition described above shall be an Environmental Problem regardless of
whether or not any Governmental Authority has taken any action in connection
with the condition and regardless of whether that condition was in existence on
or before the date hereof.
“
Environmental
Report
” shall
mean the environmental audit report for the Property and any supplements or
updates thereto, previously delivered to Lender in connection with the
Loan.
“
Environmental
Statute
” shall
mean any federal, state or local statute, ordinance, rule or regulation, any
judicial or administrative order (whether or not on consent) or judgment
applicable to Borrower or the Property including, without limitation, any
judgment or settlement based on common law theories, and any provisions or
condition of any permit, license or other authorization binding on Borrower
relating to (a) the protection of the environment or the health of persons
(including employees) from actual or potential exposure (or effects of exposure)
to any actual or potential release, discharge, disposal or emission (whether
past or present) of any Hazardous Materials or (b) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
Hazardous Materials, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (“
CERCLA
”), as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
§9601
et
seq.
, the
Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42
U.S.C. §6901
et
seq.
, the
Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977,
33 U.S.C. §1251
et
seq.
, the
Toxic Substances Control Act of 1976, 15 U.S.C. §2601
et
seq.
, the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §1101
et
seq.
, the
Clean Air Act of 1966, as amended, 42 U.S.C. §7401
et
seq.
, the
National Environmental Policy Act of 1975, 42 U.S.C. §4321, the Rivers and
Harbors Act of 1899, 33 U.S.C. §401
et
seq.
, the
Endangered Species Act of 1973, as amended, 16 U.S.C. §1531
et
seq.
, the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §651
et
seq.
, and the
Safe Drinking Water Act of 1974, as amended, 42 U.S.C. §300(f)
et
seq.
, and all
rules, regulations and guidance documents promulgated or published
thereunder.
“
Equipment
” shall
have the meaning set forth in granting clause (d) of this Security
Instrument.
“
ERISA
” shall
mean the Employee Retirement Income Security Act of 1974, as amended from time
to time, and the regulations promulgated thereunder. Section references to ERISA
are to ERISA, as in effect at the date of this Security Instrument and, as of
the relevant date, any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
“
ERISA
Affiliate
” shall
mean any corporation or trade or business that is a member of any group of
organizations (a) described in Section 414(b) or (c) of the Code of which
Borrower or Guarantor is a member and (b) solely for purposes of potential
liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code
and the lien created under Section 302(f) of ERISA and Section 412(n) of the
Code, described in Section 414(m) or (o) of the Code of which Borrower or
Guarantor is a member.
“
Escrow
Account
” shall
mean each of the Engineering Escrow Account, the Basic Carrying Costs Escrow
Account, the Recurring Replacement Reserve Escrow Account, the Reletting Reserve
Escrow Account, the Holdback Reserve Escrow Account, the Operation and
Maintenance Expense Escrow Account, the Debt Service Reserve Escrow Account, the
Yield Maintenance Reserve Escrow Account and the Curtailment Reserve Escrow
Account, each of which shall be an Eligible Account or book entry sub-account of
an Eligible Account.
“
Event of
Default
” shall
have the meaning set forth in Section 13.01 hereof.
“
Extraordinary
Expense
” shall
mean an extraordinary operating expense or capital expense not set forth in the
Approved Annual Budget or allotted for in the Recurring Replacement Reserve
Sub-Account or the Reletting Reserve Sub-Account.
“
Fiscal
Year
” shall
mean the twelve (12) month period commencing on January 1 and ending on December
31 during each year of the term of this Security Instrument, or such other
fiscal year of Borrower as Borrower may select from time to time with the prior
written consent of Lender.
“
Fixtures
” shall
have the meaning set forth in granting clause (d) of this Security
Instrument.
“
Force
Majeure
” shall
mean strikes, lockouts, labor disputes, acts of God, governmental restrictions,
regulations or controls, enemy or hostile governmental actions, terrorist acts,
civil commotion, insurrection, revolution, sabotage or fire or other casualty or
other events beyond the reasonable control of Borrower and/or its Affiliates,
but Borrower’s and/or its Affiliates’ lack of funds in and of itself shall not
be deemed a cause beyond the control of Borrower and/or its
Affiliates.
“
GAAP
” shall
mean generally accepted accounting principles in the United States of America,
as of the date of the applicable financial report, consistently
applied.
“
General
Partner
” shall
mean, if Borrower is a partnership, each general partner of Borrower and, if
Borrower is a limited liability company, each managing member of Borrower and in
each case, if applicable, each general partner or member of such general partner
or managing member.
“
Governmental
Authority
” shall
mean, with respect to any Person, any federal or State government or other
political subdivision thereof and any entity, including any regulatory or
administrative authority or court, exercising executive, legislative, judicial,
regulatory or administrative or quasi-administrative functions of or pertaining
to government, and any arbitration board or tribunal, in each case having
jurisdiction over such applicable Person or such Person’s property and any stock
exchange on which shares of capital stock of such Person are listed or admitted
for trading.
“
Guarantor
” shall
mean any Person guaranteeing, in whole or in part, the obligations of Borrower
under the Loan Documents.
“
Guaranty
” shall
mean that certain Guaranty executed and delivered by Lightstone Holdings, LLC,
dated as of the date hereof.
“
Hazardous
Material
” shall
mean any flammable, explosive or radioactive materials, hazardous materials or
wastes, hazardous or toxic substances, pollutants, asbestos or any material
containing asbestos, molds, spores and fungus which may pose a risk to human
health or the environment or any other substance or material as defined in or
regulated by any Environmental Statutes.
“
Holdback Release
Amount
” shall
mean, at any time of any request, the positive different between the Supported
Loan Amount and $24,250,000.00 (plus the amounts which may have been previously
released from the Holdback Reserve Escrow Account).
"
Holdback Reserve Escrow
Account
" shall
mean the Escrow Account maintained pursuant to Section 5.15 hereof.
"
Holdback Reserve
Sub-Account
" shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof in which the Initial Holdback Reserve Deposit shall be
maintained.
“
Impositions
” shall
mean all taxes (including, without limitation, all real estate, ad valorem,
sales (including those imposed on lease rentals), use, single business, gross
receipts, value added, intangible, transaction, privilege or license or similar
taxes), assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior to the
date hereof and whether or not commenced or completed within the term of this
Security Instrument), ground rents, water, sewer or other rents and charges,
excises, levies, fees (including, without limitation, license, permit,
inspection, authorization and similar fees), and all other governmental charges,
in each case whether general or special, ordinary or extraordinary, or foreseen
or unforeseen, of every character in respect of the Property and/or any Rent
(including all interest and penalties thereon), which at any time prior to,
during or in respect of the term hereof may be assessed or imposed on or in
respect of or be a lien upon (a) Borrower (including, without limitation, all
franchise, single business or other taxes imposed on Borrower for the privilege
of doing business in the jurisdiction in which the Property or any other
collateral delivered or pledged to Lender in connection with the Loan is
located) or Lender, (b) the Property or any part thereof or any Rents therefrom
or any estate, right, title or interest therein, or (c) any occupancy,
operation, use or possession of, or sales from, or activity conducted on, or in
connection with the Property, or any part thereof, or the leasing or use of the
Property, or any part thereof, or the acquisition or financing of the
acquisition of the Property, or any part thereof, by Borrower.
“
Improvements
” shall
have the meaning set forth in granting clause (b) of this Security
Instrument.
“
Indemnified
Parties
” shall
have the meaning set forth in Section 12.01 hereof.
“
Independent
” shall
mean, when used with respect to any Person, a Person who (a) is in fact
independent, (b) does not have any direct financial interest or any material
indirect financial interest in Borrower, or in any Affiliate of Borrower or any
constituent partner, shareholder, member or beneficiary of Borrower, (c) is not
connected with Borrower or any Affiliate of Borrower or any constituent partner,
shareholder, member or beneficiary of Borrower as an officer, employee,
promoter, underwriter, trustee, partner, director or person performing similar
functions and (d) is not a member of the immediate family of a Person defined in
(b) or (c) above.
"
Initial Debt Service Reserve
Deposit
" shall
equal the amount set forth on Exhibit B attached hereto and made a part
hereof.
“
Initial Engineering
Deposit
” shall
equal the amount set forth on Exhibit B attached hereto and made a part
hereof.
"
Initial Holdback Reserve
Deposit
" shall
equal the amount set forth on Exhibit B attached hereto and made a part
hereof.
“
Initial Outstanding TILC
Reserve Deposit
” shall
equal the amount set forth on Exhibit B attached hereto and made a part hereof.
“
Initial Reletting Reserve
Deposit
” shall
equal the amount set forth on Exhibit B attached hereto and made a part
hereof.
“
Initial Recurring Reserve
Deposit
” shall
equal the amount required to be deposited by Borrower into the Recurring
Replacement Reserve Escrow Account on the Closing Date as set forth on Exhibit
B.
"
Initial Yield Maintenance
Reserve Deposit
" shall
equal the amount set forth on Exhibit B attached hereto and made a part
hereof.
“
Insolvency
Opinion
” shall
have the meaning set forth in Section 2.02(g)(xix) hereof.
“
Institutional
Lender
” shall
mean any of the following Persons: (a) any bank, savings and loan association,
savings institution, trust company or national banking association, acting for
its own account or in a fiduciary capacity, (b) any charitable foundation, (c)
any insurance company or pension and/or annuity company, (d) any fraternal
benefit society, (e) any pension, retirement or profit sharing trust or fund
within the meaning of Title I of ERISA or for which any bank, trust company,
national banking association or investment adviser registered under the
Investment Advisers Act of 1940, as amended, is acting as trustee or agent, (f)
any investment company or business development company, as defined in the
Investment Company Act of 1940, as amended, (g) any small business investment
company licensed under the Small Business Investment Act of 1958, as amended,
(h) any broker or dealer registered under the Securities Exchange Act of 1934,
as amended, or any investment adviser registered under the Investment Adviser
Act of 1940, as amended, (i) any government, any public employees’ pension or
retirement system, or any other government agency supervising the investment of
public funds, or (j) any other entity all of the equity owners of which are
Institutional Lenders; provided that each of said Persons shall have net assets
in excess of $1,000,000,000 and a net worth in excess of $500,000,000, be in the
business of making commercial mortgage loans, secured by properties of like
type, size and value as the Property and have a long term credit rating which is
not less than “BBB-” (or its equivalent) from the Rating Agency.
“
Insurance
Proceeds
” shall
mean all of the proceeds received under the insurance policies required to be
maintained by Borrower pursuant to Article III hereof.
“
Insurance
Requirements
” shall
mean all terms of any insurance policy required by this Security Instrument, all
requirements of the issuer of any such policy, and all regulations and then
current standards applicable to or affecting the Property or any use or
condition thereof, which may, at any time, be recommended by the Board of Fire
Underwriters, if any, having jurisdiction over the Property, or such other
Person exercising similar functions.
“
Interest
Rate
” shall
have the meaning set forth in the Note.
“
Late
Charge
” shall
have the meaning, subject to the provisions of Section 21.02(g) hereof, set
forth in Section 13.09 hereof.
“
Leases
” shall
have the meaning set forth in granting clause (f) of this Security
Instrument.
“
Legal
Requirement
” shall
mean as to any Person, the certificate of incorporation, by-laws, certificate of
limited partnership, agreement of limited partnership or other organization or
governing documents of such Person, and any law, statute, order, code,
ordinance, judgment, decree, injunction, treaty, rule or regulation (including,
without limitation, Environmental Statutes, Development Laws and Use
Requirements) or determination of an arbitrator or a court or other Governmental
Authority and all covenants, agreements, restrictions and encumbrances contained
in any instruments, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
“
Lender
” shall
mean the Lender named herein and its successors or assigns.
“
Loan
” shall
have the meaning set forth in the Recitals hereto.
“
Loan
Amount
” shall
have the meaning set forth in the Recitals hereto.
“
Loan
Documents
” shall
mean this Security Instrument, the Note, the Assignment, and any and all other
agreements, instruments, certificates or documents executed and delivered by
Borrower or any Affiliate of Borrower in connection with the Loan.
“
Loan Year
” shall
mean each 365 day period (or 366 day period if the month of February in a leap
year is included) commencing on the first day of the month following the Closing
Date (provided, however, that the first Loan Year shall also include the period
from the Closing Date to the end of the month in which the Closing Date occurs).
“
Loss
Proceeds
” shall
mean, collectively, all Insurance Proceeds and all Condemnation Proceeds.
“
Major Space
Lease
” shall
mean any Space Lease of a tenant or Affiliate of such tenant where such tenant
or such Affiliate leases, in the aggregate, in excess of 6,000 square feet.
“
Management
Agreement
” shall
have the meaning set forth in Section 7.02 hereof.
“
Manager
” shall
mean Borrower and any other Person, other than Borrower, which manages the
Property on behalf of Borrower.
“
Manager
Certification
” shall
have the meaning set forth in Section 2.09 hereof.
“
Material Adverse
Effect
” shall
mean any event or condition that has a material adverse effect on (a) the
Property, (b) the business, profits, management, operations or condition
(financial or otherwise) of Borrower, (c) the enforceability, validity,
perfection or priority of the lien or security interest of any Loan Document or
(d) the ability of Borrower to perform any material obligations under any Loan
Document.
“
Maturity
”, when
used with respect to the Note, shall mean the Maturity Date set forth in the
Note, as same may be extended in accordance with the Note, or such other date
pursuant to the Note on which the final payment of principal, and premium, if
any, on the Note becomes due and payable as therein or herein provided, whether
at Stated Maturity or by declaration of acceleration, or otherwise.
“
Maturity
Date
” shall
mean the Maturity Date set forth in the Note.
“
Minimum Manager
Credentials
” shall
mean (i) the employment of a senior executive who has the responsibility for
oversight of the Property and has at least seven (7) years’ experience in the
management of outlet shopping centers and (ii) the management of not less than
five (5) outlet shopping center properties having an aggregate leasable square
footage of not less than the lesser of (a) one million leasable square feet and
(b) five (5) times the leasable square feet of the Property.
“
Multiemployer
Plan
” shall
mean a multiemployer plan defined as such in Section 3(37) of ERISA to which
contributions have been, or were required to have been, made by Borrower,
Guarantor or any ERISA Affiliate and which is covered by Title IV of
ERISA.
“
Net Capital
Expenditures
” shall
mean for any period the amount by which Capital Expenditures during such period
exceeds reimbursements for such items during such period from any fund
established pursuant to the Loan Documents.
“
Net Operating
Income
” shall
mean in each Fiscal Year or portion thereof during the term hereof, Operating
Income less Operating Expenses.
“
Net
Proceeds
” shall
mean the excess of (a)(i) the purchase price (at foreclosure or otherwise)
actually received by Lender with respect to the Property as a result of the
exercise by Lender of its rights, powers, privileges and other remedies after
the occurrence of an Event of Default, or (ii) in the event that Lender (or
Lender’s nominee) is the purchaser at foreclosure by credit bid, then the amount
of such credit bid, in either case, over (b) all costs and expenses, including,
without limitation, all attorneys’ fees and disbursements and any brokerage
fees, if applicable, incurred by Lender in connection with the exercise of such
remedies, including the sale of such Property after a foreclosure against the
Property.
“
Note
” shall
have the meaning set forth in the Recitals hereto.
"
O&M Operative
Period
" shall
mean the period of time commencing upon the determination by Lender that the
Debt Service Coverage (tested quarterly except during the continuance of an
O&M Operative Period, in which event Debt Service Coverage shall be tested
monthly and shall be calculated based upon information contained in the reports
furnished to Lender pursuant to Section 2.09 hereof) is less than 1.05:1.0 for
the preceding fiscal quarter and terminating, in each case, on the Payment Date
next succeeding the date upon which Lender has determined that the Debt Service
Coverage has been 1.05:1 or greater for the immediately preceding two fiscal
quarters.
“
OFAC List
” means
the list of specially designated nationals and blocked persons subject to
financial sanctions that is maintained by the U.S. Treasury Department, Office
of Foreign Assets Control and accessible through the internet website
www.treas.gov/ofac/t11sdn.pdf
.
“
Officer’s
Certificate
” shall
mean a certificate delivered to Lender by Borrower which is signed on behalf of
Borrower by an authorized representative of Borrower which states that the items
set forth in such certificate are true, accurate and complete in all
respects.
“
Operating
Expenses
” shall
mean, in each Fiscal Year or portion thereof during the term hereof, all
expenses directly attributable to the operation, repair and/or maintenance of
the Property including, without limitation, (a) Impositions, (b) insurance
premiums, (c) management fees, whether or not actually paid, equal to the
greater of the actual management fees or expenses and four percent (4%) of
annual “base” or “fixed” Rent due under the Leases and (d) costs attributable to
the operation, repair and maintenance of the systems for heating, ventilating
and air conditioning the Improvements and actually paid for by Borrower.
Operating Expenses shall not include interest, principal and premium, if any,
due under the Note or otherwise in connection with the Debt, income taxes,
Capital Expenditures, any non-cash charge or expense such as depreciation,
amortization or any item of expense otherwise includable in Operating Expenses
which is paid directly by any tenant except real estate taxes paid directly to
any taxing authority by any tenant or contributions by Borrower to any reserve
funds required under the Loan Documents.
“
Operating
Income
” shall
mean, in each Fiscal Year or portion thereof during the term hereof, all revenue
derived by Borrower arising from the Property including, without limitation,
rental revenues (whether denominated as basic rent, additional rent, escalation
payments, electrical payments or otherwise) and other fees and charges payable
pursuant to Leases or otherwise in connection with the Property, and the
proceeds of business interruption, rent or other similar insurance. Operating
Income shall not include (a) Insurance Proceeds (other than proceeds of rent,
business interruption or other similar insurance allocable to the applicable
period) and Condemnation Proceeds (other than Condemnation Proceeds arising from
a temporary taking or the use and occupancy of all or part of the applicable
Property allocable to the applicable period), or interest accrued on such
Condemnation Proceeds, (b) proceeds of any financing, (c) proceeds of any sale,
exchange or transfer of the Property or any part thereof or interest therein,
(d) capital contributions or loans to Borrower or an Affiliate of Borrower, (e)
any item of income otherwise includable in Operating Income but paid directly by
any tenant to a Person other than Borrower except for real estate taxes paid
directly to any taxing authority by any tenant, (f) any other extraordinary,
non-recurring revenues, (g) Rent paid by or on behalf of any lessee under a
Space Lease which is the subject of any proceeding or action relating to its
bankruptcy, reorganization or other arrangement pursuant to the Bankruptcy Code
or any similar federal or state law or which has been adjudicated a bankrupt or
insolvent unless such Space Lease has been affirmed by the trustee in such
proceeding or action, (h) Rent paid by or on behalf of any lessee under a Space
Lease the demised premises of which are not occupied either by such lessee or by
a sublessee thereof unless the lessee thereunder has a long-term unsecured debt
rating of not less than “BBB+” (or its equivalent) from the Rating Agency, (i)
Rent paid by or on behalf of any lessee under a Space Lease in whole or partial
consideration for the termination of any Space Lease, (j) rent paid by or on
behalf of lessees under month-to-month Space Leases for lessees which have been
in occupancy for less than six (6) months, (k) rent paid by or on behalf of any
lessee under a Space Lease that is more than thirty (30) days in arrears in its
obligations under such Space Lease, (l) Rents paid by or on behalf of lessees
who have given notice that they will be vacating the premises demised under
their respective Space Leases more than thirty (30) days prior to the stated
expiration date set forth in such Space Leases, or (m) sales tax rebates from
any Governmental Authority.
“
Operation and Maintenance
Expense Escrow Account
” shall
mean the Escrow Account maintained pursuant to Section 5.09 hereof relating to
the payment of Operating Expenses (exclusive of Basic Carrying
Costs).
“
Operation and Maintenance
Expense Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which sums allocated for the payment of Cash Expenses, Net Capital
Expenditures and approved Extraordinary Expenses shall be
deposited.
“
Pad
Owners
” shall
mean any owner of any fee interest in property contiguous to or surrounded by
the Property who has entered into or is subject to a reciprocal easement
agreement or other agreement or agreements with Borrower either (a) in
connection with an existing or potential improvement on such property or (b)
relating to or affecting the Property.
“
Payment
Date
” shall
have the meaning set forth in the Note.
“
PBGC
” shall
mean the Pension Benefit Guaranty Corporation established under ERISA, or any
successor thereto.
“
Permitted
Encumbrances
” shall
have the meaning set forth in Section 2.05(a) hereof.
“
Person
” shall
mean any individual, corporation, limited liability company, partnership, joint
venture, estate, trust, unincorporated association, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the
foregoing.
“
Plan
” shall
mean an employee benefit or other plan established or maintained by Borrower,
Guarantor or any ERISA Affiliate during the five-year period ended prior to the
date of this Security Instrument or to which Borrower, Guarantor or any ERISA
Affiliate makes, is obligated to make or has, within the five year period ended
prior to the date of this Security Instrument, been required to make
contributions (whether or not covered by Title IV of ERISA or Section 302 of
ERISA or Section 401(a) or 412 of the Code), other than a Multiemployer
Plan.
“
Premises
” shall
have the meaning set forth in granting clause (a) of this Security
Instrument.
“
Principal
Amount
” shall
mean the Loan Amount as such amount may be reduced from time to time pursuant to
the terms of this Security Instrument, the Note or the other Loan
Documents.
“
Pro-Forma Net Operating
Income
” shall
mean Pro-Forma Operating Income less Pro-Forma Operating
Expenses.
“
Pro-Forma Operating
Expenses
” shall
mean projected annualized Operating Expenses based on a trailing twelve
(12)-month period as reasonably adjusted by Lender to take into account, among
other things, anticipated increases or decreases in Operating
Expenses.
“
Pro-Forma Operating
Income
” shall
mean the lesser of (i) projected Operating Income for the immediately subsequent
12-month period and (ii) actual Operating Income for the immediately preceding
12-month period, as increased by scheduled rent increases set forth in the Space
Leases and rent anticipated from tenants under Space Leases relating to any
portion of the Premises which was previously not occupied provided such tenants
are then in occupancy pursuant to Space Leases entered into in accordance with
the terms of this Security Instrument and have paid all rents due under the
Space Lease without abatement, suspension, deferment, diminution, reduction or
other allowances for at least one full calendar month, in each case as
determined by Lender based on the most recent rent roll and such other
information as is required to be delivered by Borrower pursuant to Section 2.09
hereof and as reasonably adjusted by Lender to take into account, among other
things, a vacancy factor equal to the greater of (x) anticipated vacancies for
the succeeding 12-month period and (b) actual vacancies during the immediately
preceding 12-month period.
“
Prohibited
Person
” means
any Person identified on the OFAC List or any other Person with whom a U.S.
Person may not conduct business or transactions by prohibition of Federal law or
Executive Order of the President of the United States of America.
“
Property
” shall
have the meaning set forth in the granting clauses of this Security
Instrument.
“
Property
Agreements
” shall
mean all agreements, grants of easements and/or rights-of-way, reciprocal
easement agreements, permits, declarations of covenants, conditions and
restrictions, disposition and development agreements, planned unit development
agreements, management or parking agreements, party wall agreements or other
instruments affecting the Property, including, without limitation any agreements
with Pad Owners, but not including any brokerage agreements, management
agreements, service contracts, Space Leases or the Loan Documents.
“
Rating
Agency
” shall
mean Standard & Poor’s Ratings Services, Inc., a division of The McGraw-Hill
Company, Inc. (“
Standard &
Poor’s
”),
Fitch, Inc., and Moody’s Investors Service, Inc. (“
Moody’s
”),
collectively, and any successor to any of them; provided, however, that at any
time after a Securitization, “Rating Agency” shall mean those of the foregoing
rating agencies that from time to time rate the securities issued in connection
with such Securitization.
“
Real Estate
Taxes
” shall
mean all real estate taxes, assessments (including, without limitation, all
assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not commenced or completed
within the term of this Security Instrument), water, sewer or other rents and
charges, and all other governmental charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Property (including all interest and penalties
thereon), which at any time prior to, during or in respect of the term hereof
may be assessed or imposed on or in respect of or be a lien upon the Property or
any part thereof or any estate, right, title or interest
therein.
“
Realty
” shall
have the meaning set forth in Section 2.05(b) hereof.
“
Recurring Replacement
Expenditures
” shall
mean expenditures related to capital repairs, replacements and improvements
performed at the Property from time to time.
“
Recurring Replacement
Monthly Installment
” shall
mean the amount per month as set forth on Exhibit B attached hereto and made a
part hereof.
“
Recurring Replacement
Reserve Escrow Account
” shall
mean the Escrow Account maintained pursuant to Section 5.08 hereof relating to
the payment of Recurring Replacement Expenditures.
“
Recurring Replacement
Reserve Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which the Recurring Replacement Monthly Installment shall be
deposited.
“
Reletting
Expenditures
” shall
mean reasonable and actual out-of-pocket expenditures payable to bona-fide third
parties incurred by Borrower relating to reletting of space at the Property and
in connection with any brokerage commissions due and payable, or any
improvements and replacements required to be made by Borrower (or reasonable and
actual out-of-pocket expenditures paid to tenants in connection with any
improvements and replacements made by tenants at the Property) under the terms
of any Lease to prepare the relevant space for occupancy by the tenant
thereunder.
“
Reletting Reserve Escrow
Account
” shall
mean the Escrow Account maintained pursuant to Section 5.07 hereof relating to
the payment of Reletting Expenditures.
“
Reletting Reserve Monthly
Installment
” shall
mean (a) the amount set forth on Exhibit B attached hereto and made a part
hereof plus (b) all sums received by Borrower in connection with any
cancellation, termination or surrender of any Lease, including, without
limitation, any surrender or cancellation fees, buy-out fees, or reimbursements
for tenant improvements and leasing commissions.
“
Reletting Reserve
Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which the Reletting Reserve Monthly Installment shall be
deposited.
“
Rent
Account
” shall
mean an Eligible Account, maintained at the Bank, in the joint names of Borrower
and Lender or its successors or assigns (as secured party) as may be designated
by Lender.
“
Rents
” shall
have the meaning set forth in granting clause (f) of this Security
Instrument.
“
Rent Roll
” shall
have the meaning set forth in Section 2.05 (o) hereof.
“
Required Debt Service
Coverage
” shall
mean a Debt Service Coverage of not less than 1.20:1.0.
“
Required Debt Service
Payment
” shall
mean, as of any Payment Date, the amount of interest and principal then due and
payable pursuant to the Note, together with any other sums due thereunder,
including, without limitation, any prepayments required to be made or for which
notice has been given under this Security Instrument, Default Rate Interest and
premium, if any, paid in accordance therewith.
“
Required Engineering
Work
” shall
mean the immediate engineering and/or environmental remediation work set forth
on Exhibit D attached hereto and made a part hereof.
“
Retention
Amount
” shall
have the meaning set forth in Section 3.04(b)(vii) hereof.
“
Securities
Act
” shall
mean the Securities Act of 1933, as the same shall be amended from time to
time.
“
Securitization
” shall
mean a public or private offering of securities by Lender or any of its
Affiliates or their respective successors and assigns which are collateralized,
in whole or in part, by this Security Instrument.
“
Security Deposit
Account
” shall
have the meaning set forth in Section 5.01 hereof.
“
Security
Instrument
” shall
mean this Security Instrument as originally executed or as it may hereafter from
time to time be supplemented, amended, modified or extended by one or more
indentures supplemental hereto.
“
Single Purpose
Entity
” shall
mean a corporation, partnership, joint venture, limited liability company, trust
or unincorporated association, which is formed or organized solely for the
purpose of holding, directly, an ownership interest in the Property or a general
partner interest in a Person, does not engage in any business unrelated to the
Property, does not have any assets other than those related to its interest in
the Property or a general partner interest in such Person, or any indebtedness,
other than as permitted by this Security Instrument or the other Loan Documents,
has its own separate books and records and has its own accounts, in each case
which are separate and apart from the books and records and accounts of any
other Person, holds itself out as being a Person separate and apart from any
other Person and which otherwise satisfies the criteria of the Rating Agency, as
in effect on the Closing Date, for a special-purpose bankruptcy-remote entity.
“
Solvent
” shall
mean, as to any Person, that (a) the sum of the assets of such Person, at a fair
valuation, exceeds its liabilities, including contingent liabilities, (b) such
Person has sufficient capital with which to conduct its business as presently
conducted and as proposed to be conducted and (c) such Person has not incurred
debts, and does not intend to incur debts, beyond its ability to pay such debts
as they mature. For purposes of this definition, “
debt
” means
any liability on a claim, and “
claim
” means
(a) a right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured, or (b) a right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured. With respect to any such contingent liabilities, such liabilities
shall be computed in accordance with GAAP at the amount which, in light of all
the facts and circumstances existing at the time, represents the amount which
can reasonably be expected to become an actual or matured
liability.
“
Space
Leases
” shall
mean any Lease or sublease thereunder (including, without limitation, any Major
Space Lease) or any other agreement providing for the use and occupancy of a
portion of the Property as the same may be amended, renewed or
supplemented.
“
State
” shall
mean any of the states which are members of the United States of
America.
“
Stated
Maturity
”, when
used with respect to the Note or any installment of interest and/or principal
payment thereunder, shall mean the date specified in the Note as the fixed date
on which a payment of principal and/or interest is due and payable.
“
Sub-Accounts
” shall
have the meaning set forth in Section 5.02 hereof.
“
Substantial
Casualty
” shall
have the meaning set forth in Section 3.04(a)(iv) hereof.
“
Supported Loan
Amount
” shall
be determined by dividing Pro-Forma Net Operating Income by 1.20 (the required
debt service coverage ratio) (which amount must support a loan to value ratio of
at least 80%) and then dividing the quotient by a mortgage loan constant
associated with 6.09% which is 7.2641881%.
“
Taking
” shall
mean a condemnation or taking pursuant to the lawful exercise of the power of
eminent domain.
“
Transfer
” shall
mean the conveyance, assignment, sale, mortgaging, encumbrance, pledging,
hypothecation, granting of a security interest in, granting of options with
respect to, or other disposition of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration or of record) all or any portion of any legal or beneficial
interest (a) in all or any portion of the Property; (b) if Borrower or, if
Borrower is a partnership, any General Partner, is a corporation, in the stock
of Borrower or any General Partner; (c) if Borrower is a limited or general
partnership, joint venture, limited liability company, trust, nominee trust,
tenancy in common or other unincorporated form of business association or form
of ownership interest, in any Person having a legal or beneficial ownership in
Borrower, excluding any legal or beneficial interest in any constituent limited
partner, if Borrower is a limited partnership, or in any non-managing member, if
Borrower is a limited liability company, unless such interest would, or together
with all other direct or indirect interests in Borrower which were previously
transferred, aggregate 49% or more of the partnership or membership, as
applicable, interests in Borrower or would result in any Person who, as of the
Closing Date, did not own, directly or indirectly, 49% or more of the
partnership or membership, as applicable, interests in Borrower, owning,
directly or indirectly, 49% or more of the partnership or membership, as
applicable, interests in Borrower and excluding any legal or beneficial interest
in any General Partner unless such interest would, or together with all other
direct or indirect interest in the General Partner which were previously
transferred, aggregate 49% or more of the partnership or membership, as
applicable, interests in the General Partner (or result in a change in control
of the management of the General Partner from the individuals exercising such
control immediately prior to the conveyance or other disposition of such legal
or beneficial interest) and shall also include, without limitation to the
foregoing, the following: an installment sales agreement wherein Borrower agrees
to sell the Property or any part thereof or
any
interest therein for a price to be paid in installments; an agreement by
Borrower leasing all or substantially all of the Property to one or more Persons
pursuant to a single or related transactions, or a sale, assignment or other
transfer of, or the grant of a security interest in, Borrower’s right, title and
interest in and to any Leases or any Rent; any instrument subjecting the
Property to a condominium regime or transferring ownership to a cooperative
corporation; and the dissolution
or
termination of Borrower or the merger or consolidation of Borrower with any
other Person. Notwithstanding the foregoing, “Transfer” shall not include (I) a
transfer which would otherwise be a Transfer pursuant to clause (c) above with
respect to Borrower if David Lichtenstein (“
Original
Principal
”) or one
or more of David Lichtenstein’s family members or a trust formed for the benefit
of such family member, as provided in clause (III)(A) of this sentence,
continues to own not less than twenty percent (20%) of Borrower (whether
directly or through one or more Persons), if provided all of the following
conditions are satisfied if (i) written notice of any transfer pursuant to this
proviso is given to Lender together with such documents relating to the transfer
as Lender may reasonably require, (ii) control over the management and operation
of the Property is retained directly or indirectly by Original Principal, (iii)
in the event that any Person (a “
Principal
Transferee
”) who
does not, as of the Closing Date, own or Control, directly or indirectly, 49% or
more of the partnership or membership, as applicable, interests in Borrower
acquires, directly or indirectly, 49% or more of the partnership or membership,
as applicable, interests in Borrower, Lender is furnished an opinion, in form
and substance and from counsel reasonably satisfactory to Lender, substantially
similar to the Insolvency Opinion which discusses the substantive
non-consolidation of Borrower with the Principal Transferee, (iv) no such
transfer has any adverse effect either on the Single Purpose Entity status of
Borrower under the requirements of any Rating Agency or on the status of
Borrower as a continuing legal entity liable for the payment of the Debt and the
performance of all other obligations secured hereby, (v) Borrower has delivered
a letter from each Rating Agency confirming that any rating issued by the Rating
Agency in connection with a Securitization will not, as a result of the
transfer, be downgraded from the then current ratings thereof, qualified or
withdrawn, (vi) in the event that any Person (together with its Affiliates)
acquires a twenty percent (20%) or greater interest, directly or indirectly, in
Borrower or there is a change in Control of Borrower, as a result of such
transfer, Lender shall have consented to such transfer in its sole and absolute
discretion, (II) transfers made by devise or descent or by operation of law upon
the death of a partner, member or shareholder of Borrower or General Partner or
any Person owning a direct or indirect legal or beneficial interest in Borrower
or General Partner if: (i) written notice of any transfer pursuant to this
proviso is given to Lender together with such documents relating to the transfer
as Lender may reasonably require, (ii) control over the management and operation
of the Property is retained by the Original Principal at all times prior to the
death or legal incapacity of the Original Principal and is thereafter assumed by
Persons who are acceptable in all respects to Lender in its sole and absolute
discretion, (iii) no such transfer by the Original Principal will release the
respective estate from any liability as a Guarantor, and (iv) no such transfer,
death or other event has any adverse effect either on the Single Purpose Entity
status of Borrower under the requirements of any Rating Agency or on the status
of Borrower as a continuing legal entity liable for the payment of the Debt and
the performance of all other obligations secured hereby, nor (III) subject to
the provisions of clauses (I)(i) through (I)(iv) above and provided, that (i)
any inter vivos transfer of all or any portion of the Property or any inter
vivos transfer or issuance of capital stock (or other ownership interests) in
Borrower or General Partner is made in connection with Original Principal’s bona
fide, good faith estate planning, (ii) Original Principal does not transfer in
excess of 49% of its direct or indirect ownership interest in Borrower or, if
Original Principal does transfer in excess of 49% of its direct or indirect
ownership interests in Borrower, Lender is furnished an opinion, in form and
substance and from counsel reasonably satisfactory to Lender, substantially
similar to the Insolvency Opinion which discusses the substantive
non-consolidation of Borrower with the proposed transferee, and (iii) the
Person(s) with Control of Borrower or the management of the Property are (x) the
same Person(s) who had such Control and management rights immediately prior to
the transfer in question, or (y) reasonably acceptable to Lender, (A) an inter
vivos or testamentary transfer of all or any portion of the ownership interest
in Borrower to one or more family members of Original Principal or a trust in
which all of the beneficial interest is held by one or more family members of
Original Principal or a partnership, limited liability company, corporation or
other legal entity in which a majority of the capital and profits interests are
held by one or more family members of Original Principal, or (B) any inter vivos
or testamentary transfer or issuance of capital stock (or other ownership
interests) in the General Partner to one or more family members of Original
Principal, a trust in which all of the beneficial interest is held by one or
more family members of Original Principal or a partnership, limited liability
company, corporation or other legal entity in which a majority of the capital
and profits interests are held by one or more family members of Original
Principal. As used herein, “family members” shall include spouses, children and
grandchildren. For purposes of this definition, “Borrower” shall mean
individually and/or collectively any of the limited liability companies
comprising Borrower.
“
UCC
” shall
mean the Uniform Commercial Code as in effect from time to time in the State in
which the Property is located.
“
Unscheduled
Payments
” shall
mean (a) all Loss Proceeds that Borrower has elected or is required to apply to
the repayment of the Debt pursuant to this Security Instrument, the Note or any
other Loan Documents, (b) any funds representing a voluntary or involuntary
principal prepayment and (c) any Net Proceeds.
“
Use
Requirements
” shall
mean any and all building codes, permits, certificates of occupancy or
compliance, laws, regulations, or ordinances (including, without limitation,
health, pollution, fire protection, medical and day-care facilities, waste
product and sewage disposal regulations), restrictions of record, easements,
reciprocal easements, declarations or other agreements affecting the use of the
Property or any part thereof.
“
Welfare
Plan
” shall
mean an employee welfare benefit plan as defined in Section 3(1) of ERISA
established or maintained by Borrower, Guarantor or any ERISA Affiliate or that
covers any current or former employee of Borrower, Guarantor or any ERISA
Affiliate.
“
Work
” shall
have the meaning set forth in Section 3.04(a)(i) hereof.
“
Yield Maintenance Reserve
Escrow Account
” shall
mean the Escrow Account maintained pursuant to Section 5.17 hereof relating to
the payment of certain prepayment fees.
“
Yield Maintenance Reserve
Sub-account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which the Initial Yield Maintenance Reserve Account shall be
deposited.
ARTICLE II:
REPRESENTATIONS, WARRANTIES
AND COVENANTS OF
BORROWER
Section
2.01.
Payment of
Debt
.
Borrower will pay the Debt at the time and in the manner provided in the Note
and the other Loan Documents, all in lawful money of the United States of
America in immediately available funds.
Section
2.02.
Representations, Warranties
and Covenants of Borrower
.
Borrower represents, warrants and covenants to Lender:
(a)
Organization and
Authority
.
Borrower (i) is a limited liability company, general partnership, limited
partnership or corporation, as the case may be, duly organized, validly existing
and in good standing under the laws of the jurisdiction of its formation, (ii)
has all requisite power and authority and all necessary licenses and permits to
own and operate the Property and to carry on its business as now conducted and
as presently proposed to be conducted and (iii) is duly qualified, authorized to
do business and in good standing in the jurisdiction where the Property is
located and in each other jurisdiction where the conduct of its business or the
nature of its activities makes such qualification necessary. If Borrower is a
limited liability company, limited partnership or general partnership, each
general partner or managing member, as applicable, of Borrower which is a
corporation is duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation.
(b)
Power
.
Borrower and, if applicable, each General Partner has full power and authority
to execute, deliver and perform, as applicable, the Loan Documents to which it
is a party, to make the borrowings thereunder, to execute and deliver the Note
and to grant to Lender a first lien on and security interest in the Property,
subject only to the Permitted Encumbrances.
(c)
Authorization of
Borrowing
. The
execution, delivery and performance of the Loan Documents to which Borrower is a
party, the making of the borrowings thereunder, the execution and delivery of
the Note, the grant of the liens on the Property pursuant to the Loan Documents
to which Borrower is a party and the consummation of the Loan are within the
powers of Borrower and have been duly authorized by Borrower and, if applicable,
the General Partners, by all requisite action (and Borrower hereby represents
that no approval or action of any member, limited partner or shareholder, as
applicable, of Borrower is required to authorize any of the Loan Documents to
which Borrower is a party other than such approval or action that has already
been granted or taken) and will constitute the legal, valid and binding
obligation of Borrower, enforceable against Borrower in accordance with their
terms, except as enforcement may be stayed or limited by bankruptcy, insolvency
or similar laws affecting the enforcement of creditors’ rights generally and by
general principles of equity (whether considered in proceedings at law or in
equity) and will not (i) violate any provision of its partnership agreement or
partnership certificate or certificate of incorporation or by-laws, or operating
agreement, or articles of organization, as applicable, or, to its knowledge, any
law, judgment, order, rule or regulation of any court, arbitration panel or
other Governmental Authority, domestic or foreign, or other Person affecting or
binding upon Borrower or the Property, or (ii) violate any provision of any
indenture, agreement, mortgage, deed of trust, contract or other instrument to
which Borrower or, if applicable, any General Partner is a party or by which any
of their respective property, assets or revenues are bound, or be in conflict
with, result in an acceleration of any obligation or a breach of or constitute
(with notice or lapse of time or both) a default or require any payment or
prepayment under, any such indenture, agreement, mortgage, deed of trust,
contract or other instrument, or (iii) result in the creation or imposition of
any lien, except those in favor of Lender as provided in the Loan Documents to
which it is a party.
(d)
Consent
. Neither
Borrower nor, if applicable, any General Partner, is required to obtain any
consent, approval or authorization from, or to file any declaration or statement
with, any Governmental Authority or other agency in connection with or as a
condition to the execution, delivery or performance of this Security Instrument,
the Note or the other Loan Documents which has not been so obtained or
filed.
(e)
Intentionally
Deleted
.
(f)
Other
Agreements
.
Borrower is not a party to nor is otherwise bound by any agreements or
instruments which, individually or in the aggregate, are reasonably likely to
have a Material Adverse Effect. Neither Borrower nor, if applicable, any General
Partner, is in violation of its organizational documents or other restriction or
any agreement or instrument by which it is bound, or any judgment, decree, writ,
injunction, order or award of any arbitrator, court or Governmental Authority,
or any Legal Requirement, in each case, applicable to Borrower or the Property,
except for such violations that would not, individually or in the aggregate,
have a Material Adverse Effect.
(g)
Maintenance of
Existence
.
Borrower and, if applicable, General Partner at all times since their formation
have been duly formed and existing and shall preserve and keep in full force and
effect their existence as a Single Purpose Entity.
(ii)
Borrower
and, if applicable, General Partner, at all times since their organization have
complied, and will continue to comply, with the provisions of its certificate
and agreement of partnership or certificate of incorporation and by-laws or
articles of organization and operating agreement, as applicable, and the laws of
its jurisdiction of organization relating to partnerships, corporations or
limited liability companies, as applicable.
(iii)
Borrower
and, if applicable, General Partner have done or caused to be done and will do
all things necessary to observe organizational formalities and preserve their
existence and each Borrower and, if applicable, General Partner will not amend,
modify or otherwise change the certificate and agreement of partnership or
certificate of incorporation and by-laws or articles of organization and
operating agreement, as applicable, or other organizational documents of
Borrower and, if applicable, General Partner without the prior written consent
of Lender.
(iv)
Borrower
and, if applicable, General Partner, have at all times accurately maintained,
and will continue to accurately maintain, their respective financial statements,
accounting records and other partnership, company or corporate documents
separate from those of any other Person, and Borrower will file its own tax
returns or, if Borrower and/or, if applicable, General Partner is part of a
consolidated group for purposes of filing tax returns, Borrower and General
Partner, as applicable will be shown as separate members of such group. Borrower
and, if applicable, General Partner have not at any time since their formation
commingled, and will not commingle, their respective assets with those of any
other Person and will maintain their assets in such a manner such that it will
not be costly or difficult to segregate, ascertain or identify their individual
assets from those of any other Person. Borrower and, if applicable, General
Partner will not permit any Affiliate independent access to their bank accounts.
Borrower and, if applicable, General Partner have at all times since their
formation accurately maintained and utilized, and will continue to accurately
maintain and utilize, their own separate bank accounts, payroll and separate
books of account, stationery, invoices and checks.
(v)
Borrower
and, if applicable, General Partner, have at all times paid, and will continue
to pay, their own liabilities from their own separate assets and shall each
allocate and charge fairly and reasonably any overhead which Borrower and, if
applicable, General Partner, shares with any other Person, including, without
limitation, for office space and services performed by any employee of another
Person.
(vi)
Borrower
and, if applicable, General Partner, have at all times identified themselves,
and will continue to identify themselves, in all dealings with the public, under
their own names and as separate and distinct entities and shall correct any
known misunderstanding regarding their status as separate and distinct entities.
Borrower and, if applicable, General Partner, have not at any time identified
themselves, and will not identify themselves, as being a division of any other
Person.
(vii)
Borrower
and, if applicable, General Partner, have been at all times, and will continue
to use commercially reasonable efforts to be, adequately capitalized in light of
the nature of their respective businesses; provided, however, in no event shall
any direct or indirect member, partner or principal of Borrower be required to
make additional capital contributions to any Borrower.
(viii)
Borrower
and, if applicable, General Partner, (A) have not owned, do not own and will not
own any assets or property other than the Property and any incidental personal
property necessary for the ownership, management or operation of the Property,
(B) have not engaged and will not engage in any business other than the
ownership, management and operation of the Property, (C) have not incurred and
will not incur any debt, secured or unsecured, direct or contingent (including
guaranteeing any obligation), other than (X) the Loan, and (Y) unsecured trade
and operational debt which (1) is not evidenced by a note, (2) is incurred in
the ordinary course of the operation of the Property, (3) does not exceed in the
aggregate two percent (2%) of the Allocated Loan Amount for the Property and (4)
which is, unless being contested in accordance with the terms of this Security
Instrument, paid prior to the earlier to occur of the forty-fifth (45th) day
after the date incurred and the date when due, (D) have not and will not pledge
their assets for the benefit of any other Person, and (E) have not made and will
not make any loans or advances to any Person (including any
Affiliate).
(ix)
Neither
Borrower nor, if applicable, any General Partner will change its name or
principal place of business without giving Lender at least thirty (30) days
prior written notice thereof.
(x)
Neither
Borrower nor, if applicable, any General Partner have, and neither of such
Persons will have, any subsidiaries.
(xi)
Borrower
will preserve and maintain its existence as a limited liability company as of
the Closing Date, which is organized and existing under the laws of the State in
which it is organized as of the Closing Date and all material rights,
privileges, tradenames and franchises.
(xii)
Neither
Borrower, nor, if applicable, any General Partner, will merge or consolidate
with, or sell all or substantially all of its respective assets to any Person,
or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up
or dissolution). Neither any Borrower, nor, if applicable, any General Partner
will acquire any business or assets from, or capital stock or other ownership
interest of, or be a party to any acquisition of, any Person.
(xiii)
Borrower
and, if applicable, General Partner, have not at any time since their formation
assumed, guaranteed or held themselves out to be responsible for, and will not
assume, guarantee or hold themselves out to be responsible for the liabilities
or the decisions or actions respecting the daily business affairs of their
partners, shareholders or members or any predecessor company, corporation or
partnership, each as applicable, any Affiliates, or any other Persons. Borrower
has not at any time since its formation acquired, and will not acquire,
obligations or securities of its partners or shareholders, members or any
predecessor company, corporation or partnership, each as applicable, or any
Affiliates. Borrower and, if applicable, General Partner, have not at any time
since their formation made, and will not make, loans to its partners, members or
shareholders or any predecessor company, corporation or partnership, each as
applicable, or any Affiliates of any of such Persons. Borrower and, if
applicable, General Partner, have no known contingent liabilities nor do they
have any material financial liabilities under any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which such Person is a
party or by which it is otherwise bound other than under the Loan
Documents.
(xiv)
Borrower
has not at any time since its formation entered into and was not a party to,
and, will not enter into or be a party to, any transaction with its Affiliates,
members, partners or shareholders, as applicable, or any Affiliates thereof
except in the ordinary course of business of Borrower on terms which are no less
favorable to Borrower than would be obtained in a comparable arm’s length
transaction with an unrelated third party.
(xv)
If
Borrower is a limited partnership or a limited liability company, the General
Partner shall be a corporation or limited liability company whose sole asset is
its interest in Borrower and the General Partner will at all times comply, and
will cause Borrower to comply, with each of the representations, warranties, and
covenants contained in this Section 2.02(g) as if such representation, warranty
or covenant was made directly by such General Partner.
(xvi)
Borrower
shall at all times cause there to be at least two (2) duly appointed members of
the board of directors or board of managers or other governing board or body, as
applicable (an “
Independent
Director
”), of,
if Borrower is a corporation or single member limited liability company formed
in the State of Delaware, Borrower, and, if Borrower is a limited partnership or
multi-member limited liability company, of the General Partner, reasonably
satisfactory to Lender who shall not have been at the time of such individual’s
appointment, and may not be or have been at any time (A) a shareholder, officer,
director, attorney, counsel, partner, member or employee of Borrower or any of
the foregoing Persons or Affiliates thereof, (B) a customer or creditor of, or
supplier or service provider to, Borrower or any of its shareholders, partners,
members or their Affiliates, (C) a member of the immediate family of any Person
referred to in (A) or (B) above, D) a Person Controlling, Controlled by or under
common Control with any Person referred to in (A) through (C) above. A natural
person who otherwise satisfies the foregoing definition except for being the
Independent Director of a Single Purpose Entity Affiliated with Borrower or
General Partner shall not be disqualified from serving as an Independent
Director if such individual is at the time of initial appointment, or at any
time while serving as the Independent Director, an Independent Director of a
Single Purpose Entity Affiliated with Borrower or General Partner if such
individual is an independent director provided by a nationally-recognized
company that provides professional independent directors.
(xvii)
Borrower
and, if applicable, General Partner, shall not cause or permit the board of
directors or board of managers or other governing board or body, as applicable,
of each Borrower or, if applicable, General Partner, to take any action which,
under the terms of any certificate of incorporation, by-laws or articles of
organization with respect to any common stock, requires a unanimous vote of the
board of directors of Borrower, or, if applicable, the General Partner, unless
at the time of such action there shall be at least two members who are
Independent Directors.
(xviii)
Borrower
and, if applicable, General Partner shall pay the salaries of their own
employees and maintain a sufficient number of employees in light of their
contemplated business operations.
(xix)
Borrower
shall, and shall cause its Affiliates to, conduct its business so that the
assumptions made with respect to Borrower in that certain opinion letter
relating to substantive non-consolidation dated the date hereof (the
“
Insolvency
Opinion
”)
delivered in connection with the Loan shall be true and correct in all
respects.
(h)
No
Defaults
. No
Default or Event of Default has occurred and is continuing or would occur as a
result of the consummation of the transactions contemplated by the Loan
Documents. To the best of Borrower’s knowledge, Borrower is not in default
beyond any applicable notice and/or grace periods in the payment or performance
of any of its Contractual Obligations in any respect.
(i)
Consents and
Approvals
.
Borrower and, if applicable, each General Partner, have obtained or made all
necessary (i) consents, approvals and authorizations, and registrations and
filings of or with all Governmental Authorities and (ii) consents, approvals,
waivers and notifications of partners, stockholders, creditors, lessors and
other nongovernmental Persons, in each case, which are required to be obtained
or made by Borrower or, if applicable, the General Partner, in connection with
the execution and delivery of, and the performance by Borrower of its
obligations under, the Loan Documents.
(j)
Investment Company Act
Status, etc
.
Borrower is not (i) an “investment company,” or a company “controlled” by an
“investment company,” as such terms are defined in the Investment Company Act of
1940, as amended, (ii) a “holding company” or a “subsidiary company” of a
“holding company” or an “affiliate” of either a “holding company” or a
“subsidiary company” within the meaning of the Public Utility Holding Company
Act of 1935, as amended, or (iii) subject to any other federal or state law or
regulation which purports to restrict or regulate its ability to borrow
money.
(k)
Compliance with
Law
. (i)
Except as previously disclosed to Lender in writing, Borrower has received no
notice of violation of any Legal Requirements and (ii) except for such
violations which would not, individually or in the aggregate, have a Material
Adverse Effect, Borrower is in compliance in all material respects with all
Legal Requirements to which it or the Property is subject, including, without
limitation, all Environmental Statutes, the Occupational Safety and Health Act
of 1970, the Americans with Disabilities Act and ERISA. No portion of the
Property has been or will be purchased, improved, fixtured, equipped or
furnished with proceeds of any illegal activity and to the best of Borrower’s
knowledge, no illegal activities are being conducted at or from the
Property.
(l)
Financial
Information
. To the
best of Borrower’s knowledge, all financial data that has been delivered by
Borrower to Lender (i) is true, complete and correct in all material respects,
(ii) accurately represents the financial condition and results of operations of
the Persons covered thereby as of the date on which the same shall have been
furnished in all material respects, and (iii) to the extent prepared by an
independent certified public accounting firm, has been prepared in accordance
with GAAP (or such other accounting basis as is reasonably acceptable to Lender)
throughout the periods covered thereby except as disclosed therein. As of the
date hereof, neither Borrower nor, if applicable, any General Partner, has any
contingent liability, liability for taxes or other unusual or forward commitment
not reflected in such financial statements delivered to Lender. Since the date
of the last financial statements delivered by Borrower to Lender except as
otherwise disclosed in such financial statements or notes thereto, there has
been no change in the assets, liabilities or financial position of Borrower nor,
if applicable, any General Partner, or in the results of operations of Borrower
which would have a Material Adverse Effect. Neither Borrower nor, if applicable,
any General Partner, has incurred any obligation or liability, contingent or
otherwise not reflected in such financial statements which would have a Material
Adverse Effect.
(m)
Transaction Brokerage
Fees
. Neither
Borrower nor Lender have dealt with any financial advisors, brokers,
underwriters, placement agents, agents or finders in connection with the
transactions contemplated by this Security Instrument.
BORROWER HEREBY AGREES TO INDEMNIFY
AND HOLD LENDER HARMLESS FOR, FROM AND AGAINST ANY AND ALL CLAIMS, LIABILITIES,
COSTS AND EXPENSES OF ANY KIND IN ANY WAY RELATING TO OR ARISING FROM (I) A
CLAIM BY ANY PERSON THAT SUCH PERSON ACTED ON BEHALF OF BORROWER IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED HEREIN OR (II) ANY BREACH OF THE FOREGOING
REPRESENTATION. THE PROVISIONS OF THIS SUBSECTION (M) SHALL SURVIVE THE
REPAYMENT OF THE DEBT.
(n)
Federal Reserve
Regulations
. No part
of the proceeds of the Loan will be used for the purpose of purchasing or
acquiring any “margin stock” within the meaning of Regulations T, U or X of the
Board of Governors of the Federal Reserve System or for any other purpose which
would be inconsistent with such Regulations T, U or X or any other Regulations
of such Board of Governors, or for any purposes prohibited by Legal Requirements
or by the terms and conditions of the Loan Documents.
(o)
Pending
Litigation
. Except
as previously disclosed in writing to Lender, there are no actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or the Property in any court or before any Governmental
Authority which if adversely determined either individually or collectively has
or is reasonably likely to have a Material Adverse Effect.
(p)
Solvency; No
Bankruptcy
.
Borrower and, if applicable, the General Partner, (i) is and has at all times
been Solvent and will remain Solvent immediately upon the consummation of the
transactions contemplated by the Loan Documents and (ii) is free from
bankruptcy, reorganization or arrangement proceedings or a general assignment
for the benefit of creditors and is not contemplating the filing of a petition
under any state or federal bankruptcy or insolvency laws or the liquidation of
all or a major portion of such Person’s assets or property and Borrower has no
knowledge of any Person contemplating the filing of any such petition against it
or, if applicable, the General Partner. None of the transactions contemplated
hereby will be or have been made with an intent to hinder, delay or defraud any
present or future creditors of Borrower and Borrower has received reasonably
equivalent value in exchange for its obligations under the Loan Documents.
Borrower’s assets do not, and immediately upon consummation of the transaction
contemplated in the Loan Documents will not, constitute unreasonably small
capital to carry out its business as presently conducted or as proposed to be
conducted. Borrower does not intend to, nor believe that it will, incur debts
and liabilities beyond its ability to pay such debts as they may
mature.
(q)
Use of
Proceeds
. The
proceeds of the Loan shall be applied by Borrower to,
inter
alia
, (i)
satisfy certain secured loans presently encumbering all or a part of the
Property and (ii) pay certain transaction costs incurred by Borrower in
connection with the Loan. No portion of the proceeds of the Loan will be used by
Borrower for family, personal, agricultural or household use.
(r)
Tax
Filings
.
Borrower and, if applicable, each General Partner, have filed all federal, state
and local tax returns required to be filed and have paid or made adequate
provision for the payment of all federal, state and local taxes, charges and
assessments payable by Borrower and, if applicable, each General Partner.
Borrower and, if applicable, each General Partner, believe that their respective
tax returns properly reflect the income and taxes of Borrower and said General
Partner, if any, for the periods covered thereby, subject only to reasonable
adjustments required by the Internal Revenue Service or other applicable tax
authority upon audit.
(s)
Not Foreign
Person
.
Borrower is not a “foreign person” within the meaning of §1445(f)(3) of the
Code.
(t)
ERISA
.
(i)
The
assets of Borrower and Guarantor are not and will not become treated as “plan
assets”, whether by operation of law or under regulations promulgated under
ERISA. Each Plan and Welfare Plan, and, to the knowledge of Borrower, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, its terms and the
applicable provisions of ERISA, the Code and any other applicable Legal
Requirement, and no event or condition has occurred and is continuing as to
which Borrower would be under an obligation to furnish a report to Lender under
clause (ii)(A) of this Section. Other than an application for a favorable
determination letter with respect to a Plan, there are no pending issues or
claims before the Internal Revenue Service, the United States Department of
Labor or any court of competent jurisdiction related to any Plan or Welfare Plan
under which Borrower, Guarantor or any ERISA Affiliate, directly or indirectly
(through an indemnification agreement or otherwise), could be subject to any
material risk of liability under Section 409 or 502(i) of ERISA or Section 4975
of the Code. No Welfare Plan provides or will provide benefits, including,
without limitation, death or medical benefits (whether or not insured) with
respect to any current or former employee of Borrower, Guarantor or any ERISA
Affiliate beyond his or her retirement or other termination of service other
than (A) coverage mandated by applicable law, (B) death or disability benefits
that have been fully provided for by fully paid up insurance or (C) severance
benefits.
(ii)
Borrower
will furnish to Lender as soon as possible, and in any event within ten (10)
days after Borrower knows or has reason to believe that any of the events or
conditions specified below with respect to any Plan, Welfare Plan or
Multiemployer Plan has occurred or exists, an Officer’s Certificate setting
forth details respecting such event or condition and the action, if any, that
Borrower or its ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to PBGC (or any
other relevant Governmental Authority)) by Borrower or an ERISA Affiliate with
respect to such event or condition, if such report or notice is required to be
filed with the PBGC or any other relevant Governmental Authority:
(A)
any
reportable event, as defined in Section 4043 of ERISA and the regulations issued
thereunder, with respect to a Plan, as to which PBGC has not by regulation
waived the requirement of Section 4043(a) of ERISA that it be notified within
thirty (30) days of the occurrence of such event (provided that a failure to
meet the minimum funding standard of Section 412 of the Code and of Section 302
of ERISA, including, without limitation, the failure to make on or before its
due date a required installment under Section 412(m) of the Code and of Section
302(e) of ERISA, shall be a reportable event regardless of the issuance of any
waivers in accordance with Section 412(d) of the Code), and any request for a
waiver under Section 412(d) of the Code for any Plan;
(B)
the
distribution under Section 4041 of ERISA of a notice of intent to terminate any
Plan or any action taken by Borrower or an ERISA Affiliate to terminate any
Plan;
(C)
the
institution by PBGC of proceedings under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or the
receipt by Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan
that such action has been taken by PBGC with respect to such Multiemployer
Plan;
(D)
the
complete or partial withdrawal from a Multiemployer Plan by Borrower or any
ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a result of a
purchaser default) or the receipt by Borrower or any ERISA Affiliate of notice
from a Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA;
(E)
the
institution of a proceeding by a fiduciary of any Multiemployer Plan against
Borrower or any ERISA Affiliate to enforce Section 515 of ERISA, which
proceeding is not dismissed within thirty (30) days;
(F)
the
adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the
Code or Section 307 of ERISA, would result in the loss of tax-exempt status of
the trust of which such Plan is a part if Borrower or an ERISA Affiliate fails
to timely provide security to the Plan in accordance with the provisions of said
Sections; or
(G)
the
imposition of a lien or a security interest in connection with a
Plan.
(iii)
Borrower
shall not knowingly engage in or permit any transaction in connection with which
Borrower, Guarantor or any ERISA Affiliate could be subject to either a civil
penalty or tax assessed pursuant to Section 502(i) or 502(l) of ERISA or Section
4975 of the Code, permit any Welfare Plan to provide benefits, including without
limitation, medical benefits (whether or not insured), with respect to any
current or former employee of Borrower, Guarantor or any ERISA Affiliate beyond
his or her retirement or other termination of service other than (A) coverage
mandated by applicable law, (B) death or disability benefits that have been
fully provided for by paid up insurance or otherwise or (C) severance benefits,
permit the assets of Borrower or Guarantor to become “plan assets”, whether by
operation of law or under regulations promulgated under ERISA or adopt, amend
(except as may be required by applicable law) or increase the amount of any
benefit or amount payable under, or permit any ERISA Affiliate to adopt, amend
(except as may be required by applicable law) or increase the amount of any
benefit or amount payable under, any employee benefit plan (including, without
limitation, any employee welfare benefit plan) or other plan, policy or
arrangement, except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits expense to Borrower, Guarantor or any ERISA
Affiliate.
(u)
Labor
Matters
. No
organized work stoppage or labor strike is pending or, to Borrower’s best
knowledge, threatened by employees or other laborers at the Property and neither
Borrower nor Manager (i) is involved in or, to the best of their knowledge,
threatened with any labor dispute, grievance or litigation relating to labor
matters involving any employees and other laborers at the Property, including,
without limitation, violation of any federal, state or local labor, safety or
employment laws (domestic or foreign) and/or charges of unfair labor practices
or discrimination complaints; (ii) has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act or the Railway Labor Act;
or (iii) is a party to, or bound by, any collective bargaining agreement or
union contract with respect to employees and other laborers at the Property and
no such agreement or contract is currently being negotiated by Borrower, Manager
or any of their Affiliates.
(v)
Borrower’s Legal
Status
.
Borrower’s exact legal name that is indicated on the signature page hereto,
organizational identification number and place of business or, if more than one,
its chief executive office, as well as Borrower’s mailing address, if different,
which were identified by Borrower to Lender and contained in this Security
Instrument, are true, accurate and complete. Borrower (i) will not change its
name, its place of business or, if more than one place of business, its chief
executive office, or its mailing address or organizational identification number
if it has one without giving Lender at least thirty (30) days prior written
notice of such change, (ii) if Borrower does not have an organizational
identification number and later obtains one, Borrower shall promptly notify
Lender of such organizational identification number and (iii) Borrower will not
change its type of organization, jurisdiction of organization or other legal
structure.
(w)
Compliance with
Anti-Terrorism, Embargo and Anti-Money Laundering Laws
. (i)
None of Borrower, General Partner, any Guarantor, or any Person who owns any
equity interest in or Controls Borrower, General Partner or any Guarantor
currently is identified on the OFAC List or otherwise qualifies as a Prohibited
Person, and Borrower has implemented procedures, approved by General Partner, to
ensure that no Person who now or hereafter owns an equity interest in Borrower
or General Partner is a Prohibited Person or Controlled by a Prohibited Person,
and (ii) none of Borrower, General Partner, or any Guarantor are in violation of
any Legal Requirements relating to anti-money laundering or anti-terrorism,
including, without limitation, Legal Requirements related to transacting
business with Prohibited Persons or the requirements of the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001, U.S. Public Law 107-56, and the related
regulations issued thereunder, including temporary regulations, all as amended
from time to time. No tenant at the Property currently is identified on the OFAC
List or otherwise qualifies as a Prohibited Person, and, to the best of
Borrower’s knowledge, no tenant at the Property is owned or Controlled by a
Prohibited Person. Borrower has implemented procedures to ensure that no tenant
at the Property is a Prohibited Person or owned or Controlled by a Prohibited
Person.
Section
2.03.
Further Acts,
etc
.
Borrower will, at the cost of Borrower, and without expense to Lender, do,
execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, mortgages, deeds of trust or deeds to secure debt, as applicable,
assignments, notices of assignments, transfers and assurances as Lender shall,
from time to time, reasonably require for the better assuring, conveying,
assigning, transferring, and confirming unto Lender the property and rights
hereby mortgaged, given, granted, bargained, sold, alienated, enfeoffed,
conveyed, confirmed, pledged, assigned and hypothecated, or which Borrower may
be or may hereafter become bound to convey or assign to Lender, or for carrying
out or facilitating the performance of the terms of this Security Instrument or
for filing, registering or recording this Security Instrument and, on demand,
will execute and deliver and hereby authorizes Lender to execute in the name of
Borrower or without the signature of Borrower to the extent Lender may lawfully
do so, one or more financing statements, chattel mortgages or comparable
security instruments to evidence more effectively the lien hereof upon the
Property. Borrower grants to Lender an irrevocable power of attorney coupled
with an interest for the purpose of protecting, perfecting, preserving and
realizing upon the interests granted pursuant to this Security Instrument and to
effect the intent hereof, all as fully and effectually as Borrower might or
could do; and Borrower hereby ratifies all that Lender shall lawfully do or
cause to be done by virtue hereof; provided that Lender shall not exercise such
power of attorney unless and until Borrower fails to take the required action
within five (5) Business Days of demand unless the failure to so exercise it
could, in Lender’s reasonable judgment, result in a Material Adverse Effect.
Upon receipt of an affidavit of an officer of Lender as to the loss, theft,
destruction or mutilation of the Note or any other Loan Document which is not of
public record, and, in the case of any such mutilation, upon surrender and
cancellation of such Note or other applicable Loan Document, Borrower will
issue, in lieu thereof, a replacement Note or other applicable Loan Document,
dated the date of such lost, stolen, destroyed or mutilated Note or other Loan
Document in the same principal amount thereof and otherwise of like
tenor.
Section
2.04.
Recording of Security
Instrument, etc
.
Borrower forthwith upon the execution and delivery of this Security Instrument
and thereafter, at the request of Lender, from time to time, will cause this
Security Instrument, and any security instrument creating a lien or security
interest or evidencing the lien hereof upon the Property and each instrument of
further assurance to be filed, registered or recorded in such manner and in such
places as may be required by any present or future law in order to publish
notice of and fully perfect and protect the lien or security interest hereof
upon, and the interest of Lender in, the Property. Borrower will pay all filing,
registration or recording fees, and all expenses incident to the preparation,
execution and acknowledgment of this Security Instrument, any mortgage, deed of
trust or deed to secure debt, as applicable, supplemental hereto, any security
instrument with respect to the Property and any instrument of further assurance,
and all federal, state, county and municipal taxes, duties, imposts, assessments
and charges imposed on, or arising out of or in connection with the execution,
delivery and recording of this Security Instrument, any mortgage, deed of trust
or deed to secure debt, as applicable, supplemental hereto, any security
instrument with respect to the Property or any instrument of further assurance,
except where prohibited by law to do so, in which event Lender may declare the
Debt to be immediately due and payable. Borrower shall hold harmless and
indemnify Lender, and its successors and assigns, against any liability incurred
as a result of the imposition of any tax on the making and recording of this
Security Instrument.
Section
2.05.
Representations and
Warranties as to the Property
.
Borrower represents and warrants with respect to the Property as
follows:
(a)
Lien Priority and
Perfection
. This
Security Instrument is a valid and enforceable (and, upon recordation in the
Official Records, will be a perfected) first lien on the Property, free and
clear of all encumbrances, security interests, and liens having priority over
the lien and security interest of this Security Instrument, except for the items
set forth as exceptions to or subordinate matters in the title insurance policy
insuring the lien of this Security Instrument, none of which, individually or in
the aggregate, materially interfere with the benefits of the security intended
to be provided by this Security Instrument, materially affect the value or
insurability of the Property, impair the use or operation of the Property for
the use currently being made thereof or impair Borrower’s ability to pay its
obligations in a timely manner (such items being the “
Permitted
Encumbrances
”).
(b)
Title
.
Borrower has, subject only to the Permitted Encumbrances, good, insurable and
marketable fee simple title to the Premises, Improvements and Fixtures
(collectively, the “
Realty
”) and to
all easements and rights benefiting the Realty and has the right, power and
authority to mortgage, encumber, give, grant, bargain, sell, alien, enfeoff,
convey, confirm, pledge, assign, and hypothecate the Property. Subject to
Permitted Encumbrances, Borrower will preserve its interest in and title to the
Property and will forever warrant and defend the same to Lender against any and
all claims made by, through or under Borrower and will forever warrant and
defend the validity and priority of the lien and security interest created
herein against the claims of all Persons whomsoever claiming by, through or
under Borrower. The foregoing warranty of title shall survive the foreclosure of
this Security Instrument and shall inure to the benefit of and be enforceable by
Lender in the event Lender acquires title to the Property pursuant to any
foreclosure. In addition, there are no outstanding options or rights of first
refusal to purchase the Property or Borrower’s ownership thereof.
(c)
Taxes and
Impositions
. Other
than those being contested in accordance herewith, all taxes and other
Impositions and governmental assessments due and owing and not delinquent in
respect of, and affecting, the Property have been paid. Other than those being
contested in accordance herewith, Borrower has paid all Impositions which
constitute special governmental assessments in full, except for those
assessments which are permitted by applicable Legal Requirements to be paid in
installments, in which case all installments which are due and payable have been
paid in full. There are no pending, or to Borrower’s best knowledge, proposed
special or other assessments for public improvements or otherwise affecting the
Property, nor are there any contemplated improvements to the Property that may
result in such special or other assessments.
(d)
Casualty; Flood
Zone
. Except
as set forth in the Engineering Report and Environmental Report, the Realty is
in good repair and free and clear of any damage, destruction or casualty
(whether or not covered by insurance) that would materially affect the value of
the Realty or the use for which the Realty was intended, there exists no
structural or other material defects or damages in or to the Property and
Borrower has not received any written notice from any insurance company or
bonding company of any material defect or inadequacies in the Property, or any
part thereof, which would materially and adversely affect the insurability of
the same or cause the imposition of extraordinary premiums or charges thereon or
of any termination or threatened termination of any policy of insurance or bond.
No portion of the Premises is located in an “area of special flood hazard,” as
that term is defined in the regulations of the Federal Insurance Administration,
Department of Housing and Urban Development, under the National Flood Insurance
Act of 1968, as amended (24 CFR § 1909.1) or Borrower has obtained the flood
insurance required by Section 3.01(a)(vi) hereof. The Premises either does not
lie in a 100 year flood plain that has been identified by the Secretary of
Housing and Urban Development or any other Governmental Authority or, if it
does, Borrower has obtained the flood insurance required by Section 3.01(a)(vi)
hereof.
(e)
Completion;
Encroachment
. All
Improvements necessary for the efficient use and operation of the Premises,
including, without limitation, all Improvements which were included for purposes
of determining the appraised value of the Property in the Appraisal, have been
completed and none of said Improvements lie outside the boundaries and building
restriction lines of the Premises. Except as set forth in the title insurance
policy insuring the lien of this Security Instrument, no improvements on
adjoining properties encroach upon the Premises.
(f)
Separate
Lot
. The
Premises are taxed separately without regard to any other real estate and
constitute a legally subdivided lot under all applicable Legal Requirements (or,
if not subdivided, no subdivision or platting of the Premises is required under
applicable Legal Requirements), and for all purposes may be mortgaged,
encumbered, conveyed or otherwise dealt with as an independent parcel. Except as
previously disclosed in writing to Lender, the Property does not benefit from
any tax abatement or exemption.
(g)
Use
. To the
best of Borrower’s knowledge, the existence of all Improvements, the present use
and operation thereof and the access of the Premises and the Improvements to all
of the utilities and other items referred to in paragraph (k) below are in
compliance in all material respects with all Leases affecting the Property and
all applicable Legal Requirements, including, without limitation, Environmental
Statutes, Development Laws and Use Requirements. Borrower has not received any
notice from any Governmental Authority alleging any uncured violation relating
to the Property of any applicable Legal Requirements.
(h)
Licenses and
Permits
.
Borrower currently holds and will continue to hold all certificates of
occupancy, licenses, registrations, permits, consents, franchises and approvals
of any Governmental Authority or any other Person which are material for the
lawful occupancy and operation of the Realty or which are material to the
ownership or operation of the Property or the conduct of Borrower’s business.
All such certificates of occupancy, licenses, registrations, permits, consents,
franchises and approvals are current and in full force and effect.
(i)
Environmental
Matters
.
Borrower has received and reviewed the Environmental Report and has no reason to
believe that the Environmental Report contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained therein or herein, in light of the circumstances under which such
statements were made, not misleading.
(j)
Property
Proceedings
. Other
than as previously disclosed in writing by Borrower to Lender, there are no
actions, suits or proceedings pending or, to Borrower’s knowledge, threatened in
any court or before any Governmental Authority or arbitration board or tribunal
(i) relating to (A) the zoning of the Premises or any part thereof, (B) any
certificates of occupancy, licenses, registrations, permits, consents or
approvals issued with respect to the Property or any part thereof, (C) the
condemnation of the Property or any part thereof, or (D) the condemnation or
relocation of any roadways abutting the Premises required for access or the
denial or limitation of access to the Premises or any part thereof from any
point of access to the Premises, (ii) asserting that (A) any such zoning,
certificates of occupancy, licenses, registrations, permits, consents and/or
approvals do not permit the operation of any material portion of the Realty as
presently being conducted, (B) any material improvements located on the Property
or any part thereof cannot be located thereon or operated with their intended
use or (C) the operation of the Property or any part thereof is in violation in
any material respect of any Environmental Statutes, Development Laws or other
Legal Requirements or Space Leases or Property Agreements or (iii) which might
(A) affect the validity or priority of any Loan Document or (B) have a Material
Adverse Effect.
(k)
Utilities
. The
Premises has rights of access to water, gas and/or electrical supply, storm and
sanitary sewerage facilities, other required public utilities (with respect to
each of the aforementioned items, by means of either a direct connection to the
source of such utilities or through connections available on publicly dedicated
roadways directly abutting the Premises or through permanent insurable easements
benefiting the Premises), fire and police protection, parking, and means of
direct access between the Premises and public highways over recognized curb cuts
(or such access to public highways is through private roadways which may be used
for ingress and egress pursuant to permanent insurable easements).
(l)
Mechanics’
Liens
. The
Property is free and clear of any mechanics’ liens or liens in the nature
thereof, and no rights are outstanding that under law could give rise to any
such liens, any of which liens are or may be prior to, or equal with, the lien
of this Security Instrument, except those which are insured against by the title
insurance policy insuring the lien of this Security Instrument. No stop notices
have been served with respect to any work, labor or materials furnished to or
for the benefit of the Property or any portion thereof, and no disputes
currently exist with respect to any of such matters.
(m)
Title
Insurance
. Lender
has received a lenders’ commitment to issue a title insurance policy insuring
this Security Instrument as a first lien on the Realty subject only to Permitted
Encumbrances.
(n)
Insurance
. The
Property is insured in accordance with the requirements set forth in Article III
hereof.
(o)
Space
Leases
.
(i)
Borrower
has delivered a true, correct and complete schedule of all Space Leases as of
the date hereof, which accurately and completely sets forth in all material
respects, for each such Space Lease, the following (collectively, the “Rent
Roll”): the name and address of the tenant with the lease expiration date,
extension and renewal options; the base rent and percentage rent payable; all
additional rent and pass through obligations; and the security deposit held
thereunder and the location of such deposit
(ii)
Each
Space Lease constitutes the legal, valid and binding obligation of Borrower and,
to the knowledge of Borrower, is enforceable against the tenant thereof. Except
as set forth on the Rent Roll or in any estoppel certificate delivered to
Lender, no default exists, or with the passing of time or the giving of notice
would exist, (A) under any Major Space Lease or (B) under any other Space Leases
which would, in the aggregate, have a Material Adverse Effect.
(iii)
Except as
disclosed to Lender, no tenant under any Space Lease has, as of the date hereof,
paid Rent more than thirty (30) days in advance, and the Rents under such Space
Leases have not been waived, released, or otherwise discharged or
compromised.
(iv)
Except as
set forth on the Rent Roll or previously disclosed in writing to Lender, all
material work to be performed by Borrower under the Space Leases has been
substantially performed, all contributions to be made by Borrower to the tenants
thereunder have been made except for any held-back amounts, and all other
conditions precedent to each such tenant’s obligations thereunder have been
satisfied.
(v)
Except as
previously disclosed to Lender in writing or in the Space Leases provided to
Lender, there are no options to terminate any Space Lease.
(vi)
Except as
previously disclosed in writing to Lender, each tenant under a Major Space Lease
has entered into occupancy of the demised premises to the extent required under
the terms of its Major Space Lease, and each such tenant is open and conducting
business with the public in the demised premises. Except as previously disclosed
in writing to Lender, to the best knowledge of Borrower, after due inquiry, each
tenant under a Lease other than a Major Space Lease has entered into occupancy
of its demised premises under its Lease to the extent required under the terms
of its Lease and each such tenant is open and conducting business with the
public in the demised premises.
(vii)
Borrower
has delivered to Lender true, correct and complete copies of all Space Leases
described in the Rent Roll.
(viii)
Each
Space Lease is in full force and effect and (except as disclosed on the Rent
Roll or in any estoppel certificate delivered to Lender) has not been assigned,
modified, supplemented or amended in any way.
(ix)
Except as
set forth on the Rent Roll, each tenant under each Space Lease is free from
bankruptcy, reorganization or arrangement proceedings or a general assignment
for the benefit of creditors.
(x)
No Space
Lease provides any party with the right to obtain a lien or encumbrance upon the
Property superior to the lien of this Security Instrument or to subject to the
Property to any mechanics lien.
(p)
Property
Agreements
.
(i)
Borrower
has delivered to Lender true, correct and complete copies of all Property
Agreements.
(ii)
No
Property Agreement provides any party with the right to obtain a lien or
encumbrance upon the Property superior to the lien of this Security
Instrument.
(iii)
To the
best of Borrower’s knowledge, no default exists or with the passing of time or
the giving of notice or both would exist under any Property Agreement which
would, individually or in the aggregate, have a Material Adverse
Effect.
(iv)
Borrower
has not received or given any written communication which alleges that a default
exists or, with the giving of notice or the lapse of time, or both, would exist
under the provisions of any Property Agreement.
(v)
No
condition exists whereby Borrower or any future owner of the Property may be
required to purchase any other parcel of land which is subject to any Property
Agreement or which gives any Person a right to purchase, or right of first
refusal with respect to, the Property.
(vi)
To the
best knowledge of Borrower, no offset or any right of offset exists respecting
continued contributions to be made by any party to any Property Agreement except
as expressly set forth therein. Except as previously disclosed to Lender in
writing, no material exclusions or restrictions on the utilization, leasing or
improvement of the Property (including non-compete agreements) exists in any
Property Agreement.
(vii)
All
“pre-opening” requirements contained in all Property Agreements (including, but
not limited to, all off-site and on-site construction requirements), if any,
have been fulfilled, and, to the best of Borrower’s knowledge, no condition now
exists whereby any party to any such Property Agreement could refuse to honor
its obligations thereunder.
(viii)
Except as
previously disclosed in writing to Lender, all work, if any, to be performed by
Borrower under each of the Property Agreements has been substantially performed,
all contributions to be made by Borrower to any party to such Property
Agreements have been made, and all other material conditions to such party’s
obligations thereunder have been satisfied.
(q)
Personal
Property
.
Borrower has delivered to Lender a true, correct and complete schedule of all
personal property, if any, owned by Borrower and located upon the Realty or used
in connection with the use or operation of the Realty and Borrower represents
that it has good and marketable title to all such personal property, free and
clear of any liens or security interests, except for liens and security
interests created under the Loan Documents, liens and security interests
otherwise disclosed to Lender in writing and disclosed in the title insurance
policy insuring the lien of this Security Instrument, and liens and security
interests which describe the equipment and other personal property owned by
tenants.
(r)
Leasing Brokerage and
Management Fees
. Except
as previously disclosed to Lender in writing, there are no brokerage fees or
commissions payable by Borrower with respect to the leasing of space at the
Property and there are no management fees payable by Borrower with respect to
the management of the Property.
(s)
Security
Deposits
. All
security deposits with respect to the Property on the date hereof have been
transferred to the Security Deposit Account on the date hereof, and Borrower is
in compliance with all Legal Requirements relating to such security deposits as
to which failure to comply might, individually or in the aggregate, have a
Material Adverse Effect.
(t)
Appraisal
.
Borrower has no knowledge that any of the facts or assumptions on which the
Appraisal was based are false or incomplete in any material respect and has no
information that would reasonably suggest that the fair market value determined
in the Appraisal does not reflect the actual fair market value of the
Property.
(u)
Representations
Generally
. No
representation, warranty or statement of fact made by or on behalf of Borrower
in this Security Instrument or in any certificate, document or schedule
furnished to Lender pursuant hereto, contains any untrue statement of a material
fact or omits to state any material fact necessary to make statements contained
therein or herein not misleading (which may be to Borrower’s best knowledge
where so provided herein). There are no facts presently known to Borrower which
have not been disclosed to Lender which would, individually or in the aggregate,
have a Material Adverse Effect nor as far as Borrower can foresee might,
individually or in the aggregate, have a Material Adverse Effect.
Section
2.06.
Removal of
Lien
.
(a)
Borrower shall, at its expense, maintain this Security Instrument as a first
lien on the Property and shall keep the Property free and clear of all liens and
encumbrances of any kind and nature other than the Permitted Encumbrances.
Borrower shall, within thirty (30) days following receipt of notice of the
filing thereof, promptly discharge of record, by bond or otherwise, any such
liens and, promptly upon request by Lender, shall deliver to Lender evidence
reasonably satisfactory to Lender of the discharge thereof.
(b)
Without
limitation to the provisions of Section 2.06(a) hereof, Borrower shall (i) pay,
from time to time when the same shall become due, all claims and demands of
mechanics, materialmen, laborers, and others which, if unpaid, might result in,
or permit the creation of, a lien on the Property or any part thereof, (ii)
cause to be removed of record (by payment or posting of bond or settlement or
otherwise) any mechanics’, materialmens’, laborers’ or other lien on the
Property, or any part thereof, or on the revenues, rents, issues, income or
profit arising therefrom, and (iii) in general, do or cause to be done, without
expense to Lender, everything reasonably necessary to preserve in full the lien
of this Security Instrument. If Borrower fails to comply with the requirements
of this Section 2.06(b), then, upon ten (10) Business Days’ prior notice to
Borrower, Lender may, but shall not be obligated to, pay any such lien, and
Borrower shall, within ten (10) Business Days after Lender’s demand therefor,
reimburse Lender for all sums so expended, together with interest thereon at the
Default Rate from the date advanced, all of which shall be deemed part of the
Debt. Nothing contained herein shall be deemed a consent or request of Lender,
express or implied, by inference or otherwise, to the performance of any
alteration, repair or other work by any contractor, subcontractor or laborer or
the furnishing of any materials by any materialmen in connection
therewith.
(c)
Notwithstanding
the foregoing, Borrower may contest any lien (other than a lien relating to
non-payment of Impositions, the contest of which shall be governed by Section
4.04 hereof) of the type set forth in subparagraph (b)(ii) of this Section 2.06
provided that, following prior notice to Lender (i) Borrower is contesting the
validity of such lien with due diligence and in good faith and by appropriate
proceedings, without cost or expense to Lender or any of its agents, employees,
officers, or directors, (ii) Borrower shall preclude the collection of, or other
realization upon, any contested amount from the Property or any revenues from or
interest in the Property, (iii) neither the Property nor any part thereof nor
interest therein, shall be in any danger of being sold, forfeited or lost by
reason of such contest by Borrower, (iv) such contest by Borrower shall not
affect the ownership, use or occupancy of the Property, (v) such contest by
Borrower shall not subject Lender or Borrower to the risk of civil or criminal
liability (other than the civil liability of Borrower for the amount of the lien
in question), (vi) such lien is subordinate to the lien of this Security
Instrument, (vii) Borrower has not consented to such lien, (viii) Borrower has
given Lender prompt notice of the filing of such lien and, upon request by
Lender from time to time, notice of the status of such contest by Borrower
and/or confirmation of the continuing satisfaction of the conditions set forth
in this Section 2.06(c), (ix) Borrower shall promptly pay the obligation secured
by such lien upon a final determination of Borrower’s liability therefor, and
(x) Borrower shall deliver written notice of its intent to contest such lien at
least thirty (30) days before commencing such contest and also shall deliver to
Lender, if requested by Lender, cash, a bond or other security acceptable to
Lender equal to 125% of the contested amount pursuant to collateral arrangements
reasonably satisfactory to Lender.
Section
2.07.
Cost of Defending and
Upholding this Security Instrument Lien
. If any
action or proceeding is commenced to which Lender is made a party relating to
the Loan Documents and/or the Property or Lender’s interest therein or in which
it becomes necessary to defend or uphold the lien of this Security Instrument or
any other Loan Document, Borrower shall, on demand, reimburse Lender for all
expenses (including, without limitation, reasonable attorneys’ fees and
disbursements) incurred by Lender, as applicable, in connection therewith, and
such sum, together with interest thereon at the Default Rate from and after such
demand until fully paid, shall constitute a part of the Debt.
Section
2.08.
Use of the
Property
.
Borrower will use, or cause to be used, the Property for such use as is
permitted pursuant to applicable Legal Requirements including, without
limitation, under the certificate of occupancy applicable to the Property, and
which is required by the Loan Documents. Borrower shall not suffer or permit the
Property or any portion thereof to be used by the public, any tenant, or any
Person not subject to a Lease, in a manner as is reasonably likely to impair
Borrower’s title to the Property, or in such manner as may give rise to a claim
or claims of adverse usage or adverse possession by the public, or of implied
dedication of the Property or any part thereof.
Section
2.09.
Financial
Reports
.
(a)
Borrower
will keep and maintain or will cause to be kept and maintained on a Fiscal Year
basis, in accordance with GAAP (or such other accounting basis reasonably
acceptable to Lender) consistently applied, proper and accurate books, tax
returns, records and accounts reflecting (i) all of the financial affairs of
Borrower and (ii) all items of income and expense in connection with the
operation of the Property or in connection with any services, equipment or
furnishings provided in connection with the operation thereof, whether such
income or expense may be realized by Borrower or by any other Person whatsoever,
excepting lessees unrelated to and unaffiliated with Borrower who have leased
from Borrower portions of the Premises for the purpose of occupying the same.
Lender shall have the right from time to time at all times during normal
business hours upon reasonable advance notice to examine such books, tax
returns, records and accounts at the office of Borrower or other Person
maintaining such books, tax returns, records and accounts and to make such
copies or extracts thereof as Lender shall desire. During the continuance of an
Event of Default, Borrower shall pay any costs and expenses incurred by Lender
to examine Borrower’s and Guarantor’s accounting records with respect to the
Property, as Lender shall determine to be necessary or appropriate in the
protection of Lender’s interest.
(b)
Borrower
will furnish Lender (i) annually, within one hundred twenty (120) days following
the end of each Fiscal Year of Borrower and (ii) on a quarterly basis, within
thirty (30) days following the end of each fiscal quarter of Borrower, with a
complete copy of Borrower’s financial statement consistently applied covering
(A) all of the financial affairs of Borrower and (B) the operation of the
Property for such Fiscal Year or fiscal quarters, as applicable, and containing
a statement of revenues and expenses, a statement of assets and liabilities and
a statement of Borrower’s equity. Each annual financial statement shall be
prepared by an Independent certified public accountant that is reasonably
acceptable to Lender in accordance with GAAP (or such other accounting basis
reasonably acceptable to Lender). Upon request made in connection with a
Securitization of the Loan or after the occurrence of an Event of Default, such
annual financial statements shall be audited by an Independent certified public
accountant that is reasonably acceptable to Lender in accordance with GAAP.
Together with the financial statements required to be furnished pursuant to this
Section 2.09(b), Borrower shall furnish to Lender (A) an Officer’s Certificate
certifying as of the date thereof (1) that the financial statements accurately
represent the results of operations and financial condition of Borrower and the
Property all in accordance with GAAP (or such other accounting basis reasonably
acceptable to Lender) consistently applied, and (2) whether, to the best of such
officer’s knowledge, there exists a Default under the Note or any other Loan
Document executed and delivered by Borrower, and if such event or circumstance
exists, the nature thereof, the period of time it has existed and the action
then being taken to remedy such event or circumstance and (B) together with the
financial statements delivered pursuant to Section 2.09(b)(ii) above, a
statement showing (1) Pro-Forma Net Operating Income at the end of the most
recent fiscal quarter (subject to verification by Lender in its reasonable
discretion) and (2) the calculation of Debt Service Coverage.
(c)
Borrower
will furnish Lender monthly, within twenty (20) days following the end of each
month, with (i) a true, complete and correct cash flow statement with respect to
the Property in the form attached hereto as Exhibit C and made a part hereof,
showing (A) all cash receipts of any kind whatsoever and all cash payments and
disbursements, (B) year-to-date summaries of such cash receipts, payments and
disbursements, and (C) during an O&M Operative Period, Pro Forma Net
Operating Income (subject to the verification by Lender) and a calculation of
Debt Service Coverage, (ii) a certification of Manager stating that such cash
flow statement is true, complete and correct and a list of all litigation and
proceedings affecting Borrower or the Property in which the amount involved is
$250,000 or more, if not covered by insurance (or $2,500,000 or more whether or
not covered by insurance), (iii) the sales per square foot for each lessee under
the Space Leases to the extent such information is required to be delivered by
such lessees and (iv) an occupancy report for the Property.
(d)
Borrower
will furnish Lender monthly, within twenty (20) days following the end of each
month, with a certification of Manager stating that all Operating Expenses with
respect to the Property which had accrued as of the last day of the month
preceding the delivery of the cash flow statement referred to in clause (c)
above have been fully paid or otherwise reserved for by Manager (any such
certification or any certification furnished by a Manager pursuant to clause (c)
above, a “
Manager
Certification
”).
(e)
Borrower
will furnish Lender annually, within twenty (20) days following the end of each
year and within twenty (20) days following receipt of such request therefor,
with a true, complete and correct rent roll for the Property, including a list
of which tenants are in default under their respective Leases, dated as of the
date of Lender’s request, identifying each tenant, the monthly rent and
additional rent, if any, payable by such tenant, the expiration date of such
tenant’s Lease, the security deposit, if any, held by Borrower under the Lease,
the space covered by the Lease, each tenant that has filed a bankruptcy,
insolvency, or reorganization proceeding since delivery of the last such rent
roll, the sales per square foot of each tenant, to the extent reported by
tenants under the terms of the Leases and the arrearages for such tenant, if
any, and such rent roll shall be accompanied by an Officer’s Certificate, dated
as of the date of the delivery of such rent roll, certifying that such rent roll
is true, correct and complete in all material respects as of its
date.
(f)
Borrower
shall furnish to Lender, within thirty (30) days after Lender’s request
therefor, with such further detailed information with respect to the operation
of the Property and the financial affairs of Borrower as may be reasonably
requested by Lender.
(g)
Borrower
shall cause Manager to furnish to Lender, within twenty (20) days following the
end of each month, a schedule of tenant security deposits showing any activity
in the Security Deposit Account for such month, together with a certification of
Manager as to the balance in such Security Deposit Account and that such tenant
security deposits are being held in accordance with all Legal
Requirements.
(h)
Borrower
will furnish Lender annually, within ninety (90) days after the end of each
Fiscal Year, with a report setting forth (i) the Net Operating Income for such
Fiscal Year, (ii) the average occupancy rate of the Property during such Fiscal
Year, and (iii) the capital repairs, replacements and improvements performed at
the Property during such Fiscal Year and the aggregate Recurring Replacement
Expenditures made in connection therewith.
(i)
Borrower
shall furnish to Lender annually, within thirty (30) days of filing its
respective tax return, a copy of such tax return and either a copy of the tax
return of Guarantor within such thirty (30) day period or within ninety (90)
days after the end of each Fiscal Year, a certificate from an Independent
certified public accountant indicating the net worth of the
Guarantor.
(j)
Borrower
shall submit to Lender for Lender’s written approval an Annual Budget not later
than sixty (60) days prior to the commencement of each Fiscal Year or, with
respect to the Fiscal Year in which the Closing Date occurs, within sixty (60)
days of the Closing Date, in form satisfactory to Lender setting forth in
reasonable detail budgeted monthly operating income and monthly operating
capital and other expenses for the Property. Each Annual Budget shall contain,
among other things, limitations on management fees, third party service fees,
and other expenses as Borrower may reasonably determine. Lender shall have the
right to approve such Annual Budget which approval shall not be unreasonably
withheld, and in the event that Lender objects to the proposed Annual Budget
submitted by Borrower, Lender shall advise Borrower of such objections within
ten (10) Business Days after receipt thereof (and deliver to Borrower a
reasonably detailed description of such objections) and Borrower shall, within
four (4) Business Days after receipt of notice of any such objections, revise
such Annual Budget and resubmit the same to Lender. Lender shall advise Borrower
of any objections to such revised Annual Budget within seven (7) Business Days
after receipt thereof (and deliver to Borrower a reasonably detailed description
of such objections) and Borrower shall revise the same in accordance with the
process described herein until Lender approves an Annual Budget, provided,
however, that if Lender shall not advise Borrower of its objections to any
proposed Annual Budget within the applicable time period set forth in this
Section, then such proposed Annual Budget shall be deemed approved by Lender.
Until such time that Lender approves a proposed Annual Budget, the most recently
Approved Annual Budget shall apply; provided that, such Approved Annual Budget
shall be adjusted to reflect actual increases in Basic Carrying Costs and
utilities expenses. In the event that Borrower must incur an Extraordinary
Expense, then Borrower shall promptly deliver to Lender a reasonably detailed
explanation of such proposed Extraordinary Expense for Lender’s approval, which
approval may be granted or denied in Lender’s reasonable discretion; provided,
however, so long as no O&M Operative Period is then in existence, no
approval from Lender shall be required if (i) a single Extraordinary Expense is
equal to or less than five percent (5%) of the amount set forth in the Approved
Annual Budget for expenses related to such Extraordinary Expense, or (ii) if no
sum was budgeted for such expense in the Approved Annual Budget, the
Extraordinary Expense is less than or equal to five percent (5%) of the Approved
Annual Budget, provided that all Extraordinary Expenses in any Fiscal Year do
not exceed five percent (5%) of the Approved Annual Budget. The Approved Annual
Budget shall be prepared for the Property.
(k)
In the
event that Borrower fails to deliver any of the financial statements, reports or
other information required to be delivered to Lender pursuant to this Section
2.09 on or prior to their due dates, if any such failure shall continue for
fifteen (15) days following notice thereof from Lender, without waiving any
default arising out of such failure, Borrower shall pay to Lender on each
Payment Date for each month or portion thereof that any such financial
statement, report or other information remains undelivered, an administrative
fee in the amount of Two Thousand Five Hundred Dollars ($2,500) and (ii) if
Borrower has not delivered any such reports within five (5) Business Days of
Lender’s giving an additional notice to Borrower requesting the missing
financial statement, report or other information, an O&M Operative Period
shall be deemed to have commenced. Borrower agrees that such administrative fee
(i) is a fair and reasonable fee necessary to compensate Lender for its
additional administrative costs and increased costs relating to Borrower’s
failure to deliver the aforementioned statements, reports or other items as and
when required hereunder and (ii) is not a penalty.
Section
2.10.
Litigation
.
Borrower will give prompt written notice to Lender of any litigation or
governmental proceedings pending or threatened (in writing) against Borrower
which might have a Material Adverse Effect.
Section
2.11.
Updates of
Representations
.
Borrower shall deliver to Lender within ten (10) Business Days of the request of
Lender an Officer’s Certificate updating all of the representations and
warranties contained in this Security Instrument and the other Loan Documents
and certifying that all of the representations and warranties contained in this
Security Instrument and the other Loan Documents, as updated pursuant to such
Officer’s Certificate, are true, accurate and complete as of the date of such
Officer’s Certificate or shall set forth the exceptions to representations
and/or warranties in reasonable detail, as applicable, and, upon Lender’s
request for further information with respect to such exceptions, shall provide
Lender such additional information as Lender may reasonably request.
Notwithstanding the foregoing, provided that no Event of Default has occurred
and is continuing, Borrower shall not be required to deliver the foregoing
Officer’s Certificate more than two (2) times in any Loan Year.
ARTICLE III:
INSURANCE AND CASUALTY
RESTORATION
Section
3.01.
Insurance
Coverage
.
Borrower shall, at its expense, maintain the following insurance coverages with
respect to the Property during the term of this Security
Instrument:
(a)
(i)
Insurance
against loss or damage by fire, casualty and other hazards included in an
“all-risk” coverage endorsement or its equivalent, with such endorsements as
Lender may from time to time reasonably require and which are customarily
required by Institutional Lenders of similar properties similarly situated,
including, without limitation, if the Property constitutes a legal
non-conforming use, an ordinance of law coverage endorsement which contains
“Demolition Cost”, “Loss Due to Operation of Law” and “Increased Cost of
Construction” coverages, covering the Property in an amount not less than the
greater of (A) 100% of the insurable replacement value of the Property
(exclusive of the Premises and footings and foundations) and (B) such other
amount as is necessary to prevent any reduction in such policy by reason of and
to prevent Borrower, Lender or any other insured thereunder from being deemed to
be a co-insurer. Not less frequently than once every three (3) years, Borrower,
at its option, shall either (A) have the Appraisal updated or obtain a new
appraisal of the Property, (B) have a valuation of the Property made by or for
its insurance carrier conducted by an appraiser experienced in valuing
properties of similar type to that of the Property which are in the geographical
area in which the Property is located or (C) provide such other evidence as
will, in Lender’s sole judgment, enable Lender to determine whether there shall
have been an increase in the insurable value of the Property and Borrower shall
deliver such updated Appraisal, new appraisal, insurance valuation or other
evidence acceptable to Lender, as the case may be, and, if such updated
Appraisal, new appraisal, insurance valuation, or other evidence acceptable to
Lender reflects an increase in the insurable value of the Property, the amount
of insurance required hereunder shall be increased accordingly and Borrower
shall deliver evidence satisfactory to Lender that such policy has been so
increased.
(ii)
Commercial
general liability insurance against claims for personal and bodily injury and/or
death to one or more persons or property damage, occurring on, in or about the
Property (including the adjoining streets, sidewalks and passageways therein) in
such amounts as Lender may from time to time reasonably require (but in no event
shall Lender’s requirements be increased more frequently than once during each
twelve (12) month period) and which are customarily required by Institutional
Lenders for similar properties similarly situated, but not less than $1,000,000
per occurrence and $2,000,000 general aggregate on a per location basis and, in
addition thereto, not less than $75,000,000 excess and/or umbrella liability
insurance shall be maintained for any and all claims.
(iii)
Business
interruption, rent loss or other similar insurance (A) with loss payable to
Lender, (B) covering all risks required to be covered by the insurance provided
for in Section 3.01(a)(i) hereof and (C) in an amount not less than 90% of the
projected fixed or base rent plus percentage rent for the succeeding eighteen
(18) month period based on an occupancy rate of 100%. Such insurance coverage
shall provide a six (6) month extended period of indemnity. The amount of such
insurance shall be determined upon the execution of this Security Instrument,
and not more frequently than once each calendar year thereafter based on
Borrower’s reasonable estimate of projected fixed or base rent plus percentage
rent, from the Property for the next succeeding eighteen (18) months. In the
event the Property shall be damaged or destroyed, Borrower shall and hereby does
assign to Lender all payment of claims under the policies of such insurance, and
all amounts payable thereunder, and all net amounts, shall be collected by
Lender under such policies and shall be applied in accordance with this Security
Instrument; provided, however, that nothing herein contained shall be deemed to
relieve Borrower of its obligations to timely pay all amounts due under the Loan
Documents.
(iv)
Intentionally
Deleted.
(v)
Insurance
against loss or damages from (A) leakage of sprinkler systems and (B) explosion
of steam boilers, air conditioning equipment, pressure vessels or similar
apparatus now or hereafter installed at the Property, in such amounts as Lender
may from time to time reasonably require and which are then customarily required
by Institutional Lenders of similar properties similarly situated.
(vi)
Flood
insurance in an amount equal to the full insurable value of the Property or the
maximum amount available, whichever is less, if the Improvements are located in
an area designated by the Secretary of Housing and Urban Development as being
“an area of special flood hazard” under the National Flood Insurance Program
(
i.e.
, having
a one percent or greater chance of flooding), and if flood insurance is
available under the National Flood Insurance Act.
(vii)
Worker’s
compensation insurance or other similar insurance which may be required by
Governmental Authorities or Legal Requirements.
(viii)
Intentionally
Deleted.
(ix)
Insurance
against damage resulting from acts of terrorism, or an insurance policy without
an exclusion for damages resulting from terrorism, on terms consistent with the
commercial property insurance policy required under subsections (i), (ii) and
(iii) above.
(x)
Such
other insurance as may from time to time be required by Lender and which is then
customarily required by Institutional Lenders for similar properties similarly
situated, against other insurable hazards, including, but not limited to,
malicious mischief, vandalism, mold, spores or fungus, sinkhole and mine
subsidence, acts of terrorism, windstorm and/or earthquake, due regard to be
given to the size and type of the Premises, Improvements, Fixtures and Equipment
and their location, construction and use. Additionally, Borrower shall carry
such insurance coverage as Lender may from time to time require if the failure
to carry such insurance may result in a downgrade, qualification or withdrawal
of any class of securities issued in connection with a Securitization or, if the
Loan is not yet part of a Securitization, would result in an increase in the
subordination levels of any class of securities anticipated to be issued in
connection with a proposed Securitization.
(b)
Borrower
shall cause any Manager of the Property to maintain fidelity insurance in an
amount equal to $5,000,000 or such lesser amount as Lender shall
approve.
Section
3.02.
Policy
Terms
.
(a)
All
insurance required by this Article III shall be in the form (other than with
respect to Sections 3.01(a)(vi) and (vii) above when insurance in those two
sub-sections is placed with a governmental agency or instrumentality on such
agency’s forms) and amount and with deductibles as, from time to time, shall be
reasonably acceptable to Lender, under valid and enforceable policies issued by
financially responsible insurers authorized to do business in the State where
the Property is located, with a general policyholder’s service rating of not
less than A- and a financial rating of not less than X as rated in the most
currently available Best’s Insurance Reports (or the equivalent, if such rating
system shall hereafter be altered or replaced) and shall have a claims paying
ability rating and/or financial strength rating, as applicable, of not less than
“AA” (or its equivalent), or such lower claims paying ability rating and/or
financial strength rating, as applicable, as Lender shall, in its sole and
absolute discretion, consent to, from a Rating Agency (one of which after a
Securitization in which Standard & Poor’s rates any securities issued in
connection with such Securitization, shall be Standard & Poor’s). Originals
or certified copies of all insurance policies shall be delivered to and held by
Lender. All such policies (except policies for worker’s compensation) shall name
Lender, its successors and/or assigns as an additional named insured, shall
provide for loss payable to Lender, its successors and/or assigns and shall
contain (or have attached): (i) standard “non-contributory mortgagee”
endorsement or its equivalent relating,
inter
alia
, to
recovery by Lender notwithstanding the negligent or willful acts or omissions of
Borrower; (ii) a waiver of subrogation endorsement as to Lender; (iii) an
endorsement indicating that neither Lender nor Borrower shall be or be deemed to
be a co-insurer with respect to any casualty risk insured by such policies and
shall provide for a deductible per loss of an amount not more than the lesser of
(x) that which is customarily maintained by owners of similar properties
similarly situated and (y) five percent (5%) of the Adjusted Net Cash Flow, and
(iv) a provision that such policies shall not be canceled, terminated, denied
renewal or amended, including, without limitation, any amendment reducing the
scope or limits of coverage, without at least thirty (30) days’ prior written
notice to Lender in each instance. Not less than thirty (30) days prior to the
expiration dates of the insurance policies obtained pursuant to this Security
Instrument, originals or certified copies of renewals of such policies (or
certificates evidencing such renewals) bearing notations evidencing the payment
of premiums or accompanied by other reasonable evidence of such payment (which
premiums shall not be paid by Borrower through or by any financing arrangement
which would entitle an insurer to terminate a policy) shall be delivered by
Borrower to Lender. Borrower shall not carry separate insurance, concurrent in
kind or form or contributing in the event of loss, with any insurance required
under this Article III.
(b)
If
Borrower fails to maintain and deliver to Lender the original policies or
certificates of insurance required by this Security Instrument, or if there are
insufficient funds in the Basic Carrying Costs Escrow Account to pay the
premiums for same, Lender may, at its option, procure such insurance, and
Borrower shall pay, or as the case may be, reimburse Lender for, all premiums
thereon promptly, upon demand by Lender, with interest thereon at the Default
Rate from the date paid by Lender to the date of repayment and such sum shall
constitute a part of the Debt.
(c)
Borrower
shall notify Lender of the renewal premium of each insurance policy and Lender
shall be entitled to pay such amount on behalf of Borrower from the Basic
Carrying Costs Escrow Account. With respect to insurance policies which require
periodic payments (i.e., monthly or quarterly) of premiums, Lender shall be
entitled to pay such amounts fifteen (15) days (or such lesser number of days as
Lender shall determine) prior to the respective due dates of such
installments.
(d)
The
insurance required by this Security Instrument may, at the option of Borrower,
be effected by blanket and/or umbrella policies issued to Borrower covering the
Property provided that, in each case, the policies otherwise comply with the
provisions of this Security Instrument and allocate to the Property, from time
to time (but in no event less than once a year), the coverage specified by this
Security Instrument, without possibility of reduction or coinsurance by reason
of, or damage to, any other property (real or personal) named therein. If the
insurance required by this Security Instrument shall be effected by any such
blanket or umbrella policies, Borrower shall furnish to Lender (i) original
policies or certified copies thereof, or an original certificate of insurance
together with reasonable access to the original of such policy to review such
policy’s coverage of the Property, with schedules attached thereto showing the
amount of the insurance provided under such policies applicable to the Property
and (ii) an Officer’s Certificate setting forth (A) the number of properties
covered by such policy, (B) the location by city (if available, otherwise,
county) and state of the properties, (C) the average square footage of the
properties, (D) a brief description of the typical construction type included in
the blanket policy and (E) such other information as Lender may reasonably
request.
Section
3.03.
Assignment of
Policies
.
(a)
Borrower
hereby assigns to Lender the proceeds of all insurance (other than worker’s
compensation and liability insurance) obtained pursuant to this Security
Instrument, all of which proceeds shall be payable to Lender as collateral and
further security for the payment of the Debt and the performance of the
Borrowers’ obligations hereunder and under the other Loan Documents, and
Borrower hereby authorizes and directs the issuer of any such insurance to make
payment of such proceeds directly to Lender. Except as otherwise expressly
provided in Section 3.04 or elsewhere in this Article III, Lender shall have the
option, in its discretion, and without regard to the adequacy of its security,
to apply all or any part of the proceeds it may receive pursuant to this Article
in such manner as Lender may elect to any one or more of the following: (i) the
payment of the Debt, whether or not then due, in any proportion or priority as
Lender, in its discretion, may elect, (ii) the repair or restoration of the
Property, (iii) the cure of any Event of Default or (iv) the reimbursement of
the costs and expenses of Lender incurred pursuant to the terms hereof in
connection with the recovery of the Insurance Proceeds. Nothing herein contained
shall be deemed to excuse Borrower from repairing or maintaining the Property as
provided in this Security Instrument or restoring all damage or destruction to
the Property, regardless of the sufficiency of the Insurance Proceeds, and the
application or release by Lender of any Insurance Proceeds shall not cure or
waive any Default or notice of Default.
(b)
In the
event of the foreclosure of this Security Instrument or any other transfer of
title or assignment of all or any part of the Property in extinguishment, in
whole or in part, of the Debt, all right, title and interest of Borrower in and
to all policies of insurance required by this Security Instrument shall inure to
the benefit of the successor in interest to Borrower or the purchaser of the
Property to the extent that such policies are assignable or transferable. If,
prior to the receipt by Lender of any proceeds, the Property or any portion
thereof shall have been sold on foreclosure of this Security Instrument or by
deed in lieu thereof or otherwise, or any claim under such insurance policy
arising during the term of this Security Instrument is not paid until after the
extinguishment of the Debt, and Lender shall not have received the entire amount
of the Debt outstanding at the time of such extinguishment, whether or not a
deficiency judgment on this Security Instrument shall have been sought or
recovered or denied, then, the proceeds of any such insurance to the extent of
the amount of the Debt not so received, shall be paid to and be the property of
Lender, together with interest thereon at the Default Rate, and the reasonable
attorney’s fees, costs and disbursements incurred by Lender in connection with
the collection of the proceeds which shall be paid to Lender and Borrower hereby
assigns, transfers and sets over to Lender all of Borrower’s right, title and
interest in and to such proceeds. Notwithstanding any provisions of this
Security Instrument to the contrary, Lender shall not be deemed to be a trustee
or other fiduciary with respect to its receipt of any such proceeds, which may
be commingled with any other monies of Lender; provided, however, that Lender
shall use such proceeds for the purposes and in the manner permitted by this
Security Instrument. Any proceeds deposited with Lender shall be held by Lender
in an interest-bearing account, but Lender makes no representation or warranty
as to the rate or amount of interest, if any, which may accrue on such deposit
and shall have no liability in connection therewith. Interest accrued, if any,
on the proceeds shall be deemed to constitute a part of the proceeds for
purposes of this Security Instrument. The provisions of this Section 3.03(b)
shall survive the termination of this Security Instrument by foreclosure, deed
in lieu thereof or otherwise as a consequence of the exercise of the rights and
remedies of Lender hereunder after a Default.
Section
3.04.
Casualty
Restoration
.
(a)
(i)
In the
event of any damage to or destruction of the Property, Borrower shall give
prompt written notice to Lender (which notice shall set forth Borrower’s good
faith estimate of the cost of repairing or restoring such damage or destruction,
or if Borrower cannot reasonably estimate the anticipated cost of restoration,
Borrower shall nonetheless give Lender prompt notice of the occurrence of such
damage or destruction, and will diligently proceed to obtain estimates to enable
Borrower to quantify the anticipated cost and time required for such
restoration, whereupon Borrower shall promptly notify Lender of such good faith
estimate) and, provided that restoration does not violate any Legal
Requirements, Borrower shall promptly commence and diligently prosecute to
completion the repair, restoration or rebuilding of the Property so damaged or
destroyed to a condition such that the Property shall be at least equal in value
to that immediately prior to the damage to the extent practicable, in full
compliance with all Legal Requirements and the provisions of all Leases, and in
accordance with Section 3.04(b) below. Such repair, restoration or rebuilding of
the Property are sometimes hereinafter collectively referred to as the
“
Work
”.
(ii)
Notwithstanding
the foregoing provisions of this Section 3.04, upon the occurrence of any damage
to or destruction of the Property, provided that such damage or destruction is
not a Substantial Casualty, if in Lender’s reasonable judgment the cost of
repair of or restoration to the Property required as a result of any damage or
destruction is less than $1,000,000 in the aggregate and the Work can be
completed in less than one hundred eighty (180) days (but in no event beyond the
date which is six (6) months prior to the Maturity Date), then Lender, shall
permit Borrower to apply for and receive the Insurance Proceeds directly from
the insurer (and Lender shall advise the insurer to pay over such Insurance
Proceeds directly to Borrower), to the extent required to pay for any such Work,
with any excess thereof to be retained by Borrower.
(iii)
Subject
to Section 3.04(a)(iv), Lender shall apply any Insurance Proceeds which it may
receive towards the Work in accordance with Section 3.04(b) and the other
applicable sections of this Article III.
(iv)
If (A) an
Event of Default shall have occurred and is continuing, (B) Lender is not
reasonably satisfied that the Debt Service Coverage, after substantial
completion of the Work, will be at least equal to the Required Debt Service
Coverage, (C) more than thirty percent (30%) of the reasonably estimated fair
market value of the Property is damaged or destroyed, (D) Lender is not
reasonably satisfied that the Work can be completed six (6) months prior to
Maturity or (E) Lender is not reasonably satisfied that Leases covering at least
75% of the rentable square footage for the Property (immediately prior to such
damage or destruction) will not be terminated due to the casualty during and
following the restoration, or (F) Lender is not reasonably satisfied that the
Work can be completed within twelve (12) months of the damage to or destruction
of the Property (each, a “
Substantial
Casualty
”),
Lender shall have the option, in its sole discretion to apply any Insurance
Proceeds it may receive pursuant to this Security Instrument (less any
reasonable cost to Lender of recovering and paying out such proceeds incurred
pursuant to the terms hereof and not otherwise reimbursed to Lender, including,
without limitation, reasonable attorneys’ fees and expenses) to the payment of
the Debt, without any prepayment fee or charge of any kind, or to allow such
proceeds to be used for the Work pursuant to the terms and subject to the
conditions of Section 3.04(b) hereof and the other applicable sections of this
Article III.
(v)
In the
event that Lender elects or is obligated hereunder to allow Insurance Proceeds
to be used for the Work, any excess proceeds remaining after completion of such
Work shall be applied to the payment of the Debt without any prepayment fee or
charge of any kind.
(b)
If any
Condemnation Proceeds in accordance with Section 6.01(a), or any Insurance
Proceeds in accordance with Section 3.04(a), are to be applied to the repair,
restoration or rebuilding of the Property, then such proceeds shall be deposited
into a segregated interest-bearing bank account at the Bank, which shall be an
Eligible Account, held by Lender and shall be paid out from time to time to
Borrower as the Work progresses (less any reasonable cost to Lender of
recovering and paying out such proceeds, including, without limitation,
reasonable attorneys’ fees and costs allocable to inspecting the Work and the
plans and specifications therefor), subject to Section 5.13 hereof and to all of
the following conditions:
(i)
An
Independent architect or engineer selected by Borrower and reasonably acceptable
to Lender (an “
Architect
” or
“
Engineer
”) or a
Person otherwise reasonably acceptable to Lender, shall have delivered to Lender
a certificate estimating the cost of completing the Work, and, if the amount set
forth therein is more than the sum of the amount of Insurance Proceeds then
being held by Lender in connection with a casualty and amounts agreed to be paid
as part of a final settlement under the insurance policy upon or before
completion of the Work, Borrower shall have delivered to Lender (A) cash
collateral in an amount equal to such excess, or (B) an unconditional,
irrevocable, clean sight draft letter of credit, in form, substance and issued
by a bank reasonably acceptable to Lender, in the amount of such excess and
draws on such letter of credit shall be made by Lender to make payments pursuant
to this Article III following exhaustion of the Insurance Proceeds therefor or
(C) a completion bond in form, substance and issued by a surety company
reasonably acceptable to Lender.
(ii)
If the
cost of the Work is reasonably estimated by an Architect or Engineer in a
certification reasonably acceptable to Lender to be equal to or exceed five
percent (5%) of the Loan Amount, such Work shall be performed under the
supervision of an Architect or Engineer, it being understood that the plans and
specifications with respect thereto shall provide for Work so that, upon
completion thereof, the Property shall be at least equal in replacement value
and general utility to the Property prior to the damage or
destruction.
(iii)
Each
request for payment shall be made on not less than ten (10) days’ prior notice
to Lender and shall be accompanied by a certificate of an Architect or Engineer,
or, if the Work is not required to be supervised by an Architect or Engineer, by
an Officer’s Certificate stating (A) that payment is for Work completed or
materials delivered in compliance with the plans and specifications, if required
under clause (ii) above, (B) that the sum requested is required to reimburse
Borrower for payments by Borrower to date, or is due to the contractors,
subcontractors, materialmen, laborers, engineers, architects or other Persons
rendering services or materials for the Work (giving a brief description of such
services and materials), and that when added to all sums previously paid out by
Lender does not exceed the value of the Work done to the date of such
certificate, (C) if the sum requested is to cover payment relating to repair and
restoration of personal property required or relating to the Property, that
title to the personal property items covered by the request for payment is
vested in Borrower (unless Borrower is lessee of such personal property), and
(D) that the Insurance Proceeds and other amounts deposited by Borrower held by
Lender after such payment is equal to or more than the estimated remaining cost
to complete such Work; provided, however, that if such certificate is given by
an Architect or Engineer, such Architect or Engineer shall certify as to clause
(A) above, and such Officer’s Certificate shall certify as to the remaining
clauses above, and provided, further, that Lender shall not be obligated to
disburse such funds if Lender determines, in Lender’s reasonable discretion,
that Borrower shall not be in compliance with this Section 3.04(b).
Additionally, each request for payment shall contain a statement signed by
Borrower stating that the requested payment is for Work satisfactorily done to
date or for materials for the Work.
(iv)
Each
request for payment shall be accompanied by waivers of lien, in customary form
and substance, covering that part of the Work for which payment or reimbursement
is being requested and, if required by Lender, a search prepared by a title
company or licensed abstractor, or by other evidence satisfactory to Lender that
there has not been filed with respect to the Property any mechanic’s or other
lien or instrument for retention of title relating to any part of the Work not
discharged of record. Additionally, as to any personal property covered by the
request for payment, Lender shall be furnished with evidence of having incurred
a payment obligation therefor and such further evidence reasonably satisfactory
to assure Lender that UCC filings therefor provide a valid first lien on the
personal property.
(v)
Lender
shall have the right to inspect the Work at all reasonable times upon reasonable
prior notice and may condition any disbursement of Insurance Proceeds upon
satisfactory compliance by Borrower with the provisions hereof. Neither the
approval by Lender of any required plans and specifications for the Work nor the
inspection by Lender of the Work shall make Lender responsible for the
preparation of such plans and specifications, or the compliance of such plans
and specifications of the Work, with any applicable law, regulation, ordinance,
covenant or agreement.
(vi)
Insurance
Proceeds shall not be disbursed more frequently than once every thirty (30)
days.
(vii)
Until
such time as the Work has been substantially completed, Lender shall not be
obligated to disburse up to ten percent (10%) of the cost of the Work (the
“
Retention
Amount
”) to
Borrower. Upon substantial completion of the Work, Borrower shall send notice
thereof to Lender and, subject to the conditions of Section 3.04(b)(i)-(iv),
Lender shall disburse one-half of the Retention Amount to Borrower; provided,
however, that the remaining one-half of the Retention Amount shall be disbursed
to Borrower when Lender shall have received copies of any and all final
certificates of occupancy or other certificates, licenses and permits required
for the ownership, occupancy and operation of the Property in accordance with
all Legal Requirements. Borrower hereby covenants to diligently seek to obtain
any such certificates, licenses and permits. Notwithstanding the foregoing,
Lender will release the portion of the Retention Amount being held with respect
to any contractor, subcontractor or materialman engaged in the Work as of the
date upon which the Architect or Engineer certifies to Lender that the
contractor, subcontractor or materialman has satisfactorily completed all work
and has supplied all materials in accordance with the provisions of the
contractor’s, subcontractor’s or materialman’s contract, provided, (A) the
contractor, subcontractor or materialman delivers the lien waivers and evidence
of payment in full of all sums due to the contractor, subcontractor or
materialman as may be reasonably requested by Lender or by the title company
issuing the Lender’s title policy and (B) if required by Lender, the release of
any such portion of the Retention Amount shall be approved by the surety
company, if any, which has issued a payment or performance bond with respect to
the contractor, subcontractor or materialman.
(viii)
Upon
failure on the part of Borrower promptly to commence the Work as provided for
herein or to proceed diligently and continuously to completion of the Work,
subject to Force Majeure, not to exceed sixty (60) days, which failure shall
continue after notice for thirty (30) days, Lender may apply any Insurance
Proceeds or Condemnation Proceeds it then or thereafter holds to the payment of
the Debt in accordance with the provisions of the Note; provided, however, that
Lender shall be entitled to apply at any time all or any portion of the
Insurance Proceeds or Condemnation Proceeds it then holds to the extent
necessary to cure any Event of Default.
(c)
If
Borrower (i) within ninety (90) days after the occurrence of any damage to the
Property or any portion thereof (or such shorter period as may be required under
any Major Space Lease) shall fail to submit to Lender for approval plans and
specifications for the Work (approved by the Architect and by all Governmental
Authorities whose approval is required), (ii) after any such plans and
specifications are approved by all Governmental Authorities, the Architect and
Lender, shall fail to promptly commence such Work as provided for herein or
(iii) shall fail to diligently prosecute such Work to completion, then, in
addition to all other rights available hereunder, at law or in equity, Lender,
or any receiver of the Property or any portion thereof, upon five (5) days’
prior notice to Borrower (except in the event of emergency in which case no
notice shall be required), may (but shall have no obligation to) perform or
cause to be performed such Work, and may take such other steps as it reasonably
deems advisable. Borrower hereby waives, for Borrower, any claim, other than for
gross negligence or willful misconduct, against Lender and any receiver arising
out of any act or omission of Lender or such receiver pursuant hereto, and
Lender may apply all or any portion of the Insurance Proceeds (without the need
to fulfill any other requirements of this Section 3.04) to reimburse Lender and
such receiver, for all reasonable costs not reimbursed to Lender or such
receiver upon demand together with interest thereon at the Default Rate from the
date such amounts are advanced until the same are paid to Lender or the
receiver.
(d)
Subject
to Section 3.04(a)(ii) above, Borrower hereby irrevocably appoints Lender as its
attorney-in-fact, coupled with an interest, to collect and receive any Insurance
Proceeds paid with respect to any portion of the Property or the insurance
policies required to be maintained hereunder, and to endorse any checks, drafts
or other instruments representing any Insurance Proceeds whether payable by
reason of loss thereunder or otherwise.
Section
3.05.
Compliance with Insurance
Requirements
.
Borrower promptly shall comply with, and shall cause the Property to comply
with, all Insurance Requirements, even if such compliance requires structural
changes or improvements or would result in interference with the use or
enjoyment of the Property or any portion thereof provided Borrower shall have a
right to contest in good faith and with diligence such Insurance Requirements
provided (a) no Event of Default shall be continuing during such contest and
such contest shall not subject the Property or any portion thereof to any lien
or affect the priority of the lien of this Security Instrument, (b) failure to
comply with such Insurance Requirements will not subject Lender or any of its
agents, employees, officers or directors to any civil or criminal liability, (c)
such contest will not cause any reduction in insurance coverage, (d) such
contest shall not affect the ownership, use or occupancy of the Property, (e)
the Property or any part thereof or any interest therein shall not be in any
danger of being sold, forfeited or lost by reason of such contest by Borrower,
(f) Borrower has given Lender prompt notice of such contest and, upon request by
Lender from time to time, notice of the status of such contest by Borrower
and/or information of the continuing satisfaction of the conditions set forth in
clauses (a) through (e) of this Section 3.05, (g) upon a final determination of
such contest, Borrower shall promptly comply with the requirements thereof, and
(h) prior to and during such contest, Borrower shall furnish to Lender security
satisfactory to Lender, in its reasonable discretion, against loss or injury by
reason of such contest or the non-compliance with such Insurance Requirement
(and if such security is cash, Lender shall deposit the same in an
interest-bearing account and interest accrued thereon, if any, shall be deemed
to constitute a part of such security for purposes of this Security Instrument,
but Lender (i) makes no representation or warranty as to the rate or amount of
interest, if any, which may accrue thereon and shall have no liability in
connection therewith and (ii) shall not be deemed to be a trustee or fiduciary
with respect to its receipt of any such security and any such security may be
commingled with other monies of Lender). Upon completion of any contest, Lender
shall return the security , if any, deposited with Lender pursuant to clause (h)
of this Section 3.05. If Borrower shall use the Property or any portion thereof
in any manner which could permit the insurer to cancel any insurance required to
be provided hereunder, Borrower immediately shall obtain a substitute policy
which shall satisfy the requirements of this Security Instrument and which shall
be effective on or prior to the date on which any such other insurance policy
shall be canceled. Borrower shall not by any action or omission invalidate any
insurance policy required to be carried hereunder unless such policy is replaced
as aforesaid, or materially increase the premiums on any such policy above the
normal premium charged for such policy. Borrower shall cooperate with Lender in
obtaining for Lender the benefits of any Insurance Proceeds lawfully or
equitably payable to Lender in connection with the transaction contemplated
hereby.
Section
3.06.
Event of Default During
Restoration
.
Notwithstanding anything to the contrary contained in this Security Instrument
including, without limitation, the provisions of this Article III, if, at the
time of any casualty affecting the Property or any part thereof, or at any time
during any Work, or at any time that Lender is holding or is entitled to receive
any Insurance Proceeds pursuant to this Security Instrument, a Default exists
and is continuing (whether or not it constitutes an Event of Default), Lender
shall then have no obligation to make such proceeds available for Work and
Lender shall have the right and option, to be exercised in its sole and absolute
discretion and election, with respect to the Insurance Proceeds, either to
retain and apply such proceeds in reimbursement for the actual costs, fees and
expenses incurred by Lender in accordance with the terms hereof in connection
with the adjustment of the loss and any balance toward payment of the Debt in
such priority and proportions as Lender, in its sole discretion, shall deem
proper, or towards the Work, upon such terms and conditions as Lender shall
determine, or to cure such Default, or to any one or more of the foregoing as
Lender, in its sole and absolute discretion, may determine. If Lender shall
receive and retain such Insurance Proceeds, the lien of this Security Instrument
shall be reduced only by the amount thereof received, after reimbursement to
Lender of expenses of collection, and actually applied by Lender in reduction of
the principal sum payable under the Note in accordance with the
Note.
Section
3.07.
Application of Proceeds to
Debt Reduction
.
(
a) No
damage to the Property, or any part thereof, by fire or other casualty
whatsoever, whether such damage be partial or total, shall relieve Borrower from
its liability to pay in full the Debt and to perform its obligations under this
Security Instrument and the other Loan Documents.
(b)
If any
Insurance Proceeds are applied to reduce the Debt, Lender shall apply the same
in accordance with the provisions of the Note.
ARTICLE IV:
IMPOSITIONS
Section
4.01.
Payment of Impositions,
Utilities and Taxes, etc
.
(a)
Borrower
shall pay or cause to be paid all Impositions prior to the date upon which any
fine, penalty, interest or cost for nonpayment is imposed, and furnish to
Lender, upon request, receipted bills of the appropriate taxing authority or
other documentation reasonably satisfactory to Lender evidencing the payment
thereof. If Borrower shall fail to pay any Imposition in accordance with this
Section and is not contesting or causing a contesting of such Imposition in
accordance with Section 4.04 hereof, or if there are insufficient funds in the
Basic Carrying Costs Escrow Account to pay any Imposition, Lender shall have the
right, but shall not be obligated, to pay that Imposition, and Borrower shall
repay to Lender, on demand, any amount paid by Lender, with interest thereon at
the Default Rate from the date of the advance thereof to the date of repayment,
and such amount shall constitute a portion of the Debt secured by this Security
Instrument.
(b)
Borrower
shall, prior to the date upon which any fine, penalty, interest or cost for the
nonpayment is imposed, pay or cause to be paid all charges for electricity,
power, gas, water and other services and utilities in connection with the
Property, and shall, upon request, deliver to Lender receipts or other
documentation reasonably satisfactory to Lender evidencing payment thereof. If
Borrower shall fail to pay any amount required to be paid by Borrower pursuant
to this Section 4.01 and is not contesting such charges in accordance with
Section 4.04 hereof, Lender shall have the right, but shall not be obligated, to
pay that amount, and Borrower will repay to Lender, on demand, any amount paid
by Lender with interest thereon at the Default Rate from the date of the advance
thereof to the date of repayment, and such amount shall constitute a portion of
the Debt secured by this Security Instrument.
(c)
Borrower
shall pay all taxes, charges, filing, registration and recording fees, excises
and levies imposed upon Lender by reason of or in connection with its ownership
of any Loan Document or any other instrument related thereto, or resulting from
the execution, delivery and recording of, or the lien created by, or the
obligation evidenced by, any of them, other than income, franchise and other
similar taxes imposed on Lender and shall pay all corporate stamp taxes, if any,
and other taxes, required to be paid on the Loan Documents. If Borrower shall
fail to make any such payment within ten (10) days after written notice thereof
from Lender, Lender shall have the right, but shall not be obligated, to pay the
amount due, and Borrower shall reimburse Lender therefor, on demand, with
interest thereon at the Default Rate from the date of the advance thereof to the
date of repayment, and such amount shall constitute a portion of the Debt
secured by this Security Instrument.
Section
4.02.
Deduction from
Value
. In the
event of the passage after the date of this Security Instrument of any Legal
Requirement deducting from the value of the Property for the purpose of
taxation, any lien thereon or changing in any way the Legal Requirements now in
force for the taxation of this Security Instrument and/or the Debt for federal,
state or local purposes, or the manner of the operation of any such taxes so as
to adversely affect the interest of Lender, or impose any tax or other charge on
any Loan Document, then Borrower will pay such tax, with interest and penalties
thereon, if any, within the statutory period; provided, however, such tax
payments shall not include such taxes incurred more than ninety (90) days prior
to the date Borrower receives Lender’s notice of payment. In the event the
payment of such tax or interest and penalties by Borrower would be unlawful, or
taxable to Lender or unenforceable or provide the basis for a defense of usury,
then in any such event, Lender shall have the option, by written notice of not
less than sixty (60) days, to declare the Debt immediately due and payable, with
no prepayment fee or charge of any kind.
Section
4.03.
No Joint
Assessment
.
Borrower shall not consent to or initiate the joint assessment of the Premises
or the Improvements (a) with any other real property constituting a separate tax
lot and Borrower represents and covenants that the Premises and the Improvements
are and shall remain a separate tax lot or (b) with any portion of the Property
which may be deemed to constitute personal property, or any other procedure
whereby the lien of any taxes which may be levied against such personal property
shall be assessed or levied or charged to the Property as a single
lien.
Section
4.04.
Right to
Contest
.
Borrower shall have the right, after prior notice to Lender, at its sole
expense, to contest by appropriate legal proceedings diligently conducted in
good faith, without cost or expense to Lender or any of its agents, employees,
officers or directors, the validity, amount or application of any Imposition or
any charge described in Section 4.01(b), provided that (a) no Default or Event
of Default shall exist during such proceedings and such contest shall not
(unless Borrower shall comply with clause (d) of this Section 4.04) subject the
Property or any portion thereof to any lien or affect the priority of the lien
of this Security Instrument, (b) failure to pay such Imposition or charge will
not subject Lender or any of its agents, employees, officers or directors to any
civil or criminal liability, (c) the contest suspends enforcement of the
Imposition or charge (unless Borrower first pays the Imposition or charge), (d)
prior to and during such contest, Borrower shall furnish to Lender security
satisfactory to Lender, in its reasonable discretion, against loss or injury by
reason of such contest or the non-payment of such Imposition or charge (and if
such security is cash, Lender may deposit the same in an interest-bearing
account and interest accrued thereon, if any, shall be deemed to constitute a
part of such security for purposes of this Security Instrument, but Lender (i)
makes no representation or warranty as to the rate or amount of interest, if
any, which may accrue thereon and shall have no liability in connection
therewith and (ii) shall not be deemed to be a trustee or fiduciary with respect
to its receipt of any such security and any such security may be commingled with
other monies of Lender), (e) such contest shall not affect the ownership, use or
occupancy of the Property, (f) the Property or any part thereof or any interest
therein shall not be in any danger of being sold, forfeited or lost by reason of
such contest by Borrower, (g) Borrower has given Lender notice of the
commencement of such contest and upon request by Lender, from time to time,
notice of the status of such contest by Borrower and/or confirmation of the
continuing satisfaction of clauses (a) through (f) of this Section 4.04, and (h)
upon a final determination of such contest, Borrower shall promptly comply with
the requirements thereof. Upon completion of any contest, Borrower shall
immediately pay the amount due, if any, and deliver to Lender proof of the
completion of the contest and payment of the amount due, if any, following which
Lender shall return the security, if any, deposited with Lender pursuant to
clause (d) of this Section 4.04. Borrower shall not pay any Imposition in
installments unless permitted by applicable Legal Requirements, and shall, upon
the request of Lender, deliver copies of all notices and bills relating to any
Imposition or other charge covered by this Article IV to
Lender.
Section
4.05.
No Credits on Account of the
Debt
.
Borrower will not claim or demand or be entitled to any credit or credits on
account of the Debt for any part of the Impositions assessed against the
Property or any part thereof and no deduction shall otherwise be made or claimed
from the taxable value of the Property, or any part thereof, by reason of this
Security Instrument or the Debt. In the event such claim, credit or deduction
shall be required by Legal Requirements, Lender shall have the option, by
written notice of not less than forty-five (45) days, to declare the Debt
immediately due and payable, and Borrower hereby agrees to pay such amounts not
later than forty-five (45) days after such notice.
Section
4.06.
Documentary
Stamps
. If, at
any time, the United States of America, any State or Commonwealth thereof or any
subdivision of any such State shall require revenue or other stamps to be
affixed to the Note, this Security Instrument or any other Loan Document, or
impose any other tax or charges on the same, Borrower will pay the same, with
interest and penalties thereon, if any.
ARTICLE V:
CENTRAL CASH
MANAGEMENT
Section
5.01.
Cash Flow
.
Borrower hereby acknowledges and agrees that (i) the Rents (which for the
purposes of this Section 5.01 shall not include security deposits from tenants
under Leases held by Borrower and not applied towards Rent) derived from the
Property and (ii) Loss Proceeds (other than Loss Proceeds that Lender has
elected to apply to reduce the Debt in accordance with the terms of Article III
hereof) shall be utilized (a) to fund the Basic Carrying Costs Sub-Account, (b)
to pay all amounts to become due and payable under the Note by funding the Debt
Service Payment Sub-Account, (c) to fund the Recurring Replacement Reserve
Sub-Account, (d) to fund the Reletting Reserve Sub-Account, (e) to fund the
Operation and Maintenance Expense Sub-Account, and (f) to fund the Curtailment
Reserve Sub-Account, all to the extent provided for herein. Borrower shall
collect all security deposits from tenants under valid Leases, which shall be
held by Borrower, in accordance with applicable law and in a segregated demand
deposit bank account at such commercial or savings bank or banks as may be
reasonably satisfactory to Lender (the “
Security Deposit
Account
”).
Borrower shall notify Lender of any security deposits held as letters of credit
and, upon Lender’s request, such letters of credit shall be promptly delivered
to Lender. Borrower shall have no right to withdraw funds from the Security
Deposit Account;
provided
that,
prior to the occurrence of an Event of Default, Borrower may withdraw funds from
the Security Deposit Account to refund or apply security deposits as required by
the Leases or by applicable Legal Requirements. During the continuance of an
Event of Default, all withdrawals from the Security Deposit Account must be
approved by Lender. Borrower shall cause all Rent which is due and payable to
Borrower pursuant to the terms of the Leases (other than security deposits under
valid Leases which are held in the Security Deposit Account) to be paid through
automated clearing house funds (“
ACH
”), a
check drawn on an account in a bank located in the continental United States
which is a member of the New York Clearing House Association or by Federal wire
directly to the Rent Account. Borrower shall give each tenant under a Lease an
irrevocable direction in the form of Exhibit E attached hereto and made a part
hereof to deliver all rent payments made by tenants and other payments
constituting Rent directly to the Rent Account and shall deliver copies of such
letters to Lender, together with an Officer’s Certificate certifying that such
letters were delivered to each tenant under the Leases within five (5) days of
the Closing Date. Notwithstanding the foregoing, if any Rent is received by
Borrower or Manager, then (a) such amounts shall be held in trust for the
benefit, and as the property, of Lender, (b) such amounts shall not be
commingled with any other funds or property of Borrower or Manager and (c)
Borrower or Manager shall deposit such amounts in the Rent Account within one
(1) Business Day of receipt. Borrower shall, or shall cause Manager to, give to
the bank in which the Rent Account is located an irrevocable written
instruction, in form and substance acceptable to, and acknowledged by, Lender,
that all funds deposited in the Rent Account shall be automatically transferred
through ACH or by Federal wire to the Central Account prior to 2:00 p.m. (New
York City time) on each Business Day. Upon execution of any Space Lease after
the Closing Date, Borrower shall deliver to Lender a copy of the irrevocable
direction letter referred to above, the receipt of which has been acknowledged
by the tenant under such Space Lease. Lender may elect to change the financial
institution in which the Central Account or the Rent Account shall be
maintained;
however
, Lender
shall give Borrower and the bank in which the Rent Account is located not fewer
than ten (10) Business Days’ prior notice of such change. Neither Borrower nor
Manager shall change the bank in which the Rent Account is located or the Rent
Account without the prior written consent of Lender. All fees and charges of the
bank in which the Central Account is located shall be paid by
Borrower.
Section
5.02.
Establishment of
Accounts
. Lender
has established the Escrow Accounts and the Central Account in the name of
Lender as secured party and Borrower has established the Central Account in the
joint names of Lender, as secured party, and Borrower. The Central Account, the
Rent Account and the Escrow Accounts shall be under the sole dominion and
control of Lender and funds held therein shall not constitute trust funds.
Borrower hereby irrevocably directs and authorizes Lender to withdraw funds from
the Central Account, the Rent Account and the Escrow Accounts, all in accordance
with the terms and conditions of this Security Instrument. Borrower shall have
no right of withdrawal in respect of the Central Account, the Rent Account or
the Escrow Accounts. Each transfer of funds to be made hereunder shall be made
only to the extent that funds are on deposit in the Central Account, the Rent
Account or the affected Sub-Account or Escrow Account, and Lender shall have no
responsibility to make additional funds available in the event that funds on
deposit are insufficient. The Central Account shall contain the Basic Carrying
Costs Sub-Account, the Debt Service Payment Sub-Account, the Recurring
Replacement Reserve Sub-Account, the Reletting Reserve Sub-Account, the
Operation and Maintenance Expense Sub-Account and the Curtailment Reserve
Sub-Account, each of which accounts shall be Eligible Accounts or book entry
sub-accounts of an Eligible Account (each a “
Sub-Account
” and
collectively, the “
Sub-Accounts
”) to
which certain funds shall be allocated and from which disbursements shall be
made pursuant to the terms of this Security Instrument. In addition, on the date
hereof, the Central Account shall also contain (w) a Sub-Account entitled the
“Engineering Escrow Sub Account”, which shall be funded by Borrower at Closing
with the Initial Engineering Deposit set forth on Exhibit B attached hereto
(representing the sum applicable to the Required Engineering Work described in
Section 5.12 below and on Exhibit D attached hereto, (x) a Sub-Account entitled
the Holdback Reserve Sub-Account which shall be funded by Borrower at closing
with the Initial Holdback Reserve Deposit, (y) a Sub-Account entitled the Debt
Service Reserve Sub-Account which shall be funded by Borrower at closing with
the Initial Debt Service Reserve Deposit and (z) a Sub-Account entitled the
Yield Maintenance Reserve Sub-Account which shall be funded by Borrower at
closing with the Initial Yield Maintenance Reserve Deposit. Sums held in the
Escrow Accounts may be commingled with other monies held by Lender.
Section
5.03.
Permitted
Investments
. All
sums deposited into the Curtailment Reserve Escrow Account, the Holdback Reserve
Escrow Account, the Recurring Replacement Reserve Sub-Account, the Reletting
Reserve Escrow Account and the Operation and Maintenance Expense Escrow Account
shall be held in an interest bearing account but Borrower acknowledges that
Lender makes no representation or warranty as to the rate of return. Lender
shall not have any liability for any loss in investments of funds in the
Curtailment Reserve Escrow Account, the Recurring Replacement Reserve
Sub-Account, the Reletting Reserve Escrow Account, the Holdback Reserve Escrow
Account and the Operation and Maintenance Expense Escrow Account and no such
loss shall affect Borrower’s obligation to fund, or liability for funding, the
Central Account and each Sub-Account and Escrow Account, as the case may be.
Borrower agrees that Lender shall include all such earnings on the Curtailment
Reserve Escrow Account, the Recurring Replacement Reserve Sub-Account, the
Reletting Reserve Escrow Account, the Holdback Reserve Escrow Account and the
Operation and Maintenance Expense Escrow Account as income of Borrower (and, if
Borrower is a partnership, limited liability company or other pass-through
entity, the partners, members or beneficiaries of Borrower, as the case may be)
for federal and applicable state and local tax purposes. All interest paid or
other earnings on funds deposited into the Recurring Replacement Reserve
Sub-Account, the Reletting Reserve Escrow Account, the Holdback Reserve Escrow
Account and the Operation and Maintenance Expense Escrow Account made hereunder
shall be deposited into the Central Account and shall be allocated to the
Curtailment Reserve Escrow Account, the Recurring Replacement Reserve
Sub-Account, the Reletting Reserve Escrow Account, the Holdback Reserve Escrow
Account and the Operation and Maintenance Expense Escrow Account. Borrower shall
pay all costs, fees and expenses incurred in connection with the establishment
and maintenance of, or the disbursement from, the Curtailment Reserve Escrow
Account, the Recurring Replacement Reserve Sub-Account, the Reletting Reserve
Escrow Account
and the
Operation and Maintenance Expense Escrow Account, which sums shall be due and
payable by Borrower upon demand and may be deducted by Lender from amounts on
deposit in the Central Account or the Escrow Accounts.
Section
5.04.
Servicing
Fees
. At the
option of Lender, the Loan may be serviced by a servicer (the “
Servicer
”)
selected by Lender and Lender may delegate all or any portion of its
responsibilities under this Security Instrument to the Servicer. Provided that
no Default has occurred and is continuing, Borrower shall have no obligation to
reimburse Lender for servicing fees incurred in connection with the ordinary,
routine servicing of the Loan; provided, however, that Borrower shall reimburse
Lender for (a) any and all costs and expenses incurred after the occurrence of a
Default and (b) as otherwise provided for in this Security Instrument.
Additionally, Borrower shall pay all reasonable servicing fees of Servicer, if
any, not to exceed $500.00 per month, charged in connection with any
disbursement of funds from the Escrow Accounts pursuant to the Servicer’s then
standard conditions and rates.
Section
5.05.
Monthly Funding of
Sub-Accounts and Escrow Accounts
. (a) On
or before each Payment Date during the term of the Loan, commencing on the first
(1st) Payment Date occurring after the month in which the Loan is initially
funded, Borrower shall pay or cause to be paid to the Central Account, Basic
Carrying Costs Monthly Installment, the Required Debt Service Payment, the
Recurring Replacement Monthly Installment, the Reletting Reserve Monthly
Installment and all sums required to be deposited in the Operation and
Maintenance Expense Sub-Account and the Curtailment Reserve Sub-Account, if any,
pursuant to clauses (i) through (viii) of this Section 5.05(a) and all funds
transferred or deposited into the Central Account shall be allocated among the
Sub-Accounts as follows and in the following priority:
(i)
first, to
the Basic Carrying Costs Sub-Account, until an amount equal to the Basic
Carrying Costs Monthly Installment for such Current Month has been allocated to
the Basic Carrying Costs Sub-Account;
(ii)
second,
to the Debt Service Payment Sub-Account, until an amount equal to the Required
Debt Service Payment for the Payment Date occurring in such Current Month has
been allocated to the Debt Service Payment Sub-Account;
(iii)
third, to
the Recurring Replacement Reserve Sub-Account, until an amount equal to the
Recurring Replacement Monthly Installment for such Current Month has been
allocated to the Recurring Replacement Reserve Sub-Account;
(iv)
fourth,
to the Reletting Reserve Sub-Account, until an amount equal to the Reletting
Reserve Monthly Installment for such Current Month has been allocated to the
Reletting Reserve Sub-Account;
(v)
fifth,
but only during the occurrence and continuance of an Event of Default, to the
Operation and Maintenance Expense Sub-Account in an amount equal to the Cash
Expenses, other than management fees payable to Affiliates of Borrower, for such
Current Month pursuant to the related Approved Annual Budget;
(vi)
sixth,
but only during the occurrence and continuance of an Event of Default, to the
Operation and Maintenance Expense Sub-Account in an amount equal to the amount,
if any, of the Net Capital Expenditures for such Current Month pursuant to the
related Approved Annual Budget;
(vii)
seventh,
but only during the occurrence and continuance of an Event of Default, to the
Operation and Maintenance Expense Sub-Account in an amount equal to the amount,
if any, of the Extraordinary Expenses approved by Lender for such Current
Month;
(viii)
eighth,
but only during an O&M Operative Period, the balance, if any, to the
Curtailment Reserve Sub-Account.
Provided
that (I) no Event of Default has occurred and is continuing and (II) Lender has
received the Manager Certification referred to in Section 2.09(d) hereof for the
most recent period for which the same is due, Lender agrees that in each Current
Month any amounts deposited into or remaining in the Central Account after the
Sub-Accounts have been funded in accordance with clauses (i) through (viii)
above with respect to the Current Month and any periods prior thereto, shall be
disbursed by Lender to Borrower on the Payment Date and, to the extent that
funds are available for such purpose, on the fifteenth and twenty-fifth day of
each Current Month or, if such days are not Business Days, on the next
succeeding Business Day in accordance with Borrower’s irrevocable written
instruction delivered to Lender on the Closing Date. During the existence of an
Event of Default, no funds held in the Central Account shall be distributed to
Borrower and Lender shall have the right to apply all or any portion of the
funds held in the Central Account or any Sub-Account or any Escrow Account to
the Debt in Lender’s sole discretion.
(b)
On each
Payment Date, (i) sums held in the Basic Carrying Costs Sub-Account shall be
transferred to the Basic Carrying Costs Escrow Account, (ii) sums held in the
Debt Service Payment Sub-Account, together with any amounts deposited into the
Central Account that are either (x) Loss Proceeds that Lender has elected to
apply to reduce the Debt in accordance with the terms of Article III hereof or
(y) excess Loss Proceeds remaining after the completion of any restoration
required hereunder, shall be transferred to Lender to be applied towards the
Required Debt Service Payment, (iii) sums held in the Recurring Replacement
Reserve Sub-Account shall be transferred to the Recurring Replacement Reserve
Escrow Account, (iv) sums held in the Reletting Reserve Sub-Account shall be
transferred to the Reletting Reserve Escrow Account, (v) sums held in the
Operation and Maintenance Expense Sub-Account shall be transferred to the
Operation and Maintenance Expense Escrow Account and (vi) sums held in the
Curtailment Reserve Sub-Account shall be transferred to the Curtailment Reserve
Escrow Account.
Section
5.06.
Payment of Basic Carrying
Costs
.
Borrower hereby agrees to pay all Basic Carrying Costs (without regard to the
amount of money in the Basic Carrying Costs Sub-Account or the Basic Carrying
Costs Escrow Account). At least ten (10) Business Days prior to the due date of
any Basic Carrying Costs, and not more frequently than once each month, Borrower
may notify Lender in writing and request that Lender pay such Basic Carrying
Costs on behalf of Borrower on or prior to the due date thereof, and, provided
that no Event of Default has occurred and that there are sufficient funds
available in the Basic Carrying Costs Escrow Account, Lender shall make such
payments out of the Basic Carrying Costs Escrow Account before same shall be
delinquent. Together with each such request, Borrower shall furnish Lender with
bills and all other documents necessary, as reasonably determined by Lender, for
the payment of the Basic Carrying Costs which are the subject of such request.
Borrower’s obligation to pay (or cause Lender to pay) Basic Carrying Costs
pursuant to this Security Instrument shall include, to the extent permitted by
applicable law, Impositions resulting from future changes in law which impose
upon Lender an obligation to pay any property taxes or other Impositions or
which otherwise adversely affect Lender’s interests as provided for in this
Security Instrument.
Provided
that no Event of Default shall have occurred, all funds deposited into the Basic
Carrying Costs Escrow Account shall be held by Lender pursuant to the provisions
of this Security Instrument and shall be applied in payment of Basic Carrying
Costs in accordance with the terms hereof. Should an Event of Default occur, the
sums on deposit in the Basic Carrying Costs Sub-Account and the Basic Carrying
Costs Escrow Account may be applied by Lender in payment of any Basic Carrying
Costs or may be applied to the payment of the Debt or any other charges
affecting all or any portion of the Property as Lender in its sole discretion
may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.07.
Reletting Reserve Escrow
Account
. (a)
Borrower hereby agrees to pay all Reletting Expenditures (without regard to the
amount of money then available in the Reletting Reserve Sub-Account or the
Reletting Reserve Escrow Account). Upon the execution of any Space Lease with
respect to which Borrower is obligated to undertake or pay for any Reletting
Expenditures, Borrower shall submit to Lender (i) an itemized line item budget
(a “
Budget
”)
reasonably acceptable to Lender outlining all of the Reletting Expenditures,
(ii) a copy of the signed Lease for which said Reletting Expenditures relate, in
each case which has an expiration date at least three (3) years after the
commencement thereof and which is otherwise in compliance with the provisions of
this Security Instrument, (iii) a copy of the plans and specifications, if any,
for the proposed Reletting Expenditures and (iv) an Officer’s Certificate with
respect to the items referred to in clauses (i) through (iii) and setting forth
an anticipated completion date for the Reletting Expenditures. Thereafter,
provided that no Event of Default has occurred and is continuing and that Lender
has received a written request from Borrower for payment or reimbursement of any
costs incurred in connection with any Reletting Expenditures, together with (i)
unconditional lien waivers (subject only to payment), (ii) a statement from an
Architect or Engineer, indicating that such portion of the Reletting
Expenditures for which payment or reimbursement is sought has been substantially
completed in compliance with all Legal Requirements, (iii) unless Borrower
requests disbursement by means of check payable jointly to Borrower and the
applicable vendor, copies of bills for such Reletting Expenditures marked “paid
in full” (or such other documentation reasonably satisfactory to Lender to
establish the payment of the Reletting Expenditures) for the portion due and for
which payment or reimbursement is sought, (iv) upon final completion of such
Reletting Expenditures, tenant estoppel certificates from the tenant leasing
space in the Premises for whom the Reletting Expenditures are being made which
indicate, among other things, that the tenant under such Space Lease has been in
occupancy and open for business for at least one full calendar month and paid
all rents due under the Space Lease without abatement, suspension, deferment,
diminution, reduction or other allowances for at least one full calendar month,
and (v) such other documentation as may be reasonably requested by Lender to
establish that the Reletting Expenditures or portion thereof which are the
subject of such request have been completed, all of which are reasonably
acceptable in form and substance to Lender, Lender shall disburse to Borrower,
to the extent of funds remaining in the Reletting Reserve Escrow Account, any
actual expenses incurred in connection with such Reletting Expenditures which
were set forth in the approved Budget provided that Borrower may make a request
for disbursement of sums from the Reletting Reserve Escrow Account no more than
once during any month and any request (other than the final request) shall be in
a minimum amount of $5,000. With respect to any Reletting Expenditures which
relate to brokerage commissions, upon the receipt of (i) copies of bills for
such Reletting Expenditures marked “paid in full”, (ii) tenant estoppel
certificates from the tenant leasing space in the Premises for which Lease the
brokerage commissions are due which indicate, among other things, that the
tenant under such Space Lease has been in occupancy and open for business for at
least one full calendar month and paid all rents due under the Space Lease
without abatement, suspension, deferment, diminution, reduction or other
allowances for at least one full calendar month and (iii) a copy of the signed
Lease for which said Reletting Expenditures relate, in each case which has an
expiration date at least three (3) years, all of which are reasonably acceptable
to Lender, Lender shall disburse to Borrower any actual expenses incurred in
connection with such Reletting Expenditures out of the Reletting Reserve Escrow
Account. Lender shall not be required to make any disbursements out of the
Reletting Reserve Escrow Account if an Event of Default shall have occurred and
is continuing, if more than one such request is made in any month or if
sufficient funds are not available in the Reletting Reserve Escrow
Account.
(b)
In
addition, Borrower shall pay to Lender for deposit with Lender all funds
received by Borrower in excess of $50,000 in connection with any cancellation,
termination or surrender of any Lease, including, but not limited to, any
surrender or cancellation fees, buyout fees, or reimbursements for tenant
improvements and leasing commissions (“Termination Payments”); provided, as long
as no Event of Default exists, when the applicable space is re-leased pursuant
to a Space Lease entered into in accordance with the terms of this Security
Instrument, any such Termination Payments on deposit with Lender and remaining
after payment of all tenant improvements and leasing commissions in connection
with such new Space Lease pursuant to 5.07(a) above shall be paid to Borrower
upon the occupancy and the payment of rents due under the new Space Lease for at
least one full calendar month
(c)
Provided
that no Event of Default shall have occurred, all funds deposited into the
Reletting Reserve Escrow Account relating to Reletting Expenditures shall be
held by Lender pursuant to the provisions of this Security Instrument and shall
be applied in payment of Reletting Expenditures. Should an Event of Default
occur, the sums on deposit in the Reletting Reserve Sub-Account and the
Reletting Reserve Escrow Account may be applied by Lender in payment of any
Reletting Expenditures or may be applied to the payment of the Debt or any other
charges affecting all or any portion of the Property, as Lender, in its sole
discretion, may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
(d)
In the
event that Borrower holds any letters of credit as security for obligations
under Leases, within thirty (30) days (or if any letters of credit may expire
within such thirty (30) day period, prior to the expiration of such letter of
credit) of the occurrence of a monetary event of default or a material
non-monetary event of default under the related Lease, Borrower shall present
for draw and use all commercially reasonable efforts to draw the full amount
which it is entitled to draw under such letter of credit; provided, however,
Borrower shall not be obliged to draw on such letter of credit if (i) Borrower
has submitted to Lender a plan of action to resolve any event of default which
gave rise to Borrower’s right to draw on the applicable letter of credit and
Lender shall, in its reasonable discretion, have consented to such plan or
Borrower is precluded from making a draw on the applicable letter of credit by
applicable law, and (ii) the term of such letter of credit will not expire prior
to the implementation of such submitted plan. Borrower shall deliver to Lender
all security deposits which are applied against sums due to Borrower under
Leases (including, without limitation, all sums drawn on letters of credits held
as security for obligations of tenants under Leases) and Rent paid by or on
behalf of any lessee under a Space Lease in whole or partial consideration for
the termination, cancellation or surrender of any Space Lease including, without
limitation, surrender or cancellation fees, buy-out fees or reimbursements for
tenant improvements or leasing commissions, within five (5) Business Days of
receipt thereof and all such sums shall be held in the Reletting Reserve Escrow
Account and shall be disbursed therefrom as set forth above.
Section
5.08.
Recurring Replacement
Reserve Escrow Account
.
Borrower hereby agrees to pay all Recurring Replacement Expenditures with
respect to the Property (without regard to the amount of money then available in
the Recurring Replacement Reserve Sub-Account or the Recurring Replacement
Reserve Escrow Account). Provided that Lender has received written notice from
Borrower at least five (5) Business Days prior to the due date of any payment
relating to Recurring Replacement Expenditures and not more frequently than once
each month, and further provided that no Event of Default has occurred and is
continuing, that there are sufficient funds available in the Recurring
Replacement Reserve Escrow Account and that Borrower shall have theretofore
furnished Lender with lien waivers, copies of bills, invoices and other
reasonable documentation as may be required by Lender to establish that the
Recurring Replacement Expenditures which are the subject of such request
represent amounts due for completed or partially completed capital work and
improvements performed at the Property, Lender shall make such payments out of
the Recurring Replacement Reserve Escrow Account.
Provided
that no Event of Default shall have occurred, all funds deposited into the
Recurring Replacement Reserve Escrow Account shall be held by Lender pursuant to
the provisions of this Security Instrument and shall be applied in payment of
Recurring Replacement Expenditures. Should an Event of Default occur, the sums
on deposit in the Recurring Replacement Reserve Sub-Account and the Recurring
Replacement Reserve Escrow Account may be applied by Lender in payment of any
Recurring Replacement Expenditures or may be applied to the payment of the Debt
or any other charges affecting all or any portion of the Property, as Lender in
its sole discretion may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.09.
Operation and Maintenance
Expense Escrow Account
.
Borrower hereby agrees to pay all Operating Expenses with respect to the
Property (without regard to the amount of money then available in the Operation
and Maintenance Expense Sub-Account or the Operation and Maintenance Expense
Escrow Account). All funds allocated to the Operation and Maintenance Expense
Escrow Account shall be held by Lender pursuant to the provisions of this
Security Instrument. Any sums held in the Operation and Maintenance Expense
Escrow Account shall be disbursed to Borrower within five (5) Business Days of
receipt by Lender from Borrower of (a) a written request for such disbursement
which shall indicate the Operating Expenses (exclusive of Basic Carrying Costs
and any management fees payable to Borrower or to Affiliates of Borrower) for
which the requested disbursement is to pay and (b) an Officer’s Certificate
stating that no Operating Expenses with respect to the Property are more than
sixty (60) days past due;
provided
,
however
, in the
event that Borrower legitimately disputes any invoice for an Operating Expense,
and (i) no Event of Default has occurred and is continuing hereunder, (ii)
Borrower shall have set aside adequate reserves for the payment of such disputed
sums together with all interest and late fees thereon, (iii) Borrower has
complied with all the requirements of this Security Instrument relating thereto,
and (iv) the contesting of such sums shall not constitute a default under any
other instrument, agreement, or document to which Borrower is a party, then
Borrower may, after certifying to Lender as to items (i) through (iv) hereof,
contest such invoice. Together with each such request, Borrower shall furnish
Lender with bills and all other documents necessary for the payment of the
Operating Expenses which are the subject of such request. Borrower may request a
disbursement from the Operation and Maintenance Expense Escrow Account no more
than one (1) time per calendar month. Should an Event of Default occur and be
continuing, the sums on deposit in the Operation and Maintenance Expense
Sub-Account or the Operation and Maintenance Expense Escrow Account may be
applied by Lender in payment of any Operating Expenses for the Property or may
be applied to the payment of the Debt or any other charges affecting all or any
portion of the Property as Lender, in its sole discretion, may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.10.
Intentionally
Deleted
Section
5.11.
Curtailment Reserve Escrow
Account
. Funds
deposited into the Curtailment Reserve Escrow Account during an O&M
Operative Period shall be held by Lender in the Curtailment Reserve Escrow
Account as additional security for the Loan until the Loan has been paid in
full. Notwithstanding anything herein to the contrary, provided that no Event of
Default and no O&M Operative Period has occurred and is continuing, Lender
shall, upon written request from Borrower, disburse all sums contained in the
Curtailment Reserve Escrow Account to Borrower. Should an Event of Default
occur, the sums on deposit in the Curtailment Reserve Sub-Account and the
Curtailment Reserve Escrow Account may be applied by Lender to the payment of
the Debt or other charges affecting all or any portion of the Property, as
Lender, in its sole discretion, may determine; provided, however, that no such
application shall be deemed to have been made by operation of law or otherwise
until actually made by Lender as herein provided. Lender shall calculate the
Debt Service Coverage as of the end of each fiscal quarter. Such calculation
shall be completed within ten (10) Business Days of Lender’s receipt of the
quarterly financial statements required under Section 2.09(b) with respect to
such fiscal quarter.
Section
5.12.
Performance of Engineering
Work
.
(a)
Borrower
shall promptly commence and diligently thereafter pursue to completion (without
regard to the amount of money then available in the Engineering Escrow Account)
the Required Engineering Work prior to the twelve 12 month anniversary of the
Closing Date. After Borrower completes an item of Required Engineering Work,
Borrower may submit to Lender an invoice therefor with lien waivers and a
statement from the Engineer, reasonably acceptable to Lender, indicating that
the portion of the Required Engineering Work in question has been completed in
compliance with all Legal Requirements, and Lender shall, within twenty (20)
days thereafter, although in no event more frequently than once each month,
reimburse such amount to Borrower from the Engineering Escrow Account;
provided
,
however
, that
Borrower shall not be reimbursed more than the amount set forth on Exhibit D
hereto as the amount allocated to the portion of the Required Engineering Work
for which reimbursement is sought.
(b)
From and
after the date all of the Required Engineering Work is completed, Borrower may
submit a written request, which request shall be delivered together with final
lien waivers and a statement from the Engineer, as the case may be, reasonably
acceptable to Lender, indicating that all of the Required Engineering Work has
been completed in compliance with all Legal Requirements, and Lender shall,
within twenty (20) days thereafter, disburse any balance of the Engineering
Escrow Account to Borrower. Should an Event of Default occur, the sums on
deposit in the Engineering Escrow Account may be applied by Lender in payment of
any Required Engineering Work or may be applied to the payment of the Debt or
any other charges affecting all or any portion of the Property as Lender in its
sole discretion may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.13.
Loss
Proceeds
. In the
event of a casualty to the Property, unless Lender elects or is required
pursuant to Article III hereof to make all of the Insurance Proceeds available
to Borrower for restoration, Lender and Borrower shall cause all such Insurance
Proceeds to be paid by the insurer directly to the Central Account, whereupon
Lender shall, after deducting Lender’s reasonable costs of recovering and paying
out such Insurance Proceeds, including without limitation, reasonable attorneys’
fees, apply the same to reduce the Debt in accordance with the terms of the
Note;
provided
,
however
, that if
Lender elects, or is deemed to have elected, or is required to make the
Insurance Proceeds available for restoration, all Insurance Proceeds in respect
of rent loss, business interruption or similar coverage shall be maintained in
the Central Account, to be applied by Lender in the manner as Rent received with
respect to the operation of the Property;
provided
,
further
,
however
, that in
the event that the Insurance Proceeds with respect to rent loss, business
interruption or similar insurance policy are paid in a lump sum in advance,
Lender shall hold such Insurance Proceeds in a segregated interest-bearing
escrow account, which shall be an Eligible Account, shall estimate, in Lender’s
reasonable discretion, the number of months required for Borrower to restore the
damage caused by the casualty, shall divide the aggregate rent loss, business
interruption or similar Insurance Proceeds by such number of months, and shall
disburse from such bank account into the Central Account each month during the
performance of such restoration such monthly installment of said Insurance
Proceeds. In the event that Insurance Proceeds are to be applied toward
restoration, Lender shall hold such funds in a segregated bank account at the
Bank, which shall be an Eligible Account, and shall disburse same in accordance
with the provisions of Section 3.04 hereof. Unless Lender elects, or is required
pursuant to Section 6.01 hereof to make all of the Condemnation Proceeds
available to Borrower for restoration, Lender and Borrower shall cause all such
Condemnation Proceeds to be paid to the Central Account, whereupon Lender shall,
after deducting Lender’s reasonable costs of recovering and paying out such
Condemnation Proceeds, including without limitation, reasonable attorneys’ fees,
apply same to reduce the Debt in accordance with the terms of the Note;
provided
,
however
, that
any Condemnation Proceeds received in connection with a temporary Taking shall
be maintained in the Central Account, to be applied by Lender in the same manner
as Rent received with respect to the operation of the Property;
provided
,
further
,
however
, that in
the event that the Condemnation Proceeds of any temporary Taking are paid in a
lump sum in advance, Lender shall hold such Condemnation Proceeds in a
segregated interest-bearing bank account, which shall be an Eligible Account,
shall estimate, in Lender’s reasonable discretion, the number of months that the
Property shall be affected by such temporary Taking, shall divide the aggregate
Condemnation Proceeds in connection with such temporary Taking by such number of
months, and shall disburse from such bank account into the Central Account each
month during the pendency of such temporary Taking such monthly installment of
said Condemnation Proceeds. In the event that Condemnation Proceeds are to be
applied toward restoration, Lender shall hold such funds in a segregated bank
account at the Bank, which shall be an Eligible Account, and shall disburse same
in accordance with the provisions of Section 3.04 hereof. If any Loss Proceeds
are received by Borrower, such Loss Proceeds shall be received in trust for
Lender, shall be segregated from other funds of Borrower, and shall be forthwith
paid into the Central Account, or paid to Lender to hold in a segregated bank
account at the Bank, in each case to be applied or disbursed in accordance with
the foregoing. Any Loss Proceeds made available to Borrower for restoration in
accordance herewith, to the extent not used by Borrower in connection with, or
to the extent they exceed the cost of, such restoration, shall be paid to
Borrower promptly following the completion of the Work.
Section
5.14.
Intentionally
Deleted.
Section
5.15.
Holdback Escrow
Account
.
a)
On any
of the sixth (6), twelfth (12th), eighteenth (18th) and twenty-fourth (24th)
month anniversaries of the date hereof, provided that no Event of Default has
occurred and is continuing, Borrower shall have the right to request and shall
be entitled to the release of all or any portion of the Holdback Reserve Escrow
Account in the amount of the Holdback Release Amount provided the Property has
sufficient Pro-Forma Net Operating Income to achieve a Debt Service Coverage of
1.20 and a loan-to-value ratio of 80%. In other words, based upon Pro-Forma Net
Operating Income, Lender shall calculate what loan amount would be supported in
order to achieve a Debt Service Coverage of 1.20 (using a mortgage loan constant
associated with 6.09% which is 7.2641881%) with a loan to value ratio of no
greater than eighty percent (80%) and from that loan amount, Lender shall
subtract $24,250,000.00 (plus any amounts previously released from the Holdback
Escrow Account). The resulting amount would then be deducted from the balance
held in the Holdback Reserve Escrow Account. It is intended that the balance in
the Holdback Reserve Escrow Account may be partially released in stages provided
that in no event shall Borrower be entitled to more than four (4) requests to
have the funds released. The calculation formula for the release of funds and an
example is set forth on Exhibit G annexed hereto. Borrower shall provide to
Lender any and all financial information as Lender reasonably requests as
necessary to evaluate Borrower's request to release funds from the Holdback
Reserve Escrow Account. Lender shall not be required to make any disbursements
out of the Holdback Reserve Escrow Account if an Event of Default shall have
occurred and is continuing, if more than one such request is made every six (6)
months or if sufficient funds are not available in the Holdback Reserve Escrow
Account. In the event that the Property has insufficient Pro-Forma Net Operating
Income to achieve a Debt Service Coverage of 1.20 and a loan-to-value ratio of
80% to support the entire Loan Amount, in all cases on or before twenty-four
(24) months from the date hereof, Borrower shall no longer be entitled to
request a return of such funds and Lender shall apply the balance of funds then
remaining in the Holdback Reserve Escrow Account to the Debt with the payment of
any prepayment fee or penalty as provided in the Note (including any amounts
held in the Yield Maintenance Reserve Escrow Account) and manner as determined
by Lender in its sole and absolute discretion;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
(b)
Upon the
release of all or any portion of the Holdback Reserve Escrow Account, Lender, in
its reasonable discretion, shall contemporaneously release to Borrower the
corresponding amount of the Debt Service Reserve Escrow Account and the Yield
Maintenance Reserve Escrow Account based on the amount which has been released
(
e.g.
, if
$2,000,000 of the Holdback Reserve Escrow Account is released, then that amount
of the Debt Service Reserve Escrow Account shall be released which is not
necessary to supplement any debt service payments towards a $26,250,000 loan
amount until the Payment Date in 2008 as well as any excess amounts in the Yield
Maintenance Reserve Escrow Account which would not be necessary if the then
balance of the Holdback Reserve Escrow Account were to be applied to the
Debt).
Provided
that no Event of Default shall have occurred, all funds deposited into the Basic
Holdback Reserve Escrow Account shall be held by Lender pursuant to the
provisions of this Security Instrument. Should an Event of Default occur, the
sums on deposit in the Holdback Reserve Sub-Account and the Holdback Reserve
Escrow Account may be applied by Lender in payment of the payment of the Debt or
any other charges affecting all or any portion of the Property as Lender in its
sole discretion may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.16.
Debt Service Reserve
Account
. The
Initial Debt Service Reserve Deposit shall act as a debt service reserve on that
portion of the Loan Amount which constitutes the Holdback Reserve Escrow Account
under Section 5.15 hereof. In the event of a shortfall of revenues (the
“Shortfall”) generated at the Property to pay monthly debt service, upon
Borrower’s request together with any and all financial information evidencing
such Shortfall, Lender shall disburse to itself on each Payment Date the amount
of the Shortfall until the earlier to occur of (x) the Payment Date in April
2008 and (y) the release of the Holdback Reserve Escrow Account in accordance
with Section 5.15. Upon the release of all or a portion of the Holdback Reserve
Escrow Account, all or a portion of the Debt Service Reserve Escrow Account
shall be released to Borrower in accordance with Section 5.15(b). If all or any
portion of the Holdback Reserve Escrow Account is applied to the Debt in
accordance with Section 5.15, to the extent the amounts in the Yield Maintenance
Reserve Escrow Account are sufficient to pay any prepayment penalty, the Debt
Service Reserve Escrow Account shall be returned to Borrower; provided that, if
the Yield Maintenance Reserve Escrow Account is insufficient, the amounts
remaining in the Debt Service Reserve Sub-Account may be applied towards any
prepayment penalty. Lender’s failure to disburse funds from the Debt Service
Reserve Account shall not relieve Borrower of its obligation to pay all amounts
due Lender in accordance with this Security Instrument on any Payment Date.
Borrower acknowledges that Lender has no obligation to disburse more than the
remaining balance of the Debt Service Reserve Account if such amount is less
than the full payment requested.
Provided
that no Event of Default shall have occurred, all funds deposited into the Debt
Service Reserve Escrow Account shall be held by Lender pursuant to the
provisions of this Security Instrument and shall be applied to the payment of
debt service in accordance with the terms hereof. Should an Event of Default
occur, the sums on deposit in the Debt Service Reserve Sub-Account and the Debt
Service Reserve Escrow Account may be applied by Lender in payment of debt
service or may be applied to the payment of the Debt or any other charges
affecting all or any portion of the Property as Lender in its sole discretion
may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.17.
Yield Maintenance Reserve
Escrow Account
. The
Initial Yield Maintenance Reserve Deposit shall act as a reserve for any
prepayment penalty incurred in connection with Section 5.15 hereof. Provided no
Event of Default has occurred and
is
continuing, Borrower shall have the right to use all or any portion of the Yield
Maintenance Reserve Escrow Account towards any prepayment penalty incurred in
the event Lender applies the Holdback Reserve Escrow Account to the prepayment
of the Debt in accordance with Section 5.15 of this Security
Instrument.
Provided
that no Event of Default shall have occurred, all funds deposited into the Yield
Maintenance Reserve Escrow Account shall be held by Lender pursuant to the
provisions of this Security Instrument and shall be applied in payment of any
prepayment fees in accordance with the terms hereof. Should an Event of Default
occur, the sums on deposit in the Yield Maintenance Reserve Sub-Account and the
Yield Maintenance Reserve Escrow Account may be applied by Lender in payment of
any prepayment penalty or may be applied to the payment of the Debt or any other
charges affecting all or any portion of the Property as Lender in its sole
discretion may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
ARTICLE VI:
CONDEMNATION
Section
6.01.
Condemnation
.
i)
Borrower
shall notify Lender promptly of the commencement or threat of any Taking of the
Property or any portion thereof. Lender is hereby irrevocably appointed as
Borrower’s attorney-in-fact, coupled with an interest, with exclusive power to
collect, receive and retain the proceeds of any such Taking and to make any
compromise or settlement in connection with such proceedings (subject to
Borrower’s reasonable approval, except after the occurrence of an Event of
Default, in which event Borrower’s approval shall not be required), subject to
the provisions of this Security Instrument; provided, however, that Borrower may
participate in any such proceedings and shall be authorized and entitled to
compromise or settle any such proceeding with respect to Condemnation Proceeds
in an amount less than five percent (5%) of the Loan Amount. Borrower shall
execute and deliver to Lender any and all instruments reasonably required in
connection with any such proceeding promptly after request therefor by Lender.
Except as set forth above, Borrower shall not adjust, compromise, settle or
enter into any agreement with respect to such proceedings without the prior
consent of Lender. All Condemnation Proceeds are hereby assigned to and shall be
paid to Lender. With respect to Condemnation Proceeds in an amount in excess of
five percent (5%) of the Allocated Loan Amount, Borrower hereby authorizes
Lender to compromise, settle, collect and receive such Condemnation Proceeds,
and to give proper receipts and acquittance therefor. Subject to the provisions
of this Article VI, Lender may apply such Condemnation Proceeds (less any cost
to Lender of recovering and paying out such proceeds, including, without
limitation, reasonable attorneys’ fees and disbursements and costs allocable to
inspecting any repair, restoration or rebuilding work and the plans and
specifications therefor) toward the payment of the Debt or to allow such
proceeds to be used for the Work.
(b)
“
Substantial
Taking
” shall
mean (i) a Taking of such portion of the Property that would, in Lender’s
reasonable discretion, leave remaining a balance of the Property which would not
under then current economic conditions, applicable Development Laws and other
applicable Legal Requirements, permit the restoration of the Property so as to
constitute a complete, rentable facility of the same type as existed prior to
the Taking, having adequate ingress and egress to the Property, the Leases of
which covering 75% of the square footage of the Property immediately prior to
such Taking will not be terminated due to the Taking during and following the
restoration of such Property and being capable of producing a projected Net
Operating Income (as reasonably determined by Lender) yielding a projected Debt
Service Coverage therefrom for the next two (2) years of not less than the
Required Debt Service Coverage or (ii) a Taking which occurs less than two (2)
years prior to the Maturity Date or (iii) a Taking which Lender is not
reasonably satisfied could be repaired within twelve (12) months and at least
six (6) months prior to the Maturity Date or (iv) a Taking of fifteen percent
(15%) or more of the Property.
(c)
In the
case of a Substantial Taking, Condemnation Proceeds shall be payable to Lender
in reduction of the Debt but without any prepayment fee or charge of any kind
and, if Borrower elects to apply any Condemnation Proceeds it may receive
pursuant to this Security Instrument to the payment of the Debt, Borrower may
prepay the balance of the Debt without any prepayment fee or charge of any
kind.
(d)
In the
event of a Taking which is less than a Substantial Taking, Borrower at its sole
cost and expense (whether or not the award shall have been received or shall be
sufficient for restoration) shall proceed diligently to restore, or cause the
restoration of, the remaining Improvements not so taken, to maintain a complete,
rentable, self-contained fully operational facility of the same sort as existed
prior to the Taking in as good a condition as is reasonably possible. In the
event of such a Taking, Lender shall receive the Condemnation Proceeds and shall
pay over the same:
(i)
(i)
first,
provided no Default shall have occurred and be continuing, to Borrower to the
extent of any portion of the award as may be necessary to pay the reasonable
cost of restoration of the Improvements remaining, and
(ii)
(ii)
second,
to Lender, in reduction of the Debt without any prepayment premium or charge of
any kind.
If one or
more Takings in the aggregate create a Substantial Taking, then, in such event,
the sections of this Article VI above applicable to Substantial Takings shall
apply.
(e)
In the
event Lender is obligated to or elects to make Condemnation Proceeds available
for the restoration or rebuilding of the Property, such proceeds shall be
disbursed in the manner and subject to the conditions set forth in Section
3.04(b) hereof. If, in accordance with this Article VI, any Condemnation
Proceeds are used to reduce the Debt, they shall be applied in accordance with
the provisions of the Note and, with no prepayment fee or charge of any kind.
Borrower shall promptly execute and deliver all instruments requested by Lender
for the purpose of confirming the assignment of the Condemnation Proceeds to
Lender. Application of all or any part of the Condemnation Proceeds to the Debt
shall be made in accordance with the provisions of Sections 3.06 and 3.07
hereof. No application of the Condemnation Proceeds to the reduction of the Debt
shall have the effect of releasing the lien of this Security Instrument until
the remainder of the Debt has been paid in full. In the case of any Taking,
Lender, to the extent that Lender has not been reimbursed by Borrower, shall be
entitled, as a first priority out of any Condemnation Proceeds, to reimbursement
for all costs, fees and expenses reasonably incurred in the determination and
collection of any Condemnation Proceeds. All Condemnation Proceeds deposited
with Lender pursuant to this Section, until expended or applied as provided
herein, shall be held in accordance with Section 3.04(b) hereof and shall
constitute additional security for the payment of the Debt and the payment and
performance of Borrower’s obligations, but Lender shall not be deemed a trustee
or other fiduciary with respect to its receipt of such Condemnation Proceeds or
any part thereof. All awards so deposited with Lender shall be held by Lender in
an Eligible Account, but Lender makes no representation or warranty as to the
rate or amount of interest, if any, which may accrue on any such deposit and
shall have no liability in connection therewith. For purposes hereof, any
reference to the award shall be deemed to include interest, if any, which has
accrued thereon.
ARTICLE VII:
LEASES AND
RENTS
Section
7.01.
Assignment
.
(a)
Borrower
does hereby bargain, sell, assign and set over unto Lender, all of Borrower’s
interest in the Leases and Rents. The assignment of Leases and Rents in this
Section 7.01 is an absolute, unconditional and present assignment from Borrower
to Lender and not an assignment for security and the existence or exercise of
Borrower’s license (revocable by Lender only during the continuance of an Event
of Default) to collect Rent shall not operate to subordinate this assignment to
any subsequent assignment. The exercise by Lender of any of its rights or
remedies pursuant to this Section 7.01 shall not be deemed to make Lender a
mortgagee-in-possession. In addition to the provisions of this Article VII,
Borrower shall comply with all terms, provisions and conditions of the
Assignment.
(b)
So long
as there shall exist and be continuing no Event of Default, Borrower shall have
a revocable license to take all actions with respect to all Leases and Rents,
present and future, including the right to collect and use the Rents, subject to
the terms of this Security Instrument and the Assignment.
(c)
In a
separate instrument Borrower shall, as requested from time to time by Lender,
assign to Lender or its nominee by specific or general assignment, any and all
Leases, such assignments to be in form and content reasonably acceptable to
Lender, but subject to the provisions of Section 7.01(b) hereof. Borrower agrees
to deliver to Lender, within thirty (30) days after Lender’s request, a true and
complete copy of every Lease and, within ten (10) Business Days after Lender’s
request, a complete list of the Leases, certified by Borrower to be true,
accurate and complete and stating the demised premises, the names of the
lessees, the Rent payable under the Leases, the date to which such Rents have
been paid, the material terms of the Leases, including, without limitation, the
dates of occupancy, the dates of expiration, any Rent concessions, work
obligations or other inducements granted to the lessees thereunder, and any
renewal options.
(d)
The
rights of Lender contained in this Article VII, the Assignment or any other
assignment of any Lease shall not result in any obligation or liability of
Lender to Borrower or any lessee under a Lease or any party claiming through any
such lessee or constitute an assumption by Lender of any such liability or
obligation.
(e)
At any
time during the continuance of an Event of Default, the license granted
hereinabove may be revoked by Lender, and Lender or a receiver appointed in
accordance with this Security Instrument may enter upon the Property, and
collect, retain and apply the Rents toward payment of the Debt in such priority
and proportions as Lender in its sole discretion shall deem proper.
(f)
In
addition to the rights which Lender may have herein, upon the occurrence and
during the continuance of any Event of Default, Lender, at its option, may
require Borrower to pay monthly in advance to Lender, or any receiver appointed
to collect the Rents, the fair and reasonable rental value for the use and
occupation of such part of the Property as may be used and occupied by Borrower
and may require Borrower to vacate and surrender possession of the Property to
Lender or to such receiver and, in default thereof, Borrower may be evicted by
summary proceedings or otherwise.
Section
7.02.
Management of
Property
.
(a)
Borrower
shall manage the Property or cause the Property to be managed in a manner which
is consistent with the Approved Manager Standard. The Manager (other than
Borrower) shall at all times meet the Minimum Manager Credentials. All Space
Leases shall provide for rental rates comparable to then existing local market
rates and terms and conditions which constitute good and prudent business
practice and are consistent with prevailing market terms and conditions, and
shall be arm’s length transactions. All Space Leases shall be on a form
previously approved by Lender with such commercially reasonable changes as are
consistent with the standards of other similarly situated owners when compared
with terms and conditions of leases in similarly situated shopping centers in
similar context at the time in question, taking into account,
inter
alia
, the
type, creditworthiness and bargaining power of the prospective tenant and the
location and size of the space covered by the proposed Lease, and shall provide
that they are subordinate to this Security Instrument and that the lessees
thereunder attorn to Lender. Borrower shall deliver copies of all Leases,
amendments, modifications and renewals thereof to Lender. All proposed Space
Leases for the Property shall be subject to the prior written approval of
Lender, not to be unreasonably withheld or delayed, provided, however that
Borrower may enter into new Space Leases with unrelated third parties without
obtaining the prior consent of Lender provided that: (i) the leases conform with
the requirements of this Section 7.02; (ii) the space to be leased pursuant to
such proposed Lease, together with any other space which is leased to the
proposed tenant or an Affiliate thereof, does not exceed 6,000 square feet; and
(iii) the term of the proposed lease does not exceed six (6) years and,
inclusive of all extensions and renewals, does not exceed ten (10) years.
Lender’s consent to any Lease shall be deemed given, if the first correspondence
from Borrower to Lender requesting such approval is in an envelope marked
“PRIORITY” and contains a bold-faced, conspicuous legend at the top of the first
page thereof stating that “IF YOU FAIL TO RESPOND TO OR TO EXPRESSLY DENY THIS
REQUEST FOR APPROVAL IN WRITING WITHIN TEN (10) BUSINESS DAYS, YOUR APPROVAL MAY
BE DEEMED GIVEN”, and is accompanied by the information and documents required
above and any other information reasonably requested by Lender in writing prior
to the expiration of such ten (10) Business Day period in order to adequately
review the same has been delivered and, if Lender fails to respond or to
expressly deny such request for approval in writing within the ten (10) Business
Day period a second notice is delivered to Lender from Borrower in an envelope
marked “PRIORITY” requesting approval containing a bold-faced, conspicuous
legend at the top of the first page thereof stating that “IF YOU FAIL TO RESPOND
TO OR EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5)
BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN” and Lender fails to respond
or to expressly deny each request for approval within the five (5) Business Day
period.
(b)
Borrower
(i) shall observe and perform all of its material obligations under the Leases
pursuant to applicable Legal Requirements and shall not do or permit to be done
anything to impair the value of the Leases as security for the Debt; (ii) shall
promptly send copies to Lender of all notices of default which Borrower shall
receive under the Leases; (iii) shall, consistent with the Approved Manager
Standard, enforce all of the terms, covenants and conditions contained in the
Leases to be observed or performed; (iv) shall not collect any of the Rents
under the Leases more than one (1) month in advance (except that Borrower may
collect in advance (A) such security deposits as are permitted pursuant to
applicable Legal Requirements and are commercially reasonable in the prevailing
market and (B) all rent deemed “additional rent” under the Leases); (v) shall
not execute any other assignment of lessor’s interest in the Leases or the Rents
except as otherwise expressly permitted pursuant to this Security Instrument;
(vi) shall not cancel or terminate any of the Space Leases or accept a surrender
thereof in any manner inconsistent with the Approved Manager Standard; (vii)
shall not convey, transfer or suffer or permit a conveyance or transfer of all
or any part of the Premises or the Improvements or of any interest therein so as
to effect a merger of the estates and rights of, or a termination or diminution
of the obligations of, lessees thereunder; (viii) shall not alter, modify or
change the terms of any guaranty of any Major Space Lease or cancel or terminate
any such guaranty in any manner inconsistent with the Approved Manager Standard;
(ix) shall, in accordance with the Approved Manager Standard, make all
reasonable efforts to seek lessees for space as it becomes vacant and enter into
Leases in accordance with the terms hereof; (x) shall not materially modify,
alter or amend any Major Space Lease or Property Agreement without Lender’s
consent, which consent will not be unreasonably withheld or delayed; (xi) shall
notify Lender promptly if any Pad Owner shall cease business operations or of
the occurrence of any event of which it becomes aware affecting a Pad Owner or
its property which might have any material effect on the Property; and (xii)
shall, without limitation to any other provision hereof, execute and deliver at
the reasonable request of Lender all such further assurances, confirmations and
assignments in connection with the Property as are required herein and as Lender
shall from time to time reasonably require.
(c)
All
security deposits of lessees, whether held in cash or any other form, shall be
treated by Borrower as trust funds, shall not be commingled with any other funds
of Borrower and, if cash, shall be deposited by Borrower in the Security Deposit
Account. Any bond or other instrument which Borrower is permitted to hold in
lieu of cash security deposits under applicable Legal Requirements shall be
maintained in full force and effect unless replaced by cash deposits as
hereinabove described shall, if permitted pursuant to Legal Requirements, at
Lender’s option, name Lender as payee or mortgagee thereunder or be fully
assignable to Lender and shall, in all respects, comply with applicable Legal
Requirements and otherwise be reasonably satisfactory to Lender. Borrower shall,
upon request, provide Lender with evidence reasonably satisfactory to Lender of
Borrower’s compliance with the foregoing. During the continuance of any Event of
Default, Borrower shall, upon Lender’s request, if permitted by applicable Legal
Requirements, turn over the security deposits (and any interest thereon) to
Lender to be held by Lender in accordance with the terms of the Leases and all
Legal Requirements.
(d)
Lender
shall, upon request of Borrower, enter into a subordination, nondisturbance and
attornment agreement (“
SNDA
”) with
respect to each proposed tenant entering into a Lease in compliance with the
requirements of this Security Instrument provided that such Lease is (i) with a
tenant occupying at least 6,000 square feet of the Premises or is with an
existing tenant pursuant to a Lease dated prior to the Closing Date which
provides that the tenant thereunder is entitled to an SNDA or with any tenant
which is renting space on a national basis which leases at least 2,000 square
feet of the Premises, (ii) with a tenant reasonably approved by Lender in
writing prior to Borrower’s execution of any such Lease and (iii) on the
standard form of Lease previously approved in writing by Lender with such
commercially reasonable changes as are consistent with the Approved Manager
Standard. Any SNDA executed by Lender shall be in Lender’s then standard form
with such changes as Lender shall agree to and provide that in the event Lender
or any purchaser at foreclosure shall succeed to Borrower’s interest in the
Property, the Leases of such tenants will remain in full force and effect and be
binding upon Lender or such purchaser and such tenant as though each were
original parties thereto.
(e)
Borrower
covenants and agrees with Lender that (i) the Property will be managed at all
times by Borrower in accordance with Borrower’s organizational documents or by a
Manager pursuant to a management agreement approved by Lender (the “
Management
Agreement
”), (ii)
after Borrower has knowledge of a fifty percent (50%) or more change in control
of the ownership of Manager, Borrower will promptly give Lender notice thereof
(a “
Manager Control
Notice
”) and
(iii) the Management Agreement (or in the case Borrower is acting as Manager,
Borrower’s right to manage the Property) may be terminated by Lender at any time
for cause (including, but not limited to, Manager’s gross negligence,
misappropriation of funds, willful misconduct or fraud) or at any time following
(A) the occurrence of an Event of Default, or (B) the receipt of a Manager
Control Notice, or (C) the date upon which the Debt Service Coverage is 1.10:1.0
or less. In the event of any such termination, a substitute managing agent shall
be appointed by Borrower, subject to Lender’s prior written approval, which may
be given or withheld in Lender’s sole discretion and which may be conditioned
on, inter alia, a letter from each Rating Agency confirming that any rating
issued by the Rating Agency in connection with a Securitization will not, as a
result of the proposed change of Manager, be downgraded from the then current
ratings thereof, qualified or withdrawn. Borrower may from time to time appoint
a successor manager to manage the Property with Lender’s prior written consent
which consent shall not be unreasonably withheld or delayed, provided that any
such successor manager shall be a reputable management company which meets the
Minimum Manager Credentials and each Rating Agency shall have confirmed in
writing that any rating issued by the Rating Agency in connection with a
Securitization will not, as a result of the proposed change of Manager, be
downgraded from the then current ratings thereof, qualified or withdrawn.
Borrower further covenants and agrees that Borrower shall require Manager (or
any successor managers) to maintain at all times during the term of the Loan
worker’s compensation insurance as required by Governmental
Authorities.
ARTICLE VIII:
MAINTENANCE AND
REPAIR
Section
8.01.
Maintenance
and Repair of the Property; Alterations; Replacement of Equipment. Borrower
hereby covenants and agrees:
(a)
Borrower
shall not (i) desert or abandon the Property, (ii) change the use of the
Property or cause or permit the use or occupancy of any part of the Property to
be discontinued if such discontinuance or use change would violate any zoning or
other law, ordinance or regulation; (iii) consent to or seek any lowering of the
zoning classification, or greater zoning restriction affecting the Property; or
(iv) take any steps whatsoever to convert the Property, or any portion thereof,
to a condominium or cooperative form of ownership.
(b)
Borrower
shall, at its expense, (i) take good care of the Property including grounds
generally, and utility systems and sidewalks, roads, alleys, and curbs therein,
and shall keep the same in good, safe and insurable condition and in compliance
with all applicable Legal Requirements, (ii) promptly make or cause to be made
all repairs to the Property, above grade and below grade, interior and exterior,
structural and nonstructural, ordinary and extraordinary, unforeseen and
foreseen, and maintain the Property in a manner appropriate for the facility and
(iii) not commit or suffer to be committed any waste of the Property or do or
suffer to be done anything which will increase the risk of fire or other hazard
to the Property or impair the value thereof. Borrower shall keep the sidewalks,
vaults, gutters and curbs comprising, or adjacent to, the Property, clean and
free from dirt, snow, ice, rubbish and obstructions. All repairs made by
Borrower shall be made with first-class materials, in a good and workmanlike
manner, shall be equal or better in quality and class to the original work and
shall comply with all applicable Legal Requirements and Insurance Requirements.
To the extent any of the above obligations are obligations of tenants under
Space Leases or Pad Owners or other Persons under Property Agreements, Borrower
may fulfill its obligations hereunder by causing such tenants, Pad Owners or
other Persons, as the case may be, to perform their obligations thereunder. As
used herein, the terms “repair” and “repairs” shall be deemed to include all
necessary replacements.
(c)
Borrower
shall, except in connection with tenant improvement work under Space Leases
entered into in accordance with the terms of this Security Instrument, not
demolish, remove, construct, or, except as otherwise expressly provided herein,
restore, or alter the Property or any portion thereof which could diminish the
value of the Property nor consent to or permit any such demolition, removal,
construction, restoration, addition or alteration which would diminish the value
of the Property without Lender’s prior written consent in each instance, which
consent shall not be unreasonably withheld or delayed.
(d)
Borrower
represents and warrants to Lender that (i) there are no fixtures, machinery,
apparatus, tools, equipment or articles of personal property attached or
appurtenant to, or located on the Property, except for the Equipment and
equipment leased by Borrower for the management, operation or maintenance of the
Property in accordance with the Loan Documents; (ii) the Equipment and the
leased equipment constitute all of the fixtures, machinery, apparatus, tools,
equipment and articles of personal property necessary to the proper operation
and maintenance of the Property; and (iii) all of the Equipment is free and
clear of all liens, except for the lien of this Security Instrument and the
Permitted Encumbrances. All right, title and interest of Borrower in and to all
extensions, improvements, betterments, renewals and appurtenances to the
Property hereafter acquired by, or released to, Borrower or constructed,
assembled or placed by Borrower in the Property, and all changes and
substitutions of the security constituted thereby, shall be and, in each such
case, without any further mortgage, encumbrance, conveyance, assignment or other
act by Lender or Borrower, shall become subject to the lien and security
interest of this Security Instrument as fully and completely, and with the same
effect, as though now owned by Borrower and specifically described in this
Security Instrument, but at any and all times Borrower shall execute and deliver
to Lender any documents Lender may reasonably deem necessary or appropriate for
the purpose of specifically subjecting the same to the lien and security
interest of this Security Instrument.
(e)
Notwithstanding
the provisions of this Security Instrument to the contrary, Borrower shall have
the right, at any time and from time to time, to remove and dispose of Equipment
which may have become obsolete or unfit for use or which is no longer useful in
the management, operation or maintenance of the Property. Borrower shall
promptly replace any such Equipment so disposed of or removed with other
Equipment of equal value and utility, free of any security interest or superior
title, liens or claims; except that, if replacement of the Equipment so removed
or disposed of is not necessary or desirable for the proper management,
operation or maintenance of the Property, Borrower shall not be required to
replace the same. All such replacements or additional equipment shall be deemed
to constitute “Equipment” and shall be covered by the security interest herein
granted.
ARTICLE IX:
TRANSFER OR ENCUMBRANCE OF
THE PROPERTY
Section
9.01.
Other
Encumbrances
.
Borrower shall not further encumber or permit the further encumbrance in any
manner (whether by grant of a pledge, security interest or otherwise) of the
Property or any part thereof or interest therein, including, without limitation,
of the Rents therefrom. In addition, Borrower shall not further encumber and
shall not permit the further encumbrance in any manner (whether by grant of a
pledge, security interest or otherwise) of Borrower or any direct or indirect
interest in Borrower except as expressly permitted pursuant to this Security
Instrument.
Section
9.02.
No
Transfer
. (a)
Borrower acknowledges that Lender has examined and relied on the expertise of
Borrower and, if applicable, each General Partner, in owning and operating
properties such as the Property in agreeing to make the Loan and will continue
to rely on Borrower’s ownership of the Property as a means of maintaining the
value of the Property as security for repayment of the Debt and Borrower
acknowledges that Lender has a valid interest in maintaining the value of the
Property. Borrower shall not Transfer, nor permit any Transfer, without the
prior written consent of Lender, which consent Lender may withhold in its sole
and absolute discretion other than pursuant to Space Leases as provided herein.
Lender shall not be required to demonstrate any actual impairment of its
security or any increased risk of default hereunder in order to declare the Debt
immediately due and payable upon a Transfer without Lender’s consent. This
provision shall apply to every Transfer regardless of whether voluntary or not,
or whether or not Lender has consented to any previous Transfer.
(b)
Notwithstanding
any provision of this Security Instrument to the contrary, no person or entity
may, after the date hereof, become an owner of a direct or indirect interest in
any entity comprising Borrower, which interest exceeds forty-nine percent (49%),
without Lender’s written consent in each instance and receipt by
Lender
of (x)
written confirmation that any rating issued by such Rating Agency in connection
w
i
th the
Securitization will not, as a result of the proposed Transfer, be downgraded
from the then current ratings thereof, qualified or withdrawn, and (y) a
substantive non-consolidation opinion in form and substance acceptable to
Lender.
Section
9.03.
Due on
Sale
. Lender
may declare the Debt immediately due and payable upon any Transfer or further
encumbrance without Lender’s consent without regard to whether any impairment of
its security or any increased risk of default hereunder can be demonstrated.
This provision shall apply to every Transfer or further encumbrance of the
Property or any part thereof or interest in the Property or in Borrower
regardless of whether voluntary or not, or whether or not Lender has consented
to any previous Transfer or further encumbrance of the Property or interest in
Borrower.
Section
9.04.
Permitted
Transfer
.
Notwithstanding the foregoing provisions of this Article IX, the sale,
conveyance or transfer of the Property, except as otherwise set forth in Section
9.04(B) (hereinafter, “
Sale
”) shall
be permitted hereunder provided that each of the following terms and conditions
are satisfied:
(a)
no Event
of Default is then continuing hereunder or under any of the other Loan Documents
and no O&M Operative Period shall have commenced and be
continuing;
(b)
Lender
shall have consented to the Sale, provided, however, such consent shall not be
unreasonably withheld and, if the proposed Sale is to occur at any time after a
Securitization, each Rating Agency shall have delivered written confirmation
that any rating issued by such Rating Agency in connection with the
Securitization will not, as a result of the proposed Sale, be downgraded from
the then current ratings thereof, qualified or withdrawn; provided, however,
that no request for consent to the Sale will be entertained by Lender if the
proposed Sale is to occur within sixty (60) days of any contemplated sale of the
Loan by Lender, whether in connection with a Securitization or
otherwise;
(c)
Borrower
gives Lender written notice of the terms of the proposed Sale not less than
forty-five (45) days before the date on which such Sale is scheduled to close
and, concurrently therewith, gives Lender (i) all such information concerning
the proposed transferee of the Property (hereinafter, “
Buyer
”) as
Lender would require in evaluating an initial extension of credit to a borrower
and Lender determines, in its reasonable discretion that the Buyer is acceptable
to Lender in all respects and (ii) a non-refundable application fee equal to
$7,500;
(d)
Borrower
pays Lender, concurrently with the closing of such Sale, a non-refundable
assumption fee in an amount equal to one quarter of one percent (.25%) of the
then outstanding Loan Amount together with all reasonable out-of-pocket costs
and expenses, including, without limitation, reasonable attorneys’ fees,
incurred by Lender in connection with the Sale;
(e)
Buyer
assumes all of the obligations under the Loan Documents and, prior to or
concurrently with the closing of such Sale, Buyer executes, without any cost or
expense to Lender, such documents and agreements as Lender shall reasonably
require to evidence and effectuate said assumption and delivers such legal
opinions as Lender may require;
(f)
Borrower
and Buyer execute, without any cost or expense to Lender, new financing
statements or financing statement amendments and any additional documents
reasonably requested by Lender;
(g)
Borrower
delivers to Lender, without any cost or expense to Lender, such endorsements to
Lender’s title insurance policy, hazard insurance policy endorsements or
certificates and other similar materials as Lender may deem necessary at the
time of the Sale, all in form and substance reasonably satisfactory to Lender,
including, without limitation, an endorsement or endorsements to Lender’s title
insurance policy insuring the lien of this Security Instrument, extending the
effective date of such policy to the date of execution and delivery (or, if
later, of recording) of the assumption agreement referenced above in
subparagraph (e) of this Section, with no additional exceptions added to such
policy, and insuring that fee simple title to the Property is vested in
Buyer;
(h)
Borrower
executes and delivers to Lender, without any cost or expense to Lender, a
release of Lender, its officers, directors, employees and agents, from all
claims and liability relating to the transactions evidenced by the Loan
Documents, through and including the date of the closing of the Sale, which
agreement shall be in form and substance reasonably satisfactory to Lender and
shall be binding upon Buyer;
(i)
subject
to the provisions of Section 18.32 hereof, such Sale is not construed so as to
relieve Borrower of any personal liability under the Note or any of the other
Loan Documents for any acts or events occurring or obligations arising prior to
or simultaneously with the closing of such Sale, and Borrower executes, without
any cost or expense to Lender, such documents and agreements as Lender shall
reasonably require to evidence and effectuate the ratification of said personal
liability; provided that, upon the closing of such Sale, if Borrower and Buyer
have satisfied each of the terms of this Section 9.04, as reasonably determined
by Lender, Lender shall release Borrower from all obligations arising after the
closing of such Sale. Additionally, if a replacement guarantor acceptable to
Lender in its reasonable discretion executes a guaranty identical in substance
to the guaranty executed by Guarantor in connection with the Loan (the
“
Guaranty
”),
Lender shall release the existing Guarantor from any liabilities under the
Guaranty arising after the closing of such Sale;
(j)
such Sale
is not construed so as to relieve any Guarantor of its obligations under any
guaranty or indemnity agreement executed in connection with the Loan and each
such Guarantor executes, without any cost or expense to Lender, such documents
and agreements as Lender shall reasonably require to evidence and effectuate the
ratification of each such guaranty agreement, provided that if Buyer or a party
associated with Buyer approved by Lender in its sole discretion assumes the
obligations of the current Guarantor under its guaranty and Buyer or such party
associated with Buyer, as applicable, executes, without any cost or expense to
Lender, a new guaranty in similar form and substance to the existing guaranty
and otherwise satisfactory to Lender, then Lender shall release the current
Guarantor from all obligations arising under its guaranty after the closing of
such Sale; and
(k)
Buyer is
a Single Purpose Entity and Lender receives a non-consolidation opinion relating
to Buyer from Buyer’s counsel, which opinion is in form and substance acceptable
to Lender.
ARTICLE X:
CERTIFICATES
Section
10.01.
Estoppel
Certificates
.
(a)
After
request by Lender, Borrower, within fifteen (15) days and at its expense, will
furnish Lender with a statement, duly acknowledged and certified, setting forth
(i) the amount of the original principal amount of the Note, and the unpaid
principal amount of the Note, (ii) the rate of interest of the Note, (iii) the
date payments of interest and/or principal were last paid, (iv) any offsets or
defenses to the payment of the Debt, and if any are alleged, the nature thereof,
(v) that the Note and this Security Instrument have not been modified or if
modified, giving particulars of such modification and (vi) to the best of
Borrower’s knowledge, that there has occurred and is then continuing no Default
or if such Default exists, the nature thereof, the period of time it has
existed, and the action being taken to remedy such Default.
(b)
Within
fifteen (15) days after written request by Borrower, Lender shall furnish to
Borrower a written statement confirming the amount of the Debt, the maturity
date of the Note and the date to which interest has been paid.
(c)
Borrower
shall use all commercially reasonable efforts to obtain estoppel certificates
from tenants in form and substance reasonably acceptable to Lender or in form
and substance as provided in the applicable Leases, but, provided no Event of
Default has occurred and is continuing, in no event shall Borrower be required
to deliver estoppel certificates more than twice during any Loan
Year.
ARTICLE XI:
NOTICES
Section
11.01.
Notices
. Any
notice, demand, statement, request or consent made hereunder shall be in writing
and delivered personally or sent to the party to whom the notice, demand or
request is being made by Federal Express or other nationally recognized
overnight delivery service, as follows and shall be deemed given when delivered
personally or one (1) Business Day after being deposited with Federal Express or
such other nationally recognized delivery service:
If
to Lender:
|
To
Lender, at the address first written above,
|
|
|
with
a copy to:
|
Winston
& Strawn LLP
|
|
200
Park Avenue
|
|
New
York, New York 10166
|
|
Attention:
Corey A. Tessler, Esq.
|
|
|
If
to Borrower:
|
To
Borrower, at the address first written above,
|
|
|
with
a copy to:
|
Herrick
Feinstein LLP
|
|
2
Park Avenue
|
|
New
York, New York 10016
|
|
Attention:
Sheldon Chanales, Esq.
|
or such
other address as either Borrower or Lender shall hereafter specify by not less
than ten (10) days prior written notice as provided herein; provided, however,
that notwithstanding any provision of this Article to the contrary, such notice
of change of address shall be deemed given only upon actual receipt thereof.
Rejection or other refusal to accept or the inability to deliver because of
changed addresses of which no notice was given as herein required shall be
deemed to be receipt of the notice, demand, statement, request or
consent.
ARTICLE XII:
INDEMNIFICATION
Section
12.01.
Indemnification Covering
Property
. In
addition, and without limitation, to any other provision of this Security
Instrument or any other Loan Document, Borrower shall protect, indemnify and
save harmless Lender and its successors and assigns, and each of their agents,
employees, officers, directors, stockholders, partners and members
(collectively, “
Indemnified
Parties
”) for,
from and against any claims, demands, penalties, fines, actual liabilities,
settlements, actual damages, actual costs and expenses of whatever kind or
nature, known or unknown, contingent or otherwise, whether incurred or imposed
within or outside the judicial process, including, without limitation,
reasonable attorneys’ fees and disbursements imposed upon or incurred by or
asserted against any of the Indemnified Parties by reason of (a) ownership of
this Security Instrument, the Assignment, the Property or any part thereof or
any interest therein or receipt of any Rents; (b) any accident, injury to or
death of any person or loss of or damage to property occurring in, on or about
the Property or any part thereof or on the adjoining sidewalks, curbs, parking
areas, streets or ways; (c) any use, nonuse or condition in, on or about, or
possession, alteration, repair, operation, maintenance or management of, the
Property or any part thereof or on the adjoining sidewalks, curbs, parking
areas, streets or ways; (d) any failure on the part of Borrower to perform or
comply with any of the terms of this Security Instrument or the Assignment; (e)
performance of any labor or services or the furnishing of any materials or other
property in respect of the Property or any part thereof; (f) any claim by
brokers, finders or similar Persons claiming to be entitled to a commission in
connection with any Lease or other transaction involving the Property or any
part thereof; (g) any Imposition including, without limitation, any Imposition
attributable to the execution, delivery, filing, or recording of any Loan
Document, Lease or memorandum thereof; (h) any lien, security interest, or claim
arising on or against the Property or any part thereof under any Legal
Requirement or any liability asserted against any of the Indemnified Parties
with respect thereto; (i) any claim arising out of or in any way relating to any
tax or other imposition on the making and/or recording of this Security
Instrument, the Note or any of the other Loan Documents unless otherwise set
forth herein; (j) a Default under Sections 2.02(f) or 2.02(g) hereof, (k) the
failure of any Person to file timely with the Internal Revenue Service an
accurate Form 1099-B, Statement for Recipients of Proceeds from Real Estate,
Broker and Barter Exchange Transactions, which may be required in connection
with the Loan, or to supply a copy thereof in a timely fashion to the recipient
of the proceeds of the Loan; or (l) the claims of any lessee or any Person
acting through or under any lessee or otherwise arising under or as a
consequence of any Lease prior to the time Lender may have taken possession of
the Property. Notwithstanding the foregoing provisions of this Section 12.01 to
the contrary, Borrower shall have no obligation to indemnify the Indemnified
Parties pursuant to this Section 12.01 for liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses relative to the
foregoing which result from Lender’s, and its successors’ or assigns’, willful
misconduct or gross negligence. Any amounts payable to Lender by reason of the
application of this Section 12.01 shall constitute a part of the Debt secured by
this Security Instrument and the other Loan Documents and shall become
immediately due and payable and shall bear interest at the Default Rate from the
date the liability, obligation, claim, cost or expense is sustained by Lender,
as applicable, until paid. The provisions of this Section 12.01 shall survive
the termination of this Security Instrument whether by repayment of the Debt,
foreclosure or delivery of a deed in lieu thereof, assignment or otherwise. In
case any action, suit or proceeding is brought against any of the Indemnified
Parties by reason of any occurrence of the type set forth in (a) through (l)
above, Borrower shall, at Borrower’s expense, resist and defend such action,
suit or proceeding or will cause the same to be resisted and defended by counsel
at Borrower’s expense for the insurer of the liability or by counsel designated
by Borrower (unless reasonably disapproved by Lender promptly after Lender has
been notified of such counsel);
provided
,
however
, that
nothing herein shall compromise the right of Lender (or any other Indemnified
Party) to appoint its own counsel at Borrower’s expense for its defense with
respect to any action which, in the reasonable opinion of Lender or such other
Indemnified Party, as applicable, presents a conflict or potential conflict
between Lender or such other Indemnified Party that would make such separate
representation advisable. Any Indemnified Party will give Borrower prompt notice
after such Indemnified Party obtains actual knowledge of any potential claim by
such Indemnified Party for indemnification hereunder. The Indemnified Parties
shall not settle or compromise any action, proceeding or claim as to which it is
indemnified hereunder without notice to, and provided that no Event of Default
has occurred and is continuing, consultation with, Borrower.
ARTICLE XIII:
DEFAULTS
Section
13.01.
Events of
Default
. The
Debt shall become immediately due at the option of Lender upon any one or more
of the following events (“
Event of
Default
”):
(a)
if the
final payment or prepayment premium, if any, due under the Note shall not be
paid on Maturity;
(b)
if any
monthly payment of interest and/or principal due under the Note (other than the
sums described in (a) above) shall not be fully paid on the date upon which the
same is due and payable thereunder;
(c)
if
payment of any sum (other than the sums described in (a) above or (b) above)
required to be paid pursuant to the Note, this Security Instrument or any other
Loan Document shall not be paid within seven (7) Business Days after Lender
delivers written notice to Borrower that same is due and payable thereunder or
hereunder;
(d)
if
Borrower, Guarantor or, if Borrower or Guarantor is a partnership, any general
partner of Borrower or Guarantor, or, if Borrower or Guarantor is a limited
liability company, any member of Borrower or Guarantor, shall institute or cause
to be instituted any proceeding for the termination or dissolution of Borrower,
Guarantor or any such general partner or member;
(e)
if the
insurance policies required hereunder are not kept in full force and effect, or
if the insurance policies are not assigned and delivered to Lender as herein
provided;
(f)
if
Borrower or Guarantor attempts to assign its rights under this Security
Instrument or any other Loan Document or any interest herein or therein, or if
any Transfer occurs other than in accordance with the provisions
hereof;
(g)
if any
representation or warranty of Borrower or Guarantor made herein or in any other
Loan Document or in any certificate, report, financial statement or other
instrument or agreement furnished to Lender shall prove false or misleading in
any material respect as of the date the representation or warranty was
made;
(h)
if
Borrower, Guarantor or any general partner of Borrower or Guarantor shall make
an assignment for the benefit of creditors or shall admit in writing its
inability to pay its debts generally as they become due;
(i)
if a
receiver, liquidator or trustee of Borrower, Guarantor or any general partner of
Borrower or Guarantor shall be appointed or if Borrower, Guarantor or their
respective general partners shall be adjudicated a bankrupt or insolvent, or if
any petition for bankruptcy, reorganization or arrangement pursuant to federal
bankruptcy law, or any similar federal or state law, shall be filed by or
against, consented to by, or acquiesced in by, Borrower, Guarantor or their
respective general partners or if any proceeding for the dissolution or
liquidation of Borrower, Guarantor or their respective general partners shall be
instituted; however, if such appointment, adjudication, petition or proceeding
was involuntary and not consented to by Borrower, Guarantor or their respective
general partners, as applicable, upon the same not being discharged, stayed or
dismissed within sixty (60) days or if Borrower, Guarantor or their respective
general partners shall generally not be paying its debts as they become
due;
(j)
if
Borrower shall be in default beyond any notice or grace period, if any, under
any other mortgage or deed of trust or deed to secure debt or security agreement
covering any part of the Property without regard to its priority relative to
this Security Instrument; provided, however, this provision shall not be deemed
a waiver of the provisions of Article IX prohibiting further encumbrances
affecting the Property or any other provision of this Security
Instrument;
(k)
if the
Property becomes subject (i) to any lien or security interest which is superior
to the lien of this Security Instrument, other than a lien for real estate taxes
and assessments not due and payable, or (ii) to any mechanic’s, materialman’s or
other lien which is or is asserted to be superior to the lien of this Security
Instrument, and such lien shall remain undischarged (by payment, bonding, or
otherwise) for ten (10) days unless contested in accordance with the terms
hereof;
(l)
if
Borrower discontinues the operation of the Property or any part thereof for
reasons other than repair or restoration arising from a casualty or condemnation
for ten (10) days or more;
(m)
except as
permitted in this Security Instrument, any material alteration, demolition or
removal by, on behalf or with the consent of Borrower of any of the Improvements
without the prior consent of Lender;
(n)
if
Borrower consummates a transaction which would cause this Security Instrument or
Lender’s rights under this Security Instrument, the Note or any other Loan
Document to constitute a non-exempt prohibited transaction under ERISA or result
in a violation of a state statute regulating government plans subjecting Lender
to liability for a violation of ERISA or a state statute;
(o)
Intentionally
Deleted;
(p)
if
Borrower breaches any provision of Article IX or Section 2.02(g) of this
Security Instrument; or
(q)
if a
default shall occur under any of the other terms, covenants or conditions of the
Note, this Security Instrument or any other Loan Document, other than as set
forth in (a) through (p) above, for ten (10) days after notice from Lender in
the case of any default which can be cured by the payment of a sum of money, or
for thirty (30) days after notice from Lender in the case of any other default
or an additional ninety (90) days if Borrower is diligently and continuously
effectuating a cure of a curable non-monetary default, other than as set forth
in (a) through (p) above.
Section
13.02.
Remedies
.
(a) Upon
the occurrence and during the continuance of any Event of Default, Lender may,
in addition to any other rights or remedies available to it hereunder or under
any other Loan Document, at law or in equity, take such action, without notice
or demand, as it reasonably deems advisable to protect and enforce its rights
against Borrower and in and to the Property including, but not limited to, the
following actions, each of which may be pursued singly, concurrently or
otherwise, at such time and in such order as Lender may determine, in its sole
discretion, without impairing or otherwise affecting any other rights and
remedies of Lender hereunder, at law or in equity: declare all or any portion of
the unpaid Debt to be immediately due and payable; provided, however, that upon
the occurrence of any of the events specified in Section 13.01(i), the entire
Debt will be immediately due and payable without notice or demand or any other
declaration of the amounts due and payable; but subject to the rights of the
tenants under the Leases, enter into or upon the Property or any part thereof,
either personally or by its agents, nominees or attorneys, and dispossess
Borrower and its agents and servants therefrom, and thereupon Lender may (A)
use, operate, manage, control, insure, maintain, repair, restore and otherwise
deal with all and every part of the Property and conduct the business thereat,
(B) make alterations, additions, renewals, replacements and improvements to or
on the Property or any part thereof, (C) exercise all rights and powers of
Borrower with respect to the Property or any part thereof, whether in the name
of Borrower or otherwise, including, without limitation, the right to make,
cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for,
collect and receive all earnings, revenues, rents, issues, profits and other
income of the Property and every part thereof, and (D) apply the receipts from
the Property or any part thereof to the payment of the Debt, after deducting
therefrom all expenses (including, without limitation, reasonable attorneys’
fees and disbursements) reasonably incurred in connection with the aforesaid
operations and all amounts necessary to pay the Impositions, insurance and other
charges in connection with the Property or any part thereof, as well as just and
reasonable compensation for the services of Lender’s third-party agents; or
(iii) have an appraisal or other valuation of the Property or any part thereof
performed by an Appraiser (and Borrower covenants and agrees it shall cooperate
in causing any such valuation or appraisal to be performed) and any cost or
expense incurred by Lender in connection therewith shall constitute a portion of
the Debt and be secured by this Security Instrument and shall be immediately due
and payable to Lender with interest, at the Default Rate, until the date of
receipt by Lender; or (iv), sell the Property or institute, or instruct Trustee
to institute, proceedings for the complete foreclosure of this Security
Instrument, or take such other action as may be allowed pursuant to Legal
Requirements, at law or in equity, for the enforcement of this Security
Instrument in which case the Property or any part thereof may be sold for cash
or credit in one or more parcels; or (v) with or without entry, and to the
extent permitted and pursuant to the procedures provided by applicable Legal
Requirements, institute proceedings for the partial foreclosure of this Security
Instrument, or take such other action as may be allowed pursuant to Legal
Requirements, at law or in equity, for the enforcement of this Security
Instrument for the portion of the Debt then due and payable, subject to the lien
of this Security Instrument continuing unimpaired and without loss of priority
so as to secure the balance of the Debt not then due; or (vi) sell the Property
or any part thereof and any or all estate, claim, demand, right, title and
interest of Borrower therein and rights of redemption thereof, pursuant to power
of sale or otherwise, at one or more sales, in whole or in parcels, in any order
or manner, at such time and place, upon such terms and after such notice thereof
as may be required or permitted by law, at the discretion of Lender, and in the
event of a sale, by foreclosure or otherwise, of less than all of the Property,
this Security Instrument shall continue as a lien on the remaining portion of
the Property; or (vii) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained in the
Loan Documents, or any of them; or (viii) recover judgment on the Note or any
guaranty either before, during
or after
(or in lieu of) any proceedings for the enforcement of this Security Instrument;
(ix) require, at Lender's option, Borrower to pay monthly in advance to Lender,
or any receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Property occupied by
Borrower and may require Borrower to vacate and surrender possession to Lender
of the Property or to such receiver and Borrower may be evicted by summary
proceedings or otherwise; or (i) without notice to Borrower (A) apply all or any
portion of the cash collateral in any Sub-Account and Escrow Account, including
any interest and/or earnings therein, to carry out the obligations of Borrower
under this Security Instrument and the other Loan Documents, to protect and
preserve the Property and for any other purpose permitted under this Security
Instrument and the other Loan Documents and/or (B) have all or any portion of
such cash collateral immediately paid to Lender to be applied against the Debt
in the order and priority set forth in the Note; or (xi) pursue any or all such
other rights or remedies as Lender may have under applicable law or in equity;
provided, however, that the provisions of this Section 13.02(a) shall not be
construed to extend or modify any of the notice requirements or grace periods
provided for hereunder or under any of the other Loan Documents. Borrower hereby
waives, to the fullest extent permitted by Legal Requirements, any defense
Borrower might otherwise raise or have by the failure to make any tenants
parties defendant to a foreclosure proceeding and to foreclose their rights in
any proceeding instituted by Lender.
(b)
Any time
after an Event of Default Lender shall have the power, to the extent permitted
by applicable law, to sell the Property or any part thereof at public auction,
in such manner, at such time and place, upon such terms and conditions, and upon
such public notice as Lender may deem best for the interest of Lender, or as may
be required or permitted by applicable law, consisting of advertisement (if
required by law) in a newspaper of general circulation in the jurisdiction and
for such period as applicable law may require and at such other times and under
the power of sale herein granted or by such other methods, if any, as may be
required or permitted by law to convey the Property or portions thereof in one
or more sales in fee simple by Lender’s deed to and at the cost of the
purchaser, who shall not be liable to see to the application of the purchase
money. The proceeds or avails of any sale made under or by virtue of this
Section 13.02, together with any other sums which then may be held by Lender
under this Security Instrument, whether under the provisions of this Section
13.02 or otherwise, shall, to the extent permitted by applicable law, be applied
as follows:
First: To
the payment of the third-party costs and expenses reasonably incurred in
connection with any such sale and to advances, fees and expenses, including,
without limitation, title service guaranty fees, reasonable fees and expenses of
Lender’s legal counsel as applicable, and of any judicial proceedings wherein
the same may be made, and of all expenses, liabilities and advances reasonably
made or incurred by Lender under this Security Instrument, together with
interest as provided herein on all such advances made by Lender, and all
Impositions, except any Impositions or other charges subject to which the
Property shall have been sold;
Second:
To the payment of the whole amount then due, owing and unpaid under the Note for
principal and interest thereon, with interest on such unpaid principal at the
Default Rate from the date of the occurrence of the earliest Event of Default
that formed a basis for such sale until the same is paid;
Third: To
the payment of any other portion of the Debt required to be paid by Borrower
pursuant to any provision of this Security Instrument, the Note, or any of the
other Loan Documents; and
Fourth:
The surplus, if any, to Borrower or such other Persons as may be legally
entitled thereto, unless otherwise required by Legal Requirements.
Lender
and any receiver or custodian of the Property or any part thereof shall be
liable to account for only those rents, issues, proceeds and profits actually
received by it.
(c)
Lender
may adjourn from time to time any sale by it to be made under or by virtue of
this Security Instrument by announcement at the time and place appointed for
such sale or for such adjourned sale or sales and, except as otherwise provided
by any applicable provision of Legal Requirements, Lender, without further
notice or publication, may make such sale at the time and place to which the
same shall be so adjourned.
(d)
Upon the
completion of any sale or sales made by Lender under or by virtue of this
Section 13.02, Lender or any officer of any court empowered to do so, shall
execute and deliver to the accepted purchaser or purchasers a good and
sufficient instrument, or good and sufficient instruments, granting, conveying,
assigning and transferring all estate, right, title and interest in and to the
property and rights sold. Lender is hereby irrevocably appointed the true and
lawful attorney-in-fact of Borrower (coupled with an interest), in its name and
stead, to make all necessary conveyances, assignments, transfers and deliveries
of the property and rights so sold pursuant to this Section 13.02 and for that
purpose Lender may execute all necessary instruments of conveyance, assignment,
transfer and delivery, and may substitute one or more Persons with like power,
Borrower hereby ratifying and confirming all that its said attorney-in-fact or
such substitute or substitutes shall lawfully do by virtue hereof. Nevertheless,
Borrower, if so requested by Lender, shall ratify and confirm any such sale or
sales by executing and delivering to Lender, or to such purchaser or purchasers
all such instruments as may be advisable, in the sole judgment of Lender, for
such purpose, and as may be designated in such request. Any such sale or sales
made under or by virtue of this Section 13.02, whether made under the power of
sale herein granted or under or by virtue of judicial proceedings or a judgment
or decree of foreclosure and sale, shall operate to divest all the estate,
right, title, interest, claim and demand whatsoever, whether at law or in
equity, of Borrower in and to the property and rights so sold, and shall, to the
fullest extent permitted under Legal Requirements, be a perpetual bar, both at
law and in equity against Borrower and against any and all Persons claiming or
who may claim the same, or any part thereof, from, through or under
Borrower.
(e)
In the
event of any sale made under or by virtue of this Section 13.02 (whether made
under the power of sale herein granted or under or by virtue of judicial
proceedings or a judgment or decree of foreclosure and sale), the entire Debt
immediately thereupon shall, anything in the Loan Documents to the contrary
notwithstanding, become due and payable.
(f)
Upon any
sale made under or by virtue of this Section 13.02 (whether made under the power
of sale herein granted or under or by virtue of judicial proceedings or a
judgment or decree of foreclosure and sale), Lender may bid for and acquire the
Property or any part thereof and in lieu of paying cash therefor may make
settlement for the purchase price by crediting upon the Debt the net sales price
after deducting therefrom the expenses of the sale and the costs of the
action.
(g)
No
recovery of any judgment by Lender and no levy of an execution under any
judgment upon the Property or any part thereof or upon any other property of
Borrower shall release the lien of this Security Instrument upon the Property or
any part thereof, or any liens, rights, powers or remedies of Lender hereunder,
but such liens, rights, powers and remedies of Lender shall continue unimpaired
until all amounts due under the Note, this Security Instrument and the other
Loan Documents are paid in full.
(h)
Upon the
exercise by Lender of any power, right, privilege, or remedy pursuant to this
Security Instrument which requires any consent, approval, registration,
qualification, or authorization of any Governmental Authority, Borrower agrees
to execute and deliver, or will cause the execution and delivery of, all
applications, certificates, instruments, assignments and other documents and
papers that Lender or any purchaser of the Property may be required to obtain
for such governmental consent, approval, registration, qualification, or
authorization and Lender is hereby irrevocably appointed the true and lawful
attorney-in-fact of Borrower (coupled with an interest), in its name and stead,
to execute all such applications, certificates, instruments, assignments and
other documents and papers.
Section
13.03.
Payment of Debt After
Default
. If,
following the occurrence of any Event of Default, Borrower shall tender payment
of an amount sufficient to satisfy the Debt in whole or in part at any time
prior to a foreclosure sale of the Property, and if at the time of such tender
prepayment of the principal balance of the Note is not permitted by the Note or
this Security Instrument, Borrower shall, in addition to the entire Debt, also
pay to Lender all amounts due Lender under Section 1.5(b) of the Note. If at the
time of such tender, prepayment of the principal balance of the Note is
permitted, such tender by Borrower shall be deemed to be a voluntary prepayment
of the principal balance of the Note and Borrower shall, in addition to the
entire Debt, also pay to Lender the applicable prepayment consideration
specified in the Note and this Security Instrument.
Section
13.04.
Possession of the
Property
. Upon
the occurrence of any Event of Default hereunder and the acceleration of the
Debt or any portion thereof, Borrower, if an occupant of the Property or any
part thereof, upon demand of Lender, shall immediately surrender possession of
the Property (or the portion thereof so occupied) to Lender, and if Borrower is
permitted to remain in possession, the possession shall be as a month-to-month
tenant of Lender and, on demand, Borrower shall pay to Lender monthly, in
advance, a reasonable rental for the space so occupied and in default thereof
Borrower may be dispossessed. The covenants herein contained may be enforced by
a receiver of the Property or any part thereof. Nothing in this Section 13.04
shall be deemed to be a waiver of the provisions of this Security Instrument
making the Transfer of the Property or any part thereof without Lender’s prior
written consent an Event of Default.
Section
13.05.
Interest After
Default
. If any
amount due under the Note, this Security Instrument or any of the other Loan
Documents is not paid within any applicable notice and grace period after same
is due, whether such date is the stated due date, any accelerated due date or
any other date or at any other time specified under any of the terms hereof or
thereof, then, in such event, Borrower shall pay interest on the amount not so
paid from and after the date on which such amount first becomes due at the
Default Rate; and such interest shall be due and payable at such rate until the
earlier of the cure of all Events of Default or the payment of the entire amount
due to Lender, whether or not any action shall have been taken or proceeding
commenced to recover the same or to foreclose this Security Instrument. All
unpaid and accrued interest shall be secured by this Security Instrument as part
of the Debt. Nothing in this Section 13.05 or in any other provision of this
Security Instrument shall constitute an extension of the time for payment of the
Debt.
Section
13.06.
Borrower’s Actions After
Default
. After
the happening of any Event of Default and immediately upon the commencement of
any action, suit or other legal proceedings by Lender to obtain judgment for the
Debt, or of any other nature in aid of the enforcement of the Loan Documents,
Borrower will (a) after receipt of notice of the institution of any such action,
waive the issuance and service of process and enter its voluntary appearance in
such action, suit or proceeding, and (b) if required by Lender, consent to the
appointment of a receiver or receivers of the Property or any part thereof and
of all the earnings, revenues, rents, issues, profits and income
thereof.
Section
13.07.
Control by Lender After
Default
.
Notwithstanding the appointment of any custodian, receiver, liquidator or
trustee of Borrower, or of any of its property, or of the Property or any part
thereof, to the extent permitted by Legal Requirements, Lender shall be entitled
to obtain possession and control of all property now and hereafter covered by
this Security Instrument and the Assignment following the occurrence of an Event
of Default in accordance with the terms hereof.
Section
13.08.
Right to Cure
Defaults
.
(a)
Upon the
occurrence of any Event of Default, Lender or its agents may, but without any
obligation to do so and without notice to or demand on Borrower and without
releasing Borrower from any obligation hereunder, make or do the same in such
manner and to such extent as Lender may deem necessary to protect the security
hereof. Lender and its agents are authorized to enter upon the Property or any
part thereof for such purposes, or appear in, defend, or bring any action or
proceedings to protect Lender’s interest in the Property or any part thereof or
to foreclose this Security Instrument or collect the Debt, and the cost and
expense thereof (including reasonable attorneys’ fees to the extent permitted by
law), with interest as provided in this Section 13.08, shall constitute a
portion of the Debt and shall be immediately due and payable to Lender upon
demand. All such costs and expenses incurred by Lender or its agents in
remedying such Event of Default or in appearing in, defending, or bringing any
such action or proceeding shall bear interest at the Default Rate, for the
period from the date so demanded to the date of payment to Lender. All such
costs and expenses incurred by Lender or its agents together with interest
thereon calculated at the above rate shall be deemed to constitute a portion of
the Debt and be secured by this Security Instrument.
(b)
If Lender
makes any payment or advance that Lender is authorized by this Security
Instrument to make in the place and stead of Borrower (i) relating to the
Impositions or tax liens asserted against the Property, Lender may do so
according to any bill, statement or estimate procured from the appropriate
public office without inquiry into the accuracy of the bill, statement or
estimate or into the validity of any of the Impositions or the tax liens or
claims thereof; (ii) relating to any apparent or threatened adverse title, lien,
claim of lien, encumbrance, claim or charge, Lender will be the sole judge of
the legality or validity of same; or (iii) relating to any other purpose
authorized by this Security Instrument but not enumerated in this Section 13.08,
Lender may do so whenever, in its judgment and discretion, the payment or
advance seems necessary or desirable to protect the Property and the full
security interest intended to be created by this Security Instrument. In
connection with any payment or advance made pursuant to this Section 13.08,
Lender has the option and is authorized, but in no event shall be obligated, to
obtain a continuation report of title prepared by a title insurance company. The
payments and the advances made by Lender pursuant to this Section 13.08 and the
cost and expenses of said title report will be due and payable by Borrower on
demand, together with interest at the Default Rate, and will be secured by this
Security Instrument.
Section
13.09.
Late Payment
Charge
. If any
portion of the Debt is not paid in full on or before the day on which it is due
and payable hereunder Borrower shall pay to Lender an amount equal to five
percent (5%) of such unpaid portion of the Debt (“
Late
Charge
”) to
defray the expense incurred by Lender in handling and processing such delinquent
payment, and such amount shall constitute a part of the Debt; provided, that no
late charge shall be due and payable if Borrower fails to repay the Loan
evidenced hereby upon the Maturity Date (whether by acceleration or
otherwise).
Section
13.10.
Recovery of Sums Required to
Be Paid
. Lender
shall have the right from time to time to take action to recover any sum or sums
which constitute a part of the Debt as the same become due and payable hereunder
(after the expiration of any grace period or the giving of any notice herein
provided, if any), without regard to whether or not the balance of the Debt
shall be due, and without prejudice to the right of Lender thereafter to bring
an action of foreclosure, or any other action, for a default or defaults by
Borrower existing at the time such earlier action was commenced.
Section
13.11.
Marshalling and Other
Matters
.
Borrower hereby waives, to the fullest extent permitted by law, the benefit of
all appraisement, valuation, stay, extension, reinstatement, redemption (both
equitable and statutory) and homestead laws now or hereafter in force and all
rights of marshalling in the event of any sale hereunder of the Property or any
part thereof or any interest therein. Further, Borrower hereby expressly waives
any and all rights of redemption from sale under any order or decree of
foreclosure of this Security Instrument on behalf of Borrower, whether equitable
or statutory and on behalf of each and every Person acquiring any interest in or
title to the Property or any part thereof subsequent to the date of this
Security Instrument and on behalf of all Persons to the fullest extent permitted
by applicable law.
Section
13.12.
Tax Reduction
Proceedings
. After
an Event of Default, Borrower shall be deemed to have appointed Lender as its
attorney-in-fact to seek a reduction or reductions in the assessed valuation of
the Property for real property tax purposes or for any other purpose and to
prosecute any action or proceeding in connection therewith. This power, being
coupled with an interest, shall be irrevocable for so long as any part of the
Debt remains unpaid and any Event of Default shall be continuing.
Section
13.13.
General Provisions Regarding
Remedies
.
(a)
Right to Terminate
Proceedings
. Lender
may terminate or rescind any proceeding or other action brought in connection
with its exercise of the remedies provided in Section 13.02 at any time before
the conclusion thereof, as determined in Lender’s sole discretion and without
prejudice to Lender.
(b)
No Waiver or
Release
. The
failure of Lender to exercise any right, remedy or option provided in the Loan
Documents shall not be deemed a waiver of such right, remedy or option or of any
covenant or obligation contained in the Loan Documents. No acceptance by Lender
of any payment after the occurrence of an Event of Default and no payment by
Lender of any payment or obligation for which Borrower is liable hereunder shall
be deemed to waive or cure any Event of Default. No sale of all or any portion
of the Property, no forbearance on the part of Lender, and no extension of time
for the payment of the whole or any portion of the Debt or any other indulgence
given by Lender to Borrower or any other Person, shall operate to release or in
any manner affect the interest of Lender in the Property or the liability of
Borrower to pay the Debt. No waiver by Lender shall be effective unless it is in
writing and then only to the extent specifically stated.
(c)
No Impairment; No
Releases
. The
interests and rights of Lender under the Loan Documents shall not be impaired by
any indulgence, including (i) any renewal, extension or modification which
Lender may grant with respect to any of the Debt; (ii) any surrender,
compromise, release, renewal, extension, exchange or substitution which Lender
may grant with respect to the Property or any portion thereof; or (iii) any
release or indulgence granted to any maker, endorser, guarantor or surety of any
of the Debt.
ARTICLE XIV:
COMPLIANCE WITH
REQUIREMENTS
Section
14.01.
Compliance with Legal
Requirements
.
(a)
Borrower
shall promptly comply with all present and future Legal Requirements, foreseen
and unforeseen, ordinary and extraordinary, whether requiring structural or
nonstructural repairs or alterations including, without limitation, all zoning,
subdivision, building, safety and environmental protection, land use and
development Legal Requirements, all Legal Requirements which may be applicable
to the curbs adjoining the Property or to the use or manner of use thereof, and
all rent control, rent stabilization and all other similar Legal Requirements
relating to rents charged and/or collected in connection with the Leases.
Borrower represents and warrants that the Property to the best of Borrower’s
knowledge is in compliance in all material respects with all Legal Requirements
as of the date hereof, no notes or notices of violations of any Legal
Requirements have been entered or received by Borrower and there is no basis for
the entering of such notes or notices.
(b)
Borrower
shall have the right to contest by appropriate legal proceedings diligently
conducted in good faith, without cost or expense to Lender, the validity or
application of any Legal Requirement and to suspend compliance therewith if
permitted under applicable Legal Requirements, provided (i) failure to comply
therewith may not subject Lender to any civil or criminal liability, (ii) prior
to and during such contest, Borrower shall furnish to Lender security reasonably
satisfactory to Lender, in its discretion, against loss or injury by reason of
such contest or non-compliance with such Legal Requirement, (iii) no Default or
Event of Default shall exist during such proceedings and such contest shall not
otherwise violate any of the provisions of any of the Loan Documents, (iv) such
contest shall not (unless Borrower shall comply with the provisions of clause
(ii) of this Section 14.01(b)) subject the Property to any lien or encumbrance
the enforcement of which is not suspended or otherwise affect the priority of
the lien of this Security Instrument; (v) such contest shall not affect the
ownership, use or occupancy of the Property; (vi) the Property or any part
thereof or any interest therein shall not be in any danger of being sold,
forfeited or lost by reason of such contest by Borrower; (vii) Borrower shall
give Lender prompt notice of the commencement of such proceedings and, upon
request by Lender, notice of the status of such proceedings and/or confirmation
of the continuing satisfaction of the conditions set forth in clauses (i) - (vi)
of this Section 14.01(b); and (viii) upon a final determination of such
proceeding, Borrower shall take all steps necessary to comply with any
requirements arising therefrom.
(c)
Borrower
shall at all times comply with all applicable Legal Requirements with respect to
the construction, use and maintenance of any vaults adjacent to the Property. If
by reason of the failure to pay taxes, assessments, charges, permit fees,
franchise taxes or levies of any kind or nature, the continued use of the vaults
adjacent to Property or any part thereof is discontinued, Borrower nevertheless
shall, with respect to any vaults which may be necessary for the continued use
of the Property, take such steps (including the making of any payment) to ensure
the continued use of vaults or replacements.
Section
14.02.
Compliance with Recorded
Documents; No Future Grants
.
Borrower shall promptly perform and observe or cause to be performed and
observed, all of the terms, covenants and conditions of all Property Agreements
and all things necessary to preserve intact and unimpaired any and all
appurtenances or other interests or rights affecting the Property.
ARTICLE XV:
PREPAYMENT
Section
15.01.
Prepayment
.
Except as
set forth in Section 1.5 of the Note, no prepayment of the Debt may be made in
whole or in part.
ARTICLE XVI:
ENVIRONMENTAL
COMPLIANCE
Section
16.01.
Covenants, Representations
and Warranties
.
(a)
Borrower
has not, at any time, and, to Borrower’s best knowledge after due inquiry and
investigation, except as set forth in the Environmental Report, no other Person
has at any time, handled, buried, stored, retained, refined, transported,
processed, manufactured, generated, produced, spilled, allowed to seep, leak,
escape or leach, or pumped, poured, emitted, emptied, discharged, injected,
dumped, transferred or otherwise disposed of or dealt with Hazardous Materials
on, to or from the Premises or any other real property owned and/or occupied by
Borrower (other than in compliance with all Legal Requirements), and Borrower
does not intend to and shall not use the Property or any part thereof or any
such other real property for the purpose of handling, burying, storing,
retaining, refining, transporting, processing, manufacturing, generating,
producing, spilling, seeping, leaking, escaping, leaching, pumping, pouring,
emitting, emptying, discharging, injecting, dumping, transferring or otherwise
disposing of or dealing with Hazardous Materials, except for use and storage for
use of heating oil, cleaning fluids, pesticides and other substances customarily
used in the operation of properties that are being used for the same purposes as
the Property is presently being used, provided such use and/or storage for use
is in compliance with the requirements hereof and the other Loan Documents and
does not give rise to liability under applicable Legal Requirements or
Environmental Statutes or be the basis for a lien against the Property or any
part thereof. In addition, without limitation to the foregoing provisions,
Borrower represents and warrants that, to the best of its knowledge, after due
inquiry and investigation, except as previously disclosed in writing to Lender
or in the Environmental Report or Engineering Report, there is no asbestos in,
on, over, or under all or any portion of the fire-proofing or any other portion
of the Property.
(b)
Borrower,
after due inquiry and investigation, knows of no seepage, leak, escape, leach,
discharge, injection, release, emission, spill, pumping, pouring, emptying or
dumping of Hazardous Materials into waters on, under or adjacent to the Property
or any part thereof or any other real property owned and/or occupied by
Borrower, or onto lands from which such Hazardous Materials might seep, flow or
drain into such waters, except as disclosed in the Environmental
Report.
(c)
Borrower
shall not permit any Hazardous Materials to be handled, buried, stored,
retained, refined, transported, processed, manufactured, generated, produced,
spilled, allowed to seep, leak, escape or leach, or to be pumped, poured,
emitted, emptied, discharged, injected, dumped, transferred or otherwise
disposed of or dealt with on, under, to or from the Property or any portion
thereof at any time, except for use and storage for use of heating oil, ordinary
cleaning fluids, pesticides and other substances customarily used in the
operation of properties that are being used for the same purposes as the
Property is presently being used, provided such use and/or storage for use is in
compliance with the requirements hereof and the other Loan Documents and does
not give rise to liability under applicable Legal Requirements or be the basis
for a lien against the Property or any part thereof.
(d)
Borrower
represents and warrants that no actions, suits, or proceedings have been
commenced, or are pending, or to the best knowledge of Borrower, are threatened
with respect to any Legal Requirement governing the use, manufacture, storage,
treatment, transportation, or processing of Hazardous Materials with respect to
the Property or any part thereof. Borrower has received no notice of, and,
except as disclosed in the Environmental Report, after due inquiry, has no
knowledge of any fact, condition, occurrence or circumstance which with notice
or passage of time or both would give rise to a claim under or pursuant to any
Environmental Statute pertaining to Hazardous Materials on, in, under or
originating from the Property or any part thereof or any other real property
owned or occupied by Borrower or arising out of the conduct of Borrower,
including, without limitation, pursuant to any Environmental
Statute.
(e)
Borrower
has not waived any Person’s liability with regard to Hazardous Materials in, on,
under or around the Property, nor has Borrower retained or assumed,
contractually or by operation of law, any other Person’s liability relative to
Hazardous Materials or any claim, action or proceeding relating
thereto.
(f)
In the
event that there shall be filed a lien against the Property or any part thereof
pursuant to any Environmental Statute pertaining to Hazardous Materials,
Borrower shall, within sixty (60) days or, in the event that the applicable
Governmental Authority has commenced steps to cause the Premises or any part
thereof to be sold pursuant to the lien, within fifteen (15) days, from the date
that Borrower receives notice of such lien, either (i) pay the claim and remove
the lien from the Property, or (ii) furnish (A) a bond satisfactory to Lender in
the amount of the claim out of which the lien arises, (B) a cash deposit in the
amount of the claim out of which the lien arises, or (C) other security
reasonably satisfactory to Lender in an amount sufficient to discharge the claim
out of which the lien arises.
(g)
Borrower
represents and warrants that (i) except as disclosed in the Environmental
Report, Borrower has no knowledge of any violation of any Environmental Statute
or any Environmental Problem in connection with the Property, nor has Borrower
been requested or required by any Governmental Authority to perform any remedial
activity or other responsive action in connection with any Environmental Problem
and (ii) neither the Property nor any other property owned by Borrower is
included or, to Borrower’s best knowledge, after due inquiry and investigation,
proposed for inclusion on the National Priorities List issued pursuant to CERCLA
by the United States Environmental Protection Agency (the “
EPA
”) or on
the inventory of other potential “Problem” sites issued by the EPA and has not
otherwise been identified by the EPA as a potential CERCLA site or included or,
to Borrower’s knowledge, after due inquiry and investigation, proposed for
inclusion on any list or inventory issued pursuant to any other Environmental
Statute, if any, or issued by any other Governmental Authority. Borrower
covenants that Borrower will comply with all Environmental Statutes affecting or
imposed upon Borrower or the Property.
(h)
Borrower
covenants that it shall promptly notify Lender of the presence and/or release of
any Hazardous Materials and of any request for information or any inspection of
the Property or any part thereof by any Governmental Authority with respect to
any Hazardous Materials and provide Lender with copies of such request and any
response to any such request or inspection. Borrower covenants that it shall, in
compliance with applicable Legal Requirements, conduct and complete all
investigations, studies, sampling and testing (and promptly shall provide Lender
with copies of any such studies and the results of any such test) and all
remedial, removal and other actions necessary to clean up and remove all
Hazardous Materials in, on, over, under, from or affecting the Property or any
part thereof in accordance with all such Legal Requirements applicable to the
Property or any part thereof to the satisfaction of Lender.
(i)
Following
the occurrence of an Event of Default that is continuing hereunder, and without
regard to whether Lender shall have taken possession of the Property or a
receiver has been requested or appointed or any other right or remedy of Lender
has or may be exercised hereunder or under any other Loan Document, Lender shall
have the right (but no obligation) to conduct such investigations, studies,
sampling and/or testing of the Property or any part thereof as Lender may, in
its discretion, determine to conduct, relative to Hazardous Materials. All costs
and expenses incurred in connection therewith including, without limitation,
consultants’ fees and disbursements and laboratory fees, shall constitute a part
of the Debt and shall, upon demand by Lender, be immediately due and payable and
shall bear interest at the Default Rate from the date so demanded by Lender
until reimbursed. Borrower shall, at its sole cost and expense, fully and
expeditiously cooperate in all such investigations, studies, samplings and/or
testings including, without limitation, providing all relevant information and
making knowledgeable people available for interviews.
(j)
Borrower
represents and warrants that, except as disclosed in the Environmental Report,
all paint and painted surfaces existing within the interior or on the exterior
of the Improvements are not flaking, peeling, cracking, blistering, or chipping,
and do not contain lead or are maintained in a condition that prevents exposure
of young children to lead-based paint, as of the date hereof, and that the
current inspections, operation, and maintenance program at the Property with
respect to lead-based paint is consistent with FNMA guidelines and sufficient to
ensure that all painted surfaces within the Property shall be maintained in a
condition that prevents exposure of tenants to lead-based paint. To Borrower’s
knowledge, there have been no claims for adverse health effects from exposure on
the Property to lead-based paint or requests for the investigation, assessment
or removal of lead-based paint at the Property.
(k)
Borrower
represents and warrants that except in accordance with all applicable
Environmental Statutes and as disclosed in the Environmental Report, (i) no
underground treatment or storage tanks or pumps or water, gas, or oil wells are
or have been located about the Property, (ii) no PCBs or transformers,
capacitors, ballasts or other equipment that contain dielectric fluid containing
PCBs are located about the Property, (iii) no insulating material containing
urea formaldehyde is located about the Property and (iv) no asbestos-containing
material is located about the Property.
(l)
Environmental
Indemnification
.
Borrower shall defend, indemnify and hold harmless the Indemnified Parties for,
from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, known or
unknown, contingent or otherwise, whether incurred or imposed within or outside
the judicial process, including, without limitation, reasonable attorneys’ and
consultants’ fees and disbursements and investigations and laboratory fees
arising out of, or in any way related to any Environmental Problem, including
without limitation:
(a)
the
presence, disposal, escape, seepage, leakage, spillage, discharge, emission,
release or threat of release of any Hazardous Materials in, on, over, under,
from or affecting the Property or any part thereof whether or not disclosed by
the Environmental Report;
(b)
any
personal injury (including wrongful death, disease or other health condition
related to or caused by, in whole or in part, any Hazardous Materials) or
property damage (real or personal) arising out of or related to any Hazardous
Materials in, on, over, under, from or affecting the Property or any part
thereof whether or not disclosed by the Environmental Report;
(c)
any
action, suit or proceeding brought or threatened, settlement reached, or order
of any Governmental Authority relating to such Hazardous Material whether or not
disclosed by the Environmental Report; and/or
(d)
any
violation of the provisions, covenants, representations or warranties of Section
16.01 hereof or of any Legal Requirement which is based on or in any way related
to any Hazardous Materials in, on, over, under, from or affecting the Property
or any part thereof including, without limitation, the cost of any work
performed and materials furnished in order to comply therewith whether or not
disclosed by the Environmental Report.
Notwithstanding
the foregoing provisions of this Section 16.02 to the contrary, Borrower shall
have no obligation to indemnify Lender for liabilities, claims, damages,
penalties, causes of action, costs and expenses relative to the foregoing which
result directly from Lender’s willful misconduct or gross negligence. Any
amounts payable to Lender by reason of the application of this Section 16.02
shall be secured by this Security Instrument and shall, upon demand by Lender,
become immediately due and payable and shall bear interest at the Default Rate
from the date so demanded by Lender until paid.
This
indemnification shall survive the termination of this Security Instrument
whether by repayment of the Debt, foreclosure or deed in lieu thereof,
assignment, or otherwise. The indemnity provided for in this Section 16.02 shall
not be included in any exculpation of Borrower or its principals from personal
liability provided for in this Security Instrument or in any of the other Loan
Documents. Nothing in this Section 16.02 shall be deemed to deprive Lender of
any rights or remedies otherwise available to Lender, including, without
limitation, those rights and remedies provided elsewhere in this Security
Instrument or the other Loan Documents. The foregoing indemnity shall
specifically not include any such costs relating to Hazardous Materials which
are initially placed on, in or under any of the Properties after foreclosure or
other taking of title of such Properties by Lender or its successors or
assigns.
ARTICLE XVII:
ASSIGNMENTS
Section
17.01.
Participations and
Assignments
. Lender
shall have the right to assign this Security Instrument and/or any of the Loan
Documents, and to transfer, assign or sell participations and subparticipations
(including blind or undisclosed participations and subparticipations) in the
Loan Documents and the obligations hereunder to any Person; provided, however,
that no such participation shall increase, decrease or otherwise affect either
Borrower’s or Lender’s obligations under this Security Instrument or the other
Loan Documents or increase the Debt.
ARTICLE XVIII:
MISCELLANEOUS
Section
18.01.
Right of
Entry
. Lender
and its agents shall have the right to enter and inspect the Property or any
part thereof at all reasonable times, and, except in the event of an emergency,
upon reasonable notice and to inspect Borrower’s books and records and to make
abstracts and reproductions thereof.
Section
18.02.
Cumulative
Rights
. The
rights of Lender under this Security Instrument shall be separate, distinct and
cumulative and none shall be given effect to the exclusion of the others. No act
of Lender shall be construed as an election to proceed under any one provision
herein to the exclusion of any other provision. Lender shall not be limited
exclusively to the rights and remedies herein stated but shall be entitled,
subject to the terms of this Security Instrument, to every right and remedy now
or hereafter afforded by law.
Section
18.03.
Liability
. If
Borrower consists of more than one Person, the obligations and liabilities of
each such Person hereunder shall be joint and several.
Section
18.04.
Exhibits
Incorporated
. The
information set forth on the cover hereof, and the Exhibits annexed hereto, are
hereby incorporated herein as a part of this Security Instrument with the same
effect as if set forth in the body hereof.
Section
18.05.
Severable
Provisions
. If any
term, covenant or condition of the Loan Documents including, without limitation,
the Note or this Security Instrument, is held to be invalid, illegal or
unenforceable in any respect, such Loan Document shall be construed without such
provision.
Section
18.06.
Duplicate
Originals
. This
Security Instrument may be executed in any number of duplicate originals and
each such duplicate original shall be deemed to constitute but one and the same
instrument.
Section
18.07.
No Oral
Change
. The
terms of this Security Instrument, together with the terms of the Note and the
other Loan Documents, constitute the entire understanding and agreement of the
parties hereto and supersede all prior agreements, understandings and
negotiations between Borrower and Lender with respect to the Loan. This Security
Instrument, and any provisions hereof, may not be modified, amended, waived,
extended, changed, discharged or terminated orally or by any act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
Section
18.08.
Waiver of Counterclaim,
Etc
.
BORROWER HEREBY WAIVES THE RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A
COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY
LENDER OR ITS AGENTS, AND WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR IN ANY COUNTERCLAIM BORROWER
MAY BE PERMITTED TO ASSERT HEREUNDER OR WHICH MAY BE ASSERTED BY LENDER OR ITS
AGENTS, AGAINST BORROWER, OR IN ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THIS SECURITY INSTRUMENT OR THE DEBT.
Section
18.09.
Headings; Construction of
Documents; etc
. The
table of contents, headings and captions of various paragraphs of this Security
Instrument are for convenience of reference only and are not to be construed as
defining or limiting, in any way, the scope or intent of the provisions hereof.
Borrower acknowledges that it was represented by competent counsel in connection
with the negotiation and drafting of this Security Instrument and the other Loan
Documents and that neither this Security Instrument nor the other Loan Documents
shall be subject to the principle of construing the meaning against the Person
who drafted same.
Section
18.10.
Sole Discretion of
Lender
.
Whenever Lender exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to Lender, the decision of Lender to
approve or disapprove or to decide that arrangements or terms are satisfactory
or not satisfactory shall be in the sole discretion of Lender and shall be final
and conclusive, except as may be otherwise specifically provided
herein.
Section
18.11.
Waiver of
Notice
.
Borrower shall not be entitled to any notices of any nature whatsoever from
Lender except with respect to matters for which this Security Instrument
specifically and expressly provides for the giving of notice by Lender to
Borrower and except with respect to matters for which Borrower is not, pursuant
to applicable Legal Requirements, permitted to waive the giving of
notice.
Section
18.12.
Covenants Run with the
Land
. All of
the grants, covenants, terms, provisions and conditions herein shall run with
the Premises, shall be binding upon Borrower and shall inure to the benefit of
Lender, subsequent holders of this Security Instrument and their successors and
assigns. Without limitation to any provision hereof, the term “Borrower” shall
include and refer to the borrower named herein, any subsequent owner of the
Property, and its respective heirs, executors, legal representatives, successors
and assigns. The representations, warranties and agreements contained in this
Security Instrument and the other Loan Documents are intended solely for the
benefit of the parties hereto, shall confer no rights hereunder, whether legal
or equitable, in any other Person and no other Person shall be entitled to rely
thereon.
Section
18.13.
Applicable
Law
.
THIS
SECURITY INSTRUMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED
STATES OF AMERICA.
Section
18.14.
Security
Agreement
.
(a)
(i)
This
Security Instrument is both a real property mortgage, deed to secure debt or
deed of trust, as applicable, and a “security agreement” within the meaning of
the UCC. The Property includes both real and personal property and all other
rights and interests, whether tangible or intangible in nature, of Borrower in
the Property, and Borrower hereby grants to Lender a security interest in all
portions of the Property constituting personal property or fixtures under the
UCC. This Security Instrument is filed as a fixture filing and covers goods
which are or are to become fixtures on the Property. Borrower by executing and
delivering this Security Instrument has granted to Lender, as security for the
Debt, a security interest in the Property to the full extent that the Property
may be subject to the UCC (said portion of the Property so subject to the UCC
being called in this Section 18.14 the “
Collateral
”). If an
Event of Default shall occur, Lender, in addition to any other rights and
remedies which it may have, shall have and may exercise immediately and without
demand, any and all rights and remedies granted to a secured party upon default
under the UCC, including, without limiting the generality of the foregoing, the
right to take possession of the Collateral or any part thereof, and to take such
other measures as Lender may deem necessary for the care, protection and
preservation of the Collateral. Upon request or demand of Lender following an
Event of Default, Borrower shall, at its expense, assemble the Collateral and
make it available to Lender at a convenient place acceptable to Lender. Borrower
shall pay to Lender on demand any and all expenses, including reasonable legal
expenses and attorneys’ fees, incurred or paid by Lender in protecting its
interest in the Collateral and in enforcing its rights hereunder with respect to
the Collateral. Any disposition pursuant to the UCC of so much of the Collateral
as may constitute personal property shall be considered commercially reasonable
if made pursuant to a public sale which is advertised at least twice in a
newspaper in which sheriff’s sales are advertised in the county where the
Premises is located. Any notice of sale, disposition or other intended action by
Lender with respect to the Collateral given to Borrower in accordance with the
provisions hereof at least ten (10) days prior to such action, shall constitute
reasonable notice to Borrower. The proceeds of any disposition of the
Collateral, or any part thereof, may be applied by Lender to the payment of the
Debt in such priority and proportions as Lender in its discretion shall deem
proper. It is not necessary that the Collateral be present at any disposition
thereof. Lender shall have no obligation to clean-up or otherwise prepare the
Collateral for disposition.
(ii)
The
mention in a financing statement filed in the records normally pertaining to
personal property of any portion of the Property shall not derogate from or
impair in any manner the intention of this Security Instrument. Lender hereby
declares that all items of Collateral are part of the real property encumbered
hereby to the fullest extent permitted by law, regardless of whether any such
item is physically attached to the Improvements or whether serial numbers are
used for the better identification of certain items. Specifically, the mention
in any such financing statement of any items included in the Property shall not
be construed to alter, impair or impugn any rights of Lender as determined by
this Security Instrument or the priority of Lender’s lien upon and security
interest in the Property in the event that notice of Lender’s priority of
interest as to any portion of the Property is required to be filed in accordance
with the UCC to be effective against or take priority over the interest of any
particular class of persons, including the federal government or any subdivision
or instrumentality thereof. No portion of the Collateral constitutes or is the
proceeds of “Farm Products”, as defined in the UCC.
(iii)
If
Borrower is at any time a beneficiary under a letter of credit now or hereafter
issued in favor of Borrower, Borrower shall promptly notify Lender thereof and,
at the request and option of Lender, Borrower shall, pursuant to an agreement in
form and substance satisfactory to Lender, either (A) arrange for the issuer and
any confirmer of such letter of credit to consent to an assignment to Lender of
the proceeds of any drawing under the letter of credit or (B) arrange for Lender
to become the transferee beneficiary of the letter of credit, with Lender
agreeing, in each case, that the proceeds of any drawing under the letter to
credit are to be applied as provided in this Security Instrument.
(iv)
Borrower
and Lender acknowledge that for the purposes of Article 9 of the UCC, the law of
the State of New York shall be the law of the jurisdiction of the bank in which
the Central Account is located.
(v)
Lender
may comply with any applicable Legal Requirements in connection with the
disposition of the Collateral, and Lender’s compliance therewith will not be
considered to adversely affect the commercial reasonableness of any sale of the
Collateral.
(vi)
Lender
may sell the Collateral without giving any warranties as to the Collateral.
Lender may specifically disclaim any warranties of title, possession, quiet
enjoyment or the like. This procedure will not be considered to adversely affect
the commercial reasonableness of any sale of the Collateral.
(vii)
If Lender
sells any of the Collateral upon credit, Borrower will be credited only with
payments actually made by the purchaser, received by Lender and applied to the
indebtedness of Borrower. In the event the purchaser of the Collateral fails to
fully pay for the Collateral, Lender may resell the Collateral and Borrower will
be credited with the proceeds of such sale.
(b)
Borrower
hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an
interest, to file with the appropriate public office on its behalf any financing
or other statements signed only by Lender, as secured party, or, to the extent
permitted under the UCC, unsigned, in connection with the Collateral covered by
this Security Instrument.
Section
18.15.
Actions and
Proceedings
. Lender
has the right to appear in and defend any action or proceeding brought with
respect to the Property in its own name or, if required by Legal Requirements
or, if in Lender’s reasonable judgment, it is necessary, in the name and on
behalf of Borrower, which Lender believes will adversely affect the Property or
this Security Instrument and to bring any action or proceedings, in its name or
in the name and on behalf of Borrower, which Lender, in its reasonable
discretion, decides should be brought to protect its interest in the
Property.
Section
18.16.
Usury
Laws
. This
Security Instrument and the Note are subject to the express condition, and it is
the expressed intent of the parties, that at no time shall Borrower be obligated
or required to pay interest on the principal balance due under the Note at a
rate which could subject the holder of the Note to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by law to contract or agree to pay. If by the terms of
this Security Instrument or the Note, Borrower is at any time required or
obligated to pay interest on the principal balance due under the Note at a rate
in excess of such maximum rate, such rate of interest shall be deemed to be
immediately reduced to such maximum rate and the interest payable shall be
computed at such maximum rate and all prior interest payments in excess of such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance of the Note. No application to the principal
balance of the Note pursuant to this Section 18.16 shall give rise to any
requirement to pay any prepayment fee or charge of any kind due hereunder, if
any.
Section
18.17.
Remedies of
Borrower
. In the
event that a claim or adjudication is made that Lender has acted unreasonably or
unreasonably delayed acting in any case where by law or under the Note, this
Security Instrument or the Loan Documents, it has an obligation to act
reasonably or promptly, Lender shall not be liable for any monetary damages, and
Borrower’s remedies shall be limited to injunctive relief or declaratory
judgment.
Section
18.18.
Offsets, Counterclaims and
Defenses
. Any
assignee of this Security Instrument, the Assignment and the Note shall take the
same free and clear of all offsets, counterclaims or defenses which are
unrelated to the Note, the Assignment or this Security Instrument which Borrower
may otherwise have against any assignor of this Security Instrument, the
Assignment and the Note and no such unrelated counterclaim or defense shall be
interposed or asserted by Borrower in any action or proceeding brought by any
such assignee upon this Security Instrument, the Assignment or the Note and any
such right to interpose or assert any such unrelated offset, counterclaim or
defense in any such action or proceeding is hereby expressly waived by
Borrower.
Section
18.19.
No Merger
. If
Borrower’s and Lender’s estates become the same including, without limitation,
upon the delivery of a deed by Borrower in lieu of a foreclosure sale, or upon a
purchase of the Property by Lender in a foreclosure sale, this Security
Instrument and the lien created hereby shall not be destroyed or terminated by
the application of the doctrine of merger and in such event Lender shall
continue to have and enjoy all of the rights and privileges of Lender as to the
separate estates; and, as a consequence thereof, upon the foreclosure of the
lien created by this Security Instrument, any Leases or subleases then existing
and created by Borrower shall not be destroyed or terminated by application of
the law of merger or as a result of such foreclosure unless Lender or any
purchaser at any such foreclosure sale shall so elect. No act by or on behalf of
Lender or any such purchaser shall constitute a termination of any Lease or
sublease unless Lender or such purchaser shall give written notice thereof to
such lessee or sublessee.
Section
18.20.
Restoration of
Rights
. In case
Lender shall have proceeded to enforce any right under this Security Instrument
by foreclosure sale, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined
adversely, then, in every such case, Borrower and Lender shall be restored to
their former positions and rights hereunder with respect to the Property subject
to the lien hereof.
Section
18.21.
Waiver of Statute of
Limitations
. The
pleadings of any statute of limitations as a defense to any and all obligations
secured by this Security Instrument are hereby waived to the full extent
permitted by Legal Requirements.
Section
18.22.
Advances
. This
Security Instrument shall cover any and all advances made pursuant to the Loan
Documents, rearrangements and renewals of the Debt and all extensions in the
time of payment thereof, even though such advances, extensions or renewals be
evidenced by new promissory notes or other instruments hereafter executed and
irrespective of whether filed or recorded. Likewise, the execution of this
Security Instrument shall not impair or affect any other security which may be
given to secure the payment of the Debt, and all such additional security shall
be considered as cumulative. The taking of additional security, execution of
partial releases of the security, or any extension of time of payment of the
Debt shall not diminish the force, effect or lien of this Security Instrument
and shall not affect or impair the liability of Borrower and shall not affect or
impair the liability of any maker, surety, or endorser for the payment of the
Debt.
Section
18.23.
Application of Default Rate
Not a Waiver
.
Application of the Default Rate shall not be deemed to constitute a waiver of
any Default or Event of Default or any rights or remedies of Lender under this
Security Instrument, any other Loan Document or applicable Legal Requirements,
or a consent to any extension of time for the payment or performance of any
obligation with respect to which the Default Rate may be invoked.
Section
18.24.
Intervening
Lien
. To the
fullest extent permitted by law, any agreement hereafter made pursuant to this
Security Instrument shall be superior to the rights of the holder of any
intervening lien or security interest.
Section
18.25.
No Joint Venture or
Partnership
.
Borrower and Lender intend that the relationship created hereunder be solely
that of mortgagor and mortgagee or grantor and beneficiary or borrower and
lender, as the case may be. Nothing herein is intended to create a joint
venture, partnership, tenancy-in-common, or joint tenancy relationship between
Borrower and Lender nor to grant Lender any interest in the Property other than
that of mortgagee, beneficiary or lender.
Section
18.26.
Time of the
Essence
. Time
shall be of the essence in the performance of all obligations of Borrower
hereunder.
Section
18.27.
Borrower’s Obligations
Absolute
.
Borrower acknowledges that Lender and/or certain Affiliates of Lender are
engaged in the business of financing, owning, operating, leasing, managing, and
brokering real estate and in other business ventures which may be viewed as
adverse to or competitive with the business, prospect, profits, operations or
condition (financial or otherwise) of Borrower. Except as set forth to the
contrary in the Loan Documents, all sums payable by Borrower hereunder shall be
paid without notice or demand, counterclaim, set-off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Borrower hereunder shall in no way be released,
discharged, or otherwise affected (except as expressly provided herein) by
reason of: (a) any damage to or destruction of or any Taking of the Property or
any portion thereof; (b) any restriction or prevention of or interference with
any use of the Property or any portion thereof; (c) any title defect or
encumbrance or any eviction from the Premises or any portion thereof by title
paramount or otherwise; (d) any bankruptcy proceeding relating to Borrower, any
General Partner, or any guarantor or indemnitor, or any action taken with
respect to this Security Instrument or any other Loan Document by any trustee or
receiver of Borrower or any such General Partner, guarantor or indemnitor, or by
any court, in any such proceeding; (e) any claim which Borrower has or might
have against Lender; (f) any default or failure on the part of Lender to perform
or comply with any of the terms hereof or of any other agreement with Borrower;
or (g) any other occurrence whatsoever, whether similar or dissimilar to the
foregoing, whether or not Borrower shall have notice or knowledge of any of the
foregoing.
Section
18.28.
Publicity
. All
promotional news releases, publicity or advertising by Manager, Borrower or
their respective Affiliates through any media intended to reach the general
public shall not refer to the Loan Documents or the financing evidenced by the
Loan Documents, or to Lender or to any of its Affiliates without the prior
written approval of Lender or such Affiliate, as applicable, in each instance,
such approval not to be unreasonably withheld or delayed. Lender shall be
authorized to provide information relating to the Property, the Loan and matters
relating thereto to rating agencies, underwriters, potential securities
investors, auditors, regulatory authorities and to any Persons which may be
entitled to such information by operation of law.
Section
18.29.
Securitization
Opinions
. In the
event the Loan is included as an asset of a Securitization by Lender or any of
its Affiliates, Borrower shall, within fifteen (15) Business Days after Lender’s
written request therefor, at Lender’s sole cost and expense, deliver opinions in
form and substance and delivered by counsel reasonably acceptable to Lender and
each Rating Agency, as may be reasonably required by Lender and/or each Rating
Agency in connection with such securitization. Borrower’s failure to deliver the
opinions required hereby within such ten (10) Business Day period shall
constitute an “Event of Default” hereunder.
Section
18.30.
Intentionally
Deleted
.
Section
18.31.
Securitization
Financials
.
Borrower covenants and agrees that, upon Lender’s written request therefor in
connection with a Securitization, Borrower shall, at Lender’s sole cost and
expense, promptly deliver audited financial statements and related documentation
prepared by an Independent certified public accountant that satisfy securities
laws and requirements for use in a public registration statement (which may
include up to three (3) years of historical audited financial
statements).
Section
18.32.
Exculpation
.
Notwithstanding anything herein or in any other Loan Document to the contrary,
except as otherwise set forth in this Section 18.32 to the contrary, Lender
shall not enforce the liability and obligation of Borrower or (a) if Borrower is
a partnership, its constituent partners or any of their respective partners, (b)
if Borrower is a trust, its beneficiaries or any of their respective Partners
(as hereinafter defined), (c) if Borrower is a corporation, any of its
shareholders, directors, principals, officers or employees, or (d) if Borrower
is a limited liability company, any of its members, managers, officers or
directors (the Persons described in the foregoing clauses (a) - (d), as the case
may be, are hereinafter referred to as the “
Partners
”) to
perform and observe the obligations contained in this Security Instrument or any
of the other Loan Documents by any action or proceeding wherein a money judgment
shall be sought against Borrower or the Partners, except that Lender may bring a
foreclosure action, action for specific performance, or other appropriate action
or proceeding (including, without limitation, an action to obtain a deficiency
judgment) solely for the purpose of enabling Lender to realize upon (i)
Borrower’s interest in the Property, (ii) the Rent to the extent received by
Borrower (or received by its Partners) after the occurrence of an Event of
Default and not either delivered to Lender (or Lender’s agent) or applied to
ordinary and necessary expenses of owning and operating the Property (the
“
Recourse
Distributions
”) and
(iii) any other collateral given to Lender under the Loan Documents (the
collateral described in the foregoing clauses (i) - (iii) is hereinafter
referred to as the “
Default
Collateral
”);
provided
,
however
, that
any judgment in any such action or proceeding shall be enforceable against
Borrower or the Partners, as the case may be, only to the extent of any such
Default Collateral. The provisions of this Section shall not, however, (a)
impair the validity of the Debt evidenced by the Note or in any way affect or
impair the lien of this Security Instrument or any of the other Loan Documents
or the right of Lender to foreclose this Security Instrument following the
occurrence of an Event of Default; (b) impair the right of Lender to name
Borrower as a party defendant in any action or suit for judicial foreclosure and
sale under this Security Instrument; (c) affect the validity or enforceability
of the Note, this Security Instrument, or any of the other Loan Documents, or
impair the right of Lender to seek a personal judgment against the Guarantor;
(d) impair the right
of Lender
to obtain the appointment of a receiver; (e) impair the enforcement of the
Assignment; (f) impair the
right of
Lender to bring suit for a monetary judgment against Borrower with respect to
any losses resulting from fraud, material misrepresentation, or failure to
disclose a material fact, any untrue statement of a material fact or omission to
state a material fact in the written materials and/or information provided to
Lender or any of its affiliates by or on behalf of Borrower, Guarantor or any of
their Affiliates in connection with this Security Instrument, the Note or the
other Loan Documents, and the foregoing provisions shall not modify, diminish or
discharge the liability of Borrower, Guarantor or any of their Affiliates with
respect to same; (g) impair the right of Lender to bring suit for a monetary
judgment against Borrower to obtain the Recourse Distributions received by
Borrower including, without limitation, the right to bring suit for a monetary
judgment to proceed against Guarantor to the extent of Guarantor’s liability
under any guaranty delivered by Guarantor and the foregoing provisions shall not
modify, diminish or discharge the liability of Borrower or Guarantor with
respect to same; (h) impair the right of Lender to bring suit for a monetary
judgment against Borrower with respect to any losses resulting from Borrower’s
misappropriation of tenant security deposits or Rent (other than rent deemed
“additional rent” under the Leases) collected more than one (1) month in
advance, and the foregoing provisions shall not modify, diminish or discharge
the liability of Borrower with respect to same; (i) impair the right of Lender
to obtain Loss Proceeds due to Lender pursuant to this Security Instrument to
the extent actually paid by the insurer; (j) impair the right of Lender to
enforce the provisions of Sections 2.02(g), 16.01 or 16.02, inclusive of this
Security Instrument, even after repayment in full by Borrower of the Debt or to
bring suit for a monetary judgment against Borrower with respect to any losses
resulting from any obligation set forth in said Sections; (k) prevent or in any
way hinder Lender from exercising, or constitute a defense, or counterclaim, or
other basis for relief in respect of the exercise of, any other remedy against
any or all of the collateral securing the Note as provided in the Loan
Documents; (l) impair the right of Lender to bring suit for a monetary judgment
against Borrower with respect to any losses resulting from any misappropriation
or conversion of Loss Proceeds, and the foregoing provisions shall not modify,
diminish or discharge the liability of Borrower with respect to same; (m) impair
the right of Lender to sue for, seek or demand a deficiency judgment against
Borrower solely for the purpose of foreclosing the Property or any part thereof,
or realizing upon the Default Collateral;
provided
,
however
, that
any such deficiency judgment referred to in this clause (m) shall be enforceable
against Borrower and Guarantor only to the extent of any of the Default
Collateral; (n) impair the ability of Lender to bring suit for a monetary
judgment against Borrower with respect to any losses resulting from arson or
physical waste to or of the Property or damage to the Property in each case
resulting from the intentional acts or intentional omissions of Borrower,
Guarantor or any of their Affiliates; (o) impair the right of Lender to bring a
suit for a monetary judgment against Borrower in the event of the exercise of
any right or remedy under any federal, state or local forfeiture laws resulting
in the loss of the lien of this Security Instrument, or the priority thereof,
against the Property; (p) be deemed a waiver of any right which Lender may have
under Sections 506(a), 506(b), 1111(b) or any other provision of the Bankruptcy
Code to file a claim for the full amount of the Debt or to require that all
collateral shall continue to secure all of the Debt; (q) impair the right of
Lender to bring suit for monetary judgment against Borrower with respect to any
losses resulting from any claims, actions or proceedings initiated by Borrower
(or any Affiliate of Borrower) alleging that the relationship of Borrower and
Lender is that of joint venturers, partners, tenants in common, joint tenants or
any relationship other than that of debtor and creditor; (r) impair the right of
Lender to bring suit for
a
monetary judgment with respect to any losses resulting from a Transfer in
violation of the provisions of Article IX hereof; or (s) impair the right of
Lender to bring suit against Borrower for Borrower’s failure to pay any valid
taxes, assessments, mechanic’s liens, materialmen’s liens or other liens which
could create liens on any portion of the Property superior to the lien or
security title of this Security Instrument or the other Loan Documents, except,
(1) with respect to any such taxes or assessments, to the extent that funds have
been deposited with Lender pursuant to the terms of this Security Instrument
specifically for the applicable taxes or assessments and not applied by Lender
to pay such taxes and assessments, and (2) to the extent that there is
insufficient available cash flow at any time to enable Borrower to pay all
operating expenses (including taxes and assessments) then due and payable,
necessary property improvement expenditures and amounts due and payable under
the Loan Documents (as demonstrated to the reasonable satisfaction of Lender)
and Borrower applies all available cash flow to the payment of any one or more
of the foregoing items. The provisions of this Section 18.32 shall be
inapplicable to Borrower if (a) any proceeding, action, petition or filing under
the Bankruptcy Code, or any similar state or federal law now or hereafter in
effect relating to bankruptcy, reorganization or insolvency, or the arrangement
or adjustment of debts, shall be filed by, consented to or acquiesced in by or
with respect to Borrower, or if Borrower shall institute any proceeding for its
dissolution or liquidation, or shall make an assignment for the benefit of
creditors or (b) Borrower or any Affiliate contests or interferes with Lender’s
enforcement of its rights and remedies hereunder or under the Loan Documents by
asserting any defense (x) as to the validity of the obligations under the Loan
Documents or in any way relating to the structure of the Borrower or the
enforceability of Lender’s rights and remedies under the Loan Documents, or (y)
for the purpose of delaying, hindering or impairing Lender’s rights and remedies
under the Loan Documents (collectively, a “
Contest
”)
(provided that if any such Person obtains a non-appealable order successfully
asserting a Contest, Borrower shall have no liability under this clause (b)), in
which event Lender shall have recourse against all of the assets of Borrower
including, without limitation, any right, title and interest of Borrower in and
to the Property.
Section
18.33.
Intentionally
Deleted
Section
18.34.
Intentionally
Deleted
Section
18.35.
Intentionally
Deleted
Section
18.36.
Cooperation
. (a)
Borrower covenants and agrees that in the event the Loan is to be included as an
asset of a Securitization, Borrower shall (a) gather any information reasonably
required by the Rating Agencies in connection with such a Securitization, (b) at
Lender’s request, meet with representatives of the Rating Agency to discuss the
business and operations of the Property, and (c) cooperate with the reasonable
requests of each Rating Agency and Lender in connection with all of the
foregoing as well as in connection with all other matters and the preparation of
any offering documents with respect thereof, including, without limitation,
entering into any amendments or modifications to this Security Instrument or to
any other Loan Document which may be requested by Lender to conform to Rating
Agency or market standards for a Securitization provided that no such
modification shall modify (a) the interest rate payable under the Note, (b) the
stated maturity of the Note, (c) the amortization of principal under the Note,
(d) Section 18.32 hereof, (e) any other material economic term of the Loan or
(f) any
provision,
the effect of which would materially increase Borrower’s obligations or
materially decrease Borrower’s rights under the Loan Documents. Borrower
acknowledges that the information provided by Borrower to Lender may be
incorporated into the offering documents for a Securitization. Lender and each
Rating Agency shall be entitled to rely on the information supplied by, or on
behalf of, Borrower and Borrower indemnifies and holds harmless the Indemnified
Parties, their Affiliates and each Person who controls such Persons within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as same may be amended from time to time, for, from and
against any claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature, known or unknown,
contingent or otherwise, whether incurred or imposed within or outside the
judicial process, including, without limitation, reasonable attorneys’ fees and
disbursements (including, without limitation, reasonable attorney’s fees and
expenses, whether incurred within or outside the judicial process) that arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in such information or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated in such information or necessary in order to make the statements in such
information, or in light of the circumstances under which they were made, not
misleading.
(b)
Further,
Borrower shall cooperate at no cost to Borrower or Guarantor, with Lender and
its affiliates in connection with any such sale of the Loan by mortgage backed
pass through certificates, participations, securities or pari passu notes
evidencing whole or component interests therein through one of more public or
private offerings, including, but not limited to:
(i)
separating
the Loan into two or more separate notes (or components that correspond to one
or more tranches of the certificates/securities created in a Securitization) or
participation interests. Such notes or components or participation interests may
be assigned different interest rates, so long as the weighted average of such
interest rates equals the interest rate on the Note. Additionally, Lender may
split the Loan into a senior/subordinated participation structure;
(ii)
obtaining
ratings from two or more Rating Agencies;
(iii)
making or
causing to be made reasonable changes or modifications to the loan
documentation, organizational documentation, opinion letters and other
documentation;
(iv)
reviewing
prepared offering materials relating to the Property, Borrower, Guarantor and
the Loan;
(v)
delivering
updated information on the Borrower, Guarantor and the Property;
(vi)
participating
in investor or Rating Agency meetings if requested by Lender;
and
(vii)
permitting
adjustment of Lender’s security interest to permit a senior/subordinate or other
structure to enhance a Securitization, participation interest or a distribution
of the Loan; and
(viii)
restructuring
of the Loan and/or a reduction of the Loan Amount with the imposition of a
mezzanine loan in the corresponding amount to be reduced, which mezzanine loan
shall be secured by a pledge of ownership interests in the Borrower or the
members of Borrower. Such notes or components may be assigned different interest
rates, so long as the weighted average of such interest rates equals the
interest rate on the Note.
Section
18.37.
Regulation
A/B
.
b)
If
requested by Lender, Borrower shall furnish, or shall cause the applicable
tenant to furnish, to Lender financial data and/or financial statements in
accordance with Regulation AB (as defined herein) for any tenant of any Property
if, in connection with a securitization, Lender expects there to be, with
respect to such tenant or group of affiliated tenants, a concentration within
all of the mortgage loans included or expected to be included, as applicable, in
such securitization such that such tenant or group of affiliated tenants would
constitute a Significant Obligor (as defined herein); provided, however, that in
the event the related lease does not require the related tenant to provide the
foregoing information, Borrower shall use commercially reasonable efforts to
cause the applicable tenant to furnish such information.
(b)
If, at
the time one or more Disclosure Documents are being prepared for a
securitization, Lender expects that Borrower alone or Borrower and one or more
affiliates of Borrower collectively, or the Property alone or the Property and
any other parcel(s) of real property, together with improvements thereon and
personal property related thereto, that is “related”, within the meaning of the
definition of Significant Obligor, to the Property (a “Related Property”)
collectively, will be a Significant Obligor, Borrower shall furnish to Lender
upon request (i) the selected financial data or, if applicable, net operating
income, required under Item 1112(b)(1) of Regulation AB and meeting the
requirements thereof, if Lender expects that the principal amount of the Loan,
together with any loans made to an affiliate of Borrower or secured by a Related
Property that is included in a securitization with the Loan (a “Related Loan”),
as of the cut-off date for such securitization may, or if the principal amount
of the Loan together with any Related Loans as of the cut-off date for such
securitization and at any time during which the Loan and any Related Loans are
included in a securitization does, equal or exceed ten percent (10%) (but less
than twenty percent (20%)) of the aggregate principal amount of all mortgage
loans included or expected to be included, as applicable, in the securitization
or (ii) the financial statements required under Item 1112(b)(2) of Regulation AB
and meeting the requirements thereof, if Lender expects that the principal
amount of the Loan together with any Related Loans as of the cut-off date for
such securitization may, or if the principal amount of the Loan together with
any Related Loans as of the cut-off date for such securitization and at any time
during which the Loan and any Related Loans are included in a securitization
does, equal or exceed twenty percent (20%) of the aggregate principal amount of
all mortgage loans included or expected to be included, as applicable, in the
securitization. Such financial data or financial statements shall be furnished
to Lender (A) within ten (10) Business Days after notice from Lender in
connection with the preparation of Disclosure Documents for the securitization,
(B) not later than thirty (30) days after the end of each fiscal quarter of
Borrower and (C) not later than seventy-five (75) days after the end of each
fiscal year of Borrower; provided, however, that Borrower shall not be obligated
to furnish financial data or financial statements pursuant to clauses (B) or (C)
of this sentence with respect to any period for which a filing pursuant to the
Securities Exchange Act of 1934 in connection with or relating to the
securitization (an “Exchange Act Filing”) is not required. As used herein,
“Regulation AB” shall mean Regulation AB under the Securities Act of 1933 and
the Securities Exchange Act of 1934 (as amended). As used herein, “Disclosure
Document” shall mean a prospectus, prospectus supplement, private placement
memorandum, or similar offering memorandum or offering circular, in each case in
preliminary or final form, used to offer securities in connection with a
securitization. As used herein, “Significant Obligor” shall have the meaning set
forth in Item 1101(k) of Regulation AB.
Section
18.38.
Certain Matters Relating to
Property Located in the State of Florida
. With
respect to the Property which is located in the State of Florida,
notwithstanding anything contained herein to the contrary.
(a)
All
references herein to "attorneys' fees" shall be deemed to include reasonable
attorneys' fees incurred at both the trial and appellate levels.
(b)
It is
understood and agreed that this Mortgage shall secure payment of not only the
indebtedness evidenced by the Note but also any and all substitutions,
replacements, renewals and extensions of the Note, any and all indebtedness and
obligations arising pursuant to the terms hereof and any and all indebtedness
and obligations arising pursuant to the terms of any of the other Loan
Documents, all of which indebtedness is equally secured with and has the same
priority as any amounts advanced as of the date hereof. It is agreed that any
future advances made by Lender to or for the benefit of Borrower from time to
time under this Mortgage or the other Loan Documents and whether or not such
advances are obligatory or are made at the option of Lender, or otherwise, made
for any purpose, within twenty (20) years from the date hereof, and all interest
accruing thereon, shall be equally secured by this Mortgage and shall have the
same priority as all amounts, if any, advanced as of the date hereof and shall
be subject to all of the terms and provisions of this Mortgage. The total amount
of the indebtedness including future advances, secured hereby may increase or
decrease from time to time in accordance with the terms of the Loan Documents,
but shall not exceed the sum $
54,500,000.00
at any
one time, plus accrued interest thereon and any disbursements made by Lender in
accordance with the Loan Documents.
(c)
Borrower
hereby indemnifies and holds harmless the law firm of Winston & Strawn LLP
and all of their attorneys, from any and all loss, cost, expense, damage or
claim, whether or not valid, including, without limitation, reasonable
attorneys' fees and disbursements, arising under or in any way connected with
Section 697.10 of Florida Statutes or any similar law. Borrower hereby verifies
and confirms, to the best of its knowledge, all factual information in this
Mortgage, including the accuracy and correctness of the legal description set
forth herein. In the event any factual errors are found in this Mortgage or in
the legal description, Borrower and the Lender shall, at Borrower's sole cost
and expense, promptly correct or cause to be corrected subsequent to the date
hereof any and all such errors. Borrower shall promptly pay or cause to be paid
all damages, claims or any other costs whatsoever arising under or in way
connected with any claim, whether or not valid, arising under or in any way
connected with Section 697.10 of the Florida Statutes, or any similar law due to
or caused by any inaccuracy or incorrectness of factual information or
inaccuracy or incorrectness of the legal description set forth herein.
Notwithstanding the foregoing, all rights of Borrower and Lender are preserved
against Borrower's and Lender's title insurers, the surveyor, the engineer, if
any, and the appraiser, if any, and, after payment is made by Borrower, Borrower
shall be subrogated to such rights.
(d)
Upon
payment of all the Debt, Borrower (or its designee, including a subsequent
lender to Borrower) shall have the right to purchase the Loan Documents, said
purchase to be by assignment of the Loan Documents, without recourse,
representation or warranty (except as to ownership of the Loan Documents, their
not being encumbered or previously transferred and Lender's authority to assign
same).
(e)
In no
event shall the Existing Note, the indebtedness evidenced by the Existing Note
or the lien of the Existing Mortgage be novated, cancelled or released by any of
the Loan Documents.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, Borrower has executed this Security Instrument on the day and
year first hereinabove set forth.
WITNESSES:
|
BORROWER:
|
/s/ Joy
DeVita
Signature
Joy
DeVita
Print
Name
/s/ Dina
Berg
Signature
Dina
Berg
Print
Name
|
LVP
ST. AUGUSTINE OUTLETS LLC,
a
Delaware limited liability company
By:
Lightstone
Value Plus REIT LP,
a Delaware limited partnership,
Its: Sole Member
By:
Lightstone
Value Plus Real Estate Investment Trust, Inc,
a
Maryland corporation
Its:
General Partner
By
/s/
David Lichtenstein
Name:
David
Lichtenstein
Title:
President
|
STATE OF
New
Jersey
COUNTY OF
County
The
foregoing instrument was acknowledged before me this ___ day of March, 2006 by
David Lichtenstein, the President and duly authorized agent of Lightstone Value
Plus Real Estate Investment Trust, Inc, a Maryland corporation, the General
Partner of Lightstone Value Plus REIT LP, a Delaware limited partnership, the
Sole Member of LVP ST. AUGUSTINE OUTLETS LLC, a Delaware limited liability
company. He is personally known to me or has produced _________________________
as identification.
(Seal)
/s/ Anna E.
Waddy
Notary Public
Print Name:
Anna
Waddy
My
Commission Expires:
12/22/2010
EXHIBIT
A
Legal
Description
ALL
that
certain lot, piece or parcel of land, with the buildings and improvements
thereon erected, situate, lying and being in the City of Saint Augustine, County
of Saint Johns, State of Florida.
A part of
Section 5 and 6, Township 7 South, Range 29 East, St. Johns County, Florida,
more particularly described as follows: For a point of reference, commence at
the Northeast corner of said Section 6; thence South 02°02'27" East along the
East line of said Section 6, a distance of 921.41 feet to the Point of
Beginning; thence departing said Section line, South 33°23'45" East, a distance
of 1104.56 feet; thence South 56°36'15" West, a distance of 1350.00 feet to a
point on the Northeasterly limited access right of way line of Interstate 95,
State Road No. 9, (a varying right of way as now established) and a point on a
curve, concave Southwesterly having a radius of 5879.58 feet; thence
Northwesterly along said right of way line and along the arc of said curve, an
arc distance of 90.29 feet, said arc being subtended by a chord bearing of North
28°47'23" West and a chord distance of 90.29 feet to a point on said curve and a
point on the Northwesterly right of way line of Outlet Centre Drive (a 90 foot
private right of way); thence departing said Northeasterly limited access right
of way line, North 56°36'15" East along said Northwesterly right of way line, a
distance of 307.90 feet; thence departing said Northwesterly right of way line,
North 33°23'45" West, a distance of 83.75 feet; thence North 22°44'16" West, a
distance of 218.65 feet; thence North 33°23'45" West, a distance of 1093.87
feet; thence North 56°36'15" East, a distance of 994.41 feet; thence South
33°23'45" East, a distance of 377.94 feet to the point of
beginning.
TOGETHER WITH
Easements benefiting the insured land as set forth in the following
documents:
1)
|
Development
Agreement between St. Augustine Associates, Inc., a Florida corporation,
as Trustee under Land Trust Agreement for St. Augustine Centre Land Trust
dated June 15, 1998 and FOM St. Augustine Limited Partnership, recorded
July 13, 1998 in Official Records Book 1333, page 416, Public Records of
St. Johns County, Florida.
|
2)
|
Declaration of Reciprocal Easements, Rights and
Maintenance Covenants for the St. Augustine Centre DRI/PUD, by St.
Augustine Associates, Inc., a Florida corporation, as Trustee under Land
Trust Agreement for St. Augustine Centre Land Trust dated June 15, 1998
recorded July 13, 1998 in Official Records Book 1333, page 347, Public
Records of St. Johns County, Florida, and First Amendment to Declaration
of Reciprocal Easements, Rights
and
Maintenance Covenants for the St. Augustine Centre DRI/PUD by St.
Augustine Associates, Inc., a Florida corporation, as Trustee under Land
Trust Agreement for St. Augustine Centre Land Trust dated June 15, 1998,
recorded July 13, 1998 in Official Records Book 1333, page 384, Public
Records of St. Johns County, Florida. (NOTE: The Easements established
pursuant to this Declaration include, but are not limited to, an access
easement into, out of, on, over and across the areas described in the
Declaration as Belz Outlet Boulevard and Outlet Centre Drive, as same is
created pursuant to Paragraph 7 of the
Declaration.)
|
3)
|
St.
Augustine Centre Road and Utilities Improvements Construction Agreement
between St. Augustine Associates, Inc., a Florida corporation, as Trustee
under Land Trust Agreement for St. Augustine Centre Land Trust, dated June
15, 1998 and FOM St. Augustine Limited Partnership recorded July 13, 1998
in Official Records Book 1333, page 434, Public Records of St. Johns
County, Florida.
|
4)
|
Declaration
of Drainage Easement by St. Augustine Associates, Inc., a Florida
corporation, as Trustee under Land Trust Agreement for St. Augustine
Centre Land Trust dated June 15, 1998, recorded July 13, 1998 in Official
Records Book 1333, page 388, Public Records of St. Johns County,
Florida.
|
5)
|
Declaration
of Restrictive Covenants and Easement Agreement made by FOM St. Augustine
Limited Partnership dated September 23,
1999.
|
6)
|
Grant
of Easements and Covenants Running with the Land between FOM St. Augustine
Limited Partnership and St. Augustine Outlet World, Ltd., dated September
23, 1999.
|
NOTE:
Being a
part of Sections 5 and 6, Township 7 South, Range 29 East, Tax Map of the County
of Saint Johns.
EXHIBIT
B
SUMMARY OF
RESERVES
Reserve
Items
|
Initial
Deposit Amount
|
Monthly
Installment Amount
|
Basic
Carrying Costs
·
Taxes
·
Insurance
Premiums
|
·
Taxes
$349,332.13
·
Insurance
Premiums
$ 38,168.90
|
·
Taxes
$49,904.59
·
Insurance
Premiums
$ 3,180.74
|
Initial
Engineering/Environmental Deposits
·
Immediate
Repairs
·
Environmental
Remediation
|
·
Immediate
Repairs
N/A
·
Environmental Remediation
N/A)
|
·
Immediate
Repairs
N/A
·
Environmental
Remediation
N/A)
|
Recurring
Monthly Replacement Reserve Deposit
|
N/A
|
$3,115.73
|
Reletting
Reserve
|
N/A
|
$25,964.38
|
Outstanding
TILC Escrow Account
|
$
750,000.00
|
N/A
|
Initial
Holdback Reserve Deposit
|
$
3,000,000.00
|
N/A
|
Initial
Debt Service Reserve Deposit
|
$
400,000.00
|
N/A
|
Initial
Yield Maintenance Reserve Deposit
|
$
300,000.00
|
N/A
|
EXHIBIT
C
CASH FLOW
STATEMENT
Property:____________________________
Location:____________________________
Cash Flow
Statement for Month of:____________ Year:
|
Current
Month
|
Year
to
Date
|
REVENUE
Net
Rental Revenue
Other
Revenue
Effective
Gross Income
|
________
|
________
|
OPERATING
EXPENSES
Common
Area Maintenance
Payroll
Administration
Leasing
Service
Clean
& Decorate
Utilities
Repairs
& Maintenance
Taxes
Insurance
Management
Fees
Other
Total
Operating Expenses
Net
Operating Income
|
________
________
|
________
________
|
RECURRING
EXPENSES
To
Include Expenses for: Carpet Replacement, Appliance Replacement,
HVAC/Water Heater Replacement; Miniblinds/Drapes/Ceiling
Fans:
|
________
|
________
|
NON-RECURRING
EXPENSES
To
Include Capital Expenses for: Playground, Major Signage,
Lawns/Trees/Shrubs, Paving/Parking, Roof Replacement,
Carpentry/Siding/Balconies, Exterior Paint, Major Concrete/Sidewalks,
Foundations, Major Exterior, Boiler Replacement, Major HVAC Replacement,
Plumbing Replace, Electrical Replace, Other Major, Fire & Storm, Ins.
Loss Recovery:
|
|
|
Net
Cash Flow
|
________
|
________
|
Certified
By:_____________________________
Name:_____________________________
Title:_____________________________
Management
Company:_____________________________
EXHIBIT
D
Intentionally
Deleted
EXHIBIT
E
Form of
Direction Letter
[Letterhead
of Landlord]
[Name and
Address of tenant]
Re:
[Address of Premises]
Dear
tenant:
You are
hereby directed to make all future payments of rent and other sums due to
Landlord under the Lease payable as follows:
Payable
To:
[Borrower]
and Wachovia Bank, National Association
If by federal wire
transfer
:
|
|
|
|
Bank:
|
Wachovia
Bank, NA
|
ABA #:
|
053-000-219
|
Acct Name:
|
[Borrower]
|
Acct #:
|
|
Ref Loan #:
|
___________________
|
|
|
If by US
Mail
:
|
|
|
|
_________________
|
|
|
|
PO
Box _____
|
|
Charlotte,
NC 28260-1443
|
|
|
|
If by Overnight
Courier
:
|
|
|
|
Wachovia Bank, NA
|
|
1525 West WT Harris Blvd
|
|
Bldg 2C2 (Ref # ______)
|
|
Charlotte, NC 28262
|
|
Ref Loan
#:_____________________
|
|
Please
take particular care in making the check payable only to the above-mentioned
names because only checks made payable to the referenced names will be credited
against sums due by you to landlord. Until otherwise advised in writing by
Landlord
and
the
above-mentioned bank (or its successor), you should continue to make your
payments for rent and other sums as directed by the terms of this
letter.
Thank you
in advance for your cooperation with this change in payment
procedures.
By:
E
XHIBIT G
Holdback Reserve Release
Calculation
FORMULA
|
(i)
|
Lender
determines Pro-Forma Net Operating
Income;
|
|
(ii)
|
Pro-Forma
Net Operating Income is initially divided by 1.20 (the debt service
coverage ratio);
|
|
(iii)
|
The
result is divided by using a mortgage loan constant associated with 6.09%
which is 7.2641881%. This calculation results in the loan amount which can
be supported by the Pro-Forma Net Operating Income at the required Debt
Service Coverage;
|
|
(iv)
|
$24,250,000.00
is subtracted from the result of (iii); and
|
|
(v)
|
The
result of (iv) determines the amount to be
released.
|
EXAMPLE
Assumptions:
Initial
Loan Amount
|
$
27,250,000.00
|
|
Initial
Supportable Loan Amount at Closing
|
$24,250,000.00
|
|
Initial
Reserve Amount
|
$
3,000,000
|
|
Loan
Constant
|
7.2641881%
|
|
If:
Pro-Forma
Net Operating Income
|
$2,266,426.68
|
|
Debt
Service Coverage Ratio
|
1.20
|
|
Loan
Constant
|
7.2641881%
|
|
Then:
Pro-Forma
Net Operating Income
¸
Debt Service Coverage Ratio
¸
Interest Rate =
|
Supportable
Loan Amount
|
OR
|
$2,266,426.68
¸
1.20
¸
7.2641881% =
|
$26,000,000
|
Supportable
Loan Amount
|
$26,000,000
|
Less:
$24,250,000.00
|
1,750,000
|
Therefore,
the Holdback Escrow Reserve Escrow Account would be released as
follows:
Original
Balance in Escrow
|
$3,000,000
|
Less:
Amount to be released
|
$1,750,000
|
Amount
of existing balance to be maintained in Holdback Escrow Reserve
Escrow
|
$
1,250,000
|
Loan No.:
50-1000045
|
St.
Augustine
|
RENEWAL PROMISSORY NOTE
INCLUDING FUTURE ADVANCE
$27,250,000.00
|
as
of March 31, 2006
|
THIS
RENEWAL PROMISSORY NOTE INCLUDING FUTURE ADVANCE (this “Note”), is made as of
the date set forth above by LVP ST. AUGUSTINE OUTLETS LLC, a Delaware limited
liability company ("Borrower"), whose address is
c/o The
Lightstone Group, 326 Third Street, Lakewood, New Jersey 08701
, to the
order of WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association
(together with its successors and assigns, “
Lender
”) at the
office of Lender at Commercial Real Estate Services, 8739 Research Drive URP -
4, NC 1075, Charlotte, North Carolina 28262.
WHEREAS,
the principal sums evidenced by and advanced or to be advanced pursuant to the
terms of this Note consist of: (i) $22,349,685.19 of outstanding principal
formerly evidenced by that certain Promissory Note dated June 30, 1998 (the
“
Existing
Note
”), in
favor of Nationsbank of Tennessee, N.A. (n/k/a Bank of America, N.A.) in the
amount of $32,000,000.00 as amended and reduced by that certain Assumption and
Release Agreement and as assigned to Wells Fargo Bank, N.A. (formerly known as
Wells Fargo Bank Minnesota, N.A.), as Trustee for the Registered Holders of GE
Capital Commercial Mortgage Corporation, Commercial Mortgage Pass-Through
Certificates Series 2002-3 and in its capacity as Lead Lender on Behalf of the
Holders of the Related Companion Loans (the “
Original
Lender
”) in the
original principal amount of TWENTY FOUR MILLION and 00/100 Dollars
($24,000,000.00), which Existing Note, together with the mortgages securing such
Existing Note (collectively, the "
Existing Mortgage
"), was
assigned by Original Lender to Lender pursuant to that certain Assignment of
Mortgage dated as of even date herewith and recorded in the public records of
St. John’s County, Florida (and which such Existing Mortgage was amended and
restated in its entirety pursuant to that certain Note and Mortgage Modification
Agreement Evidencing Renewal Promissory Note Including Future Advance, and
Amended and Restated Mortgage, Security Agreement and Fixture Filing dated as of
even date herewith and recorded in the public records of Duval County, Florida),
and (iii) $4,900,314.81 of new loan proceeds (hereinafter referred to as the
“
Future Advance
”);
and
WHEREAS,
this Note is given, in part, to renew the Existing Note. As to the renewal of
the Existing Note, this Note is intended to comply with the requirements of
§201.09, Florida Statutes, and is intended to be exempt from documentary stamp
taxation thereunder. Accordingly, pursuant to §201.09, Florida Statutes,
Documentary stamp taxes in the amount of $17,151.40, based upon the amount of
the Future Advance, and intangible tax in the amount of $9,800.80, based upon
the amount of the Future Advance, .have been paid and affixed to the Security
Instrument (as defined herein) securing this Note.
NOW,
THEREFORE, FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of
WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association (together
with its successors and assigns, “
Lender
”), at
the office of Lender at Commercial Real Estate Services, 8739 Research Drive URP
- 4, NC 1075, Charlotte, North Carolina 28262, or at such other place as Lender
may designate to Borrower in writing from time to time, the principal sum of
TWENTY-SEVEN MILLION TWO HUNDRED FIFTY THOUSAND
AND
00/100 DOLLARS ($27,250,000.00)
,
together with interest on so much thereof as is from time to time outstanding
and unpaid, from the date of the advance of the principal evidenced hereby, at
the rate of six and nine hundredths percent (6.09%) (the “
Note Rate
”),
together with all other amounts due hereunder or under the other Loan Documents
(as defined herein), in lawful money of the United States of America, which
shall at the time of payment be legal tender in payment of all debts and dues,
public and private.
ARTICLE I
TERMS AND
CONDITIONS
Section
1.1
Computation of
Interest
.
Interest shall be computed hereunder based on a 360-day year and based on the
actual number of days elapsed for any period in which interest is being
calculated. Interest shall accrue from the date on which funds are advanced
hereunder (regardless of the time of day) through and including the day on which
funds are credited pursuant to Section 1.2 hereof.
Section
1.2
Payment of Principal and
Interest
.
Payments in federal funds immediately available at the place designated for
payment received by Lender prior to 2:00 p.m. eastern time on a day on which
Lender is open for business at said place of payment shall be credited prior to
close of business, while other payments, at the option of Lender, may not be
credited until immediately available to Lender in federal funds at the place
designated for payment prior to 2:00 p.m. eastern time on the next day on which
Lender is open for business. Interest only shall be payable in twelve (12)
consecutive monthly installments in the amount set forth on Annex 1 beginning on
May 11, 2006 (the “
First Payment
Date
”), and
continuing on the eleventh (11th) day of each and every calendar month
thereafter through and including April 11, 2007 and, thereafter, principal and
interest shall be payable in equal consecutive monthly installments of
$164,957.60 each, beginning on May 11, 2007, and continuing on the eleventh
(11th) day of each and every calendar month thereafter through and including
March 11, 2016 (each, a “
Payment
Date
”). On
April 11, 2016 (the “
Maturity
Date
”), the
entire outstanding principal balance hereof, together with all accrued but
unpaid interest thereon, shall be due and payable in full.
Section
1.3
Application of
Payments
. So long
as no Event of Default (as hereinafter defined) exists hereunder or under any
other Loan Document, each such monthly installment shall be applied, first, to
any amounts hereafter advanced by Lender hereunder or under any other Loan
Document, second, to any late fees and other amounts payable to Lender, third,
to the payment of accrued interest and last to reduction of
principal.
Section
1.4
Payment of “Short
Interest”
. If the
advance of the principal amount evidenced by this Note is made on a date other
than a Payment Date, Borrower shall pay to Lender contemporaneously with the
execution hereof interest at the Note Rate for a period from the date hereof
through and including the tenth (10
th
) day of
either (x) this month, in the event that the date hereof is on or prior to the
11th of the month, and (y) the immediately succeeding month, in the event that
the date hereof is after the 11
th
of the
month.
Section
1.5
Prepayment;
Defeasance
.
(a)
This Note
may not be prepaid, in whole or in part (except as otherwise specifically
provided herein), at any time prior to the Payment Date occurring three (3)
Payment Dates immediately prior to the Maturity Date (the “
Lockout Expiration
Date
”). In
the event that Borrower wishes to have the Property (as defined in the Security
Instrument) released from the lien of the Security Instrument prior to the
Lockout Expiration Date, Borrower’s sole option shall be a Defeasance (as
hereinafter defined) upon satisfaction of the terms and conditions set forth in
Section
1.5(d)
hereof.
Notwithstanding anything contained in this Note or any of the other Loan
Documents to the contrary, this Note may be prepaid in whole but not in part
without premium or penalty on any Payment Date (subject to the proviso below)
occurring from and after the Lockout Expiration Date provided (i) written notice
of such prepayment is received by Lender not more than ninety (90) days and not
less than thirty (30) days prior to the date of such prepayment, and (ii) such
prepayment is accompanied by all interest accrued hereunder through the date of
such prepayment and all other sums due hereunder or under the other Loan
Documents; provided, however, that if such prepayment is received on a day that
is not a Payment Date, Borrower shall pay interest on the outstanding principal
balance hereof immediately preceding such prepayment at the Note Rate for a
period from the date of such payment through and including the tenth (10th) day
of either (x) the month in which the prepayment occurs if such payment is made
prior to the 11th day of such month, and (y) the immediately succeeding month in
which the prepayment occurs if such payment is made after the 11th day of such
month. If, upon any such permitted prepayment on any Payment Date occurring on
or after the Lockout Expiration Date, the aforesaid prior written notice has not
been timely received by Lender, there shall be due a prepayment fee equal to the
lesser of (i) thirty (30) days’ interest computed at the Note Rate on the
outstanding principal balance of this Note so prepaid and (ii) interest computed
at the Note Rate on the outstanding principal balance of this Note so prepaid
that would have been payable for the period from, and including, the date of
prepayment through the Maturity Date, as though such prepayment had not
occurred.
(b)
If, prior
to the Lockout Expiration Date, the indebtedness evidenced by this Note shall
have been declared due and payable by Lender pursuant to Article II hereof or
the provisions of any other Loan Document due to an Event of Default by
Borrower, then, in addition to the indebtedness evidenced by this Note being
immediately due and payable, there shall also then be immediately due and
payable a prepayment fee in an amount equal to the Yield Maintenance Premium (as
hereinafter defined) based on the entire indebtedness on the date of such
acceleration. In addition to the amounts described in the preceding sentence, in
the event of any such acceleration or tender of payment of such indebtedness
occurs or is made on or prior to the first (1st) anniversary of the date of this
Note, there shall also then be immediately due and payable an additional
prepayment fee of three percent (3%) of the principal balance of this Note. The
term “
Yield Maintenance
Premium
” shall
mean an amount equal to the greater of (A) two percent (2.0%) of the principal
amount being prepaid, and (B) the present value of a series of payments each
equal to the Payment Differential (as hereinafter defined) and payable on each
Payment Date over the remaining original term of this Note and on the Maturity
Date, discounted at the Reinvestment Yield (as hereinafter defined) for the
number of months remaining as of the date of such prepayment to each such
Payment Date and the Maturity Date. The term “
Payment
Differential
” shall
mean an amount equal to (i) the Note Rate less the Reinvestment Yield, divided
by (ii) twelve (12) and multiplied by (iii) the principal sum outstanding under
this Note after application of the constant monthly payment due under this Note
on the date of such prepayment, provided that the Payment Differential shall in
no event be less than zero. The term “
Reinvestment
Yield
” shall
mean an amount equal to the lesser of (i) the yield on the U.S. Treasury issue
(primary issue) with a maturity date closest to the Maturity Date, or (ii) the
yield on the U.S. Treasury issue (primary issue) with a term equal to the
remaining average life of the indebtedness evidenced by this Note, with each
such yield being based on the bid price for such issue as published in the Wall
Street Journal on the date that is fourteen (14) days prior to the date of such
prepayment (or, if such bid price is not published on that date, the next
preceding date on which such bid price is so published) and converted to a
monthly compounded nominal yield. In the event that any prepayment fee is due
hereunder, Lender shall deliver to Borrower a statement setting forth the amount
and determination of the prepayment fee, and, provided that Lender shall have in
good faith applied the formula described above, Borrower shall not have the
right to challenge the calculation or the method of calculation set forth in any
such statement in the absence of manifest error, which calculation may be made
by Lender on any day during the fifteen (15) day period preceding the date of
such prepayment. Lender shall not be obligated or required to have actually
reinvested the prepaid principal balance at the Reinvestment Yield or otherwise
as a condition to receiving the prepayment fee.
(c)
Partial
prepayments of this Note shall not be permitted, except for partial prepayments
resulting from Lender’s election to apply insurance or condemnation proceeds to
reduce the outstanding principal balance of this Note as provided in the
Security Instrument, in which event no prepayment fee or premium shall be due
unless, at the time of either Lender’s receipt of such proceeds or the
application of such proceeds to the outstanding principal balance of this Note,
an Event of Default exists, which Event of Default is unrelated to the
applicable casualty or condemnation, in which event the applicable prepayment
fee or premium shall be due and payable based upon the amount of the prepayment.
No notice of prepayment shall be required under the circumstances specified in
the preceding sentence. No principal amount repaid may be reborrowed. Any such
partial prepayments of principal shall be applied to the unpaid principal
balance evidenced hereby but such application shall not reduce the amount of the
fixed monthly installments required to be paid pursuant to Section 1.2 above.
Except as otherwise expressly provided in this Section, the prepayment fees
provided above shall be due, to the extent permitted by applicable law, under
any and all circumstances where all or any portion of this Note is paid prior to
the Maturity Date, whether such prepayment is voluntary or involuntary,
including, without limitation, if such prepayment results from Lender’s exercise
of its rights upon the occurrence of an Event of Default and acceleration of the
Maturity Date of this Note (irrespective of whether foreclosure proceedings have
been commenced), and shall be in addition to any other sums due hereunder or
under any of the other Loan Documents. No tender of a prepayment of this Note
with respect to which a prepayment fee is due shall be effective unless such
prepayment is accompanied by the applicable prepayment fee.
(d)
i)
On any
Payment Date on or after the earlier to occur of (x) four (4) years following
the first Payment Date hereunder, and (y) the day immediately following the date
which is two (2) years after the “startup day,” within the meaning of Section
860G(a) (9) of the Internal Revenue Code of 1986, as amended from time to time
or any successor statute (the “
Code
”), of a
“real estate mortgage investment conduit,” within the meaning of Section 860D of
the Code (a “
REMIC
Trust
”), that
holds this Note, and provided no Event of Default has occurred and is continuing
hereunder or under any of the other Loan Documents, at Borrower’s option, Lender
shall cause the release of the Property from the lien of the Security Instrument
and the other Loan Documents (a “
Defeasance
”) upon
the satisfaction of the following conditions:
(A)
Borrower
shall give not more than ninety (90) days’ or less than thirty (30) days’ prior
written notice to Lender specifying the date Borrower intends for the Defeasance
to be consummated (the “
Release
Date
”), which
date shall be a Payment Date.
(B)
All
accrued and unpaid interest and all other sums due under this Note and under the
other Loan Documents up to and including the Release Date shall be paid in full
on or prior to the Release Date.
(C)
Borrower
shall deliver to Lender on or prior to the Release Date:
(1)
a sum of
money in immediately available funds (the “
Defeasance
Deposit
”) which
shall be sufficient to enable Lender to purchase, through means and sources
customarily employed and available to Lender, or at the election of Borrower to
enable a third party defeasance company selected by Borrower and reasonably
acceptable to Lender to purchase on behalf of Lender, for the account of
Borrower, (x) direct, non-callable, fixed rate obligations of the United States
of America or (y) non-callable, fixed rate obligations, other than U.S. Treasury
Obligations, that are “government securities” within the meaning of Section
2(a)(16) of the Investment Company Act of 1940, as amended, that provide for
payments prior, but as close as possible, to all successive monthly Payment
Dates occurring after the Release Date and to the third Payment Date prior to
the Maturity Date, with each such payment being equal to or greater than the
amount of the corresponding installment of principal and/or interest required to
be paid under this Note for the balance of the term hereof (the “
Defeasance
Collateral
”), each
of which shall be duly endorsed by the holder thereof as directed by Lender or
accompanied by a written instrument of transfer in form and substance
satisfactory to Lender in its sole discretion (including, without limitation,
such instruments as may be required by the depository institution holding such
securities or the issuer thereof, as the case may be, to effectuate book-entry
transfers and pledges through the book-entry facilities of such institution) in
order to perfect upon the delivery of the Defeasance Security Agreement (as
hereinafter defined) the first priority security interest in the Defeasance
Collateral in favor of Lender in conformity with all applicable state and
federal laws governing granting of such security interests.
(2)
a pledge
and security agreement, in form and substance reasonably satisfactory to Lender,
creating a first priority security interest in favor of Lender in the Defeasance
Collateral (the “
Defeasance Security
Agreement
”);
(3)
a
certificate of Borrower certifying that all of the requirements set forth in
this subsection 1.5(d)(i) have been satisfied;
(4)
one or
more opinions of counsel for Borrower in form and substance and delivered by
counsel which would be reasonably satisfactory to Lender stating, among other
things, that (i) Lender has a perfected first priority security interest in the
Defeasance Collateral and that the Defeasance Security Agreement is enforceable
against Borrower in accordance with its terms, (ii) in the event of a bankruptcy
proceeding or similar occurrence with respect to Borrower, none of the
Defeasance Collateral nor any proceeds thereof will be property of Borrower’s
estate under Section 541 of the U.S. Bankruptcy Code, as amended, or any similar
statute and the grant of security interest therein to Lender shall not
constitute an avoidable preference under Section 547 of the U.S. Bankruptcy
Code, as amended, or applicable state law, (iii) the release of the lien of the
Security Instrument and the pledge of Defeasance Collateral will not directly or
indirectly result in or cause any REMIC Trust that then holds this Note to fail
to maintain its status as a REMIC Trust and (iv) the defeasance will not cause
any REMIC Trust to be an “investment company” under the Investment Company Act
of 1940;
(5)
evidence
in writing from any applicable Rating Agency (as defined in the Security
Instrument) to the effect that the Defeasance will not result in a downgrading,
withdrawal or qualification of the respective ratings in effect immediately
prior to such Defeasance for any Securities (as hereinafter defined) issued in
connection with the securitization which are then outstanding;
provided
,
however
, no
evidence from a Rating Agency shall be required if this Note does not meet the
then-current review requirements of such Rating Agency.
(6)
a
certificate in form and scope acceptable to Lender in its reasonable discretion
from an independent accountant reasonably acceptable to Lender certifying that
the Defeasance Collateral will generate amounts sufficient to make all payments
of principal and interest due under this Note (including the scheduled
outstanding principal balance of the Loan due on the Maturity
Date);
(7)
Borrower
and any guarantor or indemnitor of Borrower’s obligations under the Loan
Documents for which Borrower has personal liability executes and delivers to
Lender such documents and agreements as Lender shall reasonably require to
evidence and effectuate the ratification of such personal liability and guaranty
or indemnity, respectively for any acts, omissions, liabilities or obligations
arising on or prior to the Release Date;
(8)
such
other certificates, documents or instruments as Lender may reasonably require;
and
(9)
payment
of all reasonable fees, costs, expenses and charges actually incurred by Lender
in connection with the Defeasance of the Property and the purchase of the
Defeasance Collateral, including, without limitation, all reasonable legal fees
and costs and expenses incurred by Lender or its agents in connection with
release of the Property, review of the proposed Defeasance Collateral and
preparation of the Defeasance Security Agreement and related documentation, any
revenue, documentary, stamp, intangible or other taxes, charges or fees due in
connection with transfer of the Note, assumption of the Note, or substitution of
collateral for the Property shall be paid on or before the Release Date. Without
limiting Borrower’s obligations with respect thereto, Lender shall be entitled
to deduct all such fees, costs, expenses and charges from the Defeasance Deposit
to the extent of any portion of the Defeasance Deposit which exceeds the amount
necessary to purchase the Defeasance Collateral.
(D)
In
connection with the Defeasance Deposit, unless Borrower shall make satisfactory
arrangements with a third party provider reasonably acceptable to Lender,
Borrower hereby authorizes and directs Lender using the means and sources
customarily employed and available to Lender to use the Defeasance Deposit to
purchase for the account of Borrower the Defeasance Collateral. Furthermore, the
Defeasance Collateral shall be arranged such that payments received from such
Defeasance Collateral shall be paid directly to Lender to be applied on account
of the indebtedness of this Note. Any part of the Defeasance Deposit in excess
of the amount necessary to purchase the Defeasance Collateral and to pay the
other and related costs Borrower is obligated to pay under this
Section
1.5
shall be
promptly refunded to Borrower.
(ii)
Upon
compliance with the requirements of subsection 1.5(d)(i), the Property shall be
released from the lien of the Security Instrument and the other Loan Documents,
and the Defeasance Collateral shall constitute collateral which shall secure
this Note and all other obligations under the Loan Documents. Lender will, at
Borrower’s expense, execute and deliver any agreements reasonably requested by
Borrower to release the lien of the Security Instrument from the
Property.
(iii)
Upon the
release of the Property in accordance with this Section 1.5(d), Borrower shall
assign all its obligations and rights under this Note together with the pledged
Defeasance Collateral, to a newly created entity which complies with the terms
of Section 1.33 of the Security Instrument designated by Borrower and approved
by Lender in its sole discretion. Such successor entity shall execute an
assumption agreement in form and substance satisfactory to Lender in its sole
discretion pursuant to which it shall assume Borrower's obligations under this
Note and the Defeasance Security Agreement. As conditions to such assignment and
assumption, Borrower shall (x) deliver to Lender an opinion of counsel in
form and substance and delivered by counsel satisfactory to a prudent lender
stating, among other things, that such assumption agreement is enforceable
against Borrower and such successor entity in accordance with its terms and that
this Note and the Defeasance Security Agreement as so assumed, are enforceable
against such successor entity in accordance with their respective terms, and
(y) pay all costs and expenses (including, but not limited to, legal fees)
incurred by Lender or its agents in connection with such assignment and
assumption (including, without limitation, the review of the proposed transferee
and the preparation of the assumption agreement and related documentation). Upon
such assumption, Borrower and any guarantor shall be relieved of its obligations
hereunder, under the other Loan Documents other than as specified in Section
1.5(d)(i)(C)(7) above and under the Defeasance Security Agreement.
Section
1.6
Security
. The
indebtedness evidenced by this Note and the obligations created hereby are
secured by, among other things, that certain mortgage (the “
Security
Instrument
”) from
Borrower for the benefit of Lender, dated of even date herewith, covering the
Property. The Security Instrument, together with this Note and all other
documents to or of which Lender is a party or beneficiary now or hereafter
evidencing, securing, guarantying, modifying or otherwise relating to the
indebtedness evidenced hereby, are herein referred to collectively as the “Loan
Documents”. All terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Security Instrument. All of the terms and
provisions of the Loan Documents are incorporated herein by reference. Some of
the Loan Documents are to be filed for record on or about the date hereof in the
appropriate public records.
ARTICLE II
DEFAULT
Section
2.1
Events of
Default
. It is
hereby expressly agreed that should any default occur in the payment of
principal or interest as stipulated above and such payment is not made on the
date such payment is due, or should any other default occur under any other Loan
Document and not be cured within any applicable grace, cure or notice period (if
any), then an Event of Default (an “
Event of
Default
”) shall
exist hereunder, and in such event the indebtedness evidenced hereby, including
all sums advanced or accrued hereunder or under any other Loan Document, and all
unpaid interest accrued thereon, shall, at the option of Lender and without
notice to Borrower, at once become due and payable and may be collected
forthwith, whether or not there has been a prior demand for payment and
regardless of the stipulated date of maturity.
Section
2.2
Late
Charges
. In the
event that any payment (other than the final payment due on the Maturity Date)
is not received by Lender on the date when due (subject to any applicable grace
period), then, in addition to any default interest payments due hereunder,
Borrower shall also pay to Lender a late charge in an amount equal to five
percent (5%) of the amount of such overdue payment.
Section
2.3
Default Interest
Rate
. So long
as any Event of Default exists hereunder or under any other Loan Document,
regardless of whether or not there has been an acceleration of the indebtedness
evidenced hereby, and at all times after maturity of the indebtedness evidenced
hereby (whether by acceleration or otherwise), interest shall accrue on the
outstanding principal balance of this Note, from the date due until the date
credited, at a rate per annum equal to five percent (5%) in excess of the Note
Rate, or, if such increased rate of interest may not be collected under
applicable law, then at the maximum rate of interest, if any, which may be
collected from Borrower under applicable law (as applicable, the “
Default Interest
Rate
”), and
such default interest shall be immediately due and payable.
Section
2.4
Borrower’s
Agreements
.
Borrower acknowledges that it would be extremely difficult or impracticable to
determine Lender’s actual damages resulting from any late payment or default,
and such late charges and default interest are reasonable estimates of those
damages and do not constitute a penalty. The remedies of Lender in this Note or
in the Loan Documents, or at law or in equity, shall be cumulative and
concurrent, and to the extent permitted by applicable law may be pursued singly,
successively or together, in Lender’s discretion.
Section
2.5
Borrower to Pay
Costs
. In the
event that this Note, or any part hereof, is collected by or through an
attorney-at-law, Borrower agrees to pay all costs of collection, including, but
not limited to, reasonable attorneys’ fees.
Section
2.6
Exculpation
.
Notwithstanding anything to the contrary contained in this Note or the other
Loan Documents, the obligations of Borrower hereunder shall be non-recourse
except with respect to the Property and as otherwise provided in Section 18.32
of the Security Instrument, the terms of which are incorporated
herein.
ARTICLE III
GENERAL
CONDITIONS
Section
3.1
No Waiver;
Amendment
. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a partial or past due payment, or indulgences granted
from time to time shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Lender thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by any applicable
laws; and to the fullest extent permitted by law, Borrower hereby expressly
waives the benefit of any statute or rule of law or equity now provided, or
which may hereafter be provided, which would produce a result contrary to or in
conflict with the foregoing. No extension of the time for the payment of this
Note or any installment due hereunder made by agreement with any person now or
hereafter liable for the payment of this Note shall operate to release,
discharge, modify, change or affect the original liability of Borrower under
this Note, either in whole or in part, unless Lender agrees otherwise in
writing. This Note 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.
Section
3.2
Waivers
.
Presentment for payment, demand, protest and notice of demand, protest and
nonpayment and all other notices are hereby waived by Borrower. Borrower hereby
further waives and renounces, to the fullest extent permitted by law, all rights
to the benefits of any moratorium, reinstatement, marshaling, forbearance,
valuation, stay, extension, redemption, appraisement, exemption and homestead
now or hereafter provided by the Constitution and laws of the United States of
America and of each state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Note or the other Loan Documents.
Section
3.3
Limit of
Validity
. The
provisions of this Note and of all agreements between Borrower and Lender,
whether now existing or hereafter arising and whether written or oral,
including, but not limited to, the Loan Documents, are hereby expressly limited
so that in no contingency or event whatsoever, whether by reason of demand or
acceleration of the maturity of this Note or otherwise, shall the amount
contracted for, charged, taken, reserved, paid or agreed to be paid
(“
Interest
”) to
Lender for the use, forbearance or detention of the money loaned under this Note
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, performance or fulfillment of any provision hereof or
of any agreement between Borrower and Lender shall, at the time performance or
fulfillment of such provision shall be due, exceed the limit for Interest
prescribed by law or otherwise transcend the limit of validity prescribed by
applicable law, then, ipso facto, the obligation to be performed or fulfilled
shall be reduced to such limit, and if, from any circumstance whatsoever, Lender
shall ever receive anything of value deemed Interest by applicable law in excess
of the maximum lawful amount, an amount equal to any excessive Interest shall be
applied to the reduction of the principal balance owing under this Note in the
inverse order of its maturity (whether or not then due) or, at the option of
Lender, be paid over to Borrower, and not to the payment of Interest. All
Interest (including any amounts or payments judicially or otherwise under the
law deemed to be Interest) contracted for, charged, taken, reserved, paid or
agreed to be paid to Lender shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of this Note,
including any extensions and renewals hereof until payment in full of the
principal balance of this Note so that the Interest thereon for such full term
will not exceed at any time the maximum amount permitted by applicable law. To
the extent United States federal law permits a greater amount of interest than
is permitted under the law of the State in which the Property is located ,
Lender will rely on United States federal law for the purpose of determining the
maximum amount permitted by applicable law. Additionally, to the extent
permitted by applicable law now or hereafter in effect, Lender may, at its
option and from time to time, implement any other method of computing the
maximum lawful rate under the law of the State in which the Property is located
or under other applicable law by giving notice, if required, to Borrower as
provided by applicable law now or hereafter in effect. This Section 3.3 will
control all agreements between Borrower and Lender.
Section
3.4
Use of
Funds
.
Borrower hereby warrants, represents and covenants that no funds disbursed
hereunder shall be used for personal, family or household purposes.
Section
3.5
Unconditional
Payment
. Subject
to Section 2.6 above, Borrower is and shall be obligated to pay principal,
interest and any and all other amounts which become payable hereunder or under
the other Loan Documents absolutely and unconditionally and without any
abatement, postponement, diminution or deduction and without any reduction for
counterclaim or setoff. In the event that at any time any payment received by
Lender hereunder shall be deemed by a court of competent jurisdiction to have
been a voidable preference or fraudulent conveyance under any bankruptcy,
insolvency or other debtor relief law, then the obligation to make such payment
shall survive any cancellation or satisfaction of this Note or return thereof to
Borrower and shall not be discharged or satisfied with any prior payment thereof
or cancellation of this Note, but shall remain a valid and binding obligation
enforceable in accordance with the terms and provisions hereof, and such payment
shall be immediately due and payable upon demand.
Section
3.6
Governing
Law
. THIS
NOTE SHALL BE INTERPRETED, CONSTRUED AND ENFORCED ACCORDING TO THE LAWS OF THE
SATE IN WHICH THE PROPERTY IS LOCATED.
Section
3.7
Waiver of Jury
Trial
.
BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY
AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES,
RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THE DEBT
EVIDENCED BY THIS NOTE OR ANY CONDUCT, ACT OR OMISSION OF LENDER OR BORROWER, OR
ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES,
AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, IN
EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.
ARTICLE IV
MISCELLANEOUS
PROVISIONS
Section
4.1
Successors and Assigns;
Joint and Several; Interpretation
. The
terms and provisions hereof shall be binding upon and inure to the benefit of
Borrower and Lender and their respective heirs, executors, legal
representatives, successors, successors in title and assigns, whether by
voluntary action of the parties or by operation of law. As used herein, the
terms “Borrower” and “Lender” shall be deemed to include their respective heirs,
executors, legal representatives, successors, successors in title and assigns,
whether by voluntary action of the parties or by operation of law. If Borrower
consists of more than one person or entity, each shall be jointly and severally
liable to perform the obligations of Borrower under this Note. All personal
pronouns used herein, whether used in the masculine, feminine or neuter gender,
shall include all other genders; the singular shall include the plural and vice
versa. Titles of articles and sections are for convenience only and in no way
define, limit, amplify or describe the scope or intent of any provisions hereof.
Time is of the essence with respect to all provisions of this Note. This Note
and the other Loan Documents contain the entire agreements between the parties
hereto relating to the subject matter hereof and thereof and all prior
agreements relative hereto and thereto which are not contained herein or therein
are terminated.
Section
4.2
Taxpayer
Identification
.
Borrower's Tax Identification Number is 20-4533760.
ARTICLE V
STATE SPECIFIC
PROVISIONS
Section
5.1
All
agreements between the Borrower and the Lender are expressly limited so that in
no contingency or event whatsoever, whether by reason of advancement of the
proceeds hereof, acceleration of maturity of the unpaid principal balance
hereof, or otherwise, shall the amount paid or agreed to be paid to the Lender
of this Promissory Note for the use, forbearance, or detention of the money to
be advanced hereunder exceed the highest lawful rate permissible under any law
which a court of competent jurisdiction may deem applicable. If, from any
circumstances whatsoever, fulfillment of any provision of the Mortgage or by any
other agreement referred to therein, at the time performance of such provision
shall be due, shall involve transcending the limit of validity prescribed by law
which a court of competent jurisdiction may deem applicable thereto, then
ipso
facto
, the
obligation to be fulfilled shall be reduced to the maximum limit of such
validity, and if for any circumstances whatsoever the Lender of this Promissory
Note shall ever receive interest, the amount of which would exceed the highest
lawful rate, such amount which would be excessive interest shall be applied to
the reduction of the principal balance remaining unpaid hereunder and not to the
payment of interest. This provision shall control every other provision of all
agreements between the Borrower and the Lender.
Section
5.2
AS A
MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LOAN EVIDENCED HEREBY, LENDER AND
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER
MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS PROMISSORY NOTE, THE LOAN EVIDENCED HEREBY, ALL
DOCUMENTS AND AGREEMENTS EXECUTED OR CONTEMPLATED TO BE EXECUTED IN CONNECTION
WITH THE LOAN EVIDENCED HEREBY, AND ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY.
Section
5.3
The
proper Florida Documentary Stamp Taxes in the amount of $17,151.40 have been
paid and the proper documentary stamps have been affixed to the Mortgage
securing this Promissory Note, dated of even date herewith, recorded in the
public records of St. Johns County, Florida.
[THE
BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, Borrower has executed this Note as of the date first written
above.
WITNESSES:
|
|
BORROWER:
|
|
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LVP
ST. AUGUSTINE OUTLETS LLC,
a
Delaware limited liability company
|
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/s/ Joy DeVita
|
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By:
|
Lightstone
Value Plus REIT LP,
|
Signature
|
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a
Delaware limited partnership,
Its:
Sole Member
|
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Joy DeVita
|
|
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By
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Lightstone Value Plus Real Estate
|
Print Name
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Investment
Trust, Inc,
a
Maryland corporation
Its:
General Partner
|
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/s/
Dina Berg
|
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Signature
|
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By
|
/s/ David Lichtenstein
|
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Name:
David
Lichtenstein
Title:
President
|
Dina Berg
|
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Print
Name
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STATE OF
New
Jersey
COUNTY OF
Ocean
The
foregoing instrument was acknowledged before me this ___ day of March, 2006 by
David Lichtenstein, the President and duly authorized agent of Lightstone Value
Plus Real Estate Investment Trust, Inc, a Maryland corporation, the General
Partner of Lightstone Value Plus REIT LP, a Delaware limited partnership, the
Sole Member of LVP ST. AUGUSTINE OUTLETS LLC, a Delaware limited liability
company. He is personally known to me or has produced _________________________
as identification.
(Seal)
|
/s/ Anna E.
Waddy
Notary
Public
Print
Name:
Anna
Waddy
|
My
Commission Expires:
12/22/2010
ANNEX 1
TO $
27,250,000.00
PROMISSORY NOTE
BY
LVP ST.
AUGUSTINE OUTLETS LLC
TO
WACHOVIA BANK, NATIONAL ASSOCIATION
Pay
Period
|
Pay Date
|
Scheduled
Payment
|
1
|
|
5/11/2006
|
$138,293.75
|
2
|
|
6/11/2006
|
$142,903.54
|
3
|
|
7/11/2006
|
$138,293.75
|
4
|
|
8/11/2006
|
$142,903.54
|
5
|
|
9/11/2006
|
$142,903.54
|
6
|
|
10/11/2006
|
$138,293.75
|
7
|
|
11/11/2006
|
$142,903.54
|
8
|
|
12/11/2006
|
$138,293.75
|
9
|
|
1/11/2007
|
$142,903.54
|
10
|
|
2/11/2007
|
$142,903.54
|
11
|
|
3/11/2007
|
$129,074.17
|
12
|
|
4/11/2007
|
$142,903.54
|
GUARANTY
THIS
GUARANTY (“
Guaranty
”) is
executed as of March 31, 2006, by LIGHTSTONE HOLDINGS, LLC, a Delaware limited
liability company ("
Guarantor
”), for
the benefit of WACHOVIA BANK, NATIONAL ASSOCIATION (“
Lender
”).
A.
LVP ST.
AUGUSTINE OUTLETS LLC, a Delaware limited liability company (the “
Borrower
”) is
indebted to Lender with respect to a loan (“
Loan
”)
pursuant to that certain promissory note dated of even date herewith, payable to
the order of Lender in the original principal amount of TWENTY-SEVEN
MILLION
TWO HUNDRED FIFTY THOUSAND MILLION AND 00/100 DOLLARS ($27,250,000
)
(together with all renewals, modifications, increases and extensions thereof,
collectively, the “
Note
”), which
is secured by the liens and security interests created by that certain Note and
Mortgage Modification Agreement Evidencing Renewal Promissory Note Including
Future Advance and Amended and Restated Mortgage, Security Agreement and Fixture
Filing (the “
Security
Instrument
”),
between Lender and Borrower, dated of even date herewith and further evidenced,
secured or governed by the other Loan Documents (as defined in the Security
Instrument); and
B.
Lender is
not willing to make the Loan, or otherwise extend credit, to Borrower unless
Guarantor unconditionally guarantees payment and performance to Lender of the
Guaranteed Obligations (as hereinafter defined); and
C.
Guarantor
is the owner of a direct or indirect interest in Borrower, and Guarantor will
directly benefit from Lender’s making the Loan to Borrower.
NOW,
THEREFORE, as an inducement to Lender to make the Loan to Borrower thereunder,
and to extend such additional credit as Lender may from time to time agree to
extend under the Loan Documents, and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
do hereby agree as follows:
ARTICLE I
NATURE AND SCOPE OF
GUARANTY
Section
1.1
Guaranty of
Obligation
.
Guarantor hereby absolutely, irrevocably and unconditionally guarantees to
Lender (and its successors and assigns) the payment and performance of the
Guaranteed Obligations as and when the same shall be due and payable, whether
upon demand by Lender or by lapse of time, by acceleration of maturity or
otherwise. Guarantor hereby absolutely, irrevocably and unconditionally
covenants and agrees that Guarantor is liable for the Guaranteed Obligations as
a primary obligor, and that Guarantor shall fully perform each and every term
and provision hereof.
Section
1.2
Definition of Guaranteed
Obligations
. As used
herein, the term “
Guaranteed
Obligations
” shall
be deemed to include, and Guarantor shall be liable for, and shall indemnify,
defend and hold Lender harmless from and against, any and all Losses (as
hereinafter defined) incurred or suffered by Lender and/or any of its affiliates
and arising out of or in connection with the matters listed below:
(a)
fraud or
intentional misrepresentation or failure to disclose a material fact or any
untrue statement of a material fact or omission to state a material fact in any
the written materials and/or information provided to Lender or any of its
affiliates in all cases by or on behalf of Borrower or Guarantor or any of their
Affiliates in connection with the Security Instrument, the Note or the other
Loan Documents;
(b)
the
misappropriation by Borrower, Guarantor or any of their Affiliates of any tenant
security deposits or Rent received by Borrower (or received by its Partners) (i)
more than one (1) month in advance of the due date thereof (other than Rents
deemed to be "additional rents" under Leases) or (ii) after the occurrence of an
Event of Default and not either delivered to Lender (or Lender's agent) or
applied to ordinary and necessary expenses of owning and operating the Property;
(c)
the
misapplication or conversion by Borrower, Guarantor or any of their Affiliates
of Loss Proceeds to the extent actually paid by the insurer;
(d)
any arson
or physical waste to or of the Property or damage to the Property in each case
resulting from the intentional acts or intentional omissions of Borrower or any
Affiliate of Borrower;
(e)
Borrower’s
failure to comply with the provisions of
Sections 2.02(g), 16.01 or
16.02
,
inclusive, of the Security Instrument;
(f)
the
exercise of any right or remedy under any federal, state or local forfeiture
laws resulting in the loss or impairment of the lien of the Security Instrument,
or the priority thereof, against the Property;
(g)
any
claims, actions or proceedings initiated by Borrower (or any Affiliate of
Borrower) alleging that the relationship of Borrower and Lender is that of joint
venturers, partners, tenants in common, joint tenants or any relationship other
than that of debtor and creditor; or
(h)
Borrower's
failure to pay any valid taxes, assessments, mechanic's liens, materialmen's
liens or other liens which could create liens on any portion of the Property
superior to the lien or security title of the Security Instrument or the other
Loan Documents, except, (1) with respect to any such taxes or assessments, to
the extent that funds have been deposited with Lender pursuant to the terms of
the Security Instrument specifically for the applicable taxes or assessments and
not applied by Lender to pay such taxes and (2) to the extent that there is
insufficient available cash flow at any time to enable Borrower to pay all
operating expenses (including taxes and assessments) then due and payable,
necessary property improvement expenditures and amounts due and payable under
the Loan Documents (as demonstrated to the reasonable satisfaction of Lender)
and Borrower applies all available cash flow to the payment of any one or more
of the foregoing items.
In
addition, in the event (i) any proceeding, action, petition or filing under the
Bankruptcy Code, or any similar state or federal law now or hereafter in effect
relating to bankruptcy, reorganization or insolvency, or the arrangement or
adjustment of debts of Borrower shall be filed by, consented to or acquiesced in
by Borrower or Guarantor, or filed against Borrower by any Affiliate (as defined
in the Security Instrument) of either Borrower or Guarantor, or if Borrower or
Guarantor or any Affiliate of either of them shall institute any proceeding for
Borrower’s dissolution or liquidation, or Borrower shall make an assignment for
the benefit of creditors, (ii) of a Transfer in violation of the provisions of
Article IX of the Security Instrument, or (iii) Borrower or any Affiliate
contests or interferes with Lender’s enforcement of its rights and remedies
hereunder or under the Loan documents by asserting any defense (x) as to the
validity of the obligations under the Loan Documents or in any way relating to
the structure of the Company or the enforceability of Lender’s rights and
remedies under the Loan Documents, or (y) for the purpose of delaying, hindering
or impairing Lender’s rights and remedies under the Loan Documents (provided
that if any such Person obtains a non-appealable order successfully asserting a
Contest, Guarantor shall have no liability under this clause (iii)), then the
Guaranteed Obligations shall also include the unpaid balance of the
Debt.
For
purposes of this Guaranty, the term “
Losses
”
includes any and all claims, suits, liabilities (including, without limitation,
strict liabilities), actions, proceedings, obligations, debts, actual damages,
actual losses, actual costs, actual expenses, diminutions in value, fines,
penalties, charges, fees, expenses, judgments, awards, amounts paid in
settlement, punitive damages of whatever kind or nature (including but not
limited to reasonable attorneys’ fees and other costs of defense).
Section
1.3
Nature of
Guaranty
. This
Guaranty is an irrevocable, absolute, continuing guaranty of payment and
performance, is joint and several and is not a guaranty of collection. This
Guaranty shall continue to be effective with respect to any Guaranteed
Obligations arising or created after any attempted revocation by Guarantor and
after (if Guarantor is a natural Person) Guarantor’s death (in which event this
Guaranty shall be binding upon Guarantor’s estate and Guarantor’s legal
representatives and heirs). The obligations of Guarantor under this Guaranty
shall survive any foreclosure proceeding, any foreclosure sale and delivery of
any deed in lieu of foreclosure, and any release of record of the Security
Instrument. The fact that at any time or from time to time the Guaranteed
Obligations may be increased or reduced shall not release or discharge the
obligation of Guarantor to Lender with respect to the Guaranteed Obligations.
This Guaranty may be enforced by Lender and any subsequent holder of the Note
and shall not be discharged by the assignment or negotiation of all or part of
the Note.
Section
1.4
Guaranteed Obligations Not
Reduced by Offset
.
The
Guaranteed Obligations and the liabilities and obligations of Guarantor to
Lender hereunder shall not be reduced, discharged or released because or by
reason of any existing or future offset, claim or defense of Borrower, or any
other Person, against Lender or against payment of the Guaranteed Obligations,
whether such offset, claim or defense arises in connection with the Guaranteed
Obligations (or the transactions creating the Guaranteed Obligations) or
otherwise.
Section
1.5
Payment by
Guarantor
. If all
or any part of the Guaranteed Obligations shall not be punctually paid when due,
whether at maturity or earlier by acceleration or otherwise, Guarantor shall,
immediately upon demand by Lender, and without presentment, protest, notice of
protest, notice of non-payment, notice of intention to accelerate the maturity,
notice of acceleration of the maturity, or any other notice whatsoever, pay in
lawful money of the United States of America, the amount due on the Guaranteed
Obligations to Lender at Lender’s address as set forth herein. Such demand(s)
may be made at any time coincident with or after the time for payment of all or
part of the Guaranteed Obligations, and may be made from time to time with
respect to the same or different items of Guaranteed Obligations. Such demand
shall be deemed made, given and received in accordance with the notice
provisions hereof.
Section
1.6
No Duty to Pursue
Others
. It
shall not be necessary for Lender (and Guarantor hereby waives any rights which
Guarantor may have to require Lender), in order to enforce this Guaranty against
Guarantor, first to (i) institute suit or exhaust its remedies against Borrower
or others liable on the Loan or the Guaranteed Obligations or any other Person,
(ii) enforce Lender’s rights against any collateral which shall ever have been
given to secure the Loan, (iii) enforce Lender’s rights against any other
guarantors of the Guaranteed Obligations, (iv) join Borrower or any others
liable on the Guaranteed Obligations in any action seeking to enforce this
Guaranty, (v) exhaust any remedies available to Lender against any collateral
which shall ever have been given to secure the Loan, or (vi) resort to any other
means of obtaining payment of the Guaranteed Obligations. Lender shall not be
required to mitigate damages or take any other action to reduce, collect or
enforce the Guaranteed Obligations.
Section
1.7
Waivers
.
Guarantor agrees to the provisions of the Loan Documents, and hereby waives
notice of (i) any loans or advances made by Lender to Borrower, (ii) acceptance
of this Guaranty, (iii) any amendment or extension of the Note or of any other
Loan Documents, (iv) the execution and delivery by Borrower and Lender of any
other loan or credit agreement or of Borrower’s execution and delivery of any
promissory notes or other documents arising under the Loan Documents or in
connection with the Property, (v) the occurrence of any breach by Borrower or
Event of Default, (vi) Lender’s transfer or disposition of the Guaranteed
Obligations, or any part thereof, (vii) sale or foreclosure (or posting or
advertising for sale or foreclosure) of any collateral for the Guaranteed
Obligations, (viii) protest, proof of non-payment or default by Borrower, or
(ix)
any
other action at any time taken or omitted by Lender, and, generally, all demands
and notices of every kind in connection with this Guaranty, the Loan Documents,
any documents or agreements evidencing, securing or relating to any of the
Guaranteed Obligations.
Section
1.8
Payment of
Expenses
.
In the
event that Guarantor should breach or fail to timely perform any provisions of
this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender
all costs and expenses (including court costs and reasonable attorneys’ fees)
incurred by Lender in the enforcement hereof or the preservation of Lender’s
rights hereunder. The covenant contained in this section shall survive the
payment and performance of the Guaranteed Obligations.
Section
1.9
Effect of
Bankruptcy
. In the
event that, pursuant to any insolvency, bankruptcy, reorganization, receivership
or other debtor relief law, or any judgment, order or decision thereunder,
Lender must rescind or restore any payment, or any part thereof, received by
Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any
prior release or discharge from the terms of this Guaranty given to Guarantor by
Lender shall be without effect, and this Guaranty shall remain in full force and
effect. It is the intention of Borrower and Guarantor that Guarantor’s
obligations hereunder shall not be discharged except by Guarantor’s performance
of such obligations and then only to the extent of such
performance.
Section
1.10
Deferral of Rights of
Subrogation, Reimbursement and Contribution
.
(a)
Notwithstanding
any payment or payments made by Guarantor hereunder, unless and until payment in
full of the Debt (and including interest accruing on the Note after the
commencement of a proceeding by or against Borrower under the Bankruptcy Code
which interest the parties agree shall remain a claim that is prior and superior
to any claim of Guarantor notwithstanding any contrary practice, custom or
ruling in cases under the Bankruptcy Code) Guarantor will not assert or exercise
any right of Lender or of Guarantor against Borrower to recover the amount of
any payment made by Guarantor to Lender by way of subrogation, reimbursement,
contribution, indemnity, or otherwise arising by contract or operation of law,
and Guarantor shall not have any right of recourse to or any claim against
assets or property of Borrower.
(b)
Until
payment in full of the Debt (and including interest accruing on the Note after
the commencement of a proceeding by or against Borrower under the Bankruptcy
Code which interest the parties agree shall remain a claim that is prior and
superior to any claim of Guarantor notwithstanding any contrary practice, custom
or ruling in cases under the Bankruptcy Code), Guarantor agrees not to accept
any payment or satisfaction of any kind of indebtedness of Borrower to Guarantor
and hereby assigns such indebtedness to Lender, including the right to file
proof of claim and to vote thereon in connection with any such proceeding under
the Bankruptcy Code, including the right to vote on any plan of reorganization.
If any amount of the type more particularly described in the first sentence of
this Section 1.10(b) shall nevertheless be paid to Guarantor by Borrower prior
to payment in full of all sums owed to Lender under the Loan Documents (the
“
Obligations
”), such
amount shall be held in trust for the benefit of Lender and shall forthwith be
paid to Lender to be credited and applied to the Guaranteed Obligations, whether
matured or unmatured.
(c)
The
provisions of this Section 1.10 shall survive the termination of this Guaranty,
and any satisfaction and discharge of Borrower by virtue of any payment, court
order or any applicable law.
Section
1.11
Intentionally
Omitted
.
Section
1.12
“
Borrower
”
. The
term “
Borrower
” as used
herein shall include any new or successor corporation, association, partnership
(general or limited), joint venture, limited liability company, trust or other
individual or organization formed as a result of any merger, reorganization,
sale, transfer, devise, gift or bequest of Borrower or any interest in
Borrower.
ARTICLE 2
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR’S OBLIGATIONS
Guarantor
hereby consents and agrees to each of the following, and agrees that Guarantor’s
obligations under this Guaranty shall not be released, diminished, impaired,
reduced or adversely affected by any of the following, and waives any common
law, equitable, statutory or other rights (including without limitation rights
to notice) which Guarantor might otherwise have as a result of or in connection
with any of the following:
Section
2.1
Modifications
. Any
renewal, extension, increase, modification, alteration or rearrangement of all
or any part of the Guaranteed Obligations, Note, Loan Documents, or other
document, instrument, contract or understanding between Borrower and Lender, or
any other parties, pertaining to the Guaranteed Obligations or any failure of
Lender to notify Guarantor of any such action.
Section
2.2
Adjustment
. Any
adjustment, indulgence, forbearance or compromise that might be granted or given
by Lender to Borrower or any Guarantor.
Section
2.3
Condition of Borrower or
Guarantor
. The
insolvency, bankruptcy, arrangement, adjustment, composition, liquidation,
disability, dissolution or lack of power of Borrower, Guarantor or any other
Person at any time liable for the payment of all or part of the Guaranteed
Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or
transfer of any or all of the assets of Borrower or Guarantor, or any changes in
the shareholders, partners or members of Borrower or Guarantor; or any
reorganization of Borrower or Guarantor.
Section
2.4
Invalidity of Guaranteed
Obligations
. The
invalidity, illegality or unenforceability of all or any part of the Guaranteed
Obligations, or any document or agreement executed in connection with the
Guaranteed Obligations, for any reason whatsoever, including without limitation
the fact that (i) the Guaranteed Obligations, or any part thereof, exceed the
amount permitted by law, (ii) the act of creating the Guaranteed Obligations or
any part thereof, is ultra vires, (iii) the officers or representatives
executing the Note or the other Loan Documents or otherwise creating the
Guaranteed Obligations acted in excess of their authority, (iv) the Guaranteed
Obligations violate applicable usury laws, (v) Borrower has valid defenses,
claims or offsets (whether at law, in equity or by agreement) which render the
Guaranteed Obligations wholly or partially uncollectible from Borrower, (vi) the
creation, performance or repayment of the Guaranteed Obligations (or the
execution, delivery and performance of any document or instrument representing
part of the Guaranteed Obligations or executed in connection with the Guaranteed
Obligations, or given to secure the repayment of the Guaranteed Obligations) is
illegal, uncollectible or unenforceable, or (vii) the Note or any of the other
Loan Documents have been forged or otherwise are irregular or not genuine or
authentic, it being agreed that Guarantor shall remain liable hereon regardless
of whether Borrower or any other Person be found not liable on the Guaranteed
Obligations or any part thereof for any reason.
Section
2.5
Release of
Obligors
. Any
full or partial release of the liability of Borrower on the Guaranteed
Obligations, or any part thereof, or of any co-guarantors, or any other Person
or entity now or hereafter liable, whether directly or indirectly, jointly,
severally, or jointly and severally, to pay, perform, guarantee or assure the
payment of the Guaranteed Obligations, or any part thereof, it being recognized,
acknowledged and agreed by Guarantor that Guarantor may be required to pay the
Guaranteed Obligations in full without assistance or support of any other
Person, and Guarantor has not been induced to enter into this Guaranty on the
basis of a contemplation, belief, understanding or agreement that other parties
will be liable to pay or perform the Guaranteed Obligations, or that Lender will
look to other parties to pay or perform the Guaranteed Obligations.
Section
2.6
Other
Collateral
. The
taking or accepting of any other security, collateral or guaranty, or other
assurance of payment, for all or any part of the Guaranteed
Obligations.
Section
2.7
Release of
Collateral
. Any
release, surrender, exchange, subordination, deterioration, waste, loss or
impairment (including without limitation negligent, willful, unreasonable or
unjustifiable impairment) of any collateral, property or security, at any time
existing in connection with, or assuring or securing payment of, all or any part
of the Guaranteed Obligations.
Section
2.8
Care and
Diligence
. The
failure of Lender or any other Person to exercise diligence or reasonable care
in the preservation, protection, enforcement, sale or other handling or
treatment of all or any part of such collateral, property or security, including
but not limited to any neglect, delay, omission, failure or refusal of Lender
(i) to take or prosecute any action for the collection of any of the Guaranteed
Obligations, (ii) to foreclose, or initiate any action to foreclose, or, once
commenced, prosecute to completion any action to foreclose upon any security
therefor, or (iii) to take or prosecute any action in connection with any
instrument or agreement evidencing or securing all or any part of the Guaranteed
Obligations.
Section
2.9
Unenforceability
. The
fact that any collateral, security, security interest or lien contemplated or
intended to be given, created or granted as security for the repayment of the
Guaranteed Obligations, or any part thereof, shall not be properly perfected or
created, or shall prove to be unenforceable or subordinate to any other security
interest or lien, it being recognized and agreed by Guarantor that Guarantor is
not entering into this Guaranty in reliance on, or in contemplation of the
benefits of, the validity, enforceability, collectibility or value of any of the
collateral for the Guaranteed Obligations.
Section
2.10
Offset
. The
Note, the Guaranteed Obligations and the liabilities and obligations of
Guarantor to Lender hereunder, shall not be reduced, discharged or released
because of or by reason of any existing or future right of offset, claim or
defense of Borrower against Lender, or any other Person, or against payment of
the Guaranteed Obligations, whether such right of offset, claim or defense
arises in connection with the Guaranteed Obligations (or the transactions
creating the Guaranteed Obligations) or otherwise.
Section
2.11
Merger
. The
reorganization, merger or consolidation of Borrower into or with any other
corporation or entity.
Section
2.12
Preference
. Any
payment by Borrower to Lender is held to constitute a preference under
bankruptcy laws, or for any reason Lender is required to refund such payment or
pay such amount to Borrower or someone else.
Section
2.13
Other Actions Taken or
Omitted
. Any
other action taken or omitted to be taken with respect to the Loan Documents,
the Guaranteed Obligations, or the security and collateral therefor, whether or
not such action or omission prejudices Guarantor or increases the likelihood
that Guarantor will be required to pay the Guaranteed Obligations pursuant to
the terms hereof, it is the unambiguous and unequivocal intention of Guarantor
that Guarantor shall be obligated to pay the Guaranteed Obligations when due,
notwithstanding any occurrence, circumstance, event, action, or omission
whatsoever, whether or not contemplated, and whether or not otherwise or
particularly described herein, which obligation shall be deemed satisfied only
upon the full and final payment and satisfaction of the Guaranteed
Obligations.
ARTICLE 3
REPRESENTATIONS AND
WARRANTIES
To induce
Lender to enter into the Loan Documents and extend credit to Borrower, Guarantor
represents and warrants to Lender as follows:
Section
3.1
Benefit
.
Guarantor is an Affiliate of Borrower, is the owner of a direct or indirect
interest in Borrower, and has received, or will receive, direct or indirect
benefit from the making of this Guaranty with respect to the Guaranteed
Obligations.
Section
3.2
Familiarity and
Reliance
.
Guarantor is familiar with, and has independently reviewed books and records
regarding, the financial condition of Borrower and is familiar with the value of
any and all collateral intended to be created as security for the payment of the
Note or Guaranteed Obligations; provided, however, Guarantor is not relying on
such financial condition or the collateral as an inducement to enter into this
Guaranty.
Section
3.3
No Representation by
Lender
. Neither
Lender nor any other Person has made any representation, warranty or statement
to Guarantor in order to induce Guarantor to execute this Guaranty.
Section
3.4
Guarantor’s Financial
Condition
.
As of
the date hereof, and after giving effect to this Guaranty and the contingent
obligation evidenced hereby, Guarantor is, and will be, Solvent.
Section
3.5
Legality
. The
execution, delivery and performance by Guarantor of this Guaranty and the
consummation of the transactions contemplated hereunder do not, and will not,
contravene or conflict with any law, statute or regulation whatsoever to which
Guarantor is subject or constitute a default (or an event which with notice or
lapse of time or both would constitute a default) under, or result in the breach
of, any indenture, mortgage, deed of trust, charge, lien, or any contract,
agreement or other instrument to which Guarantor is a party or which may be
applicable to Guarantor. This Guaranty is a legal and binding obligation of
Guarantor and is enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors’ rights.
Section
3.6
Survival
. All
representations and warranties made by Guarantor herein shall survive the
execution hereof.
Section
3.7
Review of
Documents
.
Guarantor has examined the Note and all of the Loan Documents.
Section
3.8
Litigation
. Except
as otherwise disclosed to Lender, there are no proceedings pending or, so far as
Guarantor knows, threatened before any court or administrative agency which, if
decided adversely to Guarantor, would materially adversely affect the financial
condition of Guarantor or the authority of Guarantor to enter into, or the
validity or enforceability of, this Guaranty.
Section
3.9
Tax
Returns
.
Guarantor
has filed all required federal, state and local tax returns and has paid all
taxes as shown on such returns as they have become due. No claims have been
assessed and are unpaid with respect to such taxes.
ARTICLE 4
SUBORDINATION OF CERTAIN
INDEBTEDNESS
Section
4.1
S
ubordination of All
Guarantor Claims
.
As used
herein, the term “
Guarantor
Claims
” shall
mean all debts and liabilities of Borrower to Guarantor, whether such debts and
liabilities now exist or are hereafter incurred or arise, or whether the
obligations of Borrower thereon are direct, contingent, primary, secondary,
several, joint and several, or otherwise, and irrespective of whether such debts
or liabilities be evidenced by note, contract, open account, or otherwise, and
irrespective of the Person or Persons in whose favor such debts or liabilities
may, at their inception, have been, or may hereafter be created, or the manner
in which they have been or may hereafter be acquired by Guarantor. The Guarantor
Claims shall include, without limitation, all rights and claims of Guarantor
against Borrower (arising as a result of subrogation or otherwise) as a result
of Guarantor’s payment of all or a portion of the Guaranteed Obligations to the
extent the provisions of
Section
1.10
hereof
are unenforceable. Upon the occurrence and during the continuance of a Default,
Guarantor shall not receive or collect, directly or indirectly, from Borrower or
any other Person any amount upon the Guarantor Claims.
Section
4.2
Claims in
Bankruptcy
.
In the
event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief,
or other insolvency proceedings involving Guarantor as debtor, Lender shall have
the right to prove its claim in any such proceeding so as to establish its
rights hereunder and receive directly from the receiver, trustee or other court
custodian dividends and payments which would otherwise be payable upon Guarantor
Claims. Guarantor hereby assigns such dividends and payments to Lender. Should
Lender receive, for application upon the Guaranteed Obligations, any such
dividend or payment which is otherwise payable to Guarantor, and which, as
between Borrower and Guarantor, shall constitute a credit upon the Guarantor
Claims, then upon payment to Lender in full of the Guaranteed Obligations,
Guarantor shall become subrogated to the rights of Lender to the extent that
such payments to Lender on the Guarantor Claims have contributed toward the
liquidation of the Guaranteed Obligations, and such subrogation shall be with
respect to that portion of the Guaranteed Obligations which would have been
unpaid if Lender had not received dividends or payments upon the Guarantor
Claims.
Section
4.3
Payments Held in
Trust
.
In the
event that, notwithstanding anything to the contrary in this Guaranty, Guarantor
should receive any funds, payment, claim or distribution which is prohibited by
this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to
the amount of all funds, payments, claims or distributions so received, and
agrees that it shall have absolutely no dominion over the amount of such funds,
payments, claims or distributions so received except to pay them promptly to
Lender, and Guarantor covenants promptly to pay the same to Lender.
Section
4.4
Liens
Subordinate
.
Guarantor
agrees that any liens, security interests, judgment liens, charges or other
encumbrances upon Borrower’s assets securing payment of the Guarantor Claims
shall be and remain inferior and subordinate to any liens, security interests,
judgment liens, charges or other encumbrances upon Borrower’s assets securing
payment of the Guaranteed Obligations, regardless of whether such encumbrances
in favor of Guarantor or Lender presently exist or are hereafter created or
attach. Without the prior written consent of Lender, Guarantor shall not (i)
exercise or enforce any creditor’s right it may have against Borrower, or (ii)
foreclose, repossess, sequester or otherwise take steps or institute any action
or proceedings (judicial or otherwise, including without limitation the
commencement of, or joinder in, any liquidation, bankruptcy, rearrangement,
debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds
of trust, security interests, collateral rights, judgments or other encumbrances
on assets of Borrower held by Guarantor.
ARTICLE 5
MISCELLANEOUS
Section
5.1
No Waiver; Remedies
Cumulative
. No
failure or delay on the part of Lender in exercising any right, remedy, power or
privilege hereunder or under the other Loan Documents and no course of dealing
between Guarantor and Lender shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder or
under the other Loan Documents preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege hereunder or
thereunder. The rights and remedies provided herein and in the other Loan
Documents are cumulative and not exclusive of any rights or remedies provided by
law. The giving of notice to or demand on Guarantor which notice or demand is
not required hereunder or under the other Loan Documents shall not entitle
Guarantor to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights, remedies, powers or
privileges of Lender in any circumstances not requiring notice or
demand.
Section
5.2
Notices
. All
notices, requests and other communications to any party hereunder or under the
Note shall be given in the manner set forth in Article XI of the Security
Instrument, and to each addressee at the address set forth below:
Guarantor
:
|
Lightstone Holdings, LLC, a
Delaware limited liability company
326
Third Street
Lakewood,
New Jersey 08701
Angela
Olsen
Facsimile
No.: 732-782-0357
|
With a
copy to
:
|
Herrick
Feinstein LLP
2
Park Avenue
New
York, New York 10016
Attention:
Sheldon Chanales, Esq.
Facsimile:
(212) 545-3313
|
Lender
:
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Wachovia Bank, National
Association
Commercial
Real Estate Services
8739
Research Drive URP - 4, NC 1075
Charlotte,
North Carolina 28262
Facsimile
No.: (704) 374-6435
|
With a copy to:
|
Winston & Strawn LLP
200
Park Avenue
New
York, New York 10166
Attn:
Corey A. Tessler, Esq.
Facsimile
No.: (212) 294-4700
|
or such
other address as Guarantor or Lender shall hereafter specify by not less than
ten (10) days prior written notice as provided herein; provided, however, that
notwithstanding any provision of this Section to the contrary, such notice of
change of address shall be deemed given only upon actual receipt thereof.
Rejection or other refusal to accept or the inability to deliver because of
changed addresses of which no notice was given as herein required shall be
deemed to be receipt of the notice, demand, statement, request or
consent.
Section
5.3
Governing Law;
Jurisdiction
. This
Guaranty shall be governed by and construed in accordance with the laws of the
State of New York and the applicable laws of the United States of America.
Guarantor hereby irrevocably submits to the jurisdiction of any court of
competent jurisdiction located in the State of New York in connection with any
proceeding out of or relating to this Guaranty.
Section
5.4
Invalid
Provisions
.
If any
provision of this Guaranty is held to be invalid, illegal or unenforceable in
any respect, this Guaranty shall be construed without such
provision.
Section
5.5
Amendments
.
The
terms of this Guaranty, together with the terms of the other Loan Documents,
constitute the entire understanding and agreement of the parties hereto and
supersede all prior agreements, understandings and negotiations between
Guarantor and Lender with respect to the Guaranteed Obligations. This Guaranty,
and any provisions hereof, may not be modified, amended, waived, extended,
changed, discharged or terminated orally or by any act on the part of Guarantor
or Lender, but only by an agreement in writing signed by the party against whom
enforcement of any modification, amendment, waiver, extension, change, discharge
or termination is sought.
Section
5.6
Parties Bound;
Assignment
.
This
Guaranty shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns and legal representatives; provided,
however, that Guarantor may not, without the prior written consent of Lender,
assign any of its rights, powers, duties or obligations hereunder.
Section
5.7
Headings; Construction Of
Documents; Definitions
.
The
headings and captions of various sections of this Guaranty are for convenience
of reference only and are not to be construed as defining or limiting, in any
way, the scope or intent of the provisions hereof. Guarantor acknowledges that
it was represented by competent counsel in connection with the negotiation and
drafting of this Guaranty and the other Loan Documents and that neither this
Guaranty nor the other Loan Documents shall be subject to the principle of
construing the meaning against the Person who drafted same. All capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Security Instrument.
Section
5.8
Recitals
. The
recital and introductory paragraphs hereof are a part hereof, form a basis for
this Guaranty and shall be considered
prima
facie
evidence
of the facts and documents referred to therein.
Section
5.9
Counterparts
.
To
facilitate execution, this Guaranty may be executed in as many counterparts as
may be convenient or required. It shall not be necessary that the signature or
acknowledgment of, or on behalf of, each party, or that the signature of all
Persons required to bind any party, or the acknowledgment of such party, appear
on each counterpart. All counterparts shall collectively constitute a single
instrument. It shall not be necessary in making proof of this Guaranty to
produce or account for more than a single counterpart containing the respective
signatures of, or on behalf of, and the respective acknowledgments of, each of
the parties hereto. Any signature or acknowledgment page to any counterpart may
be detached from such counterpart without impairing the legal effect of the
signatures or acknowledgments thereon and thereafter attached to another
counterpart identical thereto except having attached to it additional signature
or acknowledgment pages.
Section
5.10
Cumulative
Rights
. The
rights of Lender under this Guaranty shall be separate, distinct and cumulative
and none shall be given effect to the exclusion of the others. No act of Lender
shall be construed as an election to proceed under any one provision herein to
the exclusion of any other provision. Lender shall not be limited exclusively to
the rights and remedies herein stated but shall be entitled, subject to the
terms of this Guaranty, to every right and remedy now or hereafter afforded by
law.
Section
5.11
Waiver Of Counterclaim And
Right To Trial By Jury
.
GUARANTOR HEREBY WAIVES THE RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A
COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY
LENDER OR ITS AGENTS, AND WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR IN ANY COUNTERCLAIM
GUARANTOR MAY BE PERMITTED TO ASSERT HEREUNDER OR WHICH MAY BE ASSERTED BY
LENDER OR ITS AGENTS AGAINST GUARANTOR, OR IN ANY MATTERS WHATSOEVER ARISING OUT
OF OR IN ANY WAY CONNECTED WITH THIS GUARANTY, THE DEBT OR THE GUARANTEED
OBLIGATIONS.
Section
5.12
State Specific
Provisions
.
Notwithstanding anything contained herein to the contrary:
(a)
This
Guaranty guarantees an indebtedness payable in the State of Florida and shall be
governed by and construed in accordance with the laws of that state. Guarantor
hereby acknowledges that all amounts payable under this Guaranty are payable in
the State of Florida and therefor Guarantor is subject to the personal
jurisdiction of the courts of competent jurisdiction of said state for the
enforcement of this Guaranty. Guarantor waives any and all personal rights under
the laws of said state to object to jurisdiction within said state in the event
of litigation arising under or by reason of this Guaranty.
Nothing
contained herein, however, shall prevent Lender from bringing any action or
exercising any rights against any security and against Guarantor personally, and
against any property of Guarantor, within any other state. Initiating such
proceeding or taking such action in any other state by Lender shall in no event
constitute an implied waiver of the agreement contained herein that the laws of
the State of Florida shall govern the rights and obligations of Guarantor and
Lender hereunder or of the submission herein made by Guarantor to personal
jurisdiction within the State of Florida.
(b)
Nothing
herein shall be deemed to obligate any Guarantor to pay any sum of interest
which exceeds the maximum rate of interest which such Guarantor may lawfully be
required to pay under the laws of the state which govern this instrument or
under the applicable laws for regulations of the United States of America, in
the event of conflict between state law and the laws and regulations of the
United States of America, then the laws and regulations of the United States of
America shall govern. Notwithstanding any other provision herein contained in
this Guaranty or in any instrument evidencing this indebtedness, the limitation
imposed by this paragraph shall control and limit the obligations of Guarantor
to pay sums of interest guaranteed by this instrument. In the event any
Guarantor shall pay any sum of interest pursuant to this Guaranty which exceeds
such maximum rate, such overcharge shall be applied in reduction of any other
sum for which such Guarantor is obligated hereunder, if such sum is then due and
payable, or shall be refunded to such Guarantor at the election of the Lender.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, Guarantor has duly executed this Guaranty under seal as of the
day and year first above written.
WITNESSES:
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GUARANTOR:
|
|
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|
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LIGHTSTONE
HOLDINGS LLC, a Delaware limited liability company
|
/s/
Joy DeVita
|
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Signature
|
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By:
|
/s/
David Lichtenstein
|
|
|
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Joy
DeVita
|
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Print Name
|
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/s/
Dina Berg
|
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Signature
|
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Dina
Berg
|
|
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Print
Name
|
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STATE OF
New
Jersey
COUNTY OF
Ocean
The
foregoing instrument was acknowledged before me this ___ day of March, 2006 by
___________________, the ____________________ and duly authorized agent of
LIGHTSTONE HOLDINGS, LLC, a _________________ limited liability company. He is
personally known to me or has produced _________________________ as
identification.
|
/s/ Anna E.
Waddy
Notary
Public
Print
Name:
Anna
Waddy
|
My
Commission Expires:
12/22/2010
EXHIBIT 10.8
CONTRIBUTION
AGREEMENT
THIS CONTRIBUTION AGREEMENT
(this
“
Agreement
”) is
entered into as of the 30th day of June, 2006 by and among
SCOTSDALE MI LLC
(“
Scotsdale
”) ,
CARRIAGE PARK MI
LLC
(“
Carriage
Park”
)
,
MACOMB MANOR MI
LLC
(“Macomb
Manor”), and
CARRIAGE HILL MI LLC
(“
Carriage
Hill”
),
each a
Delaware limited liability company, having its principal place of business c/o
Lightstone Holdings LLC, 326 Third Street, Lakewood, New Jersey 08701
(hereinafter collectively referred to as
the
“
Co-Obligors
”;
references herein to the “
Co-Obligors
,” unless
otherwise specifically stated, shall also mean and refer to each and every one
of Scotsdale, Carriage Park, Macomb Manor and Carriage Hill, jointly and
severally), and
CITIGROUP GLOBAL MARKETS REALTY
CORP
., a New
York corporation, (together with its successors and assigns, “
Lender
”),
having an address at having an address at 388 Greenwich Street, 19th Floor, New
York, New York 10013.
WITNESSETH
:
WHEREAS,
concurrently herewith, Lender has made a loan to the Co-Obligors the aggregate
initial principal sum of $52,000,000.00 (the “
Loan
”) in
accordance with that certain Loan and Security Agreement of even date herewith
between the Co-Obligors and Lender (the “
Loan
Agreement
”; the
Loan and the other obligations and liabilities of the Co-Obligors under the Loan
Agreement and the other Loan Documents [as defined in the Loan Agreement] are
herein collectively referred to herein as the “
Indebtedness
”);
WHEREAS,
each Co-Obligor is jointly and severally liable for the payment of all the
Indebtedness;
WHEREAS,
each Co-Obligor will receive substantial benefits by reason of the Loan;
and
WHEREAS,
the Co-Obligors are desirous of providing for certain rights of contribution and
subrogation as more particularly provided herein.
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Co-Obligors agree as follows:
1.
As used
herein, the “
Allocable
Amount
” of any
Co-Obligor, as of any date of determination, shall be determined to be an amount
equal to the maximum amount of the Indebtedness which could then be claimed
against such Co-Obligor without rendering such claim voidable or avoidable under
Section 548 of Chapter 11 of the United States Federal Bankruptcy Code (11
U.S.C. Sec. 101
et seq
.) or
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.
2.
To the
extent that a payment is made on the Indebtedness by a Co-Obligor (a
“
Co-Obligor
Payment
”),
which, taking into account all other Co-Obligor Payments then previously or
concurrently made by or attributable to any other Co-Obligor, exceeds the amount
of the Co-Obligor Payment which otherwise would have been made by or
attributable to such Co-Obligor if each such Co-Obligor had paid the aggregate
Indebtedness satisfied by such Co-Obligor Payments in the same proportion as
such Co-Obligor’s Allocable Amount in effect immediately prior to such
Co-Obligor Payment bore to the aggregate Allocable Amounts of all such
Co-Obligors in effect immediately prior to such Co-Obligor Payment, then such
Co-Obligor shall be entitled to contribution and indemnification from, and to be
reimbursed by, the other Co-Obligor for the amount of such excess, pro rata
based upon its respective Allocable Amounts in effect immediately prior to such
Co-Obligor Payment (and such obligations of one Co-Obligor to another are herein
referred to as the “
Contribution
Obligations
”).
3.
This
Agreement is intended only to define the relative rights of the Co-Obligors, and
nothing set forth in this Agreement is intended to or shall impair the
obligations of any Co-Obligor to pay any amounts as and when the same shall
become due and payable in accordance with the terms of the Loan
Agreement.
4.
The
Co-Obligors acknowledge that the rights of contribution and indemnification
hereunder shall constitute assets in favor of the Co-Obligor to which such
contribution and indemnification is owing.
5.
Each
Co-Obligor hereby postpones and subordinates payment of all the Contribution
Obligations, and makes all the Contribution Obligations subject in right of
satisfaction, payment and performance, to the full and absolute payment of the
Indebtedness.
6.
Until
the date that is one (1) year and one (1) day after the date that all of the
Indebtedness has been paid and satisfied in full none of the Co-Obligors shall
(a) assert, collect, sue upon, or enforce all or any part of the Contribution
Obligations; (b) commence or join with any other creditors of any Co-Obligor in
commencing any bankruptcy, reorganization, receivership or insolvency proceeding
against any other Co-Obligor; (c) take, accept, ask for, sue for, receive, set
off or demand any payments upon the Contribution Obligations; or (d) take,
accept, ask for, sue for, receive, demand or allow to be created liens, security
interests, mortgages, or pledges of or with respect to any of the assets of a
Co-Obligor in favor of or for the benefit of the any other
Co-Obligor.
7.
Each of
the Co-Obligors agrees that in the event of any bankruptcy, insolvency,
arrangement, reorganization or receivership proceeding relating to any other
Co-Obligor, the following shall apply:
(a)
In any
such proceeding the Lender may, and is hereby irrevocably authorized and
empowered (in its own name or in the name of the said Co-Obligor) but shall have
no obligation to: demand, sue for, collect and receive every payment or
distribution in respect of the Contribution Obligations and give acquittance
therefor; and file claims and proofs of claims and take such other action
(including, without limitation, voting the Contribution Obligations and
approving or objecting to a plan of reorganization) as the Lender may deem
necessary or advisable for the exercise or enforcement of any of the rights or
interests of the Lender under this Agreement.
(b)
In any
such proceeding, each Co-Obligor will duly and promptly take such action as the
Lender may request to (i) collect for the account of the Lender the Contribution
Obligations and to file appropriate claims or proofs of claim with respect
thereto; and (ii) execute and deliver to the Lender such powers of attorney,
assignments or other instruments as the Lender may request in order to enable it
to enforce any and all claims with respect to the Contribution
Obligations.
8.
Each of
the Co-Obligors acknowledges and agrees that (a) the Lender would not make the
Loan unless each Co-Obligor jointly and severally became obligated for the
repayment of the Loan and granted liens on the collateral owned by said
Co-Obligor to secure the payment of all of the Indebtedness, (b) each Co-Obligor
derives benefits from the borrowing of the Loan by the Co-Obligors and the
granting of liens by each Co-Obligor on the collateral owned by it securing the
payment of the Indebtedness, and (c) the Lender and its successors and assigns
are beneficiaries of this Agreement and may bring any action from time to time
to enforce the benefits and rights granted to the Lender hereunder.
9.
This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors.
10.
This
Agreement shall be construed and enforced in accordance with the laws of the
State of New York.
11.
This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one and the same
instrument.
12.
Any
notices required to be given under this Agreement shall be given in the manner
provided in the Loan Agreement. All capitalized terms, unless otherwise defined
herein, have the same meanings as defined in the Loan Agreement.
13.
This
Agreement may not be modified, amended or terminated except by a written
agreement executed by all of the parties hereto.
[NO
FURTHER TEXT ON THIS PAGE]
IN
WITNESS WHEREOF, this Contribution Agreement has been duly executed by the
parties hereto as of the date first written above.
|
BORROWER:
|
|
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|
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SCOTSDALE MI
LLC
,
a Delaware
limited
liability
company
|
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By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
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its sole Managing Member
|
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By:
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/s/ David
Lichtenstein
|
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Name:
|
David
Lichtenstein
|
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Title:
|
President
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CARRIAGE PARK MI
LLC
, a
Delaware limited liability company
|
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By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
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its sole Managing Member
|
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By:
|
/s/ David
Lichtenstein
|
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Name:
|
David
Lichtenstein
|
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Title:
|
President
|
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MACOMB MANOR MI LLC
,
a
Delaware limited liability company
|
|
|
|
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By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
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Name:
|
David
Lichtenstein
|
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Title:
|
President
|
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|
|
|
CARRIAGE HILL MI
LLC
,
a
Delaware limited liability company
|
|
|
|
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By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
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Title:
|
President
|
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LENDER
:
|
|
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|
|
/s/ CITIGROUP GLOBAL MARKETS
REALTY CORP
.,
a New York corporation
|
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EXHIBIT 10.9
ASSIGNMENT AND ASSUMPTION OF
AGREEMENT FOR PURCHASE AND SALE OF INTERESTS
This
Assignment and Assumption of Agreement for Purchase and Sale of Interests
(“
Assignment
”) is
dated as of June 29, 2006 between The Lightstone Group, LLC, a New Jersey
limited liability company (“
Assignor
”) and
LVP Michigan Multifamily Portfolio LLC, a Delaware limited liability company
("
Assignee
").
WHEREAS,
as of
April 26, 2006, Home Properties, L.P. and Home Properties WMF I, LLC,
collectively, as seller, and Assignor, as purchaser, entered into that certain
Purchase and Sale Agreement (together with all amendments thereto, the
“
Agreement
”) for
the sale and purchase of certain entities as more particularly described in the
Agreement;
WHEREAS
,
Assignor desires to assign to Assignee all of its right, title and interest
under the Agreement to purchase the Interests in the New Companies (each as
defined in the Agreement) listed on Schedule A attached hereto and made a part
hereof (the “
REIT
Entities
”) which
entities have the allocated values set forth in such schedule.
NOW THEREFORE
, in
consideration of Ten ($10.00) Dollars in hand paid by Assignee, the receipt and
adequacy of which are hereby conclusively acknowledged, Assignor does hereby
assign, transfer and set over to Assignee, all of Assignor’s right, title, and
interest in and to the right to purchase the Interests in the REIT Entities
pursuant to the Agreement.
TO HAVE AND TO
HOLD
, the
same unto Assignee, its successors and assigns, from and after the date
hereof.
Assignee
hereby assumes the performance of all terms, covenants, and conditions under the
Agreement solely with respect to the REIT Entities on Assignor’s part to be
performed thereunder from and after the date hereof and will perform all of the
terms, conditions, and covenants of such Agreement solely with respect to the
REIT Entities from and after the date hereof, all with the same force and effect
as though the Assignee had signed such Agreement as a party named
therein.
This
Assignment is made without warranty or representation, express or implied, by or
recourse against Assignor of any kind or nature whatsoever.
This
Assignment may be executed in multiple counterparts, each of which shall
constitute an original, and all of which taken together shall constitute but one
agreement.
IN WITNESS WHEREOF
, the
Assignor and Assignee have duly executed this Assignment by their respective
duly authorized representatives as of the day first above written.
|
|
|
|
ASSIGNOR
:
|
|
|
|
THE LIGHTSTONE GROUP,
LLC
|
|
|
|
|
By:
|
/s/
David Lichtenstein
|
|
Name:
David Lichtenstein
|
|
Title: Chief
Executive Officer
|
|
|
|
|
|
|
ASSIGNEE
:
|
|
|
|
LVP MICHIGAN MULTIFAMILY
PORTFOLIO LLC
|
|
|
|
By:
|
LIGHTSTONE
VALUE PLUS REIT LP
,
its sole member
|
|
|
|
|
By:
|
LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.,
|
|
|
its general partner
|
|
|
|
|
|
|
|
By:
|
/s/
David Lichtenstein
|
|
David
Lichtenstein, President
|
|
|
Schedule
A
CARRIAGE
HILL MI LLC
|
|
$
|
7,305,288
|
|
CARRIAGE
PARK MI LLC
|
|
$
|
11,346,511
|
|
MACOMB
MANOR MI LLC
|
|
$
|
8,471,026
|
|
SCOTSDALE
MI LLC
|
|
$
|
15,076,871
|
|
EXHIBIT
10.10
LOAN AND SECURITY
AGREEMENT
Dated as of June 30,
2006
between
SCOTSDALE MI LLC,
CARRIAGE PARK MI
LLC,
MACOMB MANOR MI LLC
AND
CARRIAGE HILL MI
LLC,
collectively, as
Borrowers
and
CITIGROUP GLOBAL MARKETS REALTY
CORP.
as Lender
|
|
Page
|
ARTICLE
I
|
DEFINITIONS
|
1
|
Section
|
1.1
|
Certain
Defined Terms
|
1
|
Section
|
1.2
|
Accounting
Terms
|
20
|
Section
|
1.3
|
Other
Definitional Provisions
|
20
|
|
|
|
|
ARTICLE
II
|
TERMS
OF THE LOAN
|
21
|
Section
|
2.1
|
Loan
|
|
21
|
|
|
(A)
|
Loan
|
21
|
|
|
(B)
|
Note
|
21
|
|
|
(C)
|
Use
of Proceeds
|
21
|
Section
|
2.2
|
Interest
|
|
21
|
|
|
(A)
|
Rate
of Interest
|
21
|
|
|
(B)
|
Default
Rate
|
21
|
|
|
(C)
|
Computation
of Interest
|
21
|
|
|
(D)
|
Interest
Laws
|
22
|
|
|
(E)
|
Late
Charges
|
22
|
|
|
(F)
|
Additional
Administrative Fee
|
22
|
Section
|
2.3
|
Defeasance
|
23
|
|
|
(A)
|
Total
Defeasance
|
23
|
|
|
(B)
|
Partial
Defeasance
|
24
|
|
|
(C)
|
Defeasance
Collateral Account
|
26
|
|
|
(D)
|
Successor
Borrower
|
26
|
Section
|
2.4
|
Payments
|
26
|
|
|
(A)
|
Payments
of Interest and Principal
|
26
|
|
|
(B)
|
Date
and Time of Payment
|
27
|
|
|
(C)
|
Manner
of Payment
|
27
|
Section
|
2.5
|
Maturity
|
27
|
Section
|
2.6
|
Prepayment
|
27
|
|
|
(A)
|
Limitation
on Prepayment; Prepayment Consideration Due
|
|
|
|
|
on
Acceleration
|
27
|
|
|
(B)
|
Prepayment
Consideration Due
|
28
|
|
|
(C)
|
Definitions
|
28
|
Section
|
2.7
|
Outstanding
Balance
|
29
|
Section
|
2.8
|
Taxes
|
|
29
|
Section
|
2.9
|
Reasonableness
of Charges
|
29
|
Section
|
2.10
|
Partial
Releases
|
30
|
|
|
|
|
ARTICLE
III
|
CONDITIONS
TO LOAN
|
32
|
Section
|
3.1
|
Conditions
to Funding of the Loan on the Closing Date
|
32
|
|
|
(A)
|
Loan
Documents
|
32
|
|
|
(B)
|
Origination
Fees and Deposits
|
32
|
|
|
(C)
|
Performance
of Agreements, Truth of Representations and
|
|
|
|
|
Warranties
|
32
|
|
|
(D)
|
Closing
Certificate
|
32
|
|
|
(E)
|
Opinions
of Counsel
|
32
|
|
|
(F)
|
Title
Policy
|
33
|
|
|
(G)
|
Survey
|
33
|
|
|
(H)
|
Zoning
|
33
|
|
|
(I)
|
Certificates
of Formation and Good Standing
|
33
|
|
|
(J)
|
Certificates
of Incumbency and Resolutions
|
34
|
|
|
(K)
|
Financial
Statements
|
34
|
|
|
(L)
|
Agreements
|
34
|
|
|
(M)
|
Management
Agreement
|
34
|
|
|
(N)
|
Operating
and Capital Expenditure Budgets
|
34
|
|
|
(O)
|
Rent
Rolls, Leases, Estoppels
|
34
|
|
|
(P)
|
Licenses,
Permits and Approvals
|
34
|
|
|
(Q)
|
Insurance
Policies and Endorsements
|
34
|
|
|
(R)
|
Environmental
Assessment
|
35
|
|
|
(S)
|
Property
Condition Reports
|
35
|
|
|
(T)
|
Appraisals
|
35
|
|
|
(U)
|
Searches
|
35
|
|
|
(V)
|
Documentation
Regarding Application of Proceeds
|
35
|
|
|
(W)
|
Legal
Fees; Closing Expenses
|
35
|
|
|
(X)
|
Other
Review
|
36
|
|
|
|
|
|
|
36
|
ARTICLE
IV
|
REPRESENTATIONS AND WARRANTIES
|
|
Section
|
4.1
|
Organization,
Powers, Capitalization, Good Standing, Business
|
36
|
|
|
(A)
|
Organization
and Powers
|
36
|
|
|
(B)
|
Qualification
|
36
|
|
|
(C)
|
Organization
|
36
|
Section
|
4.2
|
Authorization
of Borrowing, etc
|
36
|
|
|
(A)
|
Authorization
of Borrowing
|
36
|
|
|
(B)
|
No
Conflict
|
36
|
|
|
(C)
|
Governmental
Consents
|
37
|
|
|
(D)
|
Binding
Obligations
|
37
|
Section
|
4.3
|
Financial
Statements
|
37
|
Section
|
4.4
|
Indebtedness
and Contingent Obligations
|
37
|
Section
|
4.5
|
Title
to Properties
|
37
|
Section
|
4.6
|
Zoning;
Compliance with Laws
|
38
|
Section
|
4.7
|
Leases;
Agreements
|
38
|
|
|
(A)
|
Leases;
Agreements
|
38
|
|
|
(B)
|
Rent
Roll; Disclosure
|
38
|
|
|
(C)
|
Lease
Issues
|
39
|
Section
|
4.8
|
Condition
of Properties
|
39
|
Section
|
4.9
|
Litigation;
Adverse Facts
|
40
|
Section
|
4.10
|
Payment
of Taxes
|
40
|
Section
|
4.11
|
Adverse
Contracts
|
40
|
Section
|
4.12
|
Performance
of Agreements
|
40
|
Section
|
4.13
|
Governmental
Regulation
|
40
|
Section
|
4.14
|
Employee
Benefit Plans
|
40
|
Section
|
4.15
|
Broker’s
Fees
|
40
|
Section
|
4.16
|
Environmental
Compliance
|
41
|
|
|
(A)
|
No
Environmental Claims
|
41
|
|
|
(B)
|
Storage
of Hazardous Materials
|
41
|
|
|
(C)
|
Compliance
with Environmental Laws
|
41
|
Section
|
4.17
|
Solvency
|
41
|
Section
|
4.18
|
Disclosure
|
42
|
Section
|
4.19
|
Use
of Proceeds and Margin Security
|
42
|
Section
|
4.20
|
Insurance
|
42
|
Section
|
4.21
|
Separate
Tax Lots
|
42
|
Section
|
4.22
|
Investments
|
42
|
Section
|
4.23
|
Bankruptcy
|
42
|
Section
|
4.24
|
Defaults
|
43
|
Section
|
4.25
|
No
Plan Assets
|
43
|
Section
|
4.26
|
No
Prohibited Transaction
|
43
|
Section
|
4.27
|
Not
Foreign Person
|
43
|
Section
|
4.28
|
No
Collective Bargaining Agreements
|
43
|
Section
|
4.29
|
Compliance
|
43
|
Section
|
4.30
|
Intellectual
Property
|
43
|
Section
|
4.31
|
Pre-Closing
Date Activities
|
44
|
Section
|
4.32
|
Mortgage
and Other Liens
|
44
|
Section
|
4.33
|
Management
Agreement
|
44
|
Section
|
4.34
|
No
Prohibited Persons
|
44
|
|
|
|
|
ARTICLE
V
|
COVENANTS
OF BORROWER PARTIES
|
44
|
Section
|
5.1
|
Financial
Statements and Other Reports
|
45
|
|
|
(A)
|
Financial
Statements
|
45
|
|
|
(B)
|
Accountants’
Reports
|
47
|
|
|
(C)
|
Tax
Returns
|
47
|
|
|
(D)
|
Material
Notices
|
47
|
|
|
(E)
|
Events
of Default, etc
|
47
|
|
|
(F)
|
Litigation
|
47
|
|
|
(G)
|
Insurance
|
47
|
|
|
(H)
|
Other
Information
|
48
|
Section
|
5.2
|
Existence;
Qualification
|
48
|
Section
|
5.3
|
Payment
of Impositions and Claims
|
48
|
Section
|
5.4
|
Maintenance
of Insurance
|
49
|
Section
|
5.5
|
Maintenance
of the Properties; Alterations; Casualty or Taking
|
51
|
|
|
(A)
|
Maintenance
of the Properties; Alterations
|
51
|
|
|
(B)
|
Casualty
or Taking
|
52
|
|
|
(C)
|
Proceeds
Application to Restoration
|
53
|
|
|
(D)
|
Disbursement
for Restoration
|
54
|
|
|
(E)
|
Disbursement
Conditions
|
54
|
|
|
(F)
|
Retainage
|
54
|
Section
|
5.6
|
Inspection
|
55
|
Section
|
5.7
|
Environmental
Compliance
|
55
|
|
|
(A)
|
Environmental
Laws
|
55
|
|
|
(B)
|
Remedial
Action
|
55
|
|
|
(C)
|
Further
Assurance
|
56
|
|
|
(D)
|
O
& M Program
|
56
|
Section
|
5.8
|
Environmental
Disclosure
|
56
|
Section
|
5.9
|
Compliance
with Laws and Contractual Obligations
|
57
|
Section
|
5.10
|
Further
Assurances
|
57
|
Section
|
5.11
|
Performance
of Agreements and Leases
|
57
|
Section
|
5.12
|
Leases
|
|
58
|
Section
|
5.13
|
Management
and Leasing
|
59
|
Section
|
5.14
|
Material
Agreements
|
59
|
Section
|
5.15
|
Certain
VCOC Provisions
|
60
|
Section
|
5.16
|
Estoppel
Certificates
|
60
|
Section
|
5.17
|
Indebtedness
|
60
|
Section
|
5.18
|
Liens
and Related Matters
|
61
|
|
|
(A)
|
No
Liens
|
61
|
|
|
(B)
|
No
Negative Pledges
|
61
|
Section
|
5.19
|
Contingent
Obligations
|
61
|
Section
|
5.20
|
Restriction
on Fundamental Changes
|
61
|
Section
|
5.21
|
Transactions
with Related Persons
|
62
|
Section
|
5.22
|
ERISA
|
|
62
|
|
|
(A)
|
No
ERISA Plans
|
62
|
|
|
(B)
|
Compliance
with ERISA
|
62
|
|
|
(C)
|
No
Plan Assets. No Plan Assets
|
63
|
|
|
(D)
|
Indemnification
|
63
|
Section
|
5.23
|
Lender’s
Expenses
|
63
|
Section
|
5.24
|
Environmental
Matters; Inspection
|
63
|
Section
|
5.25
|
Environmental
Claims
|
64
|
Section
|
5.26
|
Environmental
Indemnification
|
65
|
Section
|
5.27
|
Operation
of Properties
|
65
|
Section
|
5.28
|
Taxes
on Security
|
66
|
Section
|
5.29
|
Cooperate
in Legal Proceedings
|
66
|
Section
|
5.30
|
Insurance
Benefits
|
66
|
Section
|
5.31
|
Prohibited
Persons
|
66
|
|
|
|
|
ARTICLE
VI
|
RESERVES
|
|
Section
|
6.1
|
Security
Interest in Reserves; Other Matters Pertaining to
|
|
|
|
Reserves
|
67
|
Section
|
6.2
|
Funds
Deposited with Lender
|
67
|
|
|
(A)
|
Interest,
Offsets
|
67
|
|
|
(B)
|
Funding
at Closing
|
68
|
Section
|
6.3
|
Impositions
and Insurance Reserve
|
68
|
Section
|
6.4
|
Replacement
Reserve
|
68
|
Section
|
6.5
|
Security
Deposits
|
68
|
Section
|
6.6
|
Conditions
to Disbursements from the Replacement Reserve;
|
|
|
|
Performance
of Work
|
69
|
|
|
(A)
|
Disbursements
from the Replacement Reserve
|
69
|
|
|
(B)
|
Performance
of Work
|
71
|
|
|
(C)
|
Indemnification
|
72
|
Section
|
6.7
|
Completion/Repair
Reserve
|
73
|
ARTICLE
VII
|
DEPOSIT ACCOUNT; CASH MANAGEMENT
|
|
Section
7.1
|
Establishment
of Accounts
|
73
|
|
(A)
|
Clearing
Account/Deposit Account
|
73
|
|
(B)
|
Account
Name
|
74
|
|
(C)
|
Eligible
Accounts/Characterization of Accounts
|
74
|
|
(D)
|
Permitted
Investments
|
75
|
Section
7.2
|
Deposit
of Receipts into the Clearing Account and the Deposit
|
|
|
Account
|
75
|
Section
7.3
|
Application
of Funds in Accounts
|
75
|
|
(A)
|
Allocations
|
75
|
|
(B)
|
Cure
of Cash Trap Condition
|
76
|
|
(C)
|
Required
Payments
|
76
|
|
(D)
|
Operating
Expenses Disbursements
|
77
|
|
(E)
|
Event
of Default
|
77
|
Section
7.4
|
Budget
Approvals
|
78
|
Section
7.5
|
Sole
Dominion and Control
|
78
|
Section
7.6
|
Pledge
of Accounts
|
79
|
|
(A)
|
Security
for Obligations
|
79
|
|
(B)
|
Rights
on Default
|
79
|
|
(C)
|
Financing
Statement; Further Assurances
|
79
|
|
(D)
|
Termination
of Agreement
|
80
|
Section
7.7
|
Lender
Appointed Attorney-In-Fact
|
80
|
|
|
|
ARTICLE
VIII
|
DEFAULT, RIGHTS AND REMEDIES
|
|
Section
8.1
|
Event
of Default
|
81
|
|
(A)
|
Scheduled
Payments
|
81
|
|
(B)
|
Other
Payments
|
81
|
|
(C)
|
Breach
of Reporting Provisions
|
81
|
|
(D)
|
Breach
of Provisions Regarding Insurance, Transfers,
|
|
|
|
Liens,
Single Purpose
|
81
|
|
(E)
|
Breach
of Warranty
|
81
|
|
(F)
|
Other
Defaults Under Loan Documents
|
81
|
|
(G)
|
Involuntary
Bankruptcy; Appointment of Receiver, etc
|
82
|
|
(H)
|
Voluntary
Bankruptcy; Appointment of Receiver, etc
|
82
|
|
(I)
|
Bankruptcy
Involving Ownership Interests or Property
|
82
|
|
(J)
|
Solvency
|
82
|
|
(K)
|
Injunction
|
82
|
|
(L)
|
Invalidity
of Loan Documents
|
82
|
|
(M)
|
Cross-Default
with Other Loan Documents
|
83
|
|
(N)
|
Default
under Management Agreement
|
83
|
Section
8.2
|
Acceleration
and Remedies
|
83
|
Section
8.3
|
Performance
by Lender
|
84
|
|
|
|
ARTICLE IX
|
SINGLE-PURPOSE, BANKRUPTCY-REMOTE REPRESENTATIONS,
|
|
|
WARRANTIES AND COVENANTS
|
|
Section
9.1
|
Applicable
to Borrowers
|
85
|
ARTICLE
X
|
RESTRUCTURING
LOAN, SECONDARY MARKET
|
|
|
TRANSACTIONS
|
88
|
Section
|
10.1
|
Secondary
Market Transactions Generally
|
88
|
Section
|
10.2
|
Cooperation;
Limitations
|
89
|
Section
|
10.3
|
Information
|
89
|
Section
|
10.4
|
Additional
Provisions
|
90
|
|
|
|
|
ARTICLE
XI
|
RESTRICTIONS
ON LIENS, TRANSFERS; RELEASE OF
|
|
|
PROPERTIES
|
91
|
Section
|
11.1
|
Restrictions
on Transfer and Encumbrance
|
91
|
Section
|
11.2
|
Permitted
Transfers of Beneficial Interests in Sole Member
|
91
|
Section
|
11.3
|
Assumability
|
92
|
|
|
|
|
|
93
|
ARTICLE
XII
|
RECOURSE; LIMITATIONS ON RECOURSE
|
|
Section
|
12.1
|
Limitations
on Recourse
|
93
|
Section
|
12.2
|
Recourse
to Borrowers and Guarantor
|
94
|
Section
|
12.3
|
Miscellaneous
|
95
|
|
|
|
|
|
96
|
ARTICLE
XIII
|
MISCELLANEOUS
|
|
Section
|
13.1
|
Expenses
and Attorneys’ Fees
|
96
|
Section
|
13.2
|
Indemnity
|
96
|
Section
|
13.3
|
Amendments
and Waivers
|
97
|
Section
|
13.4
|
Retention
of Borrowers’ Documents
|
97
|
Section
|
13.5
|
Notices
|
97
|
Section
|
13.6
|
Survival
of Warranties and Certain Agreements
|
99
|
Section
|
13.7
|
Failure
or Indulgence Not Waiver; Remedies Cumulative
|
99
|
Section
|
13.8
|
Marshaling;
Payments Set Aside
|
99
|
Section
|
13.9
|
Severability
|
99
|
Section
|
13.10
|
Headings
|
99
|
Section
|
13.11
|
APPLICABLE
LAW
|
99
|
Section
|
13.12
|
Successors
and Assigns
|
100
|
Section
|
13.13
|
Sophisticated
Parties, Reasonable Terms, No Fiduciary Relationship
|
100
|
Section
|
13.14
|
Reasonableness
of Determinations
|
100
|
Section
|
13.15
|
No
Duty
|
101
|
Section
|
13.16
|
Entire
Agreement
|
101
|
Section
|
13.17
|
Construction;
Supremacy of Loan Agreement
|
101
|
Section
|
13.18
|
Consent
to Jurisdiction
|
101
|
Section
|
13.19
|
Waiver
of Jury Trial
|
101
|
Section
|
13.20
|
Counterparts;
Effectiveness
|
102
|
Section
|
13.21
|
Servicer
|
102
|
Section
|
13.22
|
Waiver
of Notice
|
102
|
Section
|
13.23
|
Offsets,
Counterclaims and Defenses
|
103
|
Section
|
13.24
|
Waiver
of Counterclaim
|
103
|
Section
|
13.25
|
Brokers
and Financial Advisors
|
103
|
Section
|
13.26
|
Joint
and Several Liability
|
103
|
LOAN AND SECURITY
AGREEMENT
This LOAN
AND SECURITY AGREEMENT (this “
Loan
Agreement
”) is
dated as of June 30, 2006, and entered into by and among SCOTSDALE MI LLC, a
Delaware limited liability company; CARRIAGE PARK MI LLC, a Delaware limited
liability company, MACOMB MANOR MI LLC, a Delaware limited liability company;
and CARRIAGE HILL MI LLC, a Delaware limited liability company (individually,
each a “
Borrower
” and
collectively the “
Borrowers
”); and
CITIGROUP GLOBAL MARKETS REALTY CORP., a New York corporation (together with its
successors and assigns, whether one or more, “
Lender
”).
NOW,
THEREFORE, in consideration of the premises and the agreements, provisions and
covenants herein contained, Borrowers and Lender agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1
Certain Defined
Terms
.
The
terms defined below are used in this Loan Agreement as so defined. Terms defined
in the preamble to this Loan Agreement are used in this Loan Agreement as so
defined.
“
Accounts
” means,
collectively, the Clearing Account, the Deposit Account, the Sub-Accounts
thereof, and any other accounts pledged to Lender pursuant to this Loan
Agreement or any other Loan Document.
“
Account
Banks
” has the
meaning set forth in Section 7.1.
“
Account
Collateral
” means
all of Borrowers’ right, title and interest in and to the Accounts, the
Reserves, all monies and amounts which may from time to time be on deposit
therein, all monies, checks, notes, instruments, documents, deposits, and
credits from ti-me to time in the possession of Lender representing or
evidencing such Accounts and Reserves and all earnings and investments held
therein and proceeds thereof, including, but not limited to, the Account
Collateral specified in Section 7.6(A) hereof.
“
Adjusted Net Cash
Flow
” for any
twelve month calculation period means, as of the date of such calculation, the
excess of (a) all Receipts, including, without limitation, base rents and
monthly recoveries under bona fide Leases at the Properties, received by or on
behalf of Borrowers and attributable to such twelve month period, over (b)
Operating Expenses attributable to such twelve month calculation period
(determined on an accrual basis), in each case adjusted to reflect the
following, all as determined by Lender: (i) a vacancy factor for each Individual
Property equal to the greatest of (A) the market vacancy rate (as determined by
Lender) for similar properties in the commercial business district or market
area in which the applicable Individual Property is located, (B) the actual
vacancy rate at the applicable Individual Property, and (C) 5% of the rentable
area of the applicable Individual Property, (ii) inclusion in Operating Expenses
of a base management fee equal to the greater of (A) the actual base management
for such period and (B) 4% of gross revenues for such period; (iii) subtraction
of a reserve for Capital Expenditures equal to $300 per Unit per annum, (iv)
exclusion from Receipts of (W) Prepaid Rents not attributable and actually
applied in such twelve month period, (X) amounts other than rents and other
payments under Leases at the Properties, (Y) amounts representing non-recurring
items as reasonably determined by Lender, and (Z) amounts received from tenants
affiliated with any Borrower Parties; (v) adjustment of Operating Expenses to
reflect the higher of actual Operating Expenses for such period and historical
annualized Operating Expenses and historical operating levels at the Properties;
and (vi) adjustments deemed necessary by Lender based upon Lender’s underwriting
criteria and Lender’s sole good faith determination of Rating Agency
underwriting and evaluation criteria. Lender’s calculation of Adjusted Net Cash
Flow shall be final absent manifest error.
“
Affiliate
” means
in relation to any Person, any other Person: (i) directly or indirectly
controlling, controlled by, or under common control with, the first Person; (ii)
directly or indirectly owning or holding five percent (5%) or more of any equity
interest in the first Person; or (iii) five percent (5%) or more of whose voting
stock or other equity interest is directly or indirectly owned or held by the
first Person. In addition, the Affiliates of each Borrower Party include,
without limitation, all other Borrower Parties, irrespective of whether they now
or hereafter satisfy the foregoing criteria. For purposes of this definition,
“
control
”
(including with correlative meanings, the terms “
controlling
”,
“
controlled
by
” and
“
under common control
with
”) means
the possession directly or indirectly of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Where expressions such
as “[name of party] or any Affiliate” are used, the same shall refer to the
named party and any Affiliate of the named party.
“
Allocated Loan
Amount
” means,
for each Individual Property, the amount for such Individual Property as set
forth in the table below:
Individual
Property
|
|
Allocated
Loan
Amounts for
Individual
Property
|
|
|
|
|
|
1.
Carriage
Hill Property
|
|
$
|
7,050,000
|
|
2.
Carriage
Park Property
|
|
$
|
10,950,000
|
|
3.
Macomb
Manner Property
|
|
$
|
8,175,000
|
|
4.
Scotsdale
Property
|
|
$
|
14,550,000
|
|
“
Applicable Individual
Property
” means
the following:
|
(1)
|
as
to the Borrower known as Carriage Hill MI LLC, the Carriage Hill
Property;
|
|
(2)
|
as
to the Borrower known as Carriage Park MI LLC the Carriage Park
Property;
|
|
(3)
|
as
to the Borrower known as Macomb Manner MI LLC, the Macomb Manner Property;
and
|
|
(4)
|
as
to the Borrower known as Scotsdale MI LLC, the Scotsdale
Property.
|
“
Approved
Architect
” has the
meaning set forth in Section 5.5.
“
Approved
Bank
” shall
mean a bank, the long term unsecured debt obligations of which are rated at
least “AA” by S&P and the equivalent by Fitch and Moody’s (unless Lender
approves in writing a financial institution other than a bank or a lower rating,
in each case in Lender’s sole and absolute discretion).
“
Approved Operating
Budget
” has the
meaning set forth in Section 7.4.
“
Approved Capital
Expenditures
” has the
meaning set forth in Section 6.4.
“
Approved
Expenditures
” has the
meaning set forth in Section 6.6.
“
Assignments of
Leases
” means,
collectively, the Assignments of Leases and Rents of even date herewith from
each Borrower to Lender, constituting an assignment of the Leases and proceeds
therefrom as Collateral for the Loan, as same may be amended or modified from
time to time. “
Assignment of
Leases
” means
any one of the Assignments of Leases.
“
Assignment of Management
Agreement
” means
that certain Conditional Assignment of Management Agreement of even date
herewith executed by Borrowers and current Manager, constituting an assignment
of the Management Agreement as Collateral for the Loan, as same may be amended
or modified from time to time.
“
Bankruptcy
Code
” means
Title 11 of the United States Code, as amended from time to time, and all rules
and regulations promulgated thereunder.
“
Borrower
” and
“
Borrowers
” have
the meaning set forth in the preamble.
“
Borrower
Party
” and
“
Borrower
Parties
” mean,
individually or collectively, the Borrowers, the Sole Member and the
Guarantor.
“
Business
Day
” means
any day excluding (i) Saturday, (ii) Sunday, (iii) any day which is a legal
holiday under the laws of the State of New York, and (iv) any day on which
banking institutions located in such state are generally not open for the
conduct of regular business.
“
Calendar
Quarter
” means
each of the four periods of three consecutive months each from January 1 - March
31, April 1 - June 30, July 1 - September 30 and October 1 - December 31,
respectively.
“
Capital
Expenditures
” means
expenditures for capital improvements, furnishings, fixtures and equipment
(whether paid in cash or property or accrued as liabilities) made by any
Borrower that, in conformity with GAAP, are required to be included in the
property, plant, or equipment, or similar fixed asset account or otherwise
capitalized.
“
Capital Expenditure
Budget
” means
Borrowers’ budget for Capital Expenditures for the Properties, the costs of
which are to be paid from the Replacement Reserve, which budget has been
approved by Lender as and to the extent required hereunder.
“
Carriage Hill
Property
” means
that certain Individual Property commonly known as Carriage Hill, 26322 Westphal
Drive, Dearborn, Michigan, the legal description of which is set forth on
Schedule A-1.
“
Carriage Park
Property
” means
that certain Individual Property commonly known as Carriage Park, 27201 Canfield
Drive, Dearborn Heights, Michigan, the legal description of which is set forth
on Schedule A-2.
“
Cash Trap
Condition
” shall
exist (1) upon the occurrence of an Event of Default, or (2) in the event a Debt
Service Coverage Ratio, as measured by Lender as of the end of any Calendar
Quarter based upon Adjusted Net Cash Flow for the twelve (12) month period ended
as of the end of such Calendar Quarter, is less than the Minimum DSCR Threshold;
provided
, that in
the event of a failure of the Borrowers to deliver the certification and
documentation required under Section 5.1(A)(iv) by the required delivery date
hereunder, at Lender’s option the Debt Service Coverage Ratio will be presumed
to be less than the Minimum DSCR Threshold unless and until such certification
and documentation are provided to Lender and demonstrate that the Debt Service
Coverage Ratio is at least equal to the Minimum DSCR Threshold.
“
Cash Trap
Cure
” has the
meaning set forth in Section 7.1.
“
Claims
” has the
meaning set forth in Section 5.3.
“
Clearing
Account
” has the
meanings set forth in Section 7.1.
“
Clearing Account
Agreement
” means
the written agreement among Borrowers, Lender and the holder of the Clearing
Account with respect to the maintenance and control thereof.
“
Clearing Account
Bank
” has the
meaning set forth in Section 7.1.
“
Closing
” means
the funding of the Loan contemplated by this Loan Agreement.
“
Closing
Date
” means
the date on which the Closing occurs.
“
Collateral
” means
rights, interests, and property of every kind, real and personal, tangible and
intangible, which is granted, pledged, liened, or encumbered as security for the
Loan or any of the other Obligations under this Loan Agreement, the Mortgage or
other Loan Documents, including the Properties (including all land and
Improvements), the Rents and the Accounts.
“
Compliance
Certificate
” has the
meaning set forth in Section 5.1.
“
Condemnation
Proceeds
” means,
in the event of a Taking with respect to any of the Properties, the proceeds in
respect of such Taking.
“
Contingent
Obligation
”, as
applied to any Person, means any direct or indirect liability, contingent or
otherwise, of that Person: (A) with respect to any indebtedness, lease, dividend
or other obligation of another if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; (B) with respect to any letter of credit issued for the
account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings; (C) under any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement designed to protect against fluctuations in interest rates; or (D)
under any foreign exchange contract, currency swap agreement or other similar
agreement or arrangement designed to protect that Person against fluctuations in
currency values. Contingent Obligations shall include (i) the direct or indirect
guaranty, endorsement (other than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with recourse
by such Person of the obligation of another, (ii) the obligation to make
take-or-pay or similar payments if required regardless of nonperformance by any
other party or parties to an agreement, and (iii) any liability of such Person
for the obligations of another through any agreement to purchase, repurchase or
otherwise acquire such obligation or any property constituting security
therefor, to provide funds for the payment or discharge of such obligation or to
maintain the solvency, financial condition or any balance sheet item or level of
income of another. For purposes of this definition, the amount of any Contingent
Obligation at any time shall be computed as the amount that, in light of all of
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured
liability.
“
Contractual
Obligation
”, as
applied to any Person, means any indenture, mortgage, deed of trust, contract,
undertaking, agreement or other instrument to which that Person is a party or by
which it or any of its properties is bound or to which it or any of its
properties is subject including, without limitation, the Loan
Documents.
“
Debt Service Coverage
Ratio
” shall
mean, for any trailing twelve (12) month period measured as of the end of any
Calendar Quarter, the ratio of (i) Adjusted Net Cash Flow for such twelve (12)
month period to (ii) an adjusted annualized debt service base amount equal to
the greater of (1) the product of (A) the Monthly Debt Service Payment Amount,
multiplied by (B) 12 or (2) the product of the original principal balance of the
Loan multiplied by .0727.
“
Debt Service
Sub-Account
” has the
meaning set forth in Section 7.1.
“
Default
” means
any breach or default under any of the Loan Documents, whether or not the same
is an Event of Default, and also any condition or event that, after notice or
lapse of time or both, would constitute an Event of Default if that condition or
event were not cured or removed within any applicable grace or cure
period.
“
Default
Rate
” has the
meaning set forth in Section 2.2.
“
Defeasance
Collateral
” shall
mean the Total Defeasance Collateral or Partial Defeasance Collateral, as
applicable.
“
Defeasance Collateral
Account
” has the
meaning set forth in Section 2.3.
“
Defeasance
Date
” has the
meaning set forth in Section 2.3.
“
Defeased
Note
” has the
meaning set forth in Section 2.3.
“
Deposit
Account
” has the
meaning set forth in Section 7.1
“
Deposit Account
Agreement
” means
the written agreement among Borrowers, Lender and the holder of the Deposit
Account with respect to the maintenance and control thereof.
“
Deposit Account
Bank
” means
Wachovia Bank, National Association, a national banking association, or any
successor financial institution appointed by Lender pursuant hereto or pursuant
to the Deposit Account Agreement.
“
Documents
” means
all “documents” as defined in the UCC or other receipts covering, evidencing or
representing goods now owned or hereafter acquired by any or all of the
Borrowers.
“
Dollars
” and the
sign “
$
” mean
the lawful money of the United States of America.
“
Eligible
Account
” shall
mean a separate and identifiable account from all other funds held by the
holding institution, which account is either (i) an account maintained with an
Eligible Bank or (ii) a segregated trust account maintained by a corporate trust
department of a federal depository institution or a state chartered depository
institution subject to regulations regarding fiduciary funds on deposit similar
to Title 12 of the Code of Federal Regulations § 9.10(B), which has corporate
trust powers and is acting in its fiduciary capacity and in either case having
combined capital and surplus of at least $100,000,000 or otherwise acceptable to
the Rating Agencies.
“
Eligible
Bank
” shall
mean a bank that (i) satisfies the Rating Criteria and (ii) insures the deposits
hereunder through the Federal Deposit Insurance Corporation.
“
Employee Benefit
Plan
” means
any employee benefit plan within the meaning of Section 3(3) of ERISA (including
any Multiemployer Plan) (i) which is maintained for employees of any Borrower or
any ERISA Affiliate, (ii) which has at any time within the preceding six (6)
years been maintained for the employees of any Borrower or any current or former
ERISA Affiliate or (iii) for which any Borrower or any ERISA Affiliate has any
liability, including contingent liability.
“
Environmental
Claims
” has the
meaning set forth in Section 4.16.
“
Environmental
Indemnity
” means
the Environmental Indemnity Agreement of even date herewith from Borrowers and
Guarantor to Lender, as same may be amended or modified from time to
time.
“
Environmental
Laws
” means
any federal, state, or local law, ordinance or regulation or any court judgment
or order of any federal, state or local agency or regulatory body applicable to
any of the Borrowers or to any of the Properties relating to industrial hygiene
or to environmental or unsafe conditions including, but not limited to, those
relating to the generation, manufacture, storage, handling, transportation,
disposal, release, emission or discharge of Hazardous Material, those in
connection with the construction, fuel supply, power generation and
transmission, waste disposal or any other operations or processes relating to
any of the Properties, and those relating to the atmosphere, soil, surface and
ground water, wetlands, stream sediments and vegetation on, under, in or about
any of the Properties. “
Environmental
Laws
” also
shall include the Comprehensive Environmental Response, Compensation and
Liability Act, the Hazardous Materials Transportation Act, the Resource
Conservation and Recovery Act, the Solid Waste Disposal Act, the Clean Water
Act, the Clean Air Act, the Toxic Substance Control Act, the Safe Drinking Water
Act and the Occupational Safety and Health Act, and all regulations adopted in
respect to the foregoing laws.
“
Environmental
Report
” means,
collectively, the Phase I Environmental Site Assessment dated March 24, 2006
prepared by EMG for the Carriage Hill Property, the Phase I Environmental Site
Assessment dated March 24, 2006 prepared by EMG for the Carriage Park Property,
the Phase I Environmental Site Assessment dated January 30, 2006 prepared by ATC
Associates, Inc. for the Macomb Manor Property, the Limited Phase II
Environmental Site Assessment dated April 10, 2006 prepared by ATC Associates,
Inc. for the Macomb Manor Property, the Phase I Environmental Site Assessment
dated January 25, 2006 prepared by ATC Associates, Inc. for the Scotsdale
Property, true, correct and complete copies of each which have been delivered to
Lender.
“
EO13224
” has the
meaning set forth in Section 4.34.
“
ERISA
” means
the Employee Retirement Income Security Act of 1974, and all rules and
regulations promulgated thereunder. Section references to ERISA are to ERISA, as
in effect at the date of this Agreement and, as of the relevant date, any
subsequent provisions of ERISA, amendatory thereof, supplemental thereto or
substituted therefor.
“
ERISA
Affiliate
” means
each of the Borrowers and any corporation, trade or business that is, along with
any Borrower, a member of a controlled group of corporations or a controlled
group of trades or businesses, as described in Section 414 of the Internal
Revenue Code of 1986, as amended, or Section 4001 of ERISA.
“
Event of
Default
” has the
meaning set forth in Section 8.1.
“
Excess
Interest
” has the
meaning set forth in Section 2.2.
“
Financial
Statements
” means
(i) statements of operations and retained earnings, statements of cash flow, and
balance sheets and (ii) such other financial reports as the subject entity shall
routinely and regularly prepare.
“
Financing
Statements
” means
the Uniform Commercial Code Financing Statements naming the applicable Borrower
Parties as debtors, and Lender as secured party, required under applicable state
law to perfect the security interests created hereunder or under the other Loan
Documents.
“
First Open Payment
Date
” is the
Payment Date which is in the third month preceding the month in which the
Scheduled Maturity Date occurs. For example, if the Scheduled Maturity Date is
April 11, 2010, the First Open Payment Date is the Payment Date in the month of
January, 2010.
“
First Payment
Date
” has the
meaning set forth in Section 2.4.
“
Fitch
” means
Fitch, Inc. and its successors.
“
GAAP
” means
generally accepted accounting principles as in effect in the United States of
America from time to time.
“
Governmental
Authority
” means,
with respect to any Person, any federal or state government or other political
subdivision thereof and any entity, including any regulatory or administrative
authority or court, exercising executive, legislative, judicial, regulatory or
administrative or quasi-administrative functions of or pertaining to government,
and any arbitration board or tribunal in each case having jurisdiction over such
applicable Person or such Person’s property, and any stock exchange on which
shares of capital stock of such Person are listed or admitted for
trading.
“
Guaranty
” means
the Exceptions to Non-Recourse Guaranty of even date herewith executed by
Guarantor in favor of Lender, as same may be amended or modified from time to
time.
“
Guarantor
” means
Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation
and Lightstone Value Plus REIT LP, a Delaware limited partnership.
“
Hazardous
Material
” means
all or any of the following: (i) substances, materials, compounds, wastes,
products, emissions and vapors that are defined or listed in, regulated by, or
otherwise classified pursuant to, any applicable Environmental Laws, including
any so defined, listed, regulated or classified as “hazardous substances”,
“hazardous materials”, “hazardous wastes”, “toxic substances”, “pollutants”,
“contaminants”, or any other formulation intended to regulate, define, list or
classify substances by reason of deleterious, harmful or dangerous properties;
(ii) waste oil, oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (iii) any flammable substances or
explosives or any radioactive materials; (iv) fungus, mold, mildew or other
biological agents the presence of which may adversely affect the health of
individuals or other animals or materially adversely affect the value or utility
of any of the Properties, (v) asbestos in any form; (vi) electrical or hydraulic
equipment which contains any oil or dielectric fluid containing polychlorinated
biphenyls; (vii) radon; or (viii) urea formaldehyde.
“
Immediate
Repairs
” has the
meaning set forth in Section 6.7.
“
Impositions
” means
all taxes (including, without limitation, all real estate, ad valorem, excise
and sales (including those imposed on lease rentals), use, single business,
gross receipts, value added, intangible transaction privilege, privilege,
license or similar taxes), assessments, ground rents, water, sewer or other
rents and charges, excises, levies, fees (including, without limitation,
license, permit, inspection, authorization and similar fees), and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, foreseen or unforeseen, of every character in respect of any or
all of the Borrowers, the Collateral, and any or all of the Properties
(including all interest and penalties thereon), which at any time prior to,
during or in respect of the term hereof may be assessed or imposed on or in
respect of or be a lien upon (i) any or all of the Borrowers (including, without
limitation, all income, franchise, single business, excise or other taxes
imposed on any or all of the Borrowers, for the privilege of doing business in
any jurisdiction) or Lender or (ii) any or all of the Properties, or any other
Collateral or any part thereof. Nothing contained in this Agreement shall be
construed to require any Borrower to pay (and Impositions shall not include) any
tax, assessment, levy or charge imposed on Lender, in the nature of a franchise,
capital levy, estate, inheritance, succession, income or net revenue
tax.
“
Impositions and Insurance
Reserve
” means
the reserve established pursuant to Section 6.3.
“
Impositions and Insurance
Reserve Sub-Account
” has the
meaning set forth in Section 7.1.
“
Improvements
” means
all buildings, structures and improvements of every kind and nature existing and
to be constructed upon the land which comprises any portion of any Individual
Property.
“
Indebtedness
” or
“
indebtedness
”, as
applied to any Person, means: (A) all indebtedness for borrowed money; (B) that
portion of obligations with respect to leases that is properly classified as a
liability on a balance sheet in conformity with GAAP (excluding any prepaid
rents and security deposits under Leases); (C) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money; (D) any obligation owed for all or any part of the deferred
purchase price of property or services if the purchase price is due more than
thirty (30) days from the date the obligation is incurred or is evidenced by a
note or similar written instrument; and (E) all indebtedness secured by any Lien
on any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person.
“
Indemnified
Liabilities
” has the
meaning set forth in Section 13.2.
“
Indemnified
Parties
” has the
meaning set forth in Section 5.26.
“
Indemnitees
” has the
meaning set forth in Section 13.2.
“
Independent
Director
” has the
meaning set forth in Section 9.1.
“
Individual
Property
” means,
individually, each of the four (4) parcels of real estate (including land and
Improvements) identified on Schedules A-1 through A-4 hereto (sometimes
collectively referred to as the “
Individual
Properties
”).
“
Insurance
Premiums
” means
the annual insurance premiums for the insurance policies required to be
maintained by Borrowers with respect to the Properties under Section
5.4.
“
Intellectual
Property
” means
all of each Borrower’s right, title and interest, whether now owned or hereafter
acquired, in, to and under the trademark licenses, trademarks, rights in
intellectual property, trade names, service marks and copyrights, copyright
licenses, patents, patent licenses or the license to use intellectual property
such as computer software owned or licensed by any of the Borrowers or other
proprietary business information relating to any Borrower’s policies,
procedures, manuals and trade secrets.
“
Interest
” means
interest accrued or accruing on the Loan.
“
Interest
Rate
” shall
mean a rate per annum of 5.96%.
“
Involuntary Borrower Party
Bankruptcy
” means
any involuntary case under the Bankruptcy Code or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, in which any
Borrower Party is a debtor or all or any portion of any of the Properties is
property of the estate therein.
“
IRC
” means
the Internal Revenue Code of 1986, and any rule or regulation promulgated
thereunder from time to time, in each case as amended.
“
IRS
” means
the Internal Revenue Service or any successor thereto.
“
Lease
” means
any lease, tenancy, license, sublease, assignment and/or other rental or
occupancy agreement (including, without limitation, any and all guarantees of
any of the foregoing) heretofore or hereafter entered into affecting the use,
enjoyment or occupancy of any of the Properties or any portion thereof,
including any extensions, renewals, modifications or amendments
thereof.
“
Legal
Requirements
” shall
mean, with respect to each of the Borrowers and each Individual Property, all
federal, state, county, municipal and other governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
governmental authorities affecting such Borrower or such Individual Property or
any part thereof or the construction, use, alteration or operation thereof, or
any part thereof, whether now or hereafter enacted and in force, including,
without limitation, the Americans with Disabilities Act of 1990, and all
permits, licenses and authorizations and regulations relating thereto, and all
covenants, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to such Borrower, at any time in force
affecting such Individual Property or any part thereof, including, without
limitation, any which may (i) require repairs, modifications or alterations in
or to such Individual Property or any part thereof, or (ii) in any way limit the
use and enjoyment thereof.
“
Lender
” is
defined in the preamble.
“
Lien
” means
any lien, mortgage, pledge, security interest, charge or encumbrance of any
kind, whether voluntary or involuntary, (including any conditional sale or other
title retention agreement, any lease in the nature thereof, and any agreement to
give any security interest).
“
Loan
” has the
meaning set forth in Section 2.1.
“
Loan
Agreement
” means
this Loan and Security Agreement, as same may be amended or modified from time
to time (including all schedules, exhibits, annexes and appendices
hereto).
“
Loan
Documents
” means
this Loan Agreement, the Note, the Mortgages, the Assignments of Leases, the
Assignment of Management Agreement, the Guaranty, the Clearing Account
Agreement, the Deposit Account Agreement, the Environmental Indemnity, the
Financing Statements, and any and all other documents and agreements accepted by
Lender for the purposes of evidencing and/or securing the Loan and any
certificates delivered in connection with the Loan.
“
Macomb Manor
Property
” means
that certain Individual Property commonly known as Macomb Manor Apartments,
19700 Masonic Boulevard, Roseville, Michigan, the legal description of which is
set forth on Schedule A-3.
“
Management
Agreement
” means,
individually and collectively, as the context requires, the management agreement
for the Properties in effect on the date hereof between the Borrowers and the
current Manager and any management agreement(s) which may hereafter be entered
into in accordance with the terms and conditions hereof, pursuant to which any
subsequent Manager may hereafter manage any or all of the
Properties.
“
Manager
” means,
collectively or individually as the context may require, the Person or Persons
(approved by Lender in accordance with the terms and conditions hereof) that may
hereafter be charged with management of any Individual Property pursuant to a
Management Agreement.
“
Material Adverse
Effect
” means
(A) a material adverse effect upon the business, operations, properties, assets
or condition (financial or otherwise) of any Borrower or any other Borrower
Party with respect to such party taken as a whole, or (B) the material
impairment of the ability of any Borrower or any other Borrower Party to perform
its material obligations under any Loan Documents, or (C) the impairment of the
ability of Lender to enforce or collect any of the Obligations. In determining
whether any individual event would result in a Material Adverse Effect,
notwithstanding that such event does not of itself have such effect, a Material
Adverse Effect shall be deemed to have occurred if the cumulative effect of such
event and all other then occurring events and existing conditions would result
in a Material Adverse Effect.
“
Material
Alteration
” means
any improvement or alteration affecting structural elements of any Individual
Property the cost of which exceeds $200,000;
provided
,
however
, that in
no event shall alterations performed as part of a Restoration constitute a
Material Alteration.
“
Maturity
Date
” shall
mean the Scheduled Maturity Date, or such other date on which the final payment
of principal of the Note becomes due an payable as therein or herein provided,
whether at such Scheduled Maturity Date, by acceleration, or
otherwise.
“
Maximum
Rate
” has the
meaning set forth in Section 2.2(D).
“
Minimum DSCR
Threshold
” means a
Debt Service Coverage Ratio of 1.05 to 1.00 for measurement made at the end of
any Calendar Quarter.
“
Moody’s
” means
Moody’s Investors Services, Inc. and its successors.
“
Monthly Debt Service
Payment
” has the
meaning set forth in Section 2.4(A).
“
Monthly Debt Service Payment
Amount
” means
$243,120.62.
“
Mortgages
” means,
collectively, those certain Mortgages of even date herewith from each Borrower
to Lender, constituting a Lien on the Improvements and the Properties as
Collateral for the Loan as same may be modified or amended from time to time.
“
Mortgage
” means
any one of the Mortgages.
“
Multiemployer
Plan
” means a
“multiemployer plan” as defined in Section 3(37) or Section 4001(a)(3) of ERISA
to which any Borrower or any ERISA Affiliate is making, or is accruing an
obligation to make, contributions or has made, or been obligated to make,
contributions within the preceding six (6) years, or for which any Borrower or
any ERISA Affiliate has any liability, including contingent
liability.
“
Note
” means
that certain Promissory Note, dated of even date herewith, made by Borrowers to
Lender evidencing the Loan, as amended, modified, restated or split, and any
replacement notes therefor.
“
O & M
Program
” has the
meaning set forth in Section 5.7(D).
“
Obligations
” means
the Loan and all other obligations, liabilities and indebtedness of every nature
of each of the Borrowers from time to time owed to Lender under the Loan
Documents, including the principal amount of all debts, claims and indebtedness,
accrued and unpaid interest and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable under the Loan Documents whether
before or after the filing of a proceeding under the Bankruptcy Code by or
against any or all of the Borrowers.
“
Operating
Account
” means
Borrowers’ operating account(s) established for the purposes of holding and
managing Borrowers’ funds from time to time, but not the Clearing Account,
Deposit Account or any Sub-Accounts thereof.
“
Operating
Budget
” means
Borrowers’ budget setting forth Borrowers’ best estimate, after due
consideration, of all revenue, costs, expenses and Operating Expenses for the
Properties, which budget has been reasonably approved by Lender if and to the
extent required hereunder.
“
Operating
Expenses
” means
all costs and expenses accrued in accordance with GAAP relating to the
operation, maintenance, repair, use and management of the Properties, including,
without limitation, utilities, repairs and maintenance, insurance, property
taxes and assessments, advertising expenses, payroll and related taxes,
equipment lease payments, actual management fees and all amounts paid into
Reserves,
provided
,
however
, such
costs and expenses shall be subject to reasonable adjustment by Lender to
normalize such costs and expenses, but excluding (i) principal, interest and
other payments made by Borrowers under the Loan Documents, and (ii) depreciation
and amortization.
“
Operating Expenses
Sub-Account
” has the
meaning set forth in Section 7.1.
“
Partial
Defeasance
” has the
meaning set forth in Section 2.3.
“
Partial Defeasance
Amount
” has the
meaning set forth in Section 2.10.
“
Partial Defeasance
Collateral
” shall
mean U.S. Obligations, which provide payments (i) on or prior to, but as close
as possible to, all Payment Dates and other scheduled payment dates, if any,
under the Defeased Note after the Defeasance Date and up to and including the
Scheduled Maturity Date, and (ii) in amounts equal to or greater than the
respective Scheduled Defeasance Payments related to such Payment
Dates.
“
Partial Defeasance
Date
” has the
meaning set forth in Section 2.3.
“
Partial
Release
” has the
meaning set forth in Section 2.10.
“
Partial Release
Date
” has the
meaning set forth in Section 2.10.
“
Partial Release
Parcel
” has the
meaning set forth in Section 2.10.
“
Payment
Date
” has the
meaning set forth in Section 2.4.
“
Pension
Plan
” means
any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to
the provisions of Part 3 of Title I of ERISA, Title IV of ERISA or Section 412
of the IRC and (i) which is maintained for employees of Borrower, or any of its
ERISA Affiliates, (ii) which has at any time within the preceding six (6) years
been maintained for the employees of any Borrower or any of its current or
former ERISA Affiliates, or (iii) for which any Borrower or any ERISA Affiliate
has any liability, including contingent liability.
“
Permitted
Encumbrances
” means
(i) the Mortgages and the other Liens of the Loan Documents in favor of Lender;
(ii) as to each Individual Property, the items shown in Schedule B to the Title
Policy for such Individual Property as of Closing; (iii) future liens for
property taxes and assessments not then delinquent; (iv) Liens for Impositions
not yet due and payable or Liens arising after the date hereof which are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted in accordance with Section 5.3(B) hereof; (v) in the case
of Liens arising after the date hereof, statutory Liens of carriers,
warehousemen, mechanics, materialmen and other similar Liens arising by
operation of law, which are incurred in the ordinary course of business and
discharged by a Borrower by payment, bonding or otherwise within thirty (30)
days after the filing thereof or which are being contested in good faith in
accordance with Section 5.3(B) hereof; (vi) as to each Individual Property,
rights of existing and future tenants, as tenants only, pursuant to the Leases
of such Individual Property; and (vii) any other Lien to which Lender may
expressly consent in writing.
“
Permitted
Investments
” means
any one or more of the following obligations or securities acquired at a
purchase price of not greater than par (unless Borrowers deposit into the
applicable Sub-Account cash in the amount by which the purchase price exceeds
par), including those issued by any Servicer, the trustee under any
Securitization or any of their respective Affiliates, payable on demand or
having a maturity date not later than the Business Day immediately prior to the
date on which the invested sums are required for payment of an obligation for
which the related Sub-Account was created and meeting one of the appropriate
standards set forth below:
(i)
obligations
of, or obligations fully guaranteed as to payment of principal and interest by,
the United States or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United States of
America including, without limitation, obligations of: the U.S. Treasury (all
direct or fully guaranteed obligations), the Farmers Home Administration
(certificates of beneficial ownership), the General Services Administration
(participation certificates), the U.S. Maritime Administration (guaranteed Title
XI financing), the Small Business Administration (guaranteed participation
certificates and guaranteed pool certificates), the U.S. Department of Housing
and Urban Development (local authority bonds) and the Washington Metropolitan
Area Transit Authority (guaranteed transit bonds);
provided
,
however
, that
the investments described in this clause (i) must (A) have a predetermined fixed
dollar amount of principal due at maturity that cannot vary or change, (B) if
rated by S&P, not have an “r” highlighter affixed to their rating, (C) if
such investments have a variable rate of interest, have an interest rate tied to
a single interest rate index plus a fixed spread (if any) and must move
proportionately with that index, and (D) not be subject to liquidation prior to
their maturity;
(ii)
Federal
Housing Administration debentures;
(iii)
obligations
of the following United States government sponsored agencies: Federal Home Loan
Mortgage Corp. (debt obligations), the Farm Credit System (consolidated
systemwide bonds and notes), the Federal Home Loan Banks (consolidated debt
obligations), the Federal National Mortgage Association (debt obligations), the
Student Loan Marketing Association (debt obligations), the Financing Corp. (debt
obligations), and the Resolution Funding Corp. (debt obligations);
provided
,
however
, that
the investments described in this clause (iii) must (A) have a predetermined
fixed dollar amount of principal due at maturity that cannot vary or change, (B)
if rated by S&P, not have an “r” highlighter affixed to their rating, (C) if
such investments have a variable rate of interest, have an interest rate tied to
a single interest rate index plus a fixed spread (if any) and must move
proportionately with that index, and (D) not be subject to liquidation prior to
their maturity;
(iv)
federal
funds, unsecured certificates of deposit, time deposits, bankers’ acceptances
and repurchase agreements with maturities of not more than 365 days of any bank,
the short term obligations of which at all times are rated in the highest short
term rating category by each Rating Agency (or, if not rated by all Rating
Agencies, rated by at least one Rating Agency in the highest short term rating
category and otherwise acceptable to each other Rating Agency, as confirmed in
writing that such investment would not, in and of itself, result in a downgrade,
qualification or withdrawal of the initial or, if higher, then current ratings
assigned to any class of certificates or other securities issued in connection
with any Securitization backed in whole or in part by the Loan (collectively the
“
Certificates
”)
provided
,
however
, that
the investments described in this clause (iv) must (A) have a predetermined
fixed dollar amount of principal due at maturity that cannot vary or change, (B)
if rated by S&P, not have an “r” highlighter affixed to their rating, (C) if
such investments have a variable rate of interest, have an interest rate tied to
a single interest rate index plus a fixed spread (if any) and must move
proportionately with that index, and (D) not be subject to liquidation prior to
their maturity;
(v)
fully
Federal Deposit Insurance Corporation-insured demand and time deposits in, or
certificates of deposit of, or bankers’ acceptances issued by, any bank or trust
company, savings and loan association or savings bank, the short term
obligations of which at all times are rated in the highest short term rating
category by each Rating Agency (or, if not rated by all Rating Agencies, rated
by at least one Rating Agency in the highest short term rating category and
otherwise acceptable to each other Rating Agency, as confirmed in writing that
such investment would not, in and of itself, result in a downgrade,
qualification or withdrawal of the initial or, if higher, then current ratings
assigned to any class of Certificates);
provided
,
however
, that
the investments described in this clause (v) must (A) have a predetermined fixed
dollar of principal due at maturity that cannot vary or change, (B) if rated by
S&P, not have a “r” highlighter affixed to their rating, (C) if such
investments have a variable rate of interest, have an interest rate tied to a
single interest rate index plus a fixed spread (if any) and must move
proportionately with that index, and (D) not be subject to liquidation prior to
their maturity;
(vi)
debt
obligations with maturities of not more than 365 days and at all times rated by
each Rating Agency (or, if not rated by all Rating Agencies, rated by at least
one Rating Agency and otherwise acceptable to each other Rating Agency, as
confirmed in writing that such investments would not, in and of itself, result
in a downgrade, qualification or withdrawal of the initial or, if higher, then
current ratings assigned to the Certificates) in its highest long-term unsecured
debt rating category;
provided
,
however
, that
the investments described in this clause (vi) must (A) have a predetermined
fixed dollar amount of principal due at maturity that cannot vary or change, (B)
if rated by S&P, not have an “r” highlighter affixed to their rating, (C) if
such investments have a variable rate of interest, have an interest rate tied to
a single interest rate index plus a fixed spread (if any) and must move
proportionately with that index, and (D) not be subject to liquidation prior to
their maturity;
(vii)
commercial
paper (including both non-interest-bearing discount obligations and
interest-bearing obligations payable on demand or on a specified date not more
than one year after the date of issuance thereof) with maturities of not more
than 365 days and that at all times is rated by each Rating Agency (or, if not
rated by all Rating Agencies, rated by at least one Rating Agency and otherwise
acceptable to each other Rating Agency, as confirmed in writing that such
investment would not, in and of itself, result in a downgrade, qualification or
withdrawal of the initial or, if higher, then current ratings assigned to any
class of Certificates) in its highest short-term unsecured debt rating;
provided
,
however
, that
the investments described in this clause (vii) must (A) have a predetermined
fixed dollar amount of principal due at maturity that cannot vary or change, (B)
if rated by S&P, not have a “r” highlighter affixed to their rating, (C) if
such investments have a variable rate of interest, have an interest rate tied to
a single interest rate index plus a fixed spread (if any) and must move
proportionately with that index, and (D) not be subject to liquidation prior to
their maturity;
(viii)
units of
taxable money market funds, which funds are regulated investment companies, seek
to maintain a constant net asset value per share and have the highest rating
from each Rating Agency (or, if not rated by all Rating Agencies, rated by at
least one Rating Agency and otherwise acceptable to each other Rating Agency, as
confirmed in writing that such investment would not, in and of itself, result in
a downgrade, qualification or withdrawal of the initial or, if higher, then
current ratings assigned to any class of Certificates) for money market funds or
mutual funds; and
(ix)
any other
security, obligation or investment which has been approved as a Permitted
Investment in writing by (a) Lender and (b) each Rating Agency, as evidenced by
a written confirmation that the designation of such security, obligation or
investment as a Permitted Investment will not, in and of itself, result in a
downgrade, qualification or withdrawal of the initial or, if higher, then
current ratings assigned to any class of Certificates by such Rating
Agency;
provided
,
however
, that
such instrument continues to qualify as a “cash flow investment” pursuant to
Code Section 860G(a)(6) earning a passive return in the nature of interest and
no obligation or security shall be a Permitted Investment if (A) such obligation
or security evidences a right to receive only interest payments or (B) the right
to receive principal and interest payments on such obligation or security are
derived from an underlying investment that provides a yield to maturity in
excess of 120% of the yield to maturity at par of such underlying
investment.
“
Person
” means
and includes natural persons, corporations, limited liability companies, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof and their respective permitted
successors and assigns (or in the case of a governmental Person, the successor
functional equivalent of such Person).
“
Pre-Existing
Condition
” has the
meaning set forth in Section 5.5.
“
Prepaid
Rent
” means
any base rents and other monthly recoveries under bona fide Leases at the
Properties actually received by Borrowers (including, any nonrefundable
reservation deposits) which are not currently due and owing by such tenant under
such Lease but are attributable to a future obligation under such
Lease.
“
Prepayment
Consideration
” has the
meaning set forth in Section 2.6(C).
“
Principal
Balance
” means
the outstanding principal balance of the Loan from time to time.
“
Proceeds
” shall
have the meaning given in the UCC and, in any event, shall include, without
limitation, all proceeds, products, offspring, rents, profits or receipts, in
whatever form, arising from the Collateral.
“
Prohibited
Transaction
” shall
mean a prohibited transaction as described under Section 406 of ERISA or Section
4975 of the IRC which is not the subject of a statutory exemption under Section
408(b) of ERISA or an administrative exemption granted pursuant to Section
408(a) of ERISA.
“
Properties
” means,
collectively, each Individual Property listed on Schedule A-1 through A-4 hereto
(including land and Improvements), which serves as Collateral for the Loan and
which shall be encumbered by and are more particularly described in each of the
Mortgages as the “Mortgaged Property” (as defined in the
Mortgages).
“
Property Condition
Report
” and
“
Property Condition
Reports
” have
the meanings set forth in Section 3.1(S).
“
Rating
Agency
” shall
mean any of S&P, Moody’s, Fitch, any successors thereto, or any other
nationally-recognized statistical rating organization designated by Lender in
its sole discretion.
“
Rating
Confirmation
” with
respect to the transaction or matter in question, shall mean: (i) if all or any
portion of the Loan, by itself or together with other loans, has been the
subject of a Securitization, then each applicable Rating Agency shall have
confirmed in writing that such transaction or matter shall not result in a
downgrade, qualification, or withdrawal of any rating then in effect for any
class of certificates or other securities issued in connection with such
Securitization; and (ii) if the Loan or any portion thereof has not been the
subject of a Securitization, (a) the applicable Rating Agency shall have
confirmed in writing that such transaction or matter shall not result in a
downgrade, qualification, or withdrawal of any shadow rating or other rating
provided to the Loan or any portion thereof not the subject of a Securitization,
and (b) Lender shall have determined in its reasonable discretion (taking into
consideration such factors as Lender may determine, including the attributes of
the loan pool in which the Loan might reasonably be expected to be securitized)
that no rating for any certificate or other securities that would be issued in
connection with Securitization of such portion of the Loan would be downgraded,
qualified, or withheld by reason of such transaction or matter.
“
Rating
Criteria
” with
respect to any Person, shall mean that (i) the short-term unsecured debt
obligations of such Person are rated at least “A-1” by S&P, “P-1” by Moody’s
and “F-1” by Fitch, if deposits are held by such Person for a period of less
than one month, or (ii) the long-term unsecured debt obligations of such Person
are rated at least “AA-” by S&P, “Aa3” by Moody’s and “AA-” by Fitch, if
deposits are held by such Person for a period of one month or more.
“
Receipts
” means
all revenues, receipts and other payments of every kind arising from ownership
or operation of the Properties and received by any or all of the Borrowers or an
Affiliate of any Borrower, including, without limitation, all warrants, stock
options, or equity interests in any tenant, licensee or other Person occupying
space at, or providing services related to or for the benefit of, any Individual
Property received by any Borrower or an Affiliate of any Borrower in lieu of
rent or other payment.
“
Related
Person
” means
in relation to any Person, any other Person that is (i) an Affiliate of the
first Person; (ii) the sibling of the first Person or of the Affiliate; (iii)
the then-current and former spouses of the first Person or of the Affiliate;
(iv) a Person that shares or has shared a residence with the first Person or
with the Affiliate; (v) the ancestor or descendant of the first Person or of any
other Person described in this items (i) through (iv) above; or (vi) any other
Person that, by reason of familial, economic, social or other relationship,
would reasonably be expected to favor the first Person or to act as requested by
the first Person. Where expressions such as “[name of party] or any Related
Person” are used, the same shall refer to the named party and any Related Person
of the named party.
“
Release
Date
” shall
mean the earlier of (i) the Payment Date in July, 2009, or (ii) the date that is
two (2) years from the “start up day” (within the meaning of Section 860G(a)(9)
of the IRC) of the REMIC Trust established in connection with the final
Securitization involving the Loan.
“
Rent Roll
” has the
meaning set forth in Section 3.1.
“
Rents
” has the
meaning set forth in the Granting Clauses of the Mortgages.
“
Replacement
Reserve
” means
the reserve established pursuant to Section 6.4.
“
Replacement Reserve
Sub-Account
” has the
meaning set forth in Section 7.1.
“
Reserves
” means
the reserves held by or on behalf of Lender pursuant to this Loan Agreement or
other Loan Documents, including the reserves established pursuant to Article
VI.
“
Reserve
Sub-Accounts
” has the
meaning set forth in Section 7.1.
“
Restoration
” has the
meaning set forth in Section 5.5.
“
Restoration
Threshold
” means
an amount equal to $1,000,000.
“
S&P
” shall
mean Standard & Poor’s Rating Services, a division of The McGraw-Hill
Companies, Inc and its successors.
“
Scheduled Defeasance
Payments
” shall
mean scheduled payments of interest and principal under the Note in the case of
a Total Defeasance and under the Defeased Note in the case of a Partial
Defeasance for all Payment Dates occurring after the Defeasance Date and up to
and including the Scheduled Maturity Date (including, in the case of a Total
Defeasance, the outstanding principal balance of the Loan as of the Scheduled
Maturity Date and, in the case of a Partial Defeasance, the outstanding
principal balance of the Defeased Note as of the Scheduled Maturity Date), and
all payments required after the Defeasance Date, if any, under the Loan
Documents for servicing fees, and other similar charges.
“
Scheduled Maturity
Date
” shall
mean July 11, 2016.
“
Scotsdale
Property
” means
that certain Individual Property commonly known as Scotsdale Apartments, 37650
Dale Drive, Westland, Michigan, the legal description of which is set forth on
Schedule A-4.
“
Secondary Market
Transaction
” has the
meaning set forth in Section 10.1.
“
Securities
”
(whether or not capitalized) means any stock, shares, voting trust certificates,
bonds, debentures, options, warrants, notes, or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as “securities” or any certificates of interest,
shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.
“
Securitization
” means a
public or private rated offering of securities representing direct or indirect
interests in one or more mortgage loans or the right to receive income
therefrom.
“
Security
Agreement
” shall
mean a security agreement in form and substance that would be satisfactory to a
prudent lender pursuant to which Borrowers grant Lender a perfected, first
priority security interest in the Defeasance Collateral Account and the
Defeasance Collateral.
“
Security
Deposits
” shall
mean all security (whether cash, letter of credit or otherwise) given to any
Borrower or any agent or Person acting on behalf of any Borrower in connection
with any of the Leases.
“
Servicer
” means a
servicer selected by Lender from time to time in its sole discretion to service
the Loan.
“
Sole
Member
” shall
mean Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland
corporation, the sole member of each of the Borrowers.
“
Sub-Accounts
” has the
meaning set forth in Section 7.1.
“
Successor
Borrower
” has the
meaning set forth in Section 2.3.
“
Supplemental Debt Reserve
Sub-Account
” has the
meaning set forth in Section 7.1.
“
Survey
” has the
meaning set forth in Section 3.1(G).
“
Taking
” means a
taking or voluntary conveyance during the term hereof of all or part of any
Individual Property, or any interest therein or right accruing thereto or use
thereof, as the result of, or in settlement of, any condemnation or other
eminent domain proceeding by any Governmental Authority affecting any Individual
Property or any portion thereof whether or not the same shall have actually been
commenced.
“
Tax
Liabilities
” has the
meaning given to such term in Section 2.8.
“
Title
Company
” means
Lawyers Title Insurance Corporation, or such other national title insurance
company as may be reasonably acceptable to Lender.
“
Title
Policies
” means,
collectively, the mortgagee’s policies of title insurance pertaining to the
Mortgages issued to Lender in connection with the Closing meeting the
requirements of Section 3.1(G). “
Title
Policy
” means
any one of the Title Policies.
“
Total
Defeasance
” has the
meaning set forth in Section 2.3.
“
Total Defeasance
Collateral
” shall
mean U.S. Obligations, which provide payments (i) on or prior to, but as close
as possible to, all Payment Dates and other scheduled payment dates, if any,
under the Note after the Defeasance Date and up to and including the Maturity
Date, and (ii) in amounts equal to or greater than the respective Scheduled
Defeasance Payments related to such Payment Dates.
“
Transfer and
Assumption
” and
“
Transferee
Borrower
” have
the respective meanings set forth in Section 11.3.
“
UCC
” means
the New York Uniform Commercial Code, as amended from time to time.
“
Undefeased
Note
” has the
meaning set forth in Section 2.3.
“
Unit
” means
each residential unit at the Properties containing one or more bedrooms for
occupancy by one or more residents.
“
U.S.
Obligations
” shall
mean securities that are (i) direct obligations of the United States of America
for the full and timely payment of which its full faith and credit is pledged or
(ii) obligations of an entity controlled or supervised by and acting as an
agency or instrumentality and guaranteed as a full faith and credit obligation
which shall be fully and timely paid by the United States of America, which in
either case are not callable or redeemable at the option of the issuer thereof
(including a depository receipt issued by a bank (as defined in Section 3(a)(2)
of the United States Securities Act)) as custodian with respect to any such U.S.
Obligations or a specific payment of principal of or interest on any such U.S.
Obligations held by such custodian for the account of the holder of such
depository receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the securities or the specific payment of principal of or interest on the
securities evidenced by such depository receipt.
“
Work
” has the
meaning set forth in Section 6.6.
Section 1.2
Accounting
Terms
.
Except as
otherwise expressly provided herein, all accounting terms not otherwise defined
herein shall have the meanings assigned to such terms in conformity with
GAAP.
Section 1.3
Other Definitional
Provisions
.
References
to “
Articles
”,
“
Sections
”,
“
Subsections
”,
“
Exhibits
” and
“
Schedules
” shall
be to Articles, Sections, Subsections, Exhibits and Schedules, respectively, of
this Loan Agreement unless otherwise specifically provided. Any of the terms
defined in Section 1.1 may, unless the context otherwise requires, be used in
the singular or the plural depending on the reference. In this Loan Agreement,
“
hereof
”,
“
herein
”,
“
hereto
”,
“
hereunder
” and the
like mean and refer to this Loan Agreement as a whole and not merely to the
specific article, section, subsection, paragraph or clause in which the
respective word appears; words importing any gender include the other genders;
references to “
writing
” include
printing, typing, lithography and other means of reproducing words in a tangible
visible form; the words “
including
”,
“
includes
” and
“
include
” shall
be deemed to be followed by the words “without limitation”; and any reference to
any statute or regulation may include any amendments of same and any successor
statutes and regulations. Further, (i) any reference to any agreement or other
document shall include subsequent amendments, assignments, and other
modifications thereto, and (ii) any reference to any Person may include such
Person’s respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons.
ARTICLE II
TERMS OF THE LOAN
Section 2.1
Loan
.
(A)
Loan
. Subject
to the terms and conditions of this Loan Agreement and in reliance upon the
representations and warranties of Borrowers contained herein, Lender agrees to
lend to Borrowers, and Borrowers agrees to borrow from Lender, the Loan, in the
aggregate amount of $40,725,000 (such loan and the obligation of Borrowers to
repay the same together with all interest and other amounts from time to time
owing hereunder are referred to collectively herein as the “
Loan
”).
Borrowers’ obligation to pay the principal and interest on the Loan (including
late charges, Default Rate interest, and the Prepayment Consideration, if any)
shall be evidenced by this Loan Agreement and by the Note, duly executed and
delivered by Borrowers. The Note shall be payable as to principal, interest,
late charges, Default Rate interest and Prepayment Consideration, if any, as
specified in this Loan Agreement, with a final maturity on the Maturity Date.
Borrowers shall pay all outstanding Obligations on the Maturity
Date.
(B)
Note
. On the
Closing Date, Borrowers shall execute and deliver to Lender the Note, made by
Borrowers to the order of Lender, in the aggregate original principal amount of
$40,725,000.
(C)
Use of
Proceeds
. The
proceeds of the Loan funded at Closing shall be used to (i) repay any existing
indebtedness secured by any mortgage encumbering all or any part of the
Properties; (ii) pay all recording fees and taxes, title insurance premiums, the
reasonable costs and expenses incurred by Lender, including the legal fees and
expenses of counsel to Lender, and other costs and expenses approved by Lender
(which approval will not be unreasonably withheld) related to the Loan and (iii)
establish the Reserves required hereunder. The remaining proceeds of the Loan,
if any, shall be disbursed to Borrowers;
provided
,
however
, that
any and all such remaining proceeds of the Loan will be used for commercial
purposes only and will not be used for personal, family, agricultural or
household use.
Section 2.2
Interest
.
(A)
Rate of
Interest
. The
outstanding principal balance of the Loan shall bear interest at a rate per
annum equal to the Interest Rate.
(B)
Default
Rate
.
Notwithstanding the foregoing, upon the occurrence and during the continuance of
an Event of Default and in any event from and after the Maturity Date of the
Loan, the Principal Balance of the Loan and all other outstanding Obligations
shall bear interest until paid in full at a rate per annum that is five percent
(5.0%) in excess of the Interest Rate otherwise applicable under this Loan
Agreement and the Note (the “
Default
Rate
”).
(C)
Computation of
Interest
.
Interest on the Loan and all other Obligations owing to Lender shall be computed
on the basis of a 360-day year, and shall be charged for the actual number of
days elapsed during any month or other accrual period. Interest shall be payable
in arrears (except as provided in the first sentence of Section 2.4(A)
hereof).
(D)
Interest
Laws
.
Notwithstanding any provision to the contrary contained in this Loan Agreement
or the other Loan Documents, Borrowers shall not be required to pay, and Lender
shall not be permitted to collect, any amount of interest in excess of the
maximum amount of interest permitted by law (“
Excess
Interest
”). If
any Excess Interest is provided for or determined by a court of competent
jurisdiction to have been provided for in this Loan Agreement or in any of the
other Loan Documents, then in such event: (1) the provisions of this Section
shall govern and control; (2) Borrowers shall not be obligated to pay any Excess
Interest; (3) any Excess Interest that Lender may have received hereunder shall
be, at Lender’s option, (a) applied as a credit against either or both of the
Principal Balance of the Loan or accrued and unpaid interest thereunder (not to
exceed the maximum amount permitted by law), (b) refunded to the payor thereof,
or (c) any combination of the foregoing; (4) the interest rate(s) provided for
herein shall be automatically reduced to the maximum lawful rate allowed from
time to time under applicable law (the “
Maximum
Rate
”), and
this Loan Agreement and the other Loan Documents shall be deemed to have been
and shall be, reformed and modified to reflect such reduction; and (5) Borrowers
shall not have any action against Lender for any damages arising out of the
payment or collection of any Excess Interest. Notwithstanding the foregoing, if
for any period of time interest on any Obligation is calculated at the Maximum
Rate rather than the applicable rate under this Loan Agreement, and thereafter
such applicable rate becomes less than the Maximum Rate, the rate of interest
payable on such Obligations shall, to the extent permitted by law, remain at the
Maximum Rate until Lender shall have received or accrued the amount of interest
which Lender would have received or accrued during such period on Obligations
had the rate of interest not been limited to the Maximum Rate during such
period. If the Default Rate shall be finally determined to be unlawful, then the
applicable Interest Rate shall be applicable during any time when the Default
Rate would have been applicable hereunder, provided however that if the Maximum
Rate is greater or lesser than the applicable Interest Rate, then the foregoing
provisions of this paragraph shall apply.
(E)
Late
Charges
. If any
payment of principal, interest or other sums shall not be made to Lender on the
date the same is due hereunder or under any of the other Loan Documents, then
Borrowers shall pay to Lender, in addition to all sums otherwise due and
payable, a late fee in an amount equal to five percent (5.0%) of such principal,
interest or other sums due hereunder or under any other Loan Document (or, in
the case of a partial payment, the unpaid portion thereof), such late charge to
be immediately due and payable without demand by Lender.
(F)
Additional Administrative
Fee
. In
addition to the Default Rate provided for above, upon failure of any Borrower
Party to deliver any of the financial statements, reports or other information
required to be delivered to Lender as provided in Section 5.1 hereof upon their
due dates, if any such failure shall continue for five (5) Business Days
following notice thereof from Lender, Borrowers shall pay to Lender together
with the scheduled monthly payments of principal and interest on the Loan, for
each month or portion thereof that any such financial statement, report or other
information remains undelivered, an administrative fee in the amount of $7,500.
Borrowers agree that such administrative fee (i) is a fair and reasonable fee
necessary to compensate Lender for its additional administrative costs under the
circumstances, (ii) is not a penalty and (iii) is necessary to compensate Lender
for increased costs and obligations to third parties in connection with the
planned Securitization of the Loan.
Section 2.3
Defeasance
.
(A)
Total
Defeasance
.
Borrowers shall have the right at any time after the Release Date and prior to
the First Open Payment Date to obtain a release of the Lien of the Mortgage
encumbering all (but not less than all) of the Properties (a “
Total
Defeasance
”) upon
satisfaction of the following conditions:
(i)
Borrowers
shall provide Lender at least thirty (30) days’ prior written notice (or such
shorter period of time if permitted by Lender in its sole discretion) specifying
a date (the “
Defeasance
Date
”) on
which Borrowers shall have satisfied the conditions in this Section 2.3(A) and
on which they shall effect the Defeasance;
(ii)
Borrowers
shall pay to Lender (A) all payments of interest due on the Loan to and
including the Defeasance Date and (B) all other sums, then due under the Note,
this Loan Agreement, the Mortgages and the other Loan Documents;
(iii)
Borrowers
shall irrevocably deposit the Total Defeasance Collateral into the Defeasance
Collateral Account and otherwise comply with the provisions of Sections 2.3(C)
and (D) hereof;
(iv)
Borrowers
shall execute and deliver to Lender a Security Agreement in respect of the
Defeasance Collateral Account and the Total Defeasance Collateral;
(v)
Borrowers
shall deliver to Lender an opinion of counsel for Borrowers that is customary in
commercial lending transactions and subject only to normal qualifications,
assumptions and exceptions opining, among other things, that (v) Lender has a
legal and valid perfected first priority security interest in the Defeasance
Collateral Account and the Total Defeasance Collateral, (w) if a Securitization
has occurred, the REMIC Trust formed pursuant to such Securitization will not
fail to maintain its status as a “real estate mortgage investment conduit”
within the meaning of Section 860D of the Code as a result of the defeasance
pursuant to this Section 2.3(A), (x) a defeasance pursuant to this Section
2.3(A) will not result in a deemed exchange for purposes of the Code and will
not adversely affect the status of the Note as indebtedness for federal income
tax purposes, (y) delivery of the Total Defeasance Collateral and the grant of a
security interest therein to Lender shall not constitute an avoidable preference
under Section 547 of the Bankruptcy Code or applicable state law and (z) if and
to the extent required by the Rating Agencies, a non-consolidation opinion with
respect to the Successor Borrower;
(vi)
Borrowers
shall deliver to Lender a confirmation in writing from the applicable Rating
Agencies to the effect that the release of the Properties from the Lien of the
Mortgages as contemplated by this Section 2.3(A) and the substitution of the
Total Defeasance Collateral will not result in a downgrading, withdrawal or
qualification of the respective ratings in effect immediately prior to such
defeasance for the Certificates issued in connection with the Securitization
which are then outstanding;
(vii)
Borrowers
shall deliver an officer’s certificate certifying that the requirements set
forth in this Section 2.3(A) have been satisfied;
(viii)
Borrowers
shall deliver a certificate of a nationally recognized public accounting firm
reasonably acceptable to Lender certifying that the Total Defeasance Collateral
will generate monthly amounts equal to or greater than the Scheduled Defeasance
Payments;
(ix)
Borrowers
shall deliver such other certificates, opinions, documents and instruments as
Lender may reasonably request; and
(x)
Borrowers
shall pay all costs and expenses of Lender incurred in connection with the
defeasance, including Lender’s reasonable attorneys’ fees and expenses and
Rating Agency fees and expenses.
If a
Total Defeasance occurs and all of the requirements of this Section 2.3 have
been satisfied, Lender shall execute any and all documents required to release
the Properties from the Lien of the Mortgage and the Assignments of Leases and
the Total Defeasance Collateral, pledged pursuant to the Security Agreement,
shall be the sole source of collateral securing the Note. In connection with the
release of the Lien, Borrowers shall submit to Lender, not less than thirty (30)
days prior to the Defeasance Date (or such shorter time as permitted by Lender
in its sole discretion), a release of Lien (and related Loan Documents) for each
Individual Property for execution by Lender. Such releases shall be in a form
appropriate in the jurisdiction in which the applicable Individual Property is
located and contain standard provisions protecting the rights of a releasing
lender. In addition, Borrowers shall provide all other documentation Lender
reasonably requires to be delivered by Borrowers in connection with such
release. Borrowers shall pay all costs, taxes and expenses associated with the
release of the Lien of the Mortgages and the Assignments of Leases, including
Lender’s reasonable attorneys’ fees. Except as set forth in this Section 2.3(A)
and Section 2.3(B) below, no repayment, prepayment or defeasance of all or any
portion of the Note shall cause, give rise to a right to require, or otherwise
result in, the release of the Lien of any Mortgage on any of the
Properties.
(B)
Partial
Defeasance
.
Borrower shall, as a condition to and only in connection with a Partial Release
of an Individual Property after the Release Date and prior to the First Open
Payment Date as provided in Section 2.10 below, have the right to defease a
portion of the Loan (a “
Partial
Defeasance
”) equal
to the Partial Defeasance Amount for such Individual Property (determined as
provided in Section 2.10 with respect to such Partial Release) upon satisfaction
of the following conditions:
(i)
Borrower
shall provide Lender at least thirty (30) days’ prior written notice (or such
shorter period of time if permitted by Lender in its sole discretion) specifying
a date (the “
Partial Defeasance
Date
”) on
which Borrower shall have satisfied the conditions in this Section 2.3(B) and on
which it shall effect the Partial Defeasance;
(ii)
Borrower
shall pay to Lender (A) all payments of interest due on the Loan to and
including the Partial Defeasance Date and (B) all other sums, then due under the
Note, this Loan Agreement, the Mortgage and the other Loan
Documents;
(iii)
Borrower
shall irrevocably deposit the Partial Defeasance Collateral into the Defeasance
Collateral Account and otherwise comply with the provisions of Sections 2.3(C)
and (D) hereof;
(iv)
Lender
shall prepare (at Borrower’s expense) all necessary documents to modify this
Loan Agreement and to amend and restate the Note and issue two substitute notes,
one note having a principal balance equal to the Partial Defeasance Amount (the
“
Defeased
Note
”), and
the other note having a principal balance equal to the excess of (A) the
then-outstanding principal amount of the Loan, over (B) the amount of the
Defeased Note (the “
Undefeased
Note
”). The
Defeased Note and Undefeased Note shall have identical terms as the Note except
for the principal balance and monthly payments. The Defeased Note and the
Undefeased Note shall be cross defaulted and cross collateralized unless the
Rating Agencies shall require otherwise or unless a Successor Borrower that is
not an Affiliate of Borrower is established pursuant to Section 2.3(D). A
Defeased Note may not be the subject of any further defeasance.
(v)
Borrower
shall execute and deliver to Lender a Security Agreement in respect of the
Defeasance Collateral Account and the Partial Defeasance
Collateral;
(vi)
Borrower
shall deliver to Lender an opinion of counsel for Borrower, if required by
Lender, that is customary in commercial lending transactions and subject only to
normal qualifications, assumptions and exceptions opining, among other things,
that (v) Lender has a legal and valid perfected first priority security interest
in the Defeasance Collateral Account and the Partial Defeasance Collateral, (w)
if a Securitization has occurred, the REMIC Trust formed pursuant to such
Securitization will not fail to maintain its status as a “real estate mortgage
investment conduit” within the meaning of Section 860D of the Code as a result
of the defeasance pursuant to this Section 2.3(B), (x) a defeasance pursuant to
this Section 2.3(B) will not result in a deemed exchange for purposes of the
Code and will not adversely affect the status of the Defeased Note and the
Undefeased Note as indebtedness for federal income tax purposes, (y) delivery of
the Partial Defeasance Collateral and the grant of a security interest therein
to Lender shall not constitute an avoidable preference under Section 547 of the
Bankruptcy Code or applicable state law and (z) if and to the extent required by
the Rating Agencies, a non-consolidation opinion with respect to the Successor
Borrower;
(vii)
Borrower
shall deliver to Lender a confirmation in writing from the applicable Rating
Agencies to the effect that the Partial Defeasance and the substitution of the
Partial Defeasance Collateral will not result in a downgrading, withdrawal or
qualification of the respective ratings in effect immediately prior to such
defeasance for the Certificates issued in connection with the Securitization
which are then outstanding;
(viii)
Borrower
shall deliver an officer’s certificate certifying that the requirements set
forth in this Section 2.3(B) have been satisfied;
(ix)
Borrower
shall deliver a certificate of a nationally recognized public accounting firm
reasonably acceptable to Lender certifying that the Partial Defeasance
Collateral will generate monthly amounts equal to or greater than the Scheduled
Defeasance Payments;
(x)
Borrower
shall deliver such other certificates, opinions, documents and instruments as
Lender may reasonably request; and
(xi)
Borrower
shall pay all costs and expenses of Lender incurred in connection with the
defeasance, including Lender’s reasonable attorneys’ fees and expenses and
Rating Agency fees and expenses.
(C)
Defeasance Collateral
Account
. On or
before the date on which Borrowers deliver the Defeasance Collateral, Borrowers
or Successor Borrower (as applicable) shall open at any Eligible Bank the
defeasance collateral account (the “
Defeasance Collateral
Account
”) which
shall at all times be an Eligible Account. The Defeasance Collateral Account
shall contain only (i) Defeasance Collateral and (ii) cash from interest and
principal paid on the Defeasance Collateral. All cash from interest and
principal payments paid on the Defeasance Collateral shall be paid over to
Lender on each Payment Date and applied to the monthly installments of interest
on the Loan and, on the Maturity Date, to accrued interest and the Principal
Balance of the Loan. Borrowers shall cause the Eligible Bank at which the
Defeasance Collateral is deposited to enter an agreement with Borrowers and
Lender, satisfactory to Lender in its sole discretion, pursuant to which such
Eligible Bank shall agree to hold and distribute the Defeasance Collateral in
accordance with this Loan Agreement. Borrowers (or Successor Borrower, as
applicable) shall be the owner of the Defeasance Collateral Account and shall
report all income accrued on Defeasance Collateral for federal, state and local
income tax purposes in its income tax return. Borrowers shall prepay all costs
and expenses associated with opening and maintaining the Defeasance Collateral
Account. Lender shall not in any way be liable by reason of any insufficiency in
the Defeasance Collateral Account.
(D)
Successor
Borrower
. In
connection with a Total Defeasance or a Partial Defeasance under this Section
2.3, Borrowers shall, if required by the Rating Agencies or if Borrowers so
elect or Lender requires, establish or designate a successor entity (the
“
Successor
Borrower
”) which
shall be a single purpose bankruptcy remote entity and which shall be approved
by the Rating Agencies. Any such Successor Borrower may, at the option of
Borrowers, be an Affiliate of Borrowers unless the Rating Agencies or Lender
shall require otherwise. Borrowers shall transfer and assign all obligations,
rights and duties under and to the Note, together with the Defeasance
Collateral, to such Successor Borrower. Such Successor Borrower shall assume the
obligations under the Note and the Security Agreement. Borrowers shall pay
$1,000 to any such Successor Borrower as consideration for assuming the
obligations under the Note and the Security Agreement. Borrowers shall pay all
reasonable costs and expenses incurred by Lender, including Lender’s attorney’s
fees and expenses incurred in connection therewith, and all fees, expenses and
other charges of the Rating Agencies.
Section 2.4
Payments
.
(A)
Payments of Interest and
Principal
.
Borrowers shall make a payment to Lender of interest only on the Closing Date
for the period from the Closing Date through July 10, 2006. Commencing on August
11, 2006 (the “
First Payment
Date
”) and on
the eleventh (11
th
) day of
each calendar month thereafter (the First Payment Date and the eleventh
(11
th
) day of
each calendar month thereafter is herein referred to as a “
Payment
Date
”) to and
including the Payment Date in July, 2011, Borrowers shall make monthly payments
of interest accrued on the Principal Balance of the Loan, and on the Payment
Date in August, 2011 and on each Payment Date thereafter, Borrowers shall make
equal monthly payments of principal and interest in the amount of the Monthly
Debt Service Payment Amount (such monthly payments of interest and, on and after
the Payment Date in August, 2011, principal and interest are each referred to
herein as a “
Monthly Debt Service
Payment
”). Prior
to the occurrence of an Event of Default, all Monthly Debt Service Payments
shall be applied first to accrued and unpaid interest on the Loan and the
balance to the payment of principal on the Loan. During the continuance of an
Event of Default, Borrowers irrevocably waive the right to direct the
application of any and all payments at any time hereafter received by Lender
from or on behalf of Borrowers, and Borrowers irrevocably agree that Lender
shall have the continuing exclusive right to apply any and all such payments
against the then due and owing obligations of Borrowers in such order of
priority as Lender may deem advisable.
(B)
Date and Time of
Payment
.
Borrowers shall receive credit for payments on the Loan which are transferred to
the account of Lender as provided below (i) on the day that such funds are
received by Lender if such receipt occurs by 1:00 p.m. (New York time) on such
day, or (ii) on the next succeeding Business Day after such funds are received
by Lender if such receipt occurs after 1:00 p.m. (New York time). Whenever any
payment to be made hereunder shall be stated to be due on a day that is not a
Business Day, the payment may be made on the next succeeding Business
Day.
(C)
Manner of
Payment
.
Borrowers promise to pay all of the Obligations relating to the Loan as such
amounts become due or are declared due pursuant to the terms of this Loan
Agreement. All payments by Borrowers on the Loan shall be made without
deduction, defense, set off or counterclaim and in immediately available funds
delivered to Lender by wire transfer to such accounts at such banks as Lender
may from time to time designate.
Section 2.5
Maturity
.
To the
extent not sooner due and payable in accordance with the Loan Documents, the
then outstanding principal balance of the Loan, all accrued and unpaid interest
thereon, and all other sums then owing to Lender hereunder and under the Note,
the Mortgages and the other Loan Documents, shall be due and payable on the
Maturity Date, which shall, subject to earlier acceleration hereunder, be the
Scheduled Maturity Date.
Section 2.6
Prepayment
.
(A)
Limitation on Prepayment;
Prepayment Consideration Due on Acceleration
.
Borrowers shall have no right to prepay the Loan in whole or part at any time,
except as expressly set forth in this provision. Commencing on the First Open
Payment Date, Borrowers may prepay the Loan in whole, but not in part, without
payment of Prepayment Consideration, provided that (i) Borrowers shall provide
to Lender not less than thirty (30) days’ prior written notice of such
prepayment, (ii) together with such prepayment Borrowers also shall pay all
accrued and unpaid interest and all other Obligations and (iii) if such
prepayment occurs on any day other than a Payment Date, then together therewith
Borrowers also shall pay to Lender the amount of interest that would have
accrued on the amount being prepaid from and including the date of such
prepayment to (but excluding) the Payment Date following such date of
prepayment. Borrowers shall not be required to pay any Prepayment Consideration
with respect to an application of insurance proceeds or condemnation awards by
Lender pursuant to the Loan Agreement or Mortgages in the absence of an Event of
Default.
(B)
Prepayment Consideration
Due
. If the
Maturity Date shall be accelerated to a date prior to the First Open Payment
Date, or if any prepayment of all or any portion of the Principal Balance
hereunder occurs, whether in connection with Lender’s acceleration of the unpaid
Principal Balance of the Loan or in any other circumstances whatsoever (except
that Borrowers shall not be required to pay any Prepayment Consideration with
respect to an application of insurance proceeds or condemnation awards by Lender
pursuant to the Loan Agreement or Mortgages in the absence of an Event of
Default), or if the Mortgages are satisfied or released by foreclosure (whether
by power of sale or judicial proceeding), deed in lieu of foreclosure or by any
other means, then the Prepayment Consideration shall become immediately due and
owing and Borrowers shall forthwith pay the Prepayment Consideration to Lender.
The foregoing shall not create any right of prepayment. Borrowers shall have no
right whatsoever to prepay all or any portion of the principal balance of the
Note, except as set forth in Section 2.6(A).
(C)
Definitions
. The
“
Prepayment
Consideration
” shall
be the amount equal to the sum of (i) an amount equal to the interest which
would have accrued on the Principal Balance of the Note for the period from and
including (A) the date (the “
Event
Date
”) which
is the earlier of (x) the date of prepayment of the Loan or (y) such earlier
date upon which the entire remaining Principal Balance of the Loan shall become
due and payable, whether as a result of acceleration of the maturity of the Loan
or otherwise, to but excluding (B) the next Payment Date following the Event
Date, plus (ii) the greater of (x) two percent of the Loan balance on the Event
Date, or (y) an amount equal to the “
Present Value Yield
Differential
”,
calculated as the excess, if any, of (A) the amount of the monthly interest
which would otherwise be payable on the principal balance of the Loan from (1)
the date (the “
Yield Determination
Date
”) which
is the Payment Date following the Event Date through and including (2) the
Scheduled Maturity Date, over (B) the amount of the monthly interest Lender
would earn if an amount equal to the Principal Balance of the Loan as of the
Event Date were invested for the period from the Yield Determination Date
through the Scheduled Maturity Date at the Yield Rate (as hereinafter defined),
such difference (the “
Yield
Differential
”) to be
discounted to present value at the Yield Rate using the following
formula:
|
|
Yield
Differential x [1-(1+r)-n]
|
|
|
Present
Value Yield Differential =
|
r
|
|
|
|
|
|
|
where:
|
|
|
|
r
=
|
Yield
Rate, and
|
|
n
=
|
the
remaining Weighted Average Life to Maturity (as defined below) from the
Yield Determination Date.
|
The
“
Yield
Rate
” shall
be the annualized yield on securities issued by the United States Treasury
having a maturity corresponding to the then remaining Weighted Average Life to
Maturity (as defined below) of the Loan as determined by Lender, as quoted in
Federal Reserve Statistical
Release [H. 15(519)]
under
the heading “U.S. Government Securities - Treasury Constant Maturities” for the
Yield Rate Determination Date (as defined below), converted to a monthly
equivalent yield. If yields for such securities of such maturity are not shown
in such publication, then the Yield Rate shall be determined by Lender by linear
interpolation between the yields of securities of the next longer and next
shorter maturities. If said Federal Reserve Statistical Release or any other
information necessary for determination of the Yield Rate in accordance with the
foregoing is no longer published or is otherwise unavailable, then the Yield
Rate shall be determined by Lender based on comparable data. The term
“
Yield Rate Determination
Date
” shall
mean the date which is five (5) Business Days prior to the Yield Determination
Date. The term “
Weighted Average Life to
Maturity
” shall
mean, at any date, the number of years (including fractional years, expressed as
a decimal (e.g., three years and three moths = 3.25 years)) obtained by dividing
(x) the outstanding Principal Balance of the Loan on the Event Date into (y) the
sum total of the Weighted Amortization Products (as defined below) for each
Scheduled Principal Payment (as defined below). The “
Scheduled Principal
Payment(s)
” shall
mean each then remaining scheduled principal payment (assuming no prepayment or
Loan acceleration), including payment of the outstanding principal balance of
the Loan on the Scheduled Maturity Date, in respect of the Loan. The
“
Weighted Amortization
Product
” for
each Scheduled Principal Payment shall mean the product of (A) the amount of
such Scheduled Principal Payment multiplied by (B) the number of years
(including fractional years, expressed as a decimal) which will elapse between
the Yield Determination Date and the date on which such Scheduled Principal
Payment is to be made under this Loan Agreement.
Section 2.7
Outstanding
Balance
.
The
balance on Lender’s books and records shall be presumptive evidence (absent
manifest error) of the amounts owing to Lender by Borrowers; provided that any
failure to record any transaction affecting such balance or any error in so
recording shall not limit or otherwise affect the obligations of Borrowers to
pay the Obligations.
Section 2.8
Taxes
.
Any and
all payments or reimbursements made hereunder or under the Note shall be made
free and clear of and without deduction for any and all taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto
arising out of or in connection with the transactions contemplated by the Loan
Documents (all such taxes, levies, imposts, deductions, charges or withholdings
and all liabilities with respect thereto excluding taxes imposed on net income
in accordance with the following sentence are referred to herein as
“
Tax
Liabilities
”).
Notwithstanding the foregoing, Borrowers shall not be liable for taxes imposed
on the net income of Lender by the jurisdiction under the laws of which Lender
is organized or doing business or any political subdivision thereof and taxes
imposed on its net income by the jurisdiction of Lender’s applicable lending
office or any political subdivision thereof or federal income taxes imposed on
Lender’s net income. If Borrowers shall be required by law to deduct any such
Tax Liabilities (or amounts in estimation or reimbursement for the same) from or
in respect of any sum payable hereunder to Lender, then the sum payable
hereunder shall be increased as may be necessary so that, after making all
required deductions, Lender receives an amount equal to the sum it would have
received had no such deductions been made.
Section 2.9
Reasonableness of
Charges
.
Borrowers agree that (i) the actual costs and damages that Lender would suffer
by reason of an Event of Default (exclusive of the attorneys’ fees and other
costs incurred in connection with enforcement of Lender’s rights under the Loan
Documents) or a prepayment would be difficult and needlessly expensive to
calculate and establish, and (ii) the amounts of the Default Rate, the late
charges, and the Prepayment Consideration are reasonable, taking into
consideration the circumstances known to the parties at this time, and (iii)
such Default Rate and late charges and Lender’s reasonable attorneys’ fees and
other costs and expenses incurred in connection with enforcement of Lender’s
rights under the Loan Documents shall be due and payable as provided herein, and
(iv) such Default Rate, late charges, Prepayment Consideration, and the
obligation to pay Lender’s reasonable attorneys’ fees and other enforcement
costs do not, individually or collectively, constitute a penalty.
Section 2.10
Partial
Releases
.
After
the Release Date and prior to the First Open Payment Date, and provided no Event
of Default exists, Borrower may from time to time obtain a partial release (a
“
Partial
Release
”) from
the lien of the Mortgage and the Loan Documents of one or more Individual
Properties (collectively, the “
Partial Release
Parcel
”),
provided that all of the following conditions precedent have been satisfied with
respect to any such Partial Release of any such Partial Release
Parcel:
(A)
No
Partial Release will be permitted until after the Release Date or if any Event
of Default has occurred and is continuing. No Partial Release will be permitted
on or after the First Open Payment Date.
(B)
No
Partial Release will be permitted unless Borrower establishes to Lender’s
reasonable satisfaction that the Debt Service Coverage Ratio, determined using
Lender’s underwriting standards, for the remainder of the Properties (i.e.,
exclusive of any income from the Partial Release Parcel) is and shall continue
to be equal to or greater than the greater of (i) the Debt Service Coverage
Ratio for the Properties calculated immediately prior to the Partial Release
(i.e., inclusive of the income from the Partial Release Parcel, and assuming no
partial defeasance of the Loan resulting from the Partial Release), and (ii)
1.15:1.00.
(C)
No
Partial Release of the Partial Release Parcel will be permitted unless Borrower
establishes to Lender’s reasonable satisfaction that the value of the remainder
of the Properties (as determined by a then-current appraisal prepared by an
appraiser selected by Lender, the fees and expenses of which shall be paid by
Borrower, which appraiser and appraisal shall conform in all respects to the
criteria for appraisals set forth in the Financial Institutions Reform and
Recovery Act of 1989 and the regulations promulgated thereunder (as if Lender
were an institution under the jurisdiction thereof) and the Uniform Standards of
Professional Appraisal Practices of the Appraisal Foundation; an appraisal of
the Partial Release Parcel confirming with the foregoing standard shall also be
prepared) is sufficient to satisfy a loan-to-value ratio (based on the
then-outstanding principal balance of the Loan, less the sum of the Allocated
Loan Amounts for the Individual Property(ies) included in the Partial Release
Parcel) not in excess of the lesser of (i) the loan-to-value ratio for the
Properties calculated immediately prior to the Partial Release (i.e., based on
the outstanding principal balance of the Loan inclusive of the Allocated Loan
Amounts for the Individual Property(ies) included in the Partial Release
Parcel), and (ii) 80%.
(D)
The
Partial Release shall be allowed only in connection with a bona fide all-cash
sale of the Partial Release Parcel to an unaffiliated third party on arms-length
terms and conditions, and upon closing of such sale (and thereafter) shall not
be owned, purchased or acquired by Borrower or any Affiliate of
Borrower.
(E)
Borrower
will on the date of the Partial Release (the “
Partial Release
Date
”)
complete a Partial Defeasance, pursuant to
Section
2.3
hereof,
of a portion of the Loan (the “
Partial Defeasance
Amount
” for
such Partial Release Parcel) equal to 125% of the Allocated Loan Amount for the
Individual Property included in the Partial Release.
(F)
Borrower
will execute (and Guarantor will consent in writing thereto and reaffirm their
obligations under the Loan Documents to which they are a party notwithstanding
the Partial Release) and deliver all such amendments to the Loan Documents and
other instruments or documents as may be required by Lender (using commercial
standards customarily applied with respect to mortgage loans such as the Loan)
in order to continue to fully protect Lender’s lien and security interest in the
remainder of the Properties.
(G)
Borrower,
at its sole cost and expense, shall obtain endorsements to Lender’s loan policy
of title insurance satisfactory in form and content to Lender, which
endorsements will (i) affirmatively evidence the continued validity of Lender’s
first lien position created by the Loan Documents through the date of
recordation of the partial release of the Partial Release Parcel, and (ii)
insure that the lien created by the Loan Documents remains a valid first lien on
the remainder of the Properties.
(H)
Borrower
and Guarantor shall deliver to Lender affidavits representing that no material
adverse change concerning the Loan or the Properties has occurred.
(I)
Borrower
shall have provided Lender with a Rating Confirmation with respect to the
Partial Release.
(J)
Borrower
shall have paid all reasonable costs and expenses incurred by Lender in
connection with such request for a Partial Release, including, but not limited
to, the preparation, negotiation and review of any and all materials required to
be provided in connection therewith, Lender’s reasonable attorneys’ fees and
costs, survey charges, title insurance fees, appraisal fees, inspection fees,
environmental consultant’s fees and any fees or charges of the applicable Rating
Agencies. Borrower shall pay all such costs and expenses incurred by Lender in
connection with each request for a Partial Release, regardless of whether such a
Partial Release ultimately occurs.
For the
avoidance of doubt, any provision in this Section 2.10 which provides for the
exercise of discretion by Lender (e.g., by requiring delivery of documents that
Lender may request or require or by requiring that documents or other items be
acceptable to Lender, or acceptable to Lender in its reasonable discretion, or
in accordance with Lender’s requirements or through use of words with similar
import) shall be construed as permitting Lender to reject a document or other
item only if such document or item fails to satisfy generally-applicable
underwriting standards for securitized commercial mortgage loans employed at the
time such partial release occurs; and similarly, Lender’s requirement for
delivery of any document or other item or the taking of any action shall be
construed as only requiring the delivery of such documents or items or the
taking of such action as would be required under generally applicable
underwriting standards for securitized commercial mortgage loans employed at the
time such Partial Release occurs.
ARTICLE III
CONDITIONS TO
LOAN
Section 3.1
Conditions to Funding of the
Loan on the Closing Date
.
The
obligations of Lender to fund the Loan are subject to the prior or concurrent
satisfaction or waiver of the conditions set forth below, and to satisfaction of
any other conditions specified herein or elsewhere in the Loan Documents. Where
in this Section any documents, instruments or information are to be delivered to
Lender, then the condition shall not be satisfied unless the same shall be in
form and substance satisfactory to Lender.
(A)
Loan
Documents
. On or
before the Closing Date, Borrowers shall execute and deliver and cause to be
executed and delivered to Lender all of the Loan Documents, each, unless
otherwise noted, of even date herewith, duly executed, in form and substance
satisfactory to Lender and in quantities designated by Lender (except for the
Note, of which only one shall be signed), which Loan Documents shall become
effective upon the Closing.
(B)
Origination Fees and
Deposits
. At the
Closing and retained from the proceeds of the Loan, Lender shall have received
its origination fee, if any, as set forth on the closing statement for the Loan,
and the deposits required herein, including the initial deposits into the
Reserves and Accounts, shall have been made (and at the option of Borrowers, the
same may be made from the proceeds of the Loan).
(C)
Performance of Agreements,
Truth of Representations and Warranties
. Each
Borrower Party and all other Persons executing any agreement on behalf of any
Borrower Party shall have performed in all material respects all agreements
which this Loan Agreement provides shall be performed on or before the Closing
Date. The representations and warranties contained herein and in the other Loan
Documents shall be true, correct and complete in all material respects on and as
of the Closing Date.
(D)
Closing
Certificate
. On or
before the Closing Date, Lender shall have received certificates of even date
herewith executed on behalf of Borrowers by the chief financial officer (or
similar officer of each Borrower) truly and correctly stating that: (i) on such
date, no Default or Event of Default has occurred and is continuing; (ii) no
material adverse change in the financial condition or operations of the business
of the Borrowers, Guarantor, any principal of any Borrower or any of the
Properties, and no material adverse change in the projected cash flow of any of
the Borrowers or any of the Properties has occurred since the delivery to Lender
of any financial statements, budgets, proformas, or similar materials (or if
there has been any change, specifying such change in detail), and that such
materials delivered to Lender are true and materially complete and fairly
represent the financial condition of Borrowers, Guarantor and principals of
Borrowers and the cash flow of the Properties; and (iii) there are no material
adverse facts or conditions concerning the Properties, Guarantor and principals
of Borrowers or any Borrower Party that have not been disclosed to
Lender.
(E)
Opinions of
Counsel
. On or
before the Closing Date, Lender shall have received from legal counsel for each
Borrower Party reasonably satisfactory to Lender, such counsel’s written opinion
as to such matters as Lender shall reasonably request, including opinions to the
effect that (i) each of the Borrower Parties is duly formed, validly existing,
and in good standing in its state of organization and, in the case of Borrowers,
in the state where the Properties are located, (ii) this Loan Agreement and the
Loan Documents have been duly authorized, executed and delivered and are
enforceable in accordance with their terms subject to customary qualifications
for bankruptcy and general equitable principles; and (iii) no Borrower would be
consolidated in bankruptcies of its constituent owners, Manager or certain other
Affiliates of Borrowers specified by Lender. Also on or before the Closing Date,
Lender shall have received an opinion of Borrowers’ local counsel in the state
where the Properties are located as to the enforceability of the Loan Documents
and such other matters as Lender may reasonably request.
(F)
Title
Policy
. On or
before the Closing Date, Lender shall have received and approved
pro forma
Title
Policies for each of the Properties, and as of the Closing, the Title Company
shall be irrevocably committed and prepared immediately to issue the Title
Policies. The Title Policies shall be in form and substance satisfactory to
Lender. Without limitation, Lender may reasonably require that the Title
Policies be issued on the 1970 ALTA form by the Title Company, together with
such reinsurance and direct access agreements as Lender may require, insuring
that each of the Mortgages is a valid first and prior enforceable lien on the
applicable Individual Property (including any easements appurtenant thereto)
subject only to such exceptions to coverage as are acceptable to Lender. The
Title Policy shall contain such endorsements as Lender may require (to the
extent available in the state where the Properties are located) in form
reasonably acceptable to Lender, including deletion of the creditors’ rights
exception and affirmative endorsement coverage for creditors’ rights
risks.
(G)
Survey
. Lender
shall have received a survey of each Individual Property, certified to Lender
and its successors, assigns and designees and to the Title Company by a surveyor
reasonably satisfactory to Lender (each, a “
Survey
”). Each
Survey shall contain the minimum detail for land surveys as most recently
adopted by ALTA/ASCM, shall comply with Lender’s survey requirements and shall
contain Lender’s standard form certification. No Survey shall show any state of
facts or conditions reasonably objectionable to Lender.
(H)
Zoning
. On or
before the Closing Date, Lender shall have received evidence reasonably
satisfactory to Lender as to the zoning and subdivision compliance of each
Individual Property.
(I)
Certificates of Formation
and Good Standing
. On or
before the Closing Date, Lender shall have received copies of the organizational
documents and filings of each Borrower Party, together with good standing
certificates (or similar documentation) (including verification of tax status if
available) from the state of its formation, from the state in which its
principal place of business is located, and from all states in which the laws
thereof require such Person to be qualified and/or licensed to do business
(including the state in which the Properties are located for Borrowers). Each
such certificate shall be dated not more than thirty (30) days prior to the
Closing Date, as applicable, and certified by the applicable Secretary of State
or other authorized governmental entity. In addition, on or before the Closing
Date the secretary or corresponding officer of each Borrower Party, or the
secretary or corresponding officer of the partner, trustee, or other Person as
required by such Borrower Party’s organizational documents (as the case may be,
the “
Borrower Party
Secretary
”) shall
have delivered to Lender a certificate stating that the copies of the
organizational documents as delivered to Lender are true and complete and are in
full force and effect, and that the same have not been amended except by such
amendments as have been so delivered to Lender.
(J)
Certificates of Incumbency
and Resolutions
. On or
before the Closing Date, Lender shall have received certificates of incumbency
and resolutions of each Borrower Party and its constituents as requested by
Lender, approving and authorizing the Loan and the execution, delivery and
performance of the Loan Documents, certified as of the Closing Date by the
Borrower Party Secretary as being in full force and effect without modification
or amendment.
(K)
Financial
Statements
. On or
before the Closing Date, Lender shall have received such financial statements
and other financial information as shall be satisfactory to Lender for each
Borrower Party and for the Properties. All such financial statements shall be
certified to Lender by the applicable Borrower Party (through its chief
financial officer), which certification shall be in form and substance
reasonably satisfactory to Lender.
(L)
Agreements
. On or
before the Closing Date, Lender shall have received copies of all material
operating agreements, service contracts and equipment leases, if any, relating
to Borrowers’ ownership and operation of the Properties.
(M)
Management
Agreement
. On or
before the Closing Date, Lender shall have received copies of the existing
Management Agreement and any leasing brokerage agreements pertaining to the
Properties and the Assignment of Management Agreement, duly executed by current
Manager and each Borrower.
(N)
Operating and Capital
Expenditure Budgets
. On or
before the Closing Date, Lender shall have received and reasonably approved the
Operating Budget and Capital Expenditure Budget for each of the Properties for
the remainder of the current calendar year, which Operating Budget and Capital
Expenditure Budget are attached hereto as Schedule 3.1(N).
(O)
Rent Rolls, Leases,
Estoppels
. Prior
to the Closing, Lender shall have received from the Borrowers a certified copy
of the current rent roll (the “
Rent Roll
”) for
each Individual Property in form and substance satisfactory to Lender. The Rent
Roll shall constitute a true, correct, and complete list of each and every Lease
for each Individual Property, together with all extensions and amendments
thereof, and shall accurately and completely disclose all annual and monthly
rents payable by all tenants, including expiration dates of the Leases, and the
amount of any Security Deposit being held by each Borrower under each Lease, if
any.
(P)
Licenses, Permits and
Approvals
. On or
before Closing Date, Lender shall have received copies of the final,
unconditional certificates of occupancy issued with respect to each of the
Individual Properties, together with all other applicable licenses, permits and
approvals required for the Borrowers to own, use, occupy, operate and maintain
the Properties.
(Q)
Insurance Policies and
Endorsements
. On or
before the Closing Date, Lender shall have received copies of insurance policies
required to be maintained under this Loan Agreement and the other Loan Documents
and certificates of insurance dated not more than twenty (20) days prior to the
Closing Date evidencing such insurance coverages, together with endorsements
reasonably satisfactory to Lender naming Lender as an additional insured and
loss payee, as required by Lender, under such policies. In addition, as to any
insurance matters arising under Environmental Laws or pertaining to any
environmental insurance that Borrowers maintains with respect to each of the
Individual Properties, the same shall be endorsed to Lender as required by
Lender.
(R)
Environmental
Assessment
. Lender
shall have received and approved an Environmental Report relating to each of the
Individual Properties, together with a letter from the preparer thereof
entitling Lender and its successors and assigns to rely upon said Environmental
Reports (if any of the same are not addressed to Lender).
(S)
Property Condition
Reports
. On or
before the Closing Date, Lender shall have received a property condition report
for each of the Individual Properties addressed to Lender and its successors and
assigns, which shall be prepared by an engineer or other consultant reasonably
satisfactory to Lender and otherwise shall be in form and substance satisfactory
to Lender in its sole discretion (collectively, the “
Property Condition
Reports
” and
individually a “
Property Condition
Report
”). Each
such report shall set forth any items of deferred maintenance at the applicable
Individual Property.
(T)
Appraisals
. On or
before the Closing Date, Lender shall have received an independent appraisal of
each of the Individual Properties from a state certified appraiser engaged by
Lender, dated not more than sixty (60) days prior to the Closing Date, which
indicates a fair market value of the applicable Individual Property which would
reflect a loan-to-value ratio for the Loan acceptable to Lender, and is
otherwise satisfactory to Lender in its sole discretion in all respects. Each
such appraisal shall conform in all respects to the criteria for appraisals set
forth in the Financial Institutions Reform and Recovery Act of 1989 and the
regulations promulgated thereunder (as if Lender were an institution under the
jurisdiction thereof) and the Uniform Standards of Professional Appraisal
Practices of the Appraisal Foundation.
(U)
Searches
. Prior
to the Closing Date Lender shall have received certified copies of Uniform
Commercial Code, judgment, tax lien, bankruptcy and litigation search reports
with respect to all Borrower Parties satisfactory to Lender, all dated not more
than thirty (30) days prior to the Closing Date.
(V)
Documentation Regarding
Application of Proceeds
. Prior
to the Closing Date, Lender shall have received payoff demand letters and wiring
instructions from each lender or other obligee of any existing indebtedness
which is required to be repaid pursuant to this Loan Agreement and by any
Borrower regarding the application of any remaining available proceeds of the
Loan.
(W)
Legal Fees; Closing
Expenses
.
Borrowers shall have paid any and all reasonable legal fees and expenses of
counsel to Lender, together with all recording fees and taxes, title insurance
premiums, appraisal reports, environmental inspection reports, property
condition reports, Lender’s site inspection and processing fee, and other
reasonable costs and expenses related to the Closing.
(X)
Other
Review
. Lender
shall have completed all other review of Borrowers, the Borrower Parties, the
Properties, and such other items as it reasonably determines relevant, and shall
have determined based upon such review to fund the Loan. Borrower Parties shall
have satisfied such other reasonable criteria as Lender may reasonably
specify.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES
In order
to induce Lender to enter into this Loan Agreement and to make the Loan, each
Borrower represents and warrants to Lender that the statements set forth in this
Article IV, after giving effect to the Closing, will be, true, correct and
complete in all material respects as of the Closing Date.
Section 4.1
Organization, Powers,
Capitalization, Good Standing, Business
.
(A)
Organization and
Powers
. Each
Borrower is a limited liability company, duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each Borrower has all
requisite power and authority to own and operate its properties, to carry on its
business as now conducted and proposed to be conducted, and to enter into each
Loan Document to which it is a party and to perform the terms
thereof.
(B)
Qualification
. Each
Borrower is duly qualified and in good standing in the state of its formation.
Each of the Borrowers and, if required by applicable law, the Sole Member, is
also duly qualified and in good standing in the state where the Properties are
located. In addition, each Borrower Party is duly qualified and in good standing
in each state where necessary to carry on its present business and
operations.
(C)
Organization
. The
organizational chart set forth as
Schedule
4.1(C)
accurately sets forth the direct and indirect ownership structure of each
Borrower.
Section 4.2
Authorization of Borrowing,
etc
.
(A)
Authorization of
Borrowing
. Each
Borrower has the power and authority to incur the Indebtedness evidenced by the
Note. The execution, delivery and performance by each Borrower Party of each of
the Loan Documents to which it is a party and the consummation of the
transactions contemplated thereby have been duly authorized by all necessary
limited liability company, partnership, trust, corporate or other action, as the
case may be.
(B)
No
Conflict
. The
execution, delivery and performance by each Borrower Party of the Loan Documents
to which it is a party and the consummation of the transactions contemplated
thereby do not and will not: (1) violate (x) any provision of law applicable to
any Borrower Party; (y) the partnership agreement, certificate of limited
partnership, certificate of incorporation, bylaws, declaration of trust,
certificate of organization, operating agreement or other organizational
documents, as the case may be, of each Borrower Party; or (z) any order,
judgment or decree of any court or other agency of government binding on any
Borrower Party or any of its Affiliates; (2) conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under any
Contractual Obligation of any Borrower Party or any of its Affiliates; (3)
result in or require the creation or imposition of any material Lien (other than
the Lien of the Loan Documents) upon the property or assets of any Borrower
Party or any of its Affiliates; or (4) require any approval or consent of any
Person under any Contractual Obligation of any Borrower Party.
(C)
Governmental
Consents
. The
execution, delivery and performance by each Borrower Party of the Loan Documents
to which it is a party, and the consummation of the transactions contemplated
thereby do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body except for the recording of the
Mortgages and filings and recordings required in connection with the creation or
perfection of any other security interests with respect to the Collateral
granted under this Loan Agreement or any of the other Loan
Documents.
(D)
Binding
Obligations
. This
Loan Agreement is, and the Loan Documents, including the Note, when executed and
delivered will be, the legally valid and binding obligations of each Borrower
Party, as applicable, enforceable against the Borrower Parties, as applicable,
in accordance with their respective terms, subject to bankruptcy, insolvency,
moratorium, reorganization and other similar laws affecting creditor’s rights
generally. No Borrower Party has any defense or offset to any of its obligations
under the Loan Documents. No Borrower Party has any claim against Lender or any
Affiliate of Lender.
Section 4.3
Financial
Statements
.
All
financial statements concerning the Borrowers, their respective Affiliates,
Guarantor and the Properties which have been or will hereafter be furnished by
or on behalf of Borrowers to Lender pursuant to this Loan Agreement have been or
will be prepared in accordance with GAAP consistently applied (except as
disclosed therein) and do (or will, as to those statements that are not yet due)
present fairly the financial condition of the Persons covered thereby as at the
dates thereof and the results of their operations for the periods then ended.
Since the date of the most recent financial statements of Borrowers, Guarantor
and the Properties delivered to Lender, there has been no material adverse
change in the financial condition, operations or business of the Borrower
Parties or any of the Individual Properties from that set forth in said
financial statements.
Section 4.4
Indebtedness and Contingent
Obligations
.
As of
the Closing, no Borrower has Indebtedness or Contingent Obligations other than
the Obligations and any other Indebtedness expressly permitted under Section
5.17 of this Loan Agreement.
Section 4.5
Title to
Properties
.
Each
Borrower has good marketable and insurable fee simple title to its Applicable
Individual Property, free and clear of all Liens except for Permitted
Encumbrances. Each Borrower owns and will own at all times all personal property
relating to its Applicable Individual Property, other than personal property
which is leased by such Borrower (as to which such Borrower has valid leasehold
title) or owned by tenants of the applicable Individual Property and not used or
necessary for the operation of such Individual Property), subject only to
Permitted Encumbrances. There are no pending proceedings in condemnation or
eminent domain affecting any of the Properties, and to the knowledge of
Borrower, none is threatened. No Person has any option or other right to
purchase all or any portion of any of the Properties or any interest therein.
There are no mechanic’s, materialman’s or other similar liens or claims which
have been filed for work, labor or materials affecting any of the Properties
which are or may be liens prior to, or equal or coordinate with, the lien of any
of the Mortgages. None of the Permitted Encumbrances, individually or in the
aggregate, materially interfere with the benefits of the security intended to be
provided by the Mortgages and this Loan Agreement, materially and adversely
affect the value of any of the Properties, impair the use or operations of any
of the Properties or impair any Borrower’s ability to pay its obligations in a
timely manner.
Section 4.6
Zoning; Compliance with
Laws
.
Each of
the Individual Properties is zoned for residential apartment use, which zoning
designation is unconditional, in full force and effect, and is beyond all
applicable appeal periods. Each of the Individual Properties and the use thereof
complies in all material respects with all applicable zoning, subdivision and
land use laws, regulations and ordinances, all applicable health, fire, building
codes, parking laws and all other laws, statutes, codes, ordinances, rules and
regulations applicable to such Individual Property, including the Americans with
Disabilities Act. To the knowledge of each Borrower, there are no illegal
activities relating to controlled substances on any of the Properties. All
certificates of occupancy or the equivalent, and all other required permits,
licenses and certificates for the lawful use and operation of each of the
Properties have been obtained and are current and in full force and effect. In
the event that all or any part of the Improvements located on any Individual
Property are destroyed or damaged, said Improvements can be legally
reconstructed to their condition prior to such damage or destruction, and
thereafter exist for the same use without violating any zoning or other
ordinances applicable thereto and without the necessity of obtaining any
variances or special permits, other than customary demolition, building and
other construction related permits. No legal proceedings are pending or, to the
knowledge of any Borrower, threatened with respect to the zoning of any of the
Properties. Neither the zoning nor any other right to construct, use or operate
any Individual Property is in any way dependent upon or related to any real
estate other than the applicable Individual Property itself. No tract map,
parcel map, condominium plan, condominium declaration, or plat of subdivision
will be recorded by any Borrower with respect to any of the Properties without
Lender’s prior written consent
Section 4.7
Leases;
Agreements
.
(A)
Leases;
Agreements
.
Borrowers have delivered to Lender true, complete and fully executed copies of
all (i) Leases and (ii) material contracts and agreements affecting the
operation and management of each of the Individual Properties, including,
without limitation, the existing Management Agreement, any leasing brokerage
agreements and any service and maintenance contracts and such Leases, contracts
and agreements have not been modified or amended except pursuant to amendments
or modifications delivered to Lender. Except for the rights of the current
Manager pursuant to the existing Management Agreement, no Person has any right
or obligation to manage any of the Properties or to receive compensation in
connection with such management. Except for the parties to any leasing brokerage
agreement(s) that has/have been delivered to Lender, no Person has any right or
obligation to lease or solicit tenants for any of the Properties, or to receive
compensation in connection with such leasing.
(B)
Rent Roll;
Disclosure
. A true
and correct copy of the Rent Roll has been provided to Lender and except for the
Leases described in the Rent Roll none of the Properties is subject to any
Leases. Except as specified in the Rent Roll: (i) the Leases are in full force
and effect; (ii) neither any Borrower nor any Affiliate of any Borrower, has
given any notice of default to any tenant under any Lease which remains uncured;
(iii) no tenant has asserted in writing any rights of set off, claims or
defenses under any Lease and no tenant has any such rights of set off, claim or
defense to the enforcement of any Lease except as expressly set forth in the
Leases; (iv) no tenant is in arrears in the payment of rent, additional rent or
any other material charges due under any Lease, or, to the knowledge of any
Borrower, is in default in the performance of any other obligations under the
applicable Lease; (v) Borrowers have completed all work or alterations required
to be completed by the landlord or lessor under each Lease as of the date
hereof, and all of the other obligations of landlord or lessor under the Leases
required to be completed as of the date hereof, have been performed; (vi) there
are no rent concessions (whether in form of cash contributions, work agreements,
assumption of an existing tenant’s other obligations, or otherwise) or
extensions of time whatsoever not reflected in the Rent Roll; and (vii) no
tenant has an option to terminate its respective Lease. The Security Deposits
held by Borrowers with respect to each Lease are as set forth on the Rent
Roll.
(C)
Lease
Issues
. There
are no legal proceedings commenced (or, to the knowledge of any Borrower,
threatened) against any Borrower or any Affiliate thereof by any tenant or
former tenant. No rental in excess of one month’s rent has been prepaid under
any of the Leases (not including Security Deposits). Each of the Leases is valid
and binding on the parties thereto in accordance with its terms.
Section 4.8
Condition of
Properties
.
Except
as set forth in the Property Condition Reports, all Improvements at the
Properties including, without limitation, the roof and all structural
components, plumbing systems, HVAC systems, fire protection systems, electrical
systems, equipment, elevators, exterior doors, parking facilities, sidewalks and
landscaping are in good condition and repair. To each Borrower’s knowledge,
there is no latent or patent structural or other material defect or deficiency
in any of the Properties. City water supply, storm and sanitary sewers, and
electrical, gas and telephone facilities are available to each Individual
Property within the boundary lines of such Individual Property, are fully
connected to the Improvements thereat and are fully operational, are sufficient
to meet the reasonable needs of the applicable Individual Property as now used
or presently contemplated to be used, and no other utility facilities are
necessary to meet the reasonable needs of such Individual Property as now used
or presently contemplated. The design and as-built conditions of each Individual
Property are such that surface and storm water does not accumulate on such
Individual Property (except in facilities specifically designed for the same)
and does not drain from such Individual Property across land of adjacent
property owners except pursuant to easements benefiting the applicable
Individual Property which are specified in and insured under the Title Policy
for such Individual Property. No part of any of the Properties is within a flood
plain and, with the exception of Permitted Encumbrances which are insured by
endorsement to a Title Policy, none of the Improvements at any Individual
Property create encroachment over, across or upon such Individual Property’s
boundary lines, rights of way or easements, and no building or other
improvements on adjoining land create such an encroachment. Access to the each
Individual Property for the current and contemplated uses thereof is provided by
means of dedicated, all weather public roads and streets which are physically
and legally open for use by the public. Any liquid or solid waste disposal,
septic or sewer system located at the Properties is in good and safe condition
and repair and in compliance with all applicable law. Each of the Properties is
in compliance in all material respects with all laws, governmental regulations
and requirements including, but not limited to, matters of sanitation, health,
fire and other hazards.
Section 4.9
Litigation; Adverse
Facts
.
There
are no judgments outstanding against any Borrower Party, or affecting any of the
Properties or any property of any Borrower Party, nor is there any action,
charge, claim, demand, suit, proceeding, petition, governmental investigation or
arbitration now pending or, to any Borrower’s knowledge after due inquiry,
threatened against any Borrower Party or affecting any of the
Properties.
Section 4.10
Payment of
Taxes
.
All
federal, state and local tax returns and reports of each Borrower Party required
to be filed have been timely filed, and all taxes, assessments, fees and other
governmental charges (including any payments in lieu of taxes) upon such Person
and upon its properties, assets, income and franchises which are due and payable
have been paid when due and payable, except for those taxes which are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been established. Except as otherwise disclosed in writing to
Lender, there is not presently pending (and to each Borrower’s knowledge, there
is not contemplated) any special assessment against any of the Properties or any
part thereof. No tax liens have been filed and to the knowledge of Borrower
Parties, no claims are being asserted with respect to any such taxes. The
charges, accruals and reserves on the books of Borrower Parties in respect of
any taxes or other governmental charges are in accordance with
GAAP.
Section 4.11
Adverse
Contracts
.
Except
for the Loan Documents, none of the Borrower Parties is a party to or bound by,
nor is any property of such Person subject to or bound by, any contract or other
agreement which restricts such Person’s ability to conduct its business in the
ordinary course or, either individually or in the aggregate, has a Material
Adverse Effect or could reasonably be expected to have a Material Adverse
Effect.
Section 4.12
Performance of
Agreements
.
No
Borrower Party is in default in the performance, observance or fulfillment of
any of the material obligations, covenants or conditions contained in any
Contractual Obligation of any such Person beyond any applicable notice and cure
period, and no condition exists that, with the giving of notice or the lapse of
time or both, would constitute such a default.
Section 4.13
Governmental
Regulation
.
No
Borrower Party is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or to
any federal or state statute or regulation limiting its ability to incur
indebtedness for borrowed money.
Section 4.14
Employee Benefit
Plans
.
No
Borrower Party maintains or contributes to, or has any obligation (including a
contingent obligation) under, any Employee Benefit Plans.
Section 4.15
Broker’s
Fees
.
No
broker’s or finder’s fee, commission or similar compensation will be payable by
or pursuant to any contract or other obligation of any Borrower Party with
respect to the making of the Loan or any of the other transactions contemplated
hereby or by any of the Loan Documents. Borrowers shall, jointly and severally,
indemnify, save harmless and defend Lender from and against all claims for
brokers’ or finders’ fees and commissions in connection with the Loan, with such
indemnity to include Lender’s cost for reasonable attorneys’ fees.
Section 4.16
Environmental
Compliance
.
(A)
No Environmental
Claims
. There
are no claims, liabilities, investigations, litigation, administrative
proceedings, pending or, to any Borrower’s knowledge, threatened, or judgments,
liens or orders relating to any Hazardous Materials (collectively, “
Environmental
Claims
”)
asserted or, to any Borrower’s knowledge, threatened against any Borrower or
relating to any of the Properties. Except as disclosed in the Environmental
Reports delivered to Lender prior to Closing, none of the Borrower Parties nor,
to any Borrower’s knowledge after due inquiry, any other Person has caused or
permitted any Hazardous Material to be used, generated, reclaimed, transported,
released, treated, stored or disposed of in a manner which could form the basis
for an Environmental Claim against any Borrower or relating to any of the
Properties. Additionally, but without limitation of the foregoing, no liens are
presently recorded with the appropriate land records under or pursuant to any
Environmental Law with respect to any of the Properties and no Governmental
Authority has been taking or is in the process of taking any action that could
subject any of the Properties to Liens under any Environmental Law. There have
been no environmental investigations, studies, audits, reviews or other analyses
conducted by or that are in the possession of any Borrower or its respective
Affiliates in relation to any of the Properties which have not been made
available to Lender.
(B)
Storage of Hazardous
Materials
. Except
as disclosed in the Environmental Report delivered to Lender prior to Closing,
and except for materials customarily used or stored in connection with operation
and management of properties similar to the applicable Individual Property,
which materials at such Individual Property exist only in reasonable quantities
and are stored, contained, transported, used, released, and disposed of
reasonably and without violation of any Environmental Laws, to each Borrower’s
knowledge after due inquiry, no Hazardous Materials are or were stored or
otherwise located, and no underground storage tanks or surface impoundments are
or were located, on any of the Properties, or to the knowledge of any Borrower
after due inquiry, on adjacent parcels of real property, and no part of the
property, or to any Borrower’s knowledge no part of such adjacent parcels of
real property, including the groundwater located therein or thereunder, is
presently contaminated by Hazardous Materials. Except as disclosed in the
Environmental Reports, to the knowledge of each Borrower, none of the Properties
is listed by any Governmental Authority as containing any Hazardous Materials.
Without limiting the generality of the foregoing, there is not present at, on,
in or under any of the Properties, PCB-containing equipment, asbestos or
asbestos containing materials, underground storage tanks or surface impoundments
for Hazardous Substances, lead in drinking water (except in concentrations that
comply with all Environmental Laws), or lead based paint.
(C)
Compliance with
Environmental Laws
. Except
as may be set forth in the Environmental Reports, each Borrower has been and is
currently in compliance in all material respects with all applicable
Environmental Laws, including obtaining and maintaining in effect all permits,
licenses or other authorizations required by applicable Environmental
Laws.
Section 4.17
Solvency
.
None of
the Borrowers has entered into the transaction or any Loan Document with the
actual intent to hinder, delay, or defraud any creditor. Each Borrower has
received reasonably equivalent value in exchange for its obligations under the
Loan Documents. Giving effect to the Loan, the fair saleable value of Borrowers’
assets exceeds and will, immediately following the making of the Loan, exceed
Borrowers’ total liabilities, including, without limitation, subordinated,
unliquidated, disputed and Contingent Obligations. The fair saleable value of
Borrowers’ assets is and will, immediately following the making of the Loan, be
greater than Borrowers’ probable liabilities, including the maximum amount of
its Contingent Obligations on its debts as such debts become absolute and
matured. The assets of Borrowers do not and, immediately following the making of
the Loan will not, constitute unreasonably small capital to carry out Borrowers’
business as conducted or as proposed to be conducted. No Borrower intends to,
and no Borrower believes that it will, incur Indebtedness and liabilities
(including Contingent Obligations and other commitments) beyond its ability to
pay such Indebtedness and liabilities as they mature (taking into account the
timing and amounts of cash to be received by such Borrower and the amounts to be
payable on or in respect of obligations of such Borrower).
Section 4.18
Disclosure
.
No
financial statements, Loan Document or any other document, certificate or
written statement furnished to Lender by any Borrower Party and, to the
knowledge of each Borrower, no document or statement furnished by any third
party on behalf of any Borrower Party, for use in connection with the Loan
contains any untrue representation, warranty or statement of a material fact,
and none omits or will omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading. There is no material
fact known to any Borrower that has had or will have a Material Adverse Effect
and that has not been disclosed in writing to Lender by Borrowers.
Section 4.19
Use of Proceeds and Margin
Security
.
Borrowers shall use the proceeds of the Loan only for the purposes set forth
herein and consistent with all applicable laws, statutes, rules and regulations.
No portion of the proceeds of the Loan shall be used by Borrowers or any Person
in any manner that might cause the borrowing or the application of such proceeds
to violate Regulation T, Regulation U or Regulation X or any other regulation of
the Board of Governors of the Federal Reserve System.
Section 4.20
Insurance
.
Borrowers have in effect all of the policies of insurance required in Section
5.4 hereof, and no notice of cancellation has been received with respect to such
policies, and, to each Borrower’s knowledge after due inquiry, each Borrower is
in compliance with all conditions contained in such policies.
Section 4.21
Separate Tax
Lots
.
Each of
the Individual Properties is comprised of one (1) or more parcels which
constitute separate tax lots. No part of any Individual Property is included or
assessed under or as part of another tax lot or parcel, and no part of any other
property is included or assessed under or as part of the tax lots or parcels
comprising any Individual Property.
Section 4.22
Investments
.
None of
the Borrowers has any (i) direct or indirect interest in, including stock,
partnership interest or other securities of, any other Person, or (ii) direct or
indirect loan, advance or capital contribution made to any other Person,
including all indebtedness and accounts receivable from that other
Person.
Section 4.23
Bankruptcy
.
No
Borrower Party is or has been a debtor, and no property of any of them
(including the Properties) is property of the estate, in any voluntary or
involuntary case under the Bankruptcy Code or under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect. No Borrower Party
and no property of any of them is or has been under the possession or control of
a receiver, trustee or other custodian. No Borrower Party has made any
assignment for the benefit of creditors. No such assignment or bankruptcy or
similar case or proceeding is now contemplated.
Section 4.24
Defaults
.
No
Default or Event of Default exists and no event has occurred which with the
passage of time or the giving of notice, or both, would be or become a Default
or Event of Default.
Section 4.25
No Plan
Assets
.
None of
the Borrowers is and no Borrower will be (i) an employee benefit plan as defined
in Section 3(3) of ERISA which is subject to ERISA, (ii) a plan as defined in
Section 4975(e)(1) of the IRC which is subject to Section 4975 of the IRC, or
(iii) an entity whose underlying assets constitute “plan assets” of any such
employee benefit plan or plan for purposes of Title I of ERISA or Section 4975
of the IRC. None of the Borrowers is and no Borrower will be a “governmental
plan” within the meaning of Section 3(32) of ERISA and no transactions by or
with any of the Borrowers are or will be subject to state statutes applicable to
such Borrower regulating investments of and fiduciary obligations with
obligations with respect to governmental plans. Each of the Borrowers and each
of the other ERISA Affiliates have made, and shall continue to make, all
required contributions to all employee benefit plans, if any, that each Borrower
and each of the other ERISA Affiliates maintain or contribute to, within the
time periods required by the applicable provisions of ERISA and any other
federal or state law, and each Borrower and each of the other ERISA Affiliates
have no knowledge of any material liability which has been incurred by any
thereof which remains unsatisfied for any taxes or penalties with respect to any
employee benefit plan or any multi-employer plan. Each such employee benefit
plan (other than any multi-employer plan) has been administered in compliance
with its terms and the applicable provisions of ERISA and any other federal or
state law.
Section 4.26
No Prohibited
Transaction
.
The
execution, delivery and performance of this Agreement, the Note, each Mortgage
and the other Loan Documents do not constitute a Prohibited Transaction,
assuming solely for this purpose that Lender is a party in interest as defined
in Section 3(14) of ERISA (“
Party In
Interest
”) or a
disqualified person as defined in Section 4975(e)(2) of the IRC (“
Disqualified
Person
”) with
respect to an employee benefit plan, if any, which has directly or indirectly
invested in any Borrower or Sole Member.
Section 4.27
Not Foreign
Person
.
No
Borrower Party is a “foreign person” within the meaning of Section 1445(f)(3) of
the IRC.
Section 4.28
No Collective Bargaining
Agreements
.
No
Borrower Party is a party to any collective bargaining agreement.
Section 4.29
Compliance
.
Borrowers are in compliance with all applicable Legal Requirements. No Borrower
is in default or violation of any order, writ, injunction, decree or demand of
any Governmental Authority.
Section 4.30
Intellectual
Property
.
All
material Intellectual Property that each of the Borrowers owns or has pending,
or under which it is licensed, are in good standing and uncontested. There is no
right under any Intellectual Property necessary to the business of any of the
Borrowers as presently conducted or as any of the Borrowers contemplates
conducting its business. None of the Borrowers has infringed, nor is infringing,
and none of the Borrowers has received notice of infringement with respect to
asserted Intellectual Property of others. There is no infringement by others of
material Intellectual Property of any of the Borrowers.
Section 4.31
Pre-Closing Date
Activities
.
No
Borrower has conducted any business or other activity on or prior to the Closing
Date, other than in connection with the acquisition and operation of its
Applicable Individual Property.
Section 4.32
Mortgage and Other
Liens
.
Each
Mortgage creates a valid and enforceable first priority Lien on the Individual
Property (and other property) described therein, as security for the repayment
of the Obligations, subject only to the Permitted Encumbrances applicable to
such Individual Property. Each Loan Document purporting to grant, transfer,
assign or otherwise create a Lien as security for the Loan establishes and
creates a valid, subsisting and enforceable Lien on and a security interest in,
or claim to, the rights and property described therein. All property covered by
any Loan Document purporting to grant, transfer, assign or otherwise create a
Lien as security for the Loan is subject to a UCC financing statement filed
and/or recorded, as appropriate (or irrevocably delivered to an agent for such
recordation or filing) in all places necessary to perfect a valid first priority
Lien with respect to the rights and property that are the subject of such Loan
Document to the extent governed by the UCC.
Section 4.33
Management
Agreement
.
The
Management Agreement is in full force and effect. There is no default, breach or
violation existing thereunder by any party thereto and no event (other than
payments due but not yet delinquent) which, with the passage of time or with
notice and the expiration of any grace or cure period, would constitute a
default, breach or violation by any party thereunder.
Section 4.34
No Prohibited
Persons
.
None of
the Borrowers, nor Guarantor, nor any of their respective offices, directors,
partners, members, Affiliates or, to the knowledge of any Borrower, shareholders
in an entity or person: (i) that is listed in the Annex to, or is otherwise
subject to the provisions of Executive Order 13224 issued on September 24, 2001
(“
EO13224
”); (ii)
whose name appears on the United States Treasury Department’s Office of Foreign
Assets Control (“
OFAC
”) most
current list of “Specifically Designated National and Blocked Persons” (which
list may be published from time to time in various mediums including, but not
limited to, the OFAC website, http:www.treas.gov/ofac/t11sdn.pdf); (iii) who
commits, threatens to commit or supports “terrorism”, as that term is defined in
EO13224; or (iv) who is otherwise affiliated with any entity or person listed
above (any and all parties or persons described in clauses (i) through (iv)
above are herein referred to as a “
Prohibited
Person
”).
ARTICLE V
COVENANTS OF BORROWER
PARTIES
Each of
the Borrowers covenants and agrees that until payment in full of the Loan, all
accrued and unpaid interest and all other Obligations, unless Lender shall
otherwise give its prior written consent, such Person shall perform and comply
with, or cause the performance and compliance of the applicable Borrower Parties
with, all covenants in this Article V.
Section 5.1
Financial Statements and
Other Reports
.
(A)
Financial
Statements
.
(i)
Annual
Reporting
. Within
one hundred twenty (120) days after the end of each calendar year, Borrowers
shall provide true and complete copies of Borrowers’ and Guarantor’s Financial
Statements for such year to Lender. All such annual Financial Statements shall
be certified by a certified public accountant reasonably acceptable to Lender
which is employed by Borrowers or Guarantor (or an Affiliate of Borrowers or
Guarantor) and is responsible for reviewing and auditing the Financial
Statements of Borrowers and Guarantor, and shall be accompanied by a certificate
of such audit executed by such accounting firm or certified public accountant in
customary form, subject only to such exceptions as shall be reasonably approved
in writing by Lender;
provided
, that
annual audit of the Financial Statements for Borrowers shall not be required,
and in lieu thereof internally prepared and certified (by Borrowers) annual
Financial Statements of Borrowers shall suffice to satisfy the foregoing
requirements for annual Borrower Financial Statements, so long as Guarantor
provides, and Borrowers hereby agree to cause Guarantor to provide to Lender,
(1) within 120 days after the end of each calendar year, annual, audited
consolidated Financial Statements reflecting the consolidated assets and
liabilities of Borrower and Guarantor (among other Persons included in
Guarantor’s consolidated financial statements), and (2) copies of all reports
and filings with the Securities and Exchange Commissions that Guarantor delivers
and files, in each case within 30 days after such filings are made with the
Securities and Exchange Commission. The annual Financial Statements for
Borrowers and Guarantor shall each be accompanied by a certification executed by
the entity’s chief executive officer or chief financial officer or the
individual Guarantor, in the case of an individual Guarantor, satisfying the
criteria set forth below. The annual Financial Statements of Borrowers shall
also be accompanied by a Compliance Certificate (as defined below).
(ii)
Quarterly Reporting -
Borrower
. Within
forty-five (45) days after the end of each Calendar Quarter, Borrowers shall
provide true and complete copies of their Financial Statements for such quarter
to Lender, together with a certification executed on behalf of Borrowers by
their respective chief executive officers or chief financial officers in
accordance with the criteria set forth below. The quarterly Financial Statements
of Borrowers also shall be accompanied by a Compliance Certificate (as defined
below).
(iii)
Quarterly Reporting -
Guarantor
. Within
forty-five (45) days after the end of each Calendar Quarter, Borrowers shall
provide true and complete copies of Guarantor’s Financial Statements for such
quarter to Lender, together with a certification executed on behalf of Guarantor
by its chief executive officer or chief financial officer (or by the individual
Guarantor, in the ease of an individual Guarantor) in accordance with the
criteria set forth below.
(iv)
Debt Service Coverage
Ratio
. Within
thirty (30) days after the end of each Calendar Quarter, Borrowers shall provide
to Lender Borrowers’ calculation of the Debt Service Coverage Ratio for the
twelve month period ending at the end of such Calendar Quarter, together with
the Borrowers’ method of calculation and such detail and background information
as Lender shall reasonably require and a certification executed on behalf of
Borrowers by their respective chief financial officers (or other responsible
officer(s) or representative(s) reasonably acceptable to Lender) in accordance
with the criteria set forth below.
(v)
Leasing
Reports
. Within
thirty (30) days after the end of each calendar month, Borrowers shall provide
to Lender a certified Rent Roll, rental status report and a schedule of Security
Deposits held under Leases, in form and substance reasonably acceptable to
Lender.
(vi)
Monthly
Reporting
. Within
thirty (30) days after the end of each calendar month, Borrowers shall provide
to Lender (a) accrual basis operating statements, together with a statement of
cash flow, for each of the Properties, each in a form reasonably satisfactory to
Lender, (a) for such month, (b) for the year to date with a comparison and
reconciliation with the Operating Budget and Capital Expenditures Budget
indicating all variances on a line item basis and (c) for the 12 month period
ended as of the end of such calendar month, together with (b) a certification
executed on behalf of Borrowers by their respective chief financial officers (or
other responsible officer(s) or representative(s) reasonably acceptable to
Lender) in accordance with the criteria set forth below.
(vii)
Additional
Reporting
. In
addition to the foregoing, Borrowers shall promptly provide to Lender, and cause
each other Borrower Party to promptly provide to Lender, such further documents
and information concerning its operations, properties, ownership, and finances
as Lender shall from time to time reasonably request.
(viii)
GAAP
.
Borrowers will maintain systems of accounting established and administered in
accordance with sound business practices and sufficient in all respects to
permit preparation of Financial Statements in conformity with GAAP. All
Financial Statements shall be prepared in accordance with GAAP, consistently
applied.
(ix)
Certifications of Financial
Statements and Other Documents, Compliance Certificate
.
Together with the Financial Statements and other documents and information
provided to Lender by or on behalf of any Borrower Party under this Section,
such Borrower Party also shall deliver to Lender a certification in form and
substance reasonably satisfactory to Lender, executed on behalf of such Borrower
Party by its chief executive officer or chief financial officer (or by the
individual Guarantor if the Guarantor is an individual) stating that, to such
officer’s or individual’s knowledge, such Financial Statements, documents, and
information are true and complete in all material respects and do not omit to
state any material information without which the same might reasonably be
misleading. In addition, where this Loan Agreement requires a “
Compliance
Certificate
”, the
Borrower Party required to submit the same shall deliver a certificate duly
executed on behalf of such Borrower Party by its chief executive officer or
chief financial officer, in form and substance reasonably satisfactory to
Lender, stating that there does not exist any Default or Event of Default under
the Loan Documents (or if any exists, specifying the same in
detail).
(x)
Fiscal
Year
. Each
Borrower represents that its fiscal year ends on December 31, and agrees that it
shall not change its fiscal year.
(B)
Accountants’
Reports
.
Promptly upon receipt thereof, Borrowers shall deliver, and cause each other
Borrower Party to deliver, copies of all significant reports submitted by
independent public accountants in connection with each annual, interim or
special audit of the Financial Statements or other affairs of such Borrower
Party made by such accountants, including the comment letter submitted by such
accountants to management in connection with the annual audit.
(C)
Tax
Returns
. Within
thirty (30) days after filing the same, Borrowers shall deliver to Lender a copy
of their Federal income tax returns (or the return of the applicable Person into
which any Borrower’s Federal income tax return is consolidated) certified on its
behalf by their chief financial officers (or similar position) to be true and
correct.
(D)
Material
Notices
.
(i)
Borrowers
shall promptly deliver, or cause to be delivered to Lender, copies of all
notices of default given or received by any Borrower Party with respect to
noncompliance related to any material Indebtedness of any Borrower
Party.
(ii)
Borrowers
shall promptly deliver to Lender copies of any and all material notices
(including any notice alleging any material default or breach) received by any
Borrower from any manager, any franchisors, any licensors, or any tenants for or
pertaining to any of the Properties.
(E)
Events of Default,
etc
.
Promptly upon any Borrower obtaining knowledge of any of the following events or
conditions, such Borrower shall deliver a certificate executed on its behalf by
its chief financial officer or similar officer specifying the nature and period
of existence of such condition or event and what action such Borrower or any
Affiliate thereof has taken, is taking and proposes to take with respect
thereto: (i) any condition or event that constitutes an Event of Default or
Default; (ii) any Material Adverse Effect; or (iii) any actual or alleged breach
or default or assertion of (or written threat to assert) remedies under any
Management Agreement.
(F)
Litigation
.
Promptly upon any Borrower’s obtaining knowledge of (1) the institution, or
threat thereof, of any action, suit, proceeding, governmental investigation or
arbitration against or affecting any Borrower or any of the Properties owned not
previously disclosed in writing by Borrowers to Lender, or (2) any material
development in any action, suit, proceeding, governmental investigation or
arbitration at any time pending against or affecting any Borrower or any of the
Properties, Borrowers will give notice thereof to Lender and provide such other
information as may be reasonably available to enable Lender and its counsel to
evaluate such matter.
(G)
Insurance
. Within
the thirty (30) day period prior to the end of each insurance policy period of
Borrowers, Borrowers will deliver binders or certificates of insurance
evidencing renewal of any existing coverages (or copies of any new insurance
policies not previously delivered to Lender), reports, and/or other information
(all in form and substance reasonably satisfactory to Lender), (i) outlining all
material insurance coverage maintained as of the date thereof by Borrowers and
all material insurance coverage planned to be maintained by Borrowers in the
subsequent insurance policy period, and (ii) evidencing payment in full of the
premiums for such insurance policies.
(H)
Other
Information
. With
reasonable promptness, each Borrower Party will deliver such other information
and data with respect to such Person and its Affiliates or the Properties as
from time to time may be reasonably requested by Lender.
Section 5.2
Existence;
Qualification
.
Each
Borrower will at all times preserve and keep in full force and effect its
existence as a limited partnership, limited liability company, or corporation,
as the case may be and all rights and franchises material to its business,
including its qualification to do business in each state where it is required by
law to so qualify. Without limitation of the foregoing, each Borrower and, to
the extent required by applicable law, Sole Member shall at all times be
qualified to do business in the state where the Properties are
located.
Section 5.3
Payment of Impositions and
Claims
.
(A)
Subject
to Borrowers’ contest rights set forth in subsection (B) below, Borrowers will
pay when due (i) all Impositions; (ii) all claims (including claims for labor,
services, materials and supplies) for sums that have become due and payable and
that by law have or may become a Lien upon any of its properties or assets
(hereinafter referred to as the “
Claims
”); and
(iii) all federal, state and local income taxes, sales taxes, excise taxes and
all other taxes and assessments of each Borrower on its business, income or
assets; in each instance before any penalty or fine is incurred with respect
thereto.
(B)
Borrowers
shall not be required to pay, discharge or remove any Imposition or Claim so
long as Borrowers contest in good faith such Imposition or Claim or the
validity, applicability or amount thereof by an appropriate legal proceeding
which operates to prevent the collection of such amounts and the sale of any of
the Properties or any portion thereof, so long as: (i) no Event of Default shall
have occurred and be continuing; (ii) prior to the date on which such Imposition
or Claim would otherwise have become delinquent, Borrowers shall have given
Lender prior written notice of its intent to contest said Imposition or Claim;
(iii) prior to the date on which such Imposition or Claim would otherwise have
become delinquent, Borrowers shall have deposited with Lender (or with a court
of competent jurisdiction or other appropriate body approved by Lender) such
additional amounts as are necessary to keep on deposit at all times, an amount
equal to at least one hundred fifty percent (150%) (or such higher amount as may
be required by applicable law) of the total of (x) the balance of such
Imposition or Claim then remaining unpaid, and (y) all interest, penalties,
costs and charges accrued or accumulated thereon, together with such other
security as may be required in the proceeding, or as may be required by Lender,
to insure the payment of any such Imposition or Claim and all interest and
penalties thereon; (iv) no risk of sale, forfeiture or loss of any interest in
any of the Properties or any part thereof arises, in Lender’s judgment, during
the pendency of such contest; (v) such contest does not, in Lender’s
determination, have a Material Adverse Effect; (vi) such contest is based on
bona fide
,
material, and reasonable claims or defenses; and (vii) such proceeding shall be
permitted under and be conducted in accordance with the provisions of any other
instrument to which any Borrower is subject and shall not constitute a default
thereunder and such proceeding shall be conducted in accordance with all
applicable statutes, laws and ordinances. Any such contest shall be prosecuted
with due diligence, and Borrowers shall promptly pay the amount of such
Imposition or Claim as finally determined, together with all interest and
penalties payable in connection therewith. Lender shall have full power and
authority, but no obligation, to apply any amount deposited with Lender under
this subsection to the payment of any unpaid Imposition or Claim to prevent the
sale or forfeiture of any of the Properties for non-payment thereof, if Lender
reasonably believes that such sale or forfeiture is threatened. Any surplus
retained by Lender after payment of the Imposition or Claim for which a deposit
was made shall be promptly repaid to Borrowers unless an Event of Default shall
have occurred, in which case said surplus may be retained by Lender to be
applied to the Obligations. Notwithstanding any provision of this Section to the
contrary, Borrowers shall pay any Imposition or Claim which it might otherwise
be entitled to contest if an Event of Default shall occur, or if, in the
reasonable determination of Lender, any of the Properties is in jeopardy or in
danger of being forfeited or foreclosed. If Borrowers refuse to pay any such
Imposition or Claim, upon five (5) Business Days’ prior written notice, Lender
may (but shall not be obligated to) make such payment and Borrowers shall
reimburse Lender on demand for all such advances.
Section 5.4
Maintenance of
Insurance
.
Borrowers will maintain or cause to be maintained, with financially sound and
reputable insurers, public liability, fire and extended coverage and property
damage, rent loss or business interruption and other types of insurance with
respect to its business and the Properties (including all Improvements now
existing or hereafter erected thereon) against all losses, hazards, casualties,
liabilities and contingencies as customarily carried or maintained by Persons of
established reputation engaged in similar businesses and as Lender shall require
and in such amounts and for such periods as Lender shall require. Without
limitation of the foregoing, Borrowers shall maintain or cause to be maintained
policies of insurance with respect to each Individual Property in the following
amounts and covering the following risks:
(i)
Property
damage insurance covering loss or damage to the applicable Individual Property
caused by fire, lightning, hail, hurricane, windstorm, tidal wave, explosion,
acts of terrorism, vandalism, malicious mischief, and such other losses,
hazards, casualties, liabilities and contingencies as are normally and usually
covered by fire, extended coverage and all risk policies in effect where the
applicable Individual Property is located endorsed to include all of the
extended coverage perils and other broad form perils, including the standard
“all risks” clauses, with such endorsements as Lender may from time to time
reasonably require including, without limitation, building ordinance and law
(including demolition costs and increased cost of construction coverage),
lightning, hurricane, windstorm, tidal wave, civil commotion, acts of terrorism,
hail, riot, strike, water damage, sprinkler leakage, collapse and malicious
mischief. Such policy shall be in an amount not less than that necessary to
comply with any coinsurance percentage stipulated in the policy, but not less
than 100% of the full replacement cost of all Improvements at the applicable
Individual Property (without any deduction for depreciation), and shall contain
a replacement cost and agreed amount endorsement in an amount not less than the
outstanding principal amount of the Loan. The deductible under such policy shall
not exceed an amount customarily required by institutional lenders for similar
properties in the general vicinity of the applicable Individual Property, but in
no event in excess of $5,000, or such other amount as is approved by Lender from
time to time. In addition to and without limiting the foregoing, the property
insurance required under this Section 5.4(i), and the property insurance and
business interruption and rent loss insurance required under Sections 5.4(v) and
(vi) below shall be required to cover perils of terrorism and acts of
terrorism.
(ii)
Broad
form boiler and machinery insurance in an amount equal to the full replacement
cost of the Improvements at such Individual Property (without any deduction for
depreciation) in which the boiler or similar vessel is located, and including
coverage against loss or damage from (1) leakage of sprinkler systems and (2)
damage, breakdown or explosion of steam boilers, electrical machinery and
equipment, air conditioning, refrigeration, pressure vessels or similar
apparatus and mechanical objects now or hereafter installed at the applicable
Individual Property.
(iii)
If the
applicable Individual Property is located in area prone to geological phenomena,
including, but not limited to, sinkholes, mine subsidence, tidal waves or
earthquakes, insurance covering such risks in an amount not less than 100% of
the full replacement cost of the Improvements at such Individual Property
without any deduction for depreciation, with a maximum permissible deductible of
$5,000, or such other amount as is approved by Lender from time to
time.
(iv)
Flood
insurance if the applicable Individual Property is located, in whole or in part,
in an area now or hereafter designated as “flood prone” or a “special flood
hazard area” (as defined under the National Flood Insurance Act of 1968, the
Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act
of 1994 (as each may be amended, or any successor law, collectively, the
“
Flood Insurance
Acts
”)). Such
policy shall be in an amount equal to 100% of the full replacement cost of the
Improvements at such Individual Property, or such other amount as is approved by
Lender from time to time, and shall have a maximum permissible deductible equal
to an amount customarily required by institutional lenders for similar
properties in the general vicinity of the applicable Individual Property, but in
no event in excess of $5,000, or such other amount as is approved by Lender from
time to time.
(v)
Business
interruption or rent loss insurance in an amount equal to the gross income or
rentals from the applicable Individual Property for an indemnity period of
eighteen (18) months, such amount being adjusted annually. Lender shall be named
as loss payee under such insurance.
(vi)
During
any period of reconstruction, renovation or alteration of the applicable
Individual Property, a complete value, “All Risks” Builders Risk form or “Course
of Construction” insurance policy in non-reporting form and in an amount
reasonably satisfactory to Lender.
(vii)
Commercial
General Liability insurance covering claims for bodily injury, death or property
damage occurring upon, in or about the applicable Individual Property in an
amount not less than $1,000,000 per occurrence and $2,000,000 in the aggregate
with no deductible of self insurance retention, and an umbrella liability policy
in the amount of $3,000,000.
(viii)
If
required by applicable state laws, worker’s compensation or employer’s liability
insurance in accordance with such laws.
(ix)
Such
other insurance and endorsements, if any, with respect to each Individual
Property and the operation thereof as Lender may reasonably require from time to
time, provided same are customarily required by institutional lenders for
similar properties in the general vicinity of the applicable Individual
Property, or which are otherwise required by the Loan Documents.
Each
carrier providing any insurance, or portion thereof, required by this Section
shall be licensed to do business in the jurisdiction in which the applicable
Individual Property is located, and shall have a claims paying ability rating by
S&P of not less than “AA,” by Moody’s of not less than “Aa2” and by Fitch of
not less than “AA,” and an A.M. Best Company, Inc. rating of not less than A and
financial size category of not less than XIII. Except as otherwise expressly set
forth in this Loan Agreement, Borrowers shall cause all insurance (except
general public liability and excess liability, as to which Lender shall be named
as additional insured, and workers’ compensation insurance) carried in
accordance with this Section to be payable to Lender as a mortgagee and loss
payee and not as a coinsured, and, in the case of all policies of insurance
carried by each lessee, for the benefit of Borrowers (or any of them), if any,
to cause all such policies to be payable to Lender as Lender’s interest may
appear.
All
insurance policies and renewals thereof (i) shall be in a form reasonably
acceptable to Lender, (ii) shall provide for a term of not less than one year,
(iii) shall provide by way of endorsement, rider or otherwise that such
insurance policy shall not be canceled, endorsed, altered, or reissued to effect
a change in coverage unless such insurer shall have first given Lender thirty
(30) days prior written notice thereof, (iv) shall include a standard
non-contributory mortgagee endorsement or its equivalent in favor of and in form
acceptable to Lender, (v) shall provide for claims to be made on an occurrence
basis, (vi) shall contain an agreed value clause updated annually (if the amount
of coverage under such policy is based upon the replacement cost of any of the
Properties) and (vii) shall designate Lender as “mortgagee and loss payee”
(except general public liability and excess liability, as to which Lender shall
be named as additional insured). All property damage insurance policies (except
for flood and earthquake policies) must automatically reinstate after each
loss.
Any
insurance required by this Loan Agreement may, at the option of Borrowers, be
effected by blanket and/or umbrella policies issued to Borrowers covering the
Properties and other properties of Borrowers’ Affiliates provided that, in each
case, the policies otherwise comply with the provisions of this Loan Agreement
and allocate to each Individual Property, from time to time, the coverage
required under this Loan Agreement, without possibility of reduction or
coinsurance by reason of, or damage to, any other property (real or personal)
named therein. If the insurance required by this Loan Agreement shall be
effected by any such blanket or umbrella policies, Borrowers shall furnish to
Lender certificates or insurance evidencing same, with schedules attached
thereto showing the amount of the insurance provided under such policies which
is applicable to each Individual Property.
Section 5.5
Maintenance of the
Properties; Alterations; Casualty or Taking
.
(A)
Maintenance of the
Properties; Alterations
.
Borrowers will maintain the Properties or cause the Properties to be maintained
in good repair, working order and condition, and will make or cause to be made
all appropriate repairs, renewals and replacements thereof. Without limitation
of the foregoing, Borrowers will operate and maintain each Individual Property
substantially in accordance with the applicable Operating Budget and Capital
Expenditure Budget. In addition, unless Lender agrees otherwise, Borrowers shall
cause all items in the Capital Expenditure Budget to be performed and completed
in substantially in accordance with such plan. All work required or permitted
under this Loan Agreement shall be performed in a good and workmanlike manner
and in compliance with all applicable laws. So long as no Event of Default has
occurred and is continuing, Borrowers may, without Lender’s consent, perform
alterations to the Properties which (i) do not constitute a Material Alteration,
(ii) do not adversely affect any Borrower’s financial condition or the value or
net operating income of any of the Properties, and (iii) are in the ordinary
course of Borrowers’ business. No Borrower shall perform any Material Alteration
without Lender’s prior written consent, which consent shall not be unreasonably
withheld;
provided
,
however
, that
Lender may, in its sole and absolute discretion, withhold consent to any
Material Alteration which Lender determines may result in a decrease of net
operating income from any of the Properties. Lender may, as a condition to
giving its consent to a Material Alteration, require that Borrowers deposit cash
with Lender for payment of the cost of such Material Alteration in an amount
equal to 125% of the cost of the Material Alteration as estimated by Lender.
Upon substantial completion of the Material Alteration, Borrowers shall provide
evidence reasonably satisfactory to Lender that (i) the Material Alteration was
constructed in accordance with all applicable laws and substantially in
accordance with plans and specifications approved by Lender (which approval
shall not be unreasonably withheld or delayed), (ii) all contractors,
subcontractors, materialmen and professionals who provided work, materials or
services in connection with the Material Alteration have been paid in full and
have delivered unconditional releases of lien and (iii) all material licenses
necessary for the use, operation and occupancy of the Material Alteration have
been issued. Borrowers shall reimburse Lender upon demand for all reasonable
out-of-pocket costs and expenses (including the reasonable fees of any
architect, engineer or other professional engaged by Lender) incurred by Lender
in reviewing plans and specifications or in making any determinations necessary
to implement the provisions of this Section 5.5(A).
(B)
Casualty or
Taking
. In the
event of casualty or loss or a Taking at any of the Individual Properties,
Borrowers shall give immediate written notice of the same to the insurance
carrier and to Lender and shall promptly commence and diligently prosecute to
completion, in accordance with the terms hereof, all Legal Requirements, the
repair and restoration of the affected Individual Property as nearly as possible
to the Pre-Existing Condition (hereinafter defined) (a “
Restoration
”).
Borrowers shall pay all costs of such Restoration whether or not such costs are
covered by insurance or Condemnation Proceeds. Borrowers hereby authorize and
empower Lender (a) to make proof of loss, to adjust and compromise or settle any
claim under insurance policies, including business interruption or rent loss
insurance, or in connection with a Taking, (b) to appear in and prosecute any
action arising from any insurance policies or Taking, (c) to collect and receive
insurance proceeds and Condemnation Proceeds, and (d) to deduct therefrom
Lender’s expenses incurred in the collection of such proceeds; provided however,
that nothing contained in this Section shall require Lender to incur any expense
or take any action hereunder. Borrowers further authorize Lender, at Lender’s
option, (i) to hold the balance of such proceeds to be used to pay for the cost
of Restoration of the applicable Individual Property or (ii) subject to Section
5.5(C), to apply such proceeds to payment of the Obligations whether or not then
due, in any order, and, provided that no Event of Default has occurred and is
continuing, upon any such application of insurance proceeds or Condemnation
Proceeds to the Obligations pursuant to the foregoing, no Prepayment
Consideration shall be due and payable. Notwithstanding the foregoing, in the
event of a casualty or Taking with respect to an Individual Property where the
loss does not exceed the Restoration Threshold for such Individual Property, and
the casualty or Taking (as applicable), in Lender’s reasonable judgment, has no
material impact on the remainder of such Individual Property, Borrowers may
settle and adjust such claim; provided that (a) no Event of Default has occurred
and is continuing and (b) such adjustment and the Restoration are carried out in
a commercially reasonable and timely manner, and further provided that Lender’s
reasonable consent shall be required for the adjustment or settlement by any
Borrower of any claim the settlement or adjustment of which may reasonably be
anticipated to result in proceeds in excess of $500,000.
(C)
Proceeds Application to
Restoration
. Lender
shall not exercise Lender’s option to apply insurance proceeds or Condemnation
Proceeds to payment of the Obligations and Lender shall make the proceeds
available for Restoration if all of the following conditions are met: (i) no
Event of Default then exists; (ii) Lender reasonably determines that there will
be sufficient funds to complete the Restoration of the applicable Individual
Property to at least the Pre-Existing Condition and to timely make all payments
due under the Loan Documents during the Restoration of the applicable Individual
Property; (iii) Lender reasonably determines that the fair market value of the
applicable Individual Property after Restoration will not be less than the fair
market value of such Individual Property prior to the occurrence of the loss or
casualty to the Individual Property or the Taking, and that the rental income of
the Properties, after the Restoration of the affected Individual Property to the
Pre-Existing Condition, will be sufficient to meet all Operating Expenses,
payments for Reserves and payments of principal and interest under the Loan and
maintain a Debt Service Coverage Ratio at least equal to 1.10 to 1; and (iv)
Lender reasonably determines that the Restoration of the affected Individual
Property to the Pre-Existing Condition will be completed within one (1) year of
the date of the loss or casualty to the affected Individual Property or the
Taking, but in no event later than six (6) months prior to the Maturity Date;
(v) in Lender’s reasonable judgment less than thirty percent (30%) (in the case
of a fire or other loss or casualty to an Individual Property) or fifteen
percent (15%) (in the case of a Taking) of the fair market value of the
applicable Individual Property has been damaged, destroyed or rendered unusable
as a result of such fire or other casualty or Taking; and (vi) Lender is
reasonably satisfied that the Individual Property in question can be restored
and repaired as nearly as possible to the condition it was in immediately prior
to such casualty or Taking and in compliance with all applicable zoning,
building and other laws and codes (the “
Pre-Existing
Condition
”), and
in the case of a Taking Lender is reasonably satisfied that the Taking will,
upon completion of the Restoration, have no material adverse effect on the use,
operation or value of the applicable Individual Property. Notwithstanding
anything to the contrary set forth in this Section 5.5, to the extent the
insurance proceeds paid or payable with respect to any casualty to any
Individual Property (either singly or when aggregated with all other then
unapplied proceeds with respect to the affected Individual Property) do not
exceed the Restoration Threshold and the estimated cost of completing the
applicable Restoration shall not be greater than the Restoration Threshold, and
provided that no Event of Default shall have occurred and be continuing, such
proceeds (other than business interruption and rent loss insurance proceeds) are
to be paid directly to Borrowers to be applied to Restoration of the affected
Individual Property in accordance with the terms hereof. Lender may retain
business interruption or rent loss insurance proceeds as a reserve, and disburse
the same on a monthly basis into the Deposit Account for application to debt
service on the Loan until such time as Restoration is complete.
(D)
Disbursement for
Restoration
. If
Lender elects to make the insurance proceeds or Condemnation Proceeds available
for Restoration of any Individual Property (or is required to make such proceeds
available pursuant to Section 5.5(C) above), the proceeds shall be disbursed by
Lender to, or as directed by, Borrowers from time to time during the course of
the Restoration, but not more frequently than once a month and in requested
amounts of not less than $100,000, upon receipt of evidence satisfactory to
Lender that (i) all materials installed and work and labor performed in
connection with the Restoration have been paid for in full (other than that to
be paid from the current pending disbursement), and (ii) there exist no notices
of pendency, mechanic’s or materialman’s liens or notices of intention to file
same, or any other liens or encumbrances of any nature whatsoever on the
applicable Individual Property. Borrowers agree that, if at any time during the
Restoration, the cost of completing such Restoration, as reasonably determined
by Lender, exceeds the undisbursed insurance proceeds, Borrowers shall, promptly
upon demand by Lender, deposit the amount of such excess with Lender, and Lender
shall first disburse such deposit to pay for the costs of such Restoration on
the same terms and conditions as the insurance proceeds are disbursed. If
Borrowers deposit such excess with Lender and if, after completion of the
Restoration, any funds remain from the combination of insurance proceeds or
Condemnation Proceeds and the funds so deposited with Lender by Borrowers, and
if no Event of Default shall have occurred and be continuing, then Lender shall
disburse into the Deposit Account, for application pursuant to Article VII
hereof, such remaining funds (together with any interest earned
thereon).
(E)
Disbursement
Conditions
. Lender
may, at Lender’s option, condition disbursement of any insurance proceeds or
Condemnation Proceeds in excess of the Restoration Threshold on Lender’s
approval of plans and specifications of an independent architect licensed in the
state in which the Properties are located, having at least five (5) years of
experience as an architect and reasonably satisfactory to Lender (an
“
Approved
Architect
”), any
and all material contractors, subcontractors and materialmen engaged in the
Restoration and the contracts and subcontracts under which they have been
engaged, contractor’s cost estimates, architect’s certificates, waivers of
liens, sworn statements of mechanics and materialmen and such other evidence of
costs, percentage completion of construction, application of payments, and
satisfaction of liens as Lender may reasonably require. Lender shall not be
obligated to disburse insurance proceeds or Condemnation Proceeds more
frequently than once every calendar month. If insurance proceeds or Condemnation
Proceeds are applied to the payment of the Obligations, any such application of
proceeds to principal shall not extend or postpone the due dates of the monthly
payments due under the Note or otherwise under the Loan Documents, or change the
amounts of such payments. Any amount of insurance proceeds remaining in Lender’s
possession after full and final payment and discharge of all Obligations shall
be refunded to Borrowers or otherwise paid in accordance with applicable law. If
any Individual Property is sold at foreclosure or if Lender acquires title to
such Individual Property, Lender shall have all of the right, title and interest
of Borrowers in and to any insurance policies and unearned premiums thereon and
in and to the proceeds resulting from any damage to such Individual Property
prior to such sale or acquisition, and to any Condemnation
Proceeds.
(F)
Retainage
. In no
event shall Lender be obligated to make disbursements of insurance proceeds or
Condemnation Proceeds in excess of an amount equal to the costs actually
incurred from time to time for work in place as part of the Restoration, as
certified by the Approved Architect, less a retainage equal to ten percent (10%)
of such costs incurred until the Restoration has been completed. The retainage
shall in no event be less than the amount actually held back by Borrowers (or
any of them) from contractors, subcontractors and materialmen engaged in the
Restoration. The retainage shall not be released until the Approved Architect
certifies to Lender that the Restoration has been completed substantially in
accordance with the provisions of this Section 5.5 and that all material
approvals necessary for the re-occupancy and use of the affected Individual
Property have been obtained from all appropriate Governmental Authorities, and
Lender receives evidence reasonably satisfactory to Lender that the costs of the
Restoration have been paid in full or will be paid in full out of the
retainage.
Section 5.6
Inspection
.
Borrowers shall permit any authorized representatives designated by Lender to
visit and inspect during normal business hours the Properties and their
respective businesses, including their financial and accounting records, and to
make copies and take extracts therefrom, and to discuss their affairs, finances
and business with their officers and independent public accountants, at such
reasonable times during normal business hours and as often as may be reasonably
requested. Unless an Event of Default has occurred, Lender shall provide advance
written notice of at least two (2) Business Days prior to visiting or inspecting
any of the Properties or any Borrower’s offices.
Section 5.7
Environmental
Compliance
.
(A)
Environmental
Laws
.
Borrowers shall at all times comply in all material respects with all applicable
Environmental Laws. Borrowers shall not: (i) violate any applicable
Environmental Law; or (ii) generate, use, transport, handle, store, release or
dispose of any Hazardous Material in or into, on or onto, or from any of the
Properties (except in accordance with applicable law); or (iii) permit any Lien
imposed pursuant to any Environmental Law to be imposed or to remain on any of
the Properties.
(B)
Remedial
Action
. i)
Borrowers shall promptly take and diligently prosecute any and all necessary
remedial actions upon obtaining knowledge of the presence, storage, use,
disposal, transportation, active or passive migration, release or discharge of
any Hazardous Materials on, under or about any of the Properties in violation of
any Environmental Laws; provided, however, that whether or not such action is
required under applicable Environmental Laws, Borrowers shall be required to
take all remedial action necessary to clean up and remove mold and microbial
matter from the Properties in the event that any action, suit or proceeding
shall be commenced or threatened (in writing) by any Person or Governmental
Authority with respect thereto or any investigation related to mold or microbial
matter is commenced by any Governmental Authority, which action, suit,
proceeding or investigation, if adversely determined, could reasonably be
expected to have a Material Adverse Effect. In the event any Borrower undertakes
or causes to be undertaken any remedial action with respect to any Hazardous
Materials on, under or about any of the Properties, such Borrower shall conduct
and complete such remedial action in compliance with all applicable
Environmental Laws and in accordance with the applicable policies, orders and
directives of all federal, state and local governmental
authorities.
(ii)
If
requested by Lender, all remedial actions under clause (i) above shall be
performed by contractors, and under the supervision of a consulting engineer,
which shall not be an Affiliate of any of the Borrowers, each approved in
advance by Lender which approval shall not be unreasonably withheld or delayed.
All costs and expenses reasonably incurred in connection with such remedial
actions shall be paid by Borrowers. If Borrowers do not timely commence and
diligently prosecute to completion the remedial actions, Lender may (but shall
not be obligated to), upon 30 days prior written notice to Borrowers of its
intention to do so, cause such remedial actions to be performed. Borrowers shall
pay or reimburse Lender on demand for all expenses (including reasonable
attorneys’ fees and disbursements, but excluding internal overhead,
administrative and similar costs of Lender) reasonably relating to or incurred
by Lender in connection with monitoring, reviewing or performing any remedial
actions in accordance herewith.
(iii)
No
Borrower shall commence any remedial actions under clause (i) above without
Lender’s prior written approval which approval shall not be unreasonably
withheld or delayed. Notwithstanding the foregoing, if the presence or
threatened presence of Hazardous Material on, under or about any of the
Properties poses an immediate threat to the health, safety or welfare of any
Person or the environment, or is of such a nature that an immediate response is
necessary or required under applicable Environmental Law, then Borrowers may
commence all necessary remedial actions without Lender’s prior written approval.
In such events, Borrowers shall notify Lender as soon as practicable and, in any
event, within three Business Days, of any action taken. No Borrower shall enter
into any settlement agreement, consent decree or other compromise relating to
Hazardous Materials or Environmental Laws unless and until Lender has provided
its prior written consent thereto.
(C)
Further
Assurance
. If
Lender at any time has a reasonable basis to believe that a violation of any
Environmental Law related to any of the Properties has occurred and is
continuing or that any basis for a material Environmental Claim affecting any
Borrower Party or related to any of the Properties exists, then Borrowers agree,
promptly after written request from Lender, to provide Lender with such reports,
certificates, engineering studies or other written material or data as Lender
may reasonably require so as to satisfy Lender that the Borrower Parties and the
applicable Properties are in material compliance with all applicable
Environmental Laws.
(D)
O & M
Program
. In the
event the Environmental Report recommends the development of an operation and
maintenance program for any of the Properties (including, without limitation,
with respect to the presence of asbestos and/or lead-based paint) (“
O & M
Program
”),
Borrowers shall develop an O & M Program, as approved by Lender, in Lender’s
sole discretion, and shall, during the term of the Loan, including any extension
or renewal thereof, comply in all respects with the terms and conditions of the
O & M Program.
Section 5.8
Environmental
Disclosure
.
(A)
Borrowers
shall promptly upon becoming aware thereof advise Lender in writing and in
reasonable detail of: (1) any release, disposal or discharge of any Hazardous
Material on, under, or about any of the Properties required to be reported to
any federal, state or local governmental or regulatory agency under the
applicable Environmental Laws except such releases, disposals or discharges
pursuant to and in compliance with valid permits, authorizations or
registrations under said Environmental Laws; (2) any and all written
communications sent or received by any Borrower with respect to any
Environmental Claims or any release, disposal or discharge of Hazardous Material
required to be reported to any federal, state or local governmental or
regulatory agency; (3) any remedial action taken by any Borrower or any other
Person in response to any Hazardous Material on, under or about any of the
Properties; (4) the discovery by any Borrower of any occurrence or condition on
any real property adjoining or in the vicinity of any of the Properties that
could cause the same (or any part thereof) to be classified as “border zone
property” or to be otherwise subject to any restrictions on the ownership,
occupancy, transferability or use thereof under any Environmental Laws the
existence of which could result in an Environmental Claim with respect to the
affected Individual Property(ies); and (5) any request for information from any
governmental agency that indicates such agency is investigating whether any
Borrower may be potentially responsible for a release, disposal or discharge of
Hazardous Materials.
(B)
Borrowers
shall promptly notify Lender of any proposed action to be taken pertaining in
any way to any of the Properties to commence any operations that could
reasonably be expected to subject any Borrower or any of the Properties to
additional laws, rules or regulations, including laws, rules and regulations
requiring additional or amended environmental permits or licenses which could
reasonably be expected to subject any Borrower to any material obligations or
requirements under any Environmental Laws. Borrowers shall, at their own
expense, provide copies of such documents or information as Lender may
reasonably request in relation to any matters disclosed pursuant to this
Section.
Section 5.9
Compliance with Laws and
Contractual Obligations
.
Each
Borrower will (A) comply with the requirements of all present and future
applicable laws, rules, regulations and orders of any governmental authority in
all jurisdictions in which it is now doing business or may hereafter be doing
business, (B) maintain all licenses and permits now held or hereafter acquired
by such Borrower, and (C) perform, observe, comply and fulfill all of its
obligations, covenants and conditions contained in any Contractual
Obligation.
Section 5.10
Further
Assurances
.
Borrower
Parties and their Affiliates shall, from time to time, execute and/or deliver
such documents, instruments, agreements, financing statements, and perform such
acts as Lender at any time may reasonably request to evidence, preserve and/or
protect the Collateral at any time securing or intended to secure the
Obligations and/or to better and more effectively carry out the purposes of this
Loan Agreement and the other Loan Documents.
Section 5.11
Performance of Agreements
and Leases
.
Each
Borrower Party shall duly and punctually perform, observe and comply in all
material respects with all of the terms, provisions, conditions, covenants and
agreements on its part to be performed, observed and complied with (i) hereunder
and under the other Loan Documents to which it is a party, and (ii) agreements
entered into or assumed by such Person in connection with any of the Properties,
and will not suffer or permit any default or event of default (giving effect to
any applicable notice requirements and cure periods) to exist under any of the
foregoing. Each Borrower shall comply with, observe and perform all of its
respective material obligations as landlord under the Leases to which it is a
party or by which it is bound, and shall enforce the material terms, covenants
and conditions contained in the Leases upon the part of the tenants thereunder
to be observed or performed.
Section 5.12
Leases
.
(A)
All
Leases entered into by Borrowers shall provide for rental rates comparable to
then-existing local market rates and terms and conditions commercially
reasonable and consistent with then-prevailing local market terms and conditions
for similar type properties, and in no event shall any Borrower, absent Lender’s
prior written consent, enter into any Leases (i) other than residential
apartment leases having lease terms not in excess of two (2) years, or (ii) with
Affiliates of any Borrower Party. Borrowers shall pay to Lender upon demand all
costs and expenses of Lender, including reasonable attorneys’ fees, incurred in
connection with Lender’s review of any Lease.
(B)
All
Leases entered into after the Closing Date with new tenants (i.e. not renewals
of existing tenants as of the Closing Date) shall be written on Borrowers’
standard lease form currently in use which has been approved by Lender or such
other form of Lease reasonably approved in writing by Lender; provided that
notwithstanding the foregoing, the Borrowers may modify any standard lease form
without such approval to the extent necessary to conform such form to any
applicable Legal Requirements. Borrowers shall not materially change the
standard lease form without Lender’s prior written consent, which consent shall
not be unreasonably withheld or delayed, or except as necessary to comply with
applicable Legal Requirements.
(C)
Each
Borrower shall comply with, observe and perform all such Borrower’s obligations
as landlord under all Leases of such Borrower’s Applicable Individual Property
and shall not do or permit to be done anything to materially impair the value of
the Leases as security for the Obligations. Borrowers shall promptly send Lender
copies of any notices of default received from the tenant under any Lease and
shall enforce all of the material terms, covenants and conditions contained in
the Leases upon the part of the lessees thereunder to be observed or performed
and shall effect a termination or diminution of the obligations of tenants under
leases only in a manner that a prudent owner of a similar property to the
Properties would enforce such terms covenants and conditions or effect such
termination or diminution in the ordinary course of business.
(D)
Borrowers
shall not collect any of the Rents under Leases more than one (1) month in
advance (not including Security Deposits).
(E)
Borrowers
shall make all Leases available to Lender or, at Lender’s request upon the
occurrence and during the continuance of an Event of Default, shall furnish
Lender with executed copies of all Leases hereafter made (to the extent not
theretofore provided to Lender). Each Lease at an Individual Property shall
specifically provide that such Lease is subordinate to the Mortgage encumbering
such Individual Property; and that in no event shall Lender, as holder of such
Mortgage or as successor landlord, be liable to the tenant for any act or
omission of any prior landlord or for any liability or obligation of any prior
landlord occurring prior to the date that Lender or any subsequent owner acquire
title to such Individual Property. Each Lease entered into after the date
hereof, shall specifically provide that the tenant attorns to Lender, such
attornment to be effective upon Lender’s acquisition of title to such Individual
Property; that the tenant agrees to execute such further evidences of attornment
as Lender may from time to time reasonably request; and that the attornment of
the tenant shall not be terminated by foreclosure.
Section 5.13
Management and
Leasing
.
(A)
Borrowers
shall cause Manager to manage the each Individual Property in accordance with
the Management Agreement. Each Borrower shall (i) diligently perform and observe
all of the material terms, covenants and conditions of the Management Agreement
to which it is a party on the part of such Borrower to be performed and observed
and (ii) promptly notify Lender of any notice to any Borrower of any default
under any of the Management Agreement of which it is aware. If any Borrower
shall default in the performance or observance of any material term, covenant or
condition of the Management Agreement on the part of such Borrower to be
performed or observed beyond applicable notice and cure periods, then, without
limiting Lender’s other rights or remedies under this Agreement or the other
Loan Documents, and without waiving or releasing Borrowers from any of its
obligations hereunder or under the Management Agreement upon five (5) Business
Days’ notice to Borrowers, Lender shall have the right, but shall be under no
obligation, to pay any sums and to perform any act as may be appropriate to
cause all the material terms, covenants and conditions of the Management
Agreement on the part of such Borrower to be performed or observed. Borrowers
shall cause any new Manager to execute and deliver a subordination agreement
reasonably satisfactory to Lender at the time of execution and delivery of any
Management Agreement.
(B)
No
Borrower shall surrender, terminate, cancel, materially modify, renew or extend
such Management Agreement, or enter into any other Management Agreement with
Manager or any other Person, or consent to the assignment by the Manager of its
interest under the Management Agreement, in each case without the express
consent of Lender, which consent may be conditioned upon Borrowers delivering a
Rating Confirmation. If at any time Lender consents to the appointment of a new
Manager (which consent shall not be unreasonably withheld in the absence of an
Event of Default if a Rating Confirmation is obtained, or if Lender does not
require a Rating Confirmation), such new Manager and Borrowers shall, as a
condition of Lender’s consent, execute a subordination of management agreement
in the form delivered in connection with the closing of the Loan.
(C)
Lender
shall have the right to require Borrowers to replace the Manager with a Person
chosen by Lender, upon the earliest to occur of any one or more of the following
events: (i) the occurrence and continuance of an Event of Default; (ii) thirty
(30) days after notice from Lender to Borrowers that Manager has engaged in
fraud, gross negligence, malfeasance or willful misconduct arising from or in
connection with its performance under the Management Agreement, or Manager’s
default under the Management Agreement which is not cured within any applicable
cure period provided under the Management Agreement; (iii) a change in control
of Manager, or (iv) if the Debt Service Coverage Ratio shall be less than the
Minimum DSCR Threshold.
Section 5.14
Material
Agreements
.
Except
for Leases complying with the Loan Documents and any Management Agreement
complying with the foregoing, no Borrower shall enter into or become obligated
under any material agreement pertaining to any of the Properties, including
brokerage agreements, unless the same may be terminated without cause and
without payment of a penalty or premium, on not more than thirty (30) days’
prior written notice.
Section 5.15
Certain VCOC
Provisions
.
Lender,
and its assignees and participants, shall have, the following additional rights
relating to the management of Borrowers: (i) the rights to discuss the business
operations, properties and financial and other condition of Borrowers including
significant business activities and business and financial developments, with
Borrowers’ officers, employees and directors; (ii) the right to submit proposals
or suggestions to Borrowers’ management with the requirement that Borrowers’
management discuss such advice, proposals or suggestions with the Lender within
a reasonable period after such submission considering them in good faith, in
meetings which shall occur no less frequently than bi-monthly; (iii) the right
to examine the books and records, operating reports, budgets and other financial
reports of the Borrowers on a regular basis, and to visit and inspect Borrowers’
facilities and to reasonably require information at reasonable times and
intervals concerning the general status of the Borrowers’ financial condition
and operations; (iv) the right to be notified of any material development to or
affecting Borrowers’ business and to consult with and advise management with
respect to such matters; (v) the right to discuss with management of Borrowers,
including management’s proposed reorganization plans and operating plan for
going forward after such plan of reorganization has been effected; and (vi) the
right to request from Borrowers in addition to the information provided pursuant
to this Agreement, when available, copies of all financial statements, forecasts
and projections provided to or approved by Borrowers’ management to its members
and/or such other business and financial data may be reasonably
requested.
Section 5.16
Estoppel
Certificates
.
Within
ten (10) Business Days following a request by Lender, Borrowers shall provide to
Lender a duly acknowledged written statement confirming (i) the amount of the
outstanding principal balance of the Loan, (ii) the terms of payment and
maturity date of the Note, (iii) the date to which interest has been paid, (iv)
to the knowledge of Borrowers, whether any offsets or defenses exist against the
Obligations, and if any such offsets or defenses are alleged to exist, the
nature thereof shall be set forth in detail, (v) that this Loan Agreement, the
Note, the Mortgages and the other Loan Documents are valid, legal and binding
obligations of Borrowers and have not been modified or amended, or, if modified
or amended, giving particulars of any such modification or amendment, and (vi)
such other factual matters as Lender shall reasonably request.
Section 5.17
Indebtedness
.
So long
as the Loan is outstanding, no Borrower shall, directly or indirectly create,
incur, assume, guaranty, or otherwise become or remain directly or indirectly
liable with respect to any Indebtedness except:
(A)
the
Obligations; and
(B)
unsecured
trade payables not evidenced by a note and arising out of purchases of goods or
services in the ordinary course of business and operation of the Properties;
provided that (i) each such trade payable is payable not later than sixty (60)
days after the original invoice date and is paid on or before the date when due
and (ii) the aggregate amount of such trade payables outstanding, with respect
to all of the Borrowers and all of the Properties taken as a whole, does not, at
any time, exceed $1,000,000. In no event shall any Indebtedness other than the
Loan be secured, in whole or in part, by any of the Properties or any portion
thereof or interest therein.
Section 5.18
Liens and Related
Matters
.
The
obligations of Borrower Parties under this Section are in addition to and not in
limitation of their obligations under Article XI herein. So long as the Loan is
outstanding:
(A)
No
Liens
. No
Borrower shall directly or indirectly create, incur, assume, suffer, or permit
to exist any Lien on or with respect to any of the Properties, any other
Collateral or any direct or indirect ownership interest in any Borrower, except
Permitted Encumbrances.
(B)
No Negative
Pledges
. No
Borrower shall enter into or assume any agreement (other than the Loan
Documents) prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired.
Section 5.19
Contingent
Obligations
.
No
Borrower shall directly or indirectly create or become or be liable with respect
to any Contingent Obligation
Section 5.20
Restriction on Fundamental
Changes
.
Except
as otherwise expressly permitted under this Loan Agreement (or with the prior
written consent of Lender):
(A)
No
Borrower shall permit any other Person to, (i) amend, modify or waive any term
or provision of such Borrower’s partnership agreement, certificate of limited
partnership, articles of incorporation, by-laws, articles of organization,
certificate of formation, limited liability company agreement, operating
agreement, or other organizational documents relating to any of the
representations, warranties or covenants of Article IX of this Loan Agreement or
this Section 5.20 or any other material term or provision of such Borrower’s
organizational documents unless required by law; or (ii) liquidate, terminate,
wind up or dissolve such Borrower; or (iii) merge with or consolidate such
Borrower into another Person.
(B)
No
Borrower shall cancel or otherwise forgive or release any material claim or debt
owed to such Borrower by any Person, except for adequate consideration or in the
ordinary course of such Borrower’s business.
(C)
No
Borrower shall enter into any agreement which expressly restricts the ability of
such Borrower to enter into amendments, modifications or waivers of any of the
Loan Documents.
(D)
No
Borrower shall assign or transfer any of its interest in any licenses, permits,
variances and certificates obtained by such Borrower and used in connection with
the ownership, operation, use or occupancy of any of the Properties (including,
without limitation, business licenses, state health department licenses,
licenses to conduct business and all such other permits, licenses and rights,
obtained from any Governmental Authority or private Person concerning ownership,
operation, use or occupancy of the Properties).
(E)
Except as
specifically permitted herein pursuant to Article XI hereof, no Borrower shall,
nor shall any Borrower permit or suffer any other Person on its behalf, to (i)
issue, sell, assign, pledge, convey, dispose or otherwise encumber any stock,
membership interest, partnership interest, or other equity or beneficial
interest in such Borrower or (ii) grant any options, warrants, purchase rights
or other similar agreements or understandings with respect thereto.
(F)
No
Borrower shall acquire by purchase or otherwise all or any part of the business
or assets of, or stock or other evidence of beneficial ownership of, any
Person.
Section 5.21
Transactions with Related
Persons
.
Except
for fees payable to Manager under the Management Agreement, no Borrower shall
pay any management, consulting, director or similar fees to any Related Person
of any Borrower or to any director or manager (other than any customary fees of
the Independent Director), officer or employee of any Borrower. No Borrower
shall directly or indirectly enter into or permit to exist any transaction
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Related Person of any Borrower or with any
director, officer or employee of any Borrower Party, except transactions in the
ordinary course of and pursuant to the reasonable requirements of the business
of such Borrower and upon fair and reasonable terms which are no less favorable
to such Borrower than would be obtained in a comparable arm’s length transaction
with a Person that is not a Related Person of such Borrower. No Borrower shall
make any payment or permit any payment to be made to any Related Person of
Borrower when or as to any time when any Event of Default shall
exist.
Section 5.22
ERISA
.
(A)
No ERISA
Plans
. No
Borrower shall establish any Employee Benefit Plan, Pension Plan or
Multiemployer Plan, or will commence making contributions to (or become
obligated to make contributions to) any Employee Benefit Plan, Pension Plan or
Multiemployer Plan.
(B)
Compliance with
ERISA
. No
Borrower shall: (i) engage in any Prohibited Transaction; or (ii) permit the
establishment of any Employee Benefit Plan providing post-retirement welfare
benefits or establish or amend any Employee Benefit Plan which establishment or
amendment could result in liability to any Borrower or any ERISA Affiliate or
increase the obligation of any Borrower. In addition to the prohibitions set
forth in Article XI hereof, and not in limitation thereof, no Borrower shall
Transfer its interest or rights in this Agreement or in any of the Properties,
or attempt to do any of the foregoing or suffer any of the foregoing, nor shall
any Person owning a direct or indirect interest in any Borrower Transfer any of
its rights or interest (direct or indirect) in any Borrower, attempt to do any
of the foregoing or suffer any of the foregoing, nor shall any Borrower or any
Person owning a direct or indirect interest in any Borrower take, without
limitation, any action or fail to take any action, if, in any such case, doing
so would (i) cause the Loan or the exercise of any of Lender’s rights in
connection therewith to constitute a Prohibited Transaction (unless Borrowers
furnish a legal opinion reasonably satisfactory to Lender that the same is
exempt from the Prohibited Transaction provisions or ERISA and the IRC or
otherwise does not constitute a Prohibited Transaction), assuming solely for
this purpose that Lender is a Party In Interest or a Disqualified Person with
respect to an employee benefit plan, if any, which has directly or indirectly
invested in any Borrower or Sole Member, or (ii) otherwise result in Lender
being deemed in violation of any applicable provisions of ERISA with respect to
the Loan. Each Borrower and Sole Member shall take such steps as are necessary
to assure that each of them (and their respective shareholders, partners and
members) does not commit any act, or fail to commit any act, the occurrence of
which or the failure of which to occur would cause the Loan to be Prohibited
Transaction.
(C)
No Plan
Assets
.
No Plan
Assets
. No
Borrower shall at any time during the term of this Loan Agreement become (1) an
employee benefit plan defined in Section 3(3) of ERISA which is subject to
ERISA, (2) a plan as defined in Section 4975(e)(1) of the IRC which is subject
to Section 4975 of the IRC, (3) a “governmental plan” within the meaning of
Section 3(32) of ERISA or (4) an entity any of whose underlying assets
constitute “plan assets” of any such employee benefit plan, plan or governmental
plan for purposes of Title I or ERISA, Section 4975 of the IRC or any state
statutes applicable to any Borrower regulating investments of governmental
plans. Borrowers shall deliver to Lender such certification or other evidence
from time to time throughout the term of the Loan, as reasonably requested by
Lender that the assets of each Borrower do not and will not constitute “plan
assets” for the purposes of Title I of ERISA of any “employee benefit plan” as
defined in Section 3 (3) of ERISA, which is subject to Title I or ERISA because
any Borrower is a Real Estate Operating Company as defined in the U.S.
Department of Labor Asset Regulation (29 C.F.R. 2510.3-101(e)). For so long as
any portion of the Loan is outstanding, each Borrower shall comply with all
requirements and take all actions necessary to maintain such Borrower’s status
as a “Real Estate Operating Company” under the U.S. Department of Labor Plan
Asset Regulations and to otherwise operate so as to continue to qualify as a
“Real Estate Operating Company” under the Plan Asset Regulations (29 C.F.R.
2510.3-101(e)) such that such Borrower will not be deemed to be an “employee
benefit plan” as defined in Section 3(3) of ERISA, which is subject to Title I
of ERISA, and the assets of such Borrower will not be deemed to constitute “plan
assets” of one or more such plans for the purposes of Title 1 of ERISA.
Notwithstanding the foregoing, for so long as long as any portion of the Loan is
outstanding, no transfer, restructuring, mergers or changes of control with
respect to any Borrower shall be permitted to the extent same would cause any
Borrower to no longer be a ‘Real Estate Operating Company’ under the Plan Asset
Regulations.
(D)
Indemnification
. If the
provisions of this Section 5.22 are violated, Borrowers agree, at their own cost
and expense, to take such steps Lender shall reasonably request to prevent the
occurrence of a Prohibited Transaction or to correct the occurrence of a
Prohibited Transaction. Borrowers agree, jointly and severally, to indemnify,
defend and hold the Indemnified Parties free and harmless from and against all
loss, costs (including, without limitation, reasonable attorney’s fees and
expenses), taxes, penalties, damages and expenses any Indemnified Party may
suffer by reason of the investigation, defense and settlement of claims based
upon a breach of the foregoing provisions. The foregoing indemnification shall
survive repayment of the Loan.
Section 5.23
Lender’s
Expenses
.
Borrowers shall pay, on demand by Lender, all reasonable expenses, charges,
costs and fees (including reasonable attorneys’ fees and expenses) in connection
with the negotiation, documentation, closing, administration, servicing,
enforcement, interpretation, and collection of the Loan and the Loan Documents,
and in the preservation and protection of Lender’s rights hereunder and
thereunder. Without limitation of the foregoing, the Borrowers shall pay all
costs and expenses, including reasonable attorneys’ fees, incurred by Lender in
any case or proceeding under Title 11 of the United States Code (or any law
succeeding or replacing any of the same). At the Closing, Lender is authorized
to pay directly from the proceeds of the Loan any or all of the foregoing
expenses then or theretofore incurred.
Section 5.24
Environmental Matters;
Inspection
.
(A)
Borrowers
shall not permit any Hazardous Materials to be present on, under or to emanate
from any of the Properties, or migrate from adjoining property controlled by any
Borrower onto or into any of the Properties, except under conditions permitted
by applicable Environmental Laws and, in the event that such Hazardous Materials
are present on, under or emanate from any of the Properties, or migrate onto or
into any of the Properties, Borrowers shall cause the removal or remediation of
such Hazardous Materials, in accordance with this Loan Agreement and
Environmental Laws (including, where applicable, the National Contingency Plan
promulgated pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act). Borrowers shall use their best efforts to prevent, and to
seek the remediation of, any migration of Hazardous Materials onto or into any
of the Properties from any adjoining property.
(B)
Upon
reasonable prior written notice, Lender shall have the right at all reasonable
times to enter upon and inspect all or any portion of any of the Individual
Properties, provided that such inspections shall not unreasonably interfere with
the operation or the tenants, residents or occupants of the applicable
Individual Property. If Lender has reasonable grounds to suspect that remedial
actions may be required, Lender shall notify Borrowers and, thereafter, may
select a consulting engineer to conduct and prepare reports of such inspections
(with notice to Borrowers prior to the commencement of such inspection).
Provided no Event of Default exists, Borrowers shall be given a reasonable
opportunity to review any reports, data and other documents or materials
reviewed or prepared by the engineer, and to submit comments and suggested
revisions or rebuttals to same. The inspection rights granted to Lender in this
Section 5.24 shall be in addition to, and not in limitation of, any other
inspection rights granted to Lender in this Loan Agreement, and shall expressly
include the right (if Lender suspects that remedial actions may be required) to
conduct soil borings, establish ground water monitoring wells and conduct other
customary environmental tests, assessments and audits.
(C)
Borrowers
agrees to bear and shall pay or reimburse Lender on demand for all sums advanced
and expenses incurred (including reasonable attorneys’ fees and disbursements,
but excluding internal overhead, administrative and similar costs of Lender)
reasonably relating to, or incurred by Lender in connection with, the
inspections and reports described in this Section 5.24 (to the extent such
inspections and reports relate to any of the Properties) in the following
situations:
(i)
If Lender
has reasonable grounds to believe, at the time any such inspection is ordered,
that there exists an occurrence or condition that could lead to an Environmental
Claim;
(ii)
If any
such inspection reveals an occurrence or condition that is reasonably likely to
lead to an Environmental Claim; or
(iii)
If an
Event of Default exists at the time any such inspection is ordered, and such
Event of Default relates to any representation, covenant or other obligation
pertaining to Hazardous Materials, Environmental Laws or any other environmental
matter.
Section 5.25
Environmental
Claims
.
Lender
may join and participate in, as a party if Lender so determines, any legal or
administrative proceeding or action concerning the Properties or any portion
thereof under any Environmental Law, if, in Lender’s reasonable judgment, the
interests of Lender shall not be adequately protected by Borrowers; provided,
however, that Lender shall not participate in day-to-day decision making with
respect to environmental compliance. Borrowers shall pay or reimburse Lender on
demand for all reasonable sums advanced and expenses incurred (including
reasonable attorneys’ fees and disbursements, but excluding internal overhead,
administrative and similar costs of Lender) incurred by Lender in connection
with any such action or proceeding.
Section 5.26
Environmental
Indemnification
.
Borrowers shall, jointly and severally, indemnify, reimburse, defend, and hold
harmless Lender and its parent, subsidiaries, Affiliates, shareholders,
directors, officers, employees, representatives, agents, successors, assigns and
attorneys (collectively, the “
Indemnified
Parties
”) for,
from, and against all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, costs and expenses (including, without limitation,
interest, penalties, reasonable attorneys’ fees, disbursements and expenses, and
reasonable consultants’ fees, disbursements and expenses (but excluding internal
overhead, administrative and similar costs of Lender)), asserted against,
resulting to, imposed on, or incurred by any Indemnified Party, directly or
indirectly, in connection with any of the following (except to the extent same
are directly and solely caused by the fraud, bad faith, gross negligence or
willful misconduct of any Indemnified Party:
(i)
events,
circumstances, or conditions which are alleged to, or do, form the basis for an
Environmental Claim;
(ii)
any
pollution or threat to human health or the environment that is related in any
way to any Borrower’s or any previous owner’s or operator’s management, use,
control, ownership or operation of any of the Properties (including, without
limitation, all on-site and off-site activities involving Hazardous Materials),
and whether occurring, existing or arising prior to or from and after the date
hereof, and whether or not the pollution or threat to human health or the
environment is described in the Environmental Reports;
(iii)
any
Environmental Claim against any Person whose liability for such Environmental
Claim any Borrower has or may have assumed or retained either contractually or
by operation of law; or
(iv)
the
breach of any representation, warranty or covenant set forth in Section 5.7 or
any of Sections 5.24 through 5.26, inclusive.
The
provisions of and undertakings and indemnification set forth in this Section
5.26 shall survive the satisfaction and payment of the Indebtedness and
termination of this Loan Agreement.
Section 5.27
Operation of
Properties
.
Borrowers shall cause the operation of each Individual Property to be conducted
at all times in a manner consistent with at least the level of operation of such
Individual Property as of the Closing Date for the Loan, including, without
limitation, the following:
(i)
to
maintain or cause to be maintained the standard of each Individual Property at
all times at a level not lower than that maintained by prudent managers of
similar facilities or land in the region where the Individual Property in
question is located;
(ii)
to
operate or cause to be operated each Individual Property in a prudent manner in
compliance in all material respects with applicable Legal Requirements and
Insurance Requirements relating thereto and maintain or cause to be maintained
all licenses, permits and any other agreements necessary for the continued use
and operation of the Individual Property in question; and
(iii)
to
maintain or cause to be maintained sufficient inventory, equipment and other
personal property of types and quantities at each Individual Property to enable
Borrowers to operate the Individual Property in question and to comply with all
Leases affecting such Individual Property.
Section 5.28
Taxes on
Security
.
Borrowers shall pay all taxes, charges, filing, registration and recording fees,
excises and levies payable with respect to the Note or the Lien created or
secured by the Loan Documents, other than income, franchise, doing business and
other analogous taxes imposed on Lender. If there shall be enacted any law (1)
deducting the Loan from the value of the Collateral for the purpose of taxation,
(2) affecting Lender’s Lien on the Collateral or (3) changing existing laws of
taxation of mortgages, deeds of trust, security deeds, or debts secured by
realty, or changing the manner of collecting any such taxes, then Borrowers
shall promptly pay to Lender, on demand, all taxes, costs and charges for which
Lender is or may be liable as a result thereof; provided, however, if such
payment would be prohibited by law or would render the Loan usurious, then
instead of collecting such payment, Lender may declare all amounts owing under
the Loan Documents to be immediately due and payable.
Section 5.29
Cooperate in Legal
Proceedings
.
Borrowers shall reasonably cooperate with Lender with respect to any proceedings
before any Governmental Authority which may in any way materially affect the
rights of Lender hereunder or any rights obtained by Lender under any of the
Loan Documents and, in connection therewith, shall not prohibit Lender, at its
election, from participating in any such proceedings.
Section 5.30
Insurance
Benefits
.
Borrowers shall reasonably cooperate with Lender in obtaining for Lender the
benefits of any insurance proceeds lawfully or equitably payable to Lender in
connection with any of the Properties. Lender shall be reimbursed for any
expenses reasonably incurred in connection therewith (including reasonable
attorneys’ fees and disbursements and the payment by the Borrowers of the
expense of an appraisal on behalf of Lender in case of a fire or other casualty
affecting any of the Properties or any part thereof, but excluding internal
overhead, administrative and similar costs of Lender) out of such insurance
proceeds, all as more specifically provided in this Loan Agreement.
Section 5.31
Prohibited
Persons
.
Borrowers covenant and agree that none of Borrowers, Guarantor, nor any of their
respective Affiliates, officers, directors, partners or members will knowingly:
(i) conduct any business, nor engage in any transaction or dealing, with any
Prohibited Person, including, but not limited to, the making or receiving of any
contribution of funds, goods, or services, to or for the benefit of a Prohibited
Person; or (ii) engage in or conspire to engage in any transaction that evades
or avoids, or has the purpose of evading or avoiding, or attempts to violate,
any of the prohibitions set forth in EO13224. Borrowers further covenant and
agree to deliver (from time to time) to Lender any such certification or other
evidence as may be requested by Lender in its sole and absolute discretion,
confirming that: (x) none of Borrowers, Guarantor, nor their respective
officers, directors, partners, members or Affiliates is a Prohibited Person; and
(y) none of Borrowers, Guarantor, nor their respective officers, directors,
partners, members or Affiliates has to its knowledge engaged in any business
transaction or dealings with a Prohibited Person, including, but not limited to,
the making or receiving of any contribution of funds, goods, or services, to or
for the benefit of a Prohibited Person.
ARTICLE VI
RESERVES
Section 6.1
Security Interest in
Reserves; Other Matters Pertaining to Reserves
.
(A)
Each
Borrower hereby pledges, assigns and grants to Lender a security interest in and
to all of such Borrower’s right, title and interest in and to the Reserves, as
security for payment and performance of all of the Obligations hereunder and
under the Note and the other Loan Documents. The Reserves constitute Account
Collateral and are subject to the security interest in favor of Lender created
herein and all provisions of this Loan Agreement and the other Loan Documents
pertaining to Account Collateral.
(B)
In
addition to the rights and remedies provided in Article VII and elsewhere
herein, upon the occurrence of any Event of Default, Lender shall have all
rights and remedies pertaining to the Reserves as are provided for in any of the
Loan Documents or under any applicable law. Without limiting the foregoing, upon
and at all times after the occurrence and during the continuance of any Event of
Default, Lender in its sole and absolute discretion, may use the Reserves (or
any portion thereof) for any purpose, including but not limited to any
combination of the following: (i) payment of any of the Obligations including
the Prepayment Consideration applicable upon such payment in such order as
Lender may determine in its sole discretion;
provided
,
however
, that
such application of funds shall not cure or be deemed to cure any default; (ii)
reimbursement of Lender for any losses or expenses (including, without
limitation, reasonable legal fees) suffered or incurred as a result of such
Event of Default; (iii) payment for the work or obligation for which such
Reserves were reserved or were required to be reserved; and (iv) application of
the Reserves in connection with the exercise of any and all rights and remedies
available to Lender at law or in equity or under this Loan Agreement or pursuant
to any of the other Loan Documents.
Section 6.2
Funds Deposited with
Lender
.
(A)
Interest,
Offsets
. Except
only as expressly provided otherwise herein, all funds of any Borrower which are
deposited with Lender as Reserves hereunder shall be held by Lender in one or
more Permitted Investments. Lender is authorized to commingle any of the
Reserves with each other and with any other funds held by Lender. All interest
which accrues on the Reserves shall be taxable to Borrowers and shall be added
to and disbursed in the same manner and under the same conditions as the
principal sum on which said interest accrued. Additional provisions pertaining
to investments are set forth in Article VII.
(B)
Funding at
Closing
.
Borrowers shall deposit with Lender the amounts necessary to fund each of the
Reserves as set forth below. Deposits into the Reserves at Closing may occur by
deduction from the amount of the Loan that otherwise would be disbursed to
Borrowers, followed by prompt deposit of the same into the applicable
Sub-Account of the Deposit Account in accordance with the terms hereof.
Notwithstanding such deductions, the Loan shall be deemed for all purposes to be
fully disbursed at Closing.
Section 6.3
Impositions and Insurance
Reserve
.
On the
Closing Date, Borrowers shall deposit with Lender (or such agent of Lender as
Lender may designate in writing to Borrowers from time to time) $___________,
and thereafter Borrowers shall deposit with Lender monthly, on each Payment Date
commencing with the First Payment Date, 1/12th of the annual charges (as
estimated by Lender) for all Impositions and Insurance Premiums payable with
respect to the Properties hereunder (said funds, together with any interest
thereon and any additions thereto, the “
Impositions and Insurance
Reserve
”).
Borrowers shall also deposit with Lender on demand, to be added to and included
within such reserve, a sum of money which Lender reasonably estimates, together
with such monthly deposits, will be sufficient to make the payment of each such
charge at least thirty (30) days prior to the date initially due. Borrowers
shall provide Lender with bills and all other documents necessary for the
payment of the foregoing charges at least thirty (30) days prior to the date on
which each payment shall first become due. So long as (i) no Event of Default
has occurred and is continuing, (ii) Borrowers have provided Lender with the
foregoing bills and other documents in a timely manner, and (iii) sufficient
funds are held by Lender for the payment of the Impositions and Insurance
Premiums (if applicable) relating to the Properties, Lender shall pay said items
or disburse to Borrowers from such Reserve amounts sufficient to pay said
items.
Section 6.4
Replacement
Reserve
.
Borrowers shall deposit with Lender monthly, on each Payment Date commencing
with the First Payment Date, $25,425 for the purpose of creating a reserve for
Capital Expenditures (said funds, together with any interest thereon and
additions thereto, the “
Replacement
Reserve
”). The
funds contained in the Replacement Reserve shall be utilized solely to reimburse
Borrowers for the actual bona fide out-of-pocket cost of Capital Expenditures
performed during the term of the Loan in accordance with the schedule of
permitted capital expenditures attached hereto as
Schedule
6.4
, or for
such other Capital Expenditures as are approved by Lender for disbursements from
the Replacement Reserve (“
Approved Capital
Expenditures
”), and
shall not be used by any Borrower for purposes for which any other Reserve is
established. Upon Borrowers’ written request for disbursement, Lender shall
disburse funds from the Replacement Reserve to or for the account of Borrowers,
to reimburse Borrowers for such Approved Capital Expenditures, on the Payment
Date following such request, upon satisfaction of each of the conditions listed
on
Schedule
6.6
and each
of the conditions set forth in Section 6.6.
Section 6.5
Security
Deposits
.
(A)
To the
extent any of the Borrowers elect to collect Security Deposits, such Security
Deposits shall be held by each such Borrower in a segregated account at the
Clearing Account Bank and disbursed by such Borrower in accordance with the
terms of the applicable Lease and all Legal Requirements.
(B)
If any
tenant under any Lease with respect to which Lender holds a Security Deposit
defaults such that the Security Deposit is to be drawn upon on account of such
default, Borrower shall promptly deposit such Security Deposit into the Clearing
Account and such Security Deposit shall be included as a Receipt.
(C)
Upon the
occurrence of an Event of Default, Borrowers or Manager shall deposit all
Security Deposits being held or received by Borrowers or Manager into the
Deposit Account for allocation to the Security Deposit Sub-Account.
Section 6.6
Conditions to Disbursements
from the Replacement Reserve; Performance of Work
.
(A)
Disbursements from the
Replacement Reserve
. Upon
Borrowers’ request for disbursement, Lender shall disburse funds from the
Replacement Reserve to or for the account of Borrowers, to reimburse Borrowers
for Approved Capital Expenditures (the “
Approved
Expenditures
”; and
the related Capital Expenditures to which any such request for disbursement
relates shall be referred to as the “
Work
”), on
the Payment Date following such request, upon satisfaction of each of the
conditions listed on
Schedule
6.6
and each
of the conditions set forth below:
(i)
Except as
provided in this Section 6.6, each request for disbursement from the Replacement
Reserve shall be made only after completion of the Approved Expenditures for
which disbursement is requested.
(ii)
If (1)
the cost of a particular item of the Approved Expenditures exceeds $25,000, (2)
the contractor performing such item of the Approved Expenditures requires
periodic payments pursuant to the terms of a written contract, and (3) Lender
has approved in writing in advance such periodic payments (such approval not to
be unreasonably withheld or delayed), a request for disbursement from the
Replacement Reserve may be made after completion of a portion of the work under
such contract, provided (v) such contract requires payment upon completion of
such portion of the work, (w) the materials for which the request is made are on
site at the Individual Property at which the Work is performed and are properly
secured or have been installed in such Individual Property, (x) all other
conditions in this Loan Agreement for disbursement have been satisfied, (y)
funds remaining in the Replacement Reserve together with the amounts that are
scheduled to be deposited therein by Borrowers are, in Lender’s reasonable
judgment, sufficient to complete such item of Approved Capital Expenditures, and
(z) if required by Lender, each contractor or subcontractor receiving payments
under such contract shall provide a waiver of lien with respect to amounts which
have been paid to that contractor or subcontractor.
(iii)
Each
disbursement from the Replacement Reserve, except for a final disbursement,
shall be in the amount of actual costs incurred for completed Work (as certified
by an Approved Architect) less a retainage equal to ten percent (10%) of such
costs incurred until such Work has been completed. The retainage shall in no
event be less than the percentage of such costs that the contract with the
relevant contractor or supplier specifies to be retained and advanced as part of
the final disbursement. No funds will be advanced for materials stored at any
Individual Property unless such materials are properly stored and secured at
such Individual Property in accordance with the Borrowers’ customary procedures
and sound construction practices as reasonably determined by Lender. The
retainage shall not be released until the Approved Architect certifies to Lender
that the Work has been completed substantially in accordance with the provisions
of this Section 6.6 and that all material approvals necessary for occupancy and
use of the subject leased space at the applicable Individual Property have been
obtained from all appropriate Governmental Authorities, and Lender receives
evidence reasonably satisfactory to Lender that the costs of the Work have been
paid in full or will be paid in full out of the retainage.
(iv)
The
amount of all invoices in connection with the Work with respect to which a
disbursement is requested and which has been approved by Lender shall be
disbursed by Lender either directly to Borrowers (in which event, Borrowers
covenant and agree to promptly pay such invoices) or, if an Event of Default has
occurred and is continuing, at Lender’s option and in Lender’s sole and absolute
discretion, directly to the contractor, supplier, materialman, mechanic or
subcontractor indicated on said invoices unless already paid by Borrowers and
Lender has received satisfactory evidence of such payment in which case Lender
shall reimburse Borrowers. In the event that Borrowers request that any amounts
be disbursed directly to Borrowers pursuant to the foregoing sentence, Borrowers
shall be required to deliver evidence reasonably acceptable to Lender of payment
of all invoices for which disbursements were previously made to Borrowers as a
condition to such requested disbursement.
(v)
No more
than one disbursement will be made by Lender from the Replacement Reserve in any
calendar month, and no disbursement will be made on any day other than a Payment
Date. Lender shall not be required to make any disbursement from the Replacement
Reserve with respect to any Individual Property unless such requested
disbursement is in an amount equal to or greater than $10,000.
(vi)
Lender
reserves the right, at its option and as a condition to any disbursement from
the Replacement Reserve, to approve (1) all drawings and plans and
specifications, if any, for any Work which require aggregate payments in amounts
exceeding $25,000, and (2) all contracts and work orders with materialmen,
mechanics, suppliers, subcontractors, contractors and other parties providing
labor or materials in connection with any Work which require aggregate payments
in amounts exceeding $25,000. Any such approval shall not be unreasonably
withheld, conditioned or delayed and shall be deemed given if Lender fails to
respond within ten (10) Business Days after Lender receives all information
reasonably required to adequately review such drawings, plans and
specifications, contracts or work orders.
(vii)
For any
Work which requires aggregate payments in amounts exceeding $25,000 or is
structural in nature or relates to the fire life safety systems at any of the
Individual Properties, Lender may require an inspection of the applicable
Individual Property prior to making a monthly disbursement from the Replacement
Reserve in order to verify completion of the Work for which disbursement is
sought. Lender may require that such inspection be conducted by an appropriate
independent qualified architect or engineer selected by Lender and/or may
require a copy of a certificate of completion by an independent qualified
architect or engineer licensed in the state where the applicable Individual
Property is located and otherwise acceptable to Lender prior to the disbursement
of any amounts from the Replacement Reserve. Borrowers shall pay the reasonable,
out-of-pocket expense of such inspections as required hereunder, whether such
inspections are conducted by Lender or by an independent qualified professional,
up to a maximum of four (4) such inspections during any calendar year. If Lender
should require more than four (4) such inspections during any calendar year,
unless an Event of Default has occurred during such calendar year, the expense
of each additional inspection in any calendar year (over the four maximum) shall
be borne by Lender.
(B)
Performance of
Work
.
(i)
Borrowers
shall complete all Work in a good and workmanlike manner as soon as practicable
following the commencement thereof in accordance with all Legal Requirements.
The insufficiency of the balance in the Replacement Reserve shall not relieve
Borrowers from its obligation to perform and complete the related Work as herein
provided or to fulfill all other preservation and maintenance covenants in the
Loan Documents.
(ii)
In the
event Lender determines in its reasonable discretion that any Work is not being
performed in a workmanlike or timely manner or that any Work has not been
completed in a workmanlike manner, Lender shall have the option to withhold
disbursement for such unsatisfactory work and so notify Borrowers with
reasonable detail regarding the basis for Lender’s dissatisfaction and, after
the expiration of thirty (30) days from the giving of such notice by Lender to
Borrowers of such unsatisfactory work without the cure thereof (or, if such
unsatisfactory work is susceptible of a cure but cannot reasonably be cured
within said thirty (30) day period and provided that Borrowers shall have
commenced to cure such unsatisfactory work within said thirty (30) day period
and thereafter diligently and expeditiously proceeds to cure the same, after the
expiration of such longer period as is reasonably necessary for Borrowers in the
exercise of due diligence to cure such unsatisfactory work, up to a maximum of
an additional sixty (60) days, without the cure thereof), Lender may proceed
under existing contracts or contract with third parties to complete such Work,
as the case may be, and apply amounts contained in the Replacement Reserve
toward the labor and materials necessary to complete the same, without providing
any additional prior notice to Borrowers, and exercise any and all other
remedies available to Lender upon and during the continuance of an Event of
Default hereunder.
(iii)
In order
to facilitate Lender’s completion or making of any Work pursuant to Section
6.6(B)(ii) above, Borrowers grant Lender the right to enter onto the Properties
after the expiration of the notice specified above and perform any and all work
and labor necessary to complete the applicable Work and/or employ watchmen to
protect the Properties from damage. All sums so expended by Lender shall be
deemed to have been advanced under the Loan to Borrowers and secured by the
Mortgages. For this purpose, each Borrower constitutes and appoints Lender its
true and lawful attorney-in-fact with full power of substitution to complete or
undertake the applicable Work in the name of such Borrower pursuant to Section
6.6(B)(ii) above. Such power of attorney shall be deemed to be a power coupled
with an interest and cannot be revoked. Each Borrower empowers said
attorney-in-fact as follows: (1) to use any funds in the Replacement Reserve for
the purpose of making or completing any Work; (2) to make such additions,
changes and corrections to any Work as shall be reasonably necessary or
desirable to complete the same; (3) to employ such contractors, subcontractors,
agents, architects and inspectors as shall be required for such purposes; (4) to
pay, settle or compromise all existing bills and claims which are or may become
Liens against any of the Properties, or as may be necessary or desirable for the
completion of any Work, or for clearance of title; (5) to execute all
applications and certificates in the name of such Borrower which may be required
by any of the contract documents; (6) in its reasonable discretion, to prosecute
and defend all actions or proceedings in connection with the Properties or the
rehabilitation and repair of the Properties; and (7) to do any and every act
which such Borrower might do in its own behalf to fulfill the terms of this Loan
Agreement.
(iv)
Nothing
in this Section shall: (1) make Lender responsible for making or completing any
Work; (2) require Lender to expend funds in addition to the amounts on deposit
in the Replacement Reserve to make or complete any Work; (3) obligate Lender to
proceed with any Work; or (4) obligate Lender to demand from any Borrower
additional sums to make or complete any Work.
(v)
Borrowers
shall permit Lender and Lender’s agents and representatives (including, without
limitation, Lender’s engineer, architect or inspector) or third parties
performing any Work pursuant to this Section 6.6 to enter onto the Properties
during normal business hours upon reasonable prior notice (subject to the rights
of tenants under their Leases) to inspect the progress of any Work and all
materials being used in connection therewith, to examine all plans and shop
drawings relating thereto which are or may be kept at the Properties, and to
complete any Work made pursuant to Section 6.6(B)(ii). Borrowers shall cause all
contractors and subcontractors to cooperate with Lender or Lender’s
representatives or such other persons described above in connection with
inspections described in this Section 6.6(B) or the completion of the Work
pursuant to this Section 6.6(B).
(vi)
All Work
and all materials, equipment, fixtures and any other item comprising a part
thereof shall be constructed, installed or completed, as applicable, free and
clear of all mechanic’s, materialman’s or other liens (except for the Permitted
Encumbrances).
(vii)
All Work
performed at an Individual Property shall comply with all applicable legal
requirements of all Governmental Authorities having jurisdiction over such
Individual Property and applicable insurance requirements, including, without
limitation, applicable building codes, special use permits, environmental
regulations and requirements of insurance underwriters.
(C)
Indemnification
.
Borrowers shall, jointly and severally, indemnify Lender and hold Lender
harmless from and against any and all actions, suits, claims, demands,
liabilities, losses, damages, obligations, costs and expenses (including,
without limitation, litigation costs and reasonable attorneys fees and expenses)
arising from or in any way connected with the performance of the Work, except to
the extent caused by the bad faith, willful misconduct or gross negligence of
Lender. Each Borrower shall assign to Lender all rights and claims such Borrower
may have against all Persons supplying labor or materials in connection with the
Work;
provided
,
however
, that
Lender may not pursue any such right or claim unless an Event of Default has
occurred and remains uncured.
Section 6.7
Completion/Repair
Reserve
.
At
Closing, Borrowers shall reserve from the proceeds of the Loan and shall deposit
with Lender (or such agent of Lender as Lender may designate in writing from
time to time), an amount equal to $850,527 (said funds, together with any
interest thereon and additions thereto, the “
Completion/Repair
Reserve
”) for
certain work related to immediate physical repairs required on the Properties as
indicated in the Property Condition Reports and/or Environmental Reports for the
Individual Properties prepared and delivered prior to the Closing and as such
work is more particularly described on
Schedule
6.7
(the
“
Immediate
Repairs
”).
Within 120 days after the Closing, Borrowers shall complete such Immediate
Repairs and shall provide to Lender such documentation, and other evidence of
compliance with law as Lender may reasonably require. The funds contained in the
Completion/Repair Reserve shall be utilized by Borrowers solely for performance
of the Immediate Repairs in accordance with the recommendations of the Property
Condition Reports or Environmental Reports, as applicable, and in accordance
with Lender’s reasonable requirements with respect to such Immediate Repairs,
and shall not be used by any Borrower for purposes for which any other Reserve
is established. Upon written application of Borrowers, Borrowers shall be
entitled to draw upon the Completion/Repair Reserve to pay for costs that have
been incurred by Borrowers for such Immediate Repairs, provided that (i) no
Event of Default has occurred and is continuing, (ii) Borrowers shall provide to
Lender such documentation and certifications as Lender may reasonably request to
substantiate the requirement for and entitlement to such disbursement, (iii)
Borrowers shall provide Lender with all invoices, receipts, lien waivers and
other documentation of lawful and workmanlike progress or completion, lien-free
status, and availability of sufficient funds, all as may be reasonably requested
by Lender, and (iv) Borrowers shall provide Lender such evidence as may be
reasonably satisfactory to Lender that after payment of any draw for Immediate
Repairs, the funds remaining in such Reserve shall be sufficient to pay for the
remainder of such Immediate Repairs. Subject to the foregoing conditions,
Borrowers shall be entitled to draw any remaining balance in the
Completion/Repair Reserve when all such Immediate Repairs have been completed to
Lender’s reasonable satisfaction and have been paid for.
ARTICLE VII
DEPOSIT ACCOUNT; CASH
MANAGEMENT
Section 7.1
Establishment of
Accounts
.
(A)
Clearing Account/Deposit
Account
.
Borrowers acknowledge and confirm that, on or before the Closing Date and
pursuant to the terms hereof, Borrowers have established and will maintain (i)
one or more an Eligible Accounts for the benefit of the Lender, as secured party
hereunder, to serve (collectively, if more than one) as the “Clearing Account”
(said account(s), and any account(s) replacing the same in accordance with this
Loan Agreement, the “
Clearing
Account
”; and
the depositary institution in which the Clearing Account is maintained is
referred to as the “
Clearing Account
Bank
”) and
(ii) an Eligible Account for the benefit of Lender, as secured party hereunder,
to service as the “Deposit Account” (said account, and any account replacing the
same in accordance with this Loan Agreement, the “
Deposit
Account
”; and
the depositary institution in which the Deposit Account is maintained, the
“
Deposit Account
Bank
”; the
Clearing Account Bank and the Deposit Account Bank are sometimes collectively
referred to herein as the “
Account
Banks
”). The
Clearing Account and the Deposit Account shall be under the sole dominion and
control of Lender (which dominion and control may be exercised by Servicer); and
except as expressly provided hereunder, Borrowers shall have no rights to
control or direct the investment or payment of funds therein. Lender may elect
to change any financial institution in which any of the Clearing Account and/or
the Deposit Account shall be maintained. The Deposit Account shall be deemed to
contain such sub-accounts as Lender may designate (“
Sub-Accounts
”), which
may be maintained as separate ledger accounts and need not be separate Eligible
Accounts. The Sub-Accounts shall include the following:
(i)
“
Debt Service
Sub-Account
” shall
mean the Sub-Account of the Deposit Account established for the purposes of
reserving for payments of the Monthly Debt Service Payments and other amounts
due Lender under the Loan Documents.
(ii)
“
Reserve
Sub-Accounts
” shall
mean the Sub-Accounts of the Deposit Account established for the purpose of
holding funds in the Reserves including: (a) the “
Impositions and Insurance
Reserve Sub-Account
” (which
shall hold the Impositions and Insurance Reserve); (b) the “
Replacement Reserve
Sub-Account
” (which
shall hold the Replacement Reserve); (c) the “
Completion/Repair Reserve
Sub-Account
” (which
shall hold the Completion/Repair Reserve); and (d) “
Supplemental Debt Reserve
Sub-Account
”.
(iii)
“
Operating Expenses
Sub-Account
” shall
mean the Sub-Account of the Deposit Account established for the purposes of
reserving for payments for Operating Expenses.
(iv)
“
Security Deposit
Sub-Account
” shall
mean the Sub-Account of the Deposit Account established for the purpose of
holding Security Deposits.
(B)
Account
Name
. The
Accounts shall each be in the name of Lender, as secured party, or, at Lender’s
option, in the name of the Borrowers for the benefit of Lender, as secured
party; provided, however, that in the event Lender transfers or assigns the
Loan, the Account Banks, at Lender’s request, shall change the name of each
Account or the beneficiary thereof to the name of the transferee or assignee. In
the event Lender retains a Servicer to service the Loan, the Account Banks, at
Lender’s request, shall change the name of each Account or the beneficiary
thereof to the name of Servicer, as agent for Lender.
(C)
Eligible
Accounts/Characterization of Accounts
.
Borrowers and Clearing Account Bank shall maintain the Clearing Account as an
Eligible Account, and Borrowers and Deposit Account Bank shall maintain each the
Deposit Account and each Sub-Account as an Eligible Account. Each Account is and
shall be treated as a “securities account” as such term is defined in Section
8-501(a) of the UCC or a “deposit account” as such term is defined in Section
9-102(a)(29) of the UCC, as the context may require. Each item of property
(whether investment property, financial asset, securities, instrument, cash or
other property) credited to each Account shall be treated as a “financial asset”
within the meaning of Section 8-102(a)(9) of the UCC. Borrowers agree that each
Account Bank shall, subject to the terms of this Agreement, treat Lender as
entitled to exercise the rights that comprise any financial asset credited to
each Account. All securities or other property underlying any financial assets
credited to each Account (other than cash) shall be registered in the name of
the applicable Account Bank, indorsed to the applicable Account Bank or in blank
or credited to another securities account maintained in the name of the
applicable Account Bank and in no case will any financial asset credited to any
Account be registered in the name of any Borrower, payable to the order of any
Borrower or specially indorsed to any Borrower.
(D)
Permitted
Investments
. Sums on
deposit in the Accounts shall not be invested except in Permitted Investments.
Funds in the Clearing Account shall not bear interest or be subject to
investment. Except during the existence of any Event of Default, Borrowers shall
have the right to direct Deposit Account Bank to invest sums on deposit in the
Deposit Account (including the Sub-Accounts) in Permitted Investments approved
by the Deposit Account Bank; provided, however, in no event shall Borrowers
direct Deposit Account Bank to make a Permitted Investment if the maturity date
of that Permitted Investment is later than the date on which the invested sums
are required for payment of an obligation for which the Account was created.
After an Event of Default and during the continuance thereof, Lender may direct
the Deposit Account Bank to invest sums on deposit in the Deposit Account
(including the Sub-Accounts) in Permitted Investments as Lender shall determine
in its sole discretion. Each Borrower hereby irrevocably authorizes and directs
the Deposit Account Bank to apply any income earned from Permitted Investments
to the respective Accounts. The amount of actual losses sustained on a
liquidation of a Permitted Investment shall be deposited into the Deposit
Account by Borrowers no later than one (1) Business Day following such
liquidation to the extent required to meet current obligations. Borrowers shall
be responsible for payment of any federal, state or local income or other tax
applicable to income earned from Permitted Investments. The Accounts shall be
assigned the federal tax identification numbers of Borrowers. Any interest,
dividends or other earnings which may accrue on the Accounts shall be added to
the balance in the applicable Account and allocated and/or disbursed in
accordance with the terms hereof; provided that any interest, dividends or other
earnings from funds deposited as part of the Impositions and Insurance Reserve
shall be retained by Lender or its designee (such as the Servicer) as its
property and supplemental compensation.
Section 7.2
Deposit of Receipts into the
Clearing Account and the Deposit Account
.
Borrowers shall and shall cause Manager to direct any and all Rents and other
Receipts to be deposited promptly into the Clearing Account and in no event
later than two (2) Business Days after the same are paid to or for the benefit
of Borrowers. To the extent that Borrowers or any Person on any Borrower’s
behalf holds any Receipts or Security Deposits, whether in accordance with this
Loan Agreement or otherwise, (i) such amounts shall be deemed to be Collateral
and shall be held in trust for the benefit, and as the property, of Lender, (ii)
such amounts shall not be commingled with any other funds or property of
Borrowers or Manager, and (iii) Borrowers or Manager shall deposit such amounts
in the Clearing Account within two (2) Business Days of receipt. So long as the
Loan shall be outstanding, neither Borrowers nor Manager shall open any other
property accounts other than the Operating Account and the other Accounts for
the deposit of Rent, Security Deposits or revenues from the Properties.
Borrowers represent, warrant and covenant that there are no other accounts
maintained by Borrowers or Manager into which revenues from the ownership and
operation of the Properties are deposited.
Section 7.3
Application of Funds in
Accounts
.
(A)
Allocations
. If any
Event of Default shall occur and be continuing, then notwithstanding anything to
the contrary in this Section or elsewhere, Lender shall have all rights and
remedies available under applicable law and under the Loan Documents. Prior to
the occurrence of a Cash Trap Condition, Borrower shall be permitted pursuant to
the Clearing Account Agreement to access and direct the withdrawal and
disposition of funds in the Clearing Account. Upon and after the occurrence of a
Cash Trap Condition and unless and until a Cash Trap Cure with respect thereto,
Lender may direct the Clearing Account Bank to transfer all funds deposited in
to the Clearing Account into the Deposit Account on a daily basis, and Lender
shall direct the Deposit Account Bank to allocate all available funds on deposit
in the Deposit Account (other than those previously allocated to Sub-Accounts,
and excepting any Rent that is paid more than one (1) month in advance, which
shall be retained in the Deposit Account until payment thereof is due under the
applicable Lease) on each Payment Date in the following amounts and order of
priority:
(i)
First, to
the Impositions and Insurance Reserve Sub-Account in the amount of the monthly
deposit required to be made into the Impositions and Insurance Reserve pursuant
to Section 6.3 hereof on such Payment Date;
(ii)
Second,
to the Debt Service Sub-Account in the amount of the Monthly Debt Service
Payment due on such Payment Date, for application on such Payment Date in
accordance with Section 2.4(A) hereof;
(iii)
Third, to
Lender to pay any other amounts, if any, then due Lender under the Loan
Documents;
(iv)
Fourth,
to the Replacement Reserve Sub-Account in the amount of the monthly deposit
required to be made into the Replacement Reserve pursuant to Section 6.4 hereof
on such Payment Date;
(v)
Fifth, an
amount equal to the applicable monthly operating expenses (other than repairs,
replacements and capital expenditures, unless specifically approved by Lender
for purposes of disbursements) provided in the Approved Operating Budget (or
such other amount as shall be approved by Lender) shall be transferred to the
Operating Expenses Sub-Account under the control of Lender; and
(vi)
Sixth,
all available amounts on each Payment Date after allocation for items (i)
through (v) above shall be deposited into the Supplemental Debt Reserve
Sub-Account and held as additional collateral for the Obligations.
(B)
Cure of Cash Trap
Condition
. So long
as no Event of Default exists, a Cash Trap Condition occurring due to a Debt
Service Coverage Ratio of less than the Minimum DSCR Threshold shall be deemed
cured if the Properties achieve a Debt Service Coverage Ratio of not less than
the Minimum DSCR Ratio for two consecutive Calendar Quarters after the
occurrence of the Cash Trap Condition, measured at the end of each such two
consecutive Calendar Quarters (each a “
Cash Trap
Cure
”). From
and after a Cash Trap Cure and until the occurrence of a subsequent Cash Trap
Condition, if any, Lender shall direct the Deposit Account Bank to disburse any
balance in the Supplemental Debt Reserve Sub-Account to Borrower.
(C)
Required
Payments
.
Borrowers shall in all events be required to pay when due hereunder the Monthly
Debt Service Payments, any required monthly deposits into Reserves and all other
amounts due under this Loan Agreement and the other Loan Documents, regardless
of whether funds are deposited or held in sufficient amount in the Deposit
Account or any other Accounts for such payments.
(D)
Operating Expenses
Disbursements
. Funds
deposited into the Operating Expenses Sub-Account on or prior to any Payment
Date shall be disbursed to Borrowers on or promptly following such Payment Date,
and Borrowers shall use such funds for the payment of Operating Expenses and
Capital Expenditures approved by Lender and not funded by the Replacement
Reserve, in accordance with the Approved Operating Budget, provided, that Lender
may require compliance with reasonable conditions prior to disbursement of
amounts for Operating Expenses held in the Operating Expenses Sub-Account
including, without limitation, the following:
(i)
Borrowers
shall submit a request for payment not more frequently than twice per calendar
month, which request shall include invoices, receipts, comparison with the
Approved Operating Budget and other evidence reasonably required by Lender with
respect to the Operating Expenses or other permitted expenditures which are the
subject of such request;
(ii)
Such
request for payment shall be signed by Borrowers, certifying that the requested
funds are to be used to pay Operating Expenses in accordance with the Approved
Operating Budget for the Properties and for no other purpose, and that all
information in such request is true and complete;
(iii)
Such
request shall include a line-item accounting comparing Operating Expenses
incurred in the subject month and on a year-to-date basis with the Approved
Operating Budget;
(iv)
There
shall be sufficient funds for such disbursement in the Operating Expense
Sub-Account;
(v)
Lender
shall have received evidence reasonably satisfactory to Lender, and Lender shall
have determined that sufficient funds will be available for unincurred or
unfunded remaining Operating Expenses in the Approved Operating Budget for such
calendar month and any additional expenses then reasonably foreseen (and in the
case of an imbalance, Lender may require a deposit of additional funds in the
amount of the shortfall); and
(vi)
At
Lender’s option, Lender may issue payment directly to Borrowers or to
Manager.
(E)
Event of
Default
.
Notwithstanding anything herein to the contrary, upon the occurrence and during
the continuance of an Event of Default, all funds on deposit in the Clearing
Account, the Deposit Account and/or the Sub-Accounts shall be disbursed to or as
directed by Lender. Without in any way limiting the foregoing or Lender’s rights
and remedies upon an Event of Default, and subject to Lender’s direction
otherwise from time to time, in whole or in part, in Lender’s sole and absolute
discretion, after and during the continuance of an Event of Default Lender may
direct the Account Banks to allocate all available funds on deposit in the
Clearing Account and the Deposit Account, or any of them to: (a) any debt
service or other Obligation due under this Loan Agreement or the other Loan
Documents; (b) any reserve account or sub-account established under this Loan
Agreement for, or otherwise as a reserve for, operating expenses, taxes,
insurance, capital expenses, costs and expenses of maintenance, repairs and
restoration, and other expenditures relating to the use, management, operation
or leasing of the Properties; and/or (c) any costs and expenses incurred by
Lender in connection with such Event of Default, or expended by Lender to
protect or preserve the value of the Properties.
Section 7.4
Budget
Approvals
.
No later
than thirty (30) days prior to the expiration of each calendar year, Borrowers
shall deliver to Lender the proposed Operating Budget and the Capital
Expenditure Budget (in each case presented on a monthly and annual basis) for
the Properties for the following calendar year. Each such proposed Operating
Budget shall identify and set forth Borrowers’ best estimate, after due
consideration, of all revenue, costs, and expenses for the Properties, and shall
specify gross revenues and Operating Expenses. The Capital Expenditure Budget
shall identify and set forth Borrowers’ best estimate, after due consideration,
of all costs and expenses contemplated to be necessary in the related budget
year (and, as to projects initiated or to be initiated in or prior to the budget
year but not completed in the budget year, the estimated cost and completion
schedule) for capital improvements and leasehold improvements, leasing
commissions and other leasing costs not included in the Operating Budget, and
the contemplated sources of payment of the same. In the event that either a Cash
Trap Condition or an Event of Default exists, the Operating Budget shall be
subject to Lender’s reasonable approval, and upon such approval shall, with any
amendments thereto approved by Lender from time to time, constitute the
“
Approved Operating
Budget
”
hereunder. Borrower shall provide a proposed Approved Operating Budget to Lender
for the then-remaining calendar year within five (5) Business Days after the
occurrence of a Cash Trap Condition, and thereafter while a Cash Trap Condition
exists shall provide a proposed Approved Operating Budget to Lender for each
succeeding calendar year at least thirty (30) days prior to the end of each
calendar year. If a proposed Approved Operating Budget is not in form and
substance reasonably satisfactory to Lender, Lender may disapprove the same and
specify the reasons therefor, and Borrowers shall promptly amend and resubmit
for approval a revised budget, making such changes as are necessary to comply
with the reasonable requirements of Lender; provided that until such time as
Borrowers have resubmitted the revised budget and Lender has approved such
revised budget, the parties shall operate under the provisions of this Article
VII using the budget submitted to Lender as proposed to be revised by Lender,
except that actual amounts shall be used for real estate taxes, insurance
premiums for insurance required hereunder and utilities expenses. Capital
Expenditures shall not be included in the Approved Operating Budget unless
Lender shall approve the same in writing in its sole and absolute
discretion.
Section 7.5
Sole Dominion and
Control
.
Borrowers acknowledge and agree that the Accounts are subject to the sole
dominion, control and discretion of Lender, its authorized agents or designees,
subject to the terms hereof. Notwithstanding anything set forth herein to the
contrary, neither any Borrower nor any other Person, through or under any
Borrower, shall have any control over the use of, or any right to withdraw any
amount from, any Account, and each Borrower acknowledges that the Deposit
Account Bank shall comply with all instructions originated by Lender without
further consent by any Borrower. Each Borrower acknowledges and agrees the
Account Banks shall comply with the instructions of Lender with respect to the
Accounts without the further consent of any Borrower or Manager. Each Borrower
acknowledges and agrees that the Account Banks shall comply with all
“entitlement orders” (as defined in Section 8-102(a)(8) of the UCC) and
instructions originated by Lender without further consent by any Borrower or any
other Person.
Section 7.6
Pledge of
Accounts
.
(A)
Security for
Obligations
. To
secure the full and punctual payment and performance of all Obligations of
Borrowers under this Loan Agreement, the Note, the Mortgages, and all other Loan
Documents, each Borrower hereby grants to Lender a first priority continuing
security interest in and to the following property of such Borrower, whether now
owned or existing or hereafter acquired or arising and regardless of where
located (all of the same constituting part of the Account Collateral
hereunder:
(i)
the
Clearing Account, the Deposit Account and each of the Sub-Accounts, and all
cash, checks, drafts, certificates and instruments, if any, from time to time
deposited or held in the Accounts, including, without limitation, all deposits
or wire transfers made to the Accounts; and any and all Account
Collateral;
(ii)
any and
all amounts invested in Permitted Investments;
(iii)
all
interest, dividends, cash, instruments and other property from time to time
received, receivable or otherwise payable in respect of, or in exchange for, any
or all of the foregoing; and
(iv)
to the
extent not covered by clauses (i), (ii) or (iii) above, all “proceeds” (as
defined under the UCC) of any or all of the foregoing.
Lender
shall have with respect to the foregoing collateral, in addition to the rights
and remedies herein set forth, all of the rights and remedies available to a
secured party under the UCC, as if such rights and remedies were fully set forth
herein.
(B)
Rights on
Default
. Upon
the occurrence and during the continuance of an Event of Default, Lender may
notify each of the Account Banks of such Event of Default and, without notice
from Account Banks or Lender, (a) Borrowers shall have no further right in
respect of (including, without limitation, the right to instruct Lender or any
Account Bank to transfer from) the Accounts, (b) Lender may direct the Account
Banks to liquidate and transfer any amounts then invested in Permitted
Investments to the Accounts or reinvest such amounts in other Permitted
Investments as Lender may reasonably determine is necessary to perfect or
protect any security interest granted or purported to be granted hereby or to
enable Account Banks, as agent for Lender, or Lender to exercise and enforce
Lender’s rights and remedies hereunder with respect to any Account Collateral,
and (c) Lender may apply any Account Collateral to any Obligations in such order
of priority as Lender may determine. The proceeds of any disposition of the
Account Collateral, or any part thereof, may be applied by Lender to the payment
of the Obligations in such priority and proportions as Lender in its discretion
shall deem proper.
(C)
Financing Statement; Further
Assurances
. Each
Borrower hereby irrevocably authorizes Lender at any time and from time to time
to file in any filing office in any jurisdiction any initial financing
statements and amendments thereto that (1) indicate the Account Collateral and
other Collateral (i) as all assets of such Borrower or words of similar effect,
regardless of whether any particular asset comprised in the Account Collateral
or other Collateral falls within the scope of Article 9 of the UCC or such
jurisdiction, or (ii) as being of an equal or lesser scope or with greater
detail, and (2) contain any other information required by Part 5 of Article 9 of
the UCC for the sufficiency or filing office acceptance of any financing
statement or amendment, including (x) whether such Borrower is an organization,
the type of organization and any organization identification number issued to
such Borrower, and (y) a sufficient description of real property to which the
Collateral relates. Each Borrower agrees to furnish any such information to
Lender promptly upon request. Each Borrower also ratifies its authorization for
Lender to have filed in any jurisdiction any initial financing statements or
amendments thereto if filed prior to the date hereof. Each Borrower agrees that
at any time and from time to time, at the expense of such Borrower, such
Borrower will promptly execute and deliver all further instruments and
documents, and take all further action, that may be reasonably necessary or
desirable, or that Lender may reasonably request, in order to perfect and
protect any security interest granted or purported to be granted hereby
(including, without limitation, any security interest in and to any Permitted
Investments) or to enable Lender to exercise and enforce its rights and remedies
hereunder with respect to any Account Collateral. In the event of any change in
name, identity or structure of any Borrower, such Borrower shall notify Lender
thereof and promptly after Lender’s request shall execute, file and record such
UCC financing statements as are necessary to maintain the priority of Lender's
lien upon and security interest in the Account Collateral, and shall pay all
expenses and fees in connection with the filing and recording thereof. If Lender
shall require the filing or recording of additional UCC financing or
continuation statements, each Borrower shall, promptly after request, execute,
file and record such UCC financing or continuation statements as Lender shall
deem necessary, and shall pay all expenses and fees in connection with the
filing and recording thereof.
(D)
Termination of
Agreement
. This
Loan Agreement shall create a continuing security interest in the Account
Collateral and shall remain in full force and effect until payment in full of
the Obligations. Upon payment and performance in full of the Obligations, this
Loan Agreement shall terminate and Borrowers shall be entitled to the return,
upon its request and at their expense, of such of the Account Collateral as
shall not have been sold or otherwise applied pursuant to the terms hereof, and
Lender shall execute such instruments and documents as may be reasonably
requested by Borrowers to evidence such termination and the release of the lien
hereof.
Section 7.7
Lender Appointed
Attorney-In-Fact
.
Each
Borrower hereby irrevocably constitutes and appoints Lender as such Borrower’s
true and lawful attorney-in-fact, coupled with an interest and with full power
of substitution, to execute, acknowledge and deliver after an Event of Default
any instruments and to exercise and enforce every right, power, remedy, option
and privilege of such Borrower with respect to the Account Collateral, and do in
the name, place and stead of such Borrower, all such acts, things and deeds for
and on behalf of and in the name of such Borrower, which such Borrower is
required to do hereunder or under the other Loan Documents or which Lender may
deem necessary or desirable to more fully vest in Lender the rights and remedies
provided for herein and to accomplish the purposes of this Loan Agreement
including the filing of any UCC financing statements or continuation statements
in appropriate public filing offices on behalf of such Borrower, in any of the
foregoing cases, upon such Borrower’s failure to take any of the foregoing
actions within five (5) Business Days after notice from Lender. The foregoing
powers of attorney are irrevocable and coupled with an interest. If any Borrower
fails to perform any agreement herein contained and such failure shall continue
for five (5) Business Days after notice of such failure is given to Borrowers,
Lender may perform or cause performance of any such agreement, and any
reasonable expenses of Lender and any Account Banks in connection therewith
shall be paid by Borrowers.
ARTICLE VIII
DEFAULT, RIGHTS AND
REMEDIES
Section 8.1
Event of
Default
.
“
Event of
Default
” shall
mean the occurrence or existence of any one or more of the
following:
(A)
Scheduled
Payments
. Failure
of Borrowers to pay any scheduled payment amount when the same is due under this
Loan Agreement, the Note, or any other Loan Documents (whether such amount is
interest, principal, Reserves, or otherwise), including the failure to pay all
outstanding Obligations on the Maturity Date; or
(B)
Other
Payments
. Failure
of Borrowers to pay any amount from time to time owing under this Loan
Agreement, the Note, or any other Loan Documents (other than amounts subject to
the preceding paragraph) within ten (10) days after written notice from Lender
to Borrowers that same is due; or
(C)
Breach of Reporting
Provisions
. Failure
of any Borrower Party to perform or comply with any term or condition contained
in Section 5.1 which continues for a period of thirty (30) days after written
notice; or
(D)
Breach of Provisions
Regarding Insurance, Transfers, Liens, Single Purpose
. (i)
Failure to keep in force the insurance required by Section 5.4 hereof; (ii) the
failure to comply with any other covenant of Section 5.4 which failure under
this clause (ii) continues for five (5) Business Days after notice from Lender;
(iii) breach of Article IX or Article XI hereof; (iv) breach or default under
any of Sections 5.13(B), 5.17, 5.18 or 5.19 hereof; or (v) breach or default
under Section 6.5 hereof or Section 7.2 hereof; or
(E)
Breach of
Warranty
. Any
representation, warranty, certification or other statement made by any Borrower
Party or Affiliate thereof in any Loan Document or in any statement or
certificate at any time given in writing pursuant to or in connection with any
Loan Document is false or misleading in any material respect as of the date
made; or
(F)
Other Defaults Under Loan
Documents
. A
default shall occur in the performance of or compliance with any term contained
in this Loan Agreement or the other Loan Documents and such default is not fully
cured within thirty (30) days after receipt by Borrowers of notice from Lender
of such default (other than occurrences described in other provisions of this
Section 8.1 or the Loan Documents for which a different grace or cure period is
specified or which constitute immediate Events of Default); provided however
that if (i) the default is capable of cure but with diligence cannot be cured
within such period of thirty (30) days, (ii) Borrowers have commenced the cure
of same within such thirty (30)-day period and at all times after such
commencement has pursued such cure diligently, and (iii) Borrowers deliver to
Lender promptly following demand (which demand may be made from time to time by
Lender) evidence satisfactory to Lender of the foregoing, then such period shall
be extended for so long as is reasonably necessary for Borrowers in the exercise
of due diligence to cure such default, but in no event beyond the ninetieth
(90
th
) day
after the original notice of default; or
(G)
Involuntary Bankruptcy;
Appointment of Receiver, etc.
(i) A
court enters a decree or order for relief with respect to any Borrower in an
Involuntary Borrower Party Bankruptcy, which decree or order is not stayed or
other similar relief is not granted under any applicable federal or state law;
(ii) the occurrence and continuance of any of the following events for sixty
(60) days unless dismissed or discharged within such time: (x) an Involuntary
Borrower Party Bankruptcy is commenced, (y) a decree or order of a court for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over any Borrower or over all or a substantial
part of its property, is entered, or (z) an interim receiver, trustee or other
custodian is appointed without the consent of any Borrower, for all or a
substantial part of the property of such Person; or
(H)
Voluntary Bankruptcy;
Appointment of Receiver, etc.
(i) An
order for relief is entered with respect to any Borrower, or any such Person
commences a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case or to the
conversion of an involuntary case to a voluntary case under any such law or
consents to the appointment of or taking possession by a receiver, trustee or
other custodian for any Borrower or for all or a substantial part of the
property of any Borrower; (ii) any Borrower makes any assignment for the benefit
of creditors; or (iii) the Board of Directors or other governing body of any
Borrower adopts any resolution or otherwise authorizes action to approve any of
the actions referred to in this Section 8.1(H); or
(I)
Bankruptcy Involving
Ownership Interests or Property
. Other
than as described in either of Sections 8.1(G) or (H), all or any portion of the
Collateral becomes property of the estate or subject to the automatic stay in
any case or proceeding under the Bankruptcy Code or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect (provided that if the
same occurs in the context of an involuntary proceeding, it shall not constitute
an Event of Default if it is dismissed or discharged within sixty (60) days
following its occurrence); or
(J)
Solvency
. Any
Borrower ceases to be solvent or admits in writing its inability to pay its
debts as they become due; or
(K)
Injunction
. Any
Borrower is enjoined, restrained or in any way prevented by the order of any
court or any administrative or regulatory agency from conducting all or any
material part of its business; or
(L)
Invalidity of Loan
Documents
. This
Loan Agreement, any Mortgage or any other Loan Document for any reason ceases to
be in full force and effect or ceases to be a legally valid, binding and
enforceable obligation of any Borrower or any Lien securing the Obligations
shall, in whole or in part, cease to be a perfected first priority Lien, subject
to the Permitted Encumbrances (except in any of the foregoing cases in
accordance with the terms hereof or under any other Loan Document), or any
Person who is a party thereto, other than Lender, denies that it has any further
liability (as distinguished from denial of the existence of a Default or Event
of Default) under any Loan Documents to which it is party, or gives notice to
such effect; or
(M)
Cross-Default with Other
Loan Documents
. A
default beyond any applicable grace periods shall occur under any of the other
Loan Documents; or
(N)
Default under Management
Agreement
. Any
event of default on the part of any Borrower shall occur and be continuing under
any Management Agreement.
If more
than one of the foregoing paragraphs shall describe the same condition or event,
then Lender shall have the right to select which paragraph or paragraphs shall
apply. In any such case, Lender shall have the right (but not the obligation) to
designate the paragraph or paragraphs which provide for non-written notice (or
for no notice) or for a shorter time to cure (or for no time to
cure).
Section 8.2
Acceleration and
Remedies
.
(A)
Upon the
occurrence of any Event of Default described in any of Sections 8.1(G), (H), or
(I), the unpaid principal amount of and accrued interest and fees on the Loan
and all other Obligations shall automatically become immediately due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other requirements of any kind, all of which are
hereby expressly waived by each Borrower Party. Upon and at any time after the
occurrence of any other Event of Default, at the option of Lender, which may be
exercised without notice or demand to anyone, all or any portion of the Loan and
other Obligations shall immediately become due and payable.
(B)
Upon the
occurrence of an Event of Default, all or any one or more of the rights, powers,
privileges and other remedies available to Lender against Borrowers under this
Loan Agreement or any of the other Loan Documents, or at law or in equity, may
be exercised by Lender at any time and from time to time, whether or not all or
any of the Obligations shall be declared due and payable, and whether or not
Lender shall have commenced any foreclosure proceeding or other action for the
enforcement of its rights and remedies under any of the Loan Documents with
respect to any of the Properties. Any such actions taken by Lender shall be
cumulative and concurrent and may be pursued independently, singly,
successively, together or otherwise, at such time and in such order as Lender
may determine in its sole discretion, to the fullest extent permitted by law,
without impairing or otherwise affecting the other rights and remedies of Lender
permitted by law, equity or contract or as set forth herein or in the other Loan
Documents. Without limiting the generality of the foregoing, if an Event of
Default is continuing (i) to the fullest extent permitted by law, Lender shall
not be subject to any “one action” or “election of remedies” law or rule, and
(ii) all liens and other rights, remedies or privileges provided to Lender shall
remain in full force and effect until Lender has exhausted all of its remedies
against the Properties and the Mortgages have been foreclosed, sold and/or
otherwise realized upon in satisfaction of the Obligations or the Obligations
have been paid in full.
(C)
Lender
shall have the right from time to time to partially foreclose any or all of the
Mortgages in any manner and for any amounts secured by such Mortgage(s) then due
and payable as determined by Lender in its sole discretion including, without
limitation, the following circumstances: (i) in the event Borrowers default
beyond any applicable grace period in the payment of one or more scheduled
payments of principal and interest, Lender may foreclose any of the Mortgages to
recover such delinquent payments, or (ii) in the event Lender elects to
accelerate less than the entire outstanding principal balance of the Loan,
Lender may foreclose any Mortgage to recover so much of the principal balance of
the Loan as Lender may accelerate and such other sums secured by such Mortgage
as Lender may elect. Notwithstanding one or more partial foreclosures, the
Properties shall remain subject to the Mortgages to secure payment of sums
secured by the Mortgages and not previously recovered.
(D)
Any
amounts recovered from the Properties or any other collateral for the Loan after
an Event of Default may be applied by Lender toward the payment of any interest
and/or principal of the Loan and/or any other amounts due under the Loan
Documents in such order, priority and proportions as Lender in its sole
discretion shall determine.
(E)
The
rights, powers and remedies of Lender under this Agreement shall be cumulative
and not exclusive of any other right, power or remedy which Lender may have
against any or all of the Borrowers pursuant to this Loan Agreement or the other
Loan Documents, or existing at law or in equity or otherwise. Lender’s rights,
powers and remedies may be pursued singly, concurrently or otherwise, at such
time and in such order as Lender may determine in Lender’s sole discretion. No
delay or omission to exercise any remedy, right or power accruing upon an Event
of Default shall impair any such remedy, right or power or shall be construed as
a waiver thereof, but any such remedy, right or power may be exercised from time
to time and as often as may be deemed expedient. A waiver of one Default or
Event of Default with respect to Borrowers shall not be construed to be a waiver
of any subsequent Default or Event of Default by Borrowers or to impair any
remedy, right or power consequent thereon.
Section 8.3
Performance by
Lender
.
(A)
If any
Borrower Party shall fail to perform, or cause to be performed, any covenant,
duty or agreement contained in any of the Loan Documents beyond any applicable
notice and cure period, Lender may (but shall have no obligation to) perform or
attempt to perform such covenant, duty or agreement on behalf of such Borrower
Party. In such event, Borrowers shall, at the request of Lender, promptly pay to
Lender any amount reasonably expended by Lender in such performance or attempted
performance, together with interest thereon at the Default Rate, from the date
of such expenditure until paid. Any amounts advanced or expended by Lender to
perform or attempt to perform any such matter shall be added to and included
within the indebtedness evidenced by the applicable Note and shall be secured by
all of the Collateral securing the applicable Loan. Notwithstanding the
foregoing, it is expressly agreed that Lender shall not have any liability or
responsibility for the performance of any obligation of any Borrower Party under
this Loan Agreement or any other Loan Document.
(B)
Lender
may cease or suspend any and all performance required of Lender under the Loan
Documents upon and during the continuance of any Event of Default.
ARTICLE IX
SINGLE-PURPOSE, BANKRUPTCY-REMOTE
REPRESENTATIONS,
WARRANTIES AND
COVENANTS
Section 9.1
Applicable to
Borrowers
.
Each
Borrower hereby represents, warrants and covenants as of the Closing Date and
until such time as all Obligations are paid in full, that absent express advance
written waiver from Lender, which may be withheld in Lender’s sole discretion,
such Borrower:
(A)
was
organized solely for purpose of owning and operating its Applicable Individual
Property;
(B)
has not
owned, does not own and will not own any assets other than its Applicable
Individual Property (including incidental personal property necessary for the
operation thereof and proceeds therefrom);
(C)
is not
engaged and will not engage in any business, directly or indirectly, other than
the ownership, management and operation of its Applicable Individual
Property;
(D)
has not
entered into and will not enter into any contract or agreement with any partner,
member, shareholder, trustee, beneficiary, principal, joint venturer or
Affiliate of any Borrower except in the ordinary course of its business pursuant
to written agreements upon terms and conditions that are intrinsically fair and
substantially similar to those that would be available on an arms-length basis
with third parties other than such Affiliate;
(E)
has not
incurred and will not incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than (i) the Obligations, and
(ii) subject to the terms and conditions of
Section
5.17
,
unsecured trade payables incurred in the ordinary course of business of
operating its Applicable Individual Property;
(F)
has not
made and will not make any loan or advances to any Person (including any of its
Affiliates);
(G)
has
remained and as of the Closing Date reasonably expects to remain, solvent, and
has maintained, and as of the Closing Date reasonably expects to maintain
adequate capital for the normal obligations reasonably foreseeable in a business
of its size and character and in light of its contemplated business
operations;
(H)
has not
acquired and will not acquire obligations or securities of any
Person;
(I)
has not
failed and will not fail to correct any known misunderstanding regarding its
separate identity;
(J)
has done
or caused to be done and will do all things necessary to preserve its
existence;
(K)
shall
continuously maintain its existence and be qualified to do business in all
states necessary to carry on its business, including the state in which its
Applicable Property is located;
(L)
will
conduct and operate its business as presently conducted and operated and in its
own name;
(M)
has
maintained and will maintain books, records, bank accounts, accounting records
and other entity documents separate from those of its partners, members,
shareholders, trustees, beneficiaries, principals, Affiliates, and any other
Person;
(N)
has been
and will be, and at all times has held and will hold itself out to the public
as, a legal entity separate and distinct from any other Person (including any of
its partners, members, shareholders, trustees, beneficiaries, principals and
Affiliates, and any Affiliates of any of the same), and not as a department or
division of any Person;
(O)
will file
such tax returns with respect to itself as may be required under applicable law
and has prepared and will prepare separate tax returns and financial statements,
or if part of a consolidated group, is shown as a separate member of such
group;
(P)
has paid
and shall pay its own liabilities, indebtedness, and obligations of any kind, as
the same shall become due, from its own separate assets, rather than from those
of other Persons;
(Q)
will not
enter into any transaction of merger or consolidation, or acquire by purchase or
otherwise all or substantially all of the business or assets of, or any stock or
beneficial ownership of, any Person;
(R)
has not
commingled and will not commingle or permit to be commingled its funds or other
assets with those of any other Person; and has held and will hold its assets in
its own name;
(S)
has
maintained and will maintain its assets in such a manner that it is not costly
or difficult to segregate, ascertain or identify its individual assets from
those of any other Person;
(T)
has not,
does not and will not hold itself out to be responsible for the debts or
obligations of any other Person;
(U)
has not
and will not guarantee or otherwise become liable on or in connection with any
obligation of any other Person;
(V)
except
for funds deposited into the Accounts in accordance with the Loan Documents,
shall not hold title to its assets other than in its name;
(W)
complies
and shall at all times hereafter comply with all of the assumptions, statements,
certifications, representations, warranties and covenants regarding or made by
it contained in or appended to the nonconsolidation opinion delivered pursuant
hereto;
(X)
has paid
and will pay its own liabilities and expenses, out of its own
funds;
(Y)
has held
and will hold regular meetings, as appropriate to conduct its business and has
observed and will observe all limited liability company formalities and record
keeping;
(Z)
has
allocated and will allocate fairly and reasonably the costs associated with
common employees and any overhead for shared office space and has used and will
use separate stationary, invoices and checks;
(AA)
has not
and will not identify its Sole Member, any other member of any Borrower or any
Affiliate of any Borrower or any member of any Borrower, or any other Person, as
a division or part of it;
(BB)
has paid
and will pay the salaries of its own employees and has maintained and will
maintain a sufficient number of employees in light of its contemplated business
operations;
(CC)
maintains,
and will continue to maintain its books and records and financial statements
separate from those of any other Person;
(DD)
maintains,
and will continue to maintain, its own bank accounts separate from any other
Person;
(EE)
does not
and will not commingle its funds or assets with those of any other Person, and
holds and will hold its assets in its own name;
(FF)
shall not
(i) liquidate or dissolve, in whole or in part; (ii) consolidate, merge or enter
into any form of consolidation with or into any other Person, nor convey,
transfer or lease its assets substantially as an entirety to any Person nor
permit any Person to consolidate, merge or enter into any form of consolidation
with or into itself, nor convey, transfer or lease its assets substantially as
an entirety to any Person; or (iii) amend any provisions of its organizational
documents containing provisions similar to those contained in this Article
IX;
(GG)
is a
limited liability company formed under the laws of the State of Delaware with
the Sole Member as the sole member thereof, in addition to the Independent
Director (as defined below), whose certificate of formation and operating
agreement (the “
Borrower Organizational
Documents
”)
contain each of the representations, covenants and warranties set forth in this
Article 9
and
require such Borrower to at all times cause there to be at least one (1) duly
appointed independent manager of such Borrower who is a natural person and also
a non-economic member of such Borrower (each an “
Independent
Director
”) whose
affirmative vote will be required in order for a voluntary filing for protection
under the Bankruptcy Code or similar action by such Borrower and who is not at
the time of such individual’s initial appointment, appointment as Independent
Director, shall not be during such individual’s tenure as Independent Director,
and may not have been at any time during the preceding five years, (i) a
shareholder, member or partner of, or an officer, director, except in his or her
capacity as Independent Director of such Borrower, paid consultant or employee
of, customer of or supplier to or a member of the immediate family of such
Borrower (except in his or her capacity as Independent Director of such
Borrower) or any of its shareholders, members, partners, subsidiaries or
affiliates or any person or other entity controlling or under common control
with any such shareholder, member, partner, supplier or customer or any member
of the immediate family of any of them. As used herein, the term “
control
” means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person or entity, whether through
ownership of voting securities, by contract or otherwise.
(HH)
is and
shall at all times be governed by Borrower Organizational Documents which
provide and shall at all times continue to provide that upon the occurrence of
any event that causes the Sole Member to cease to be a member of such Borrower,
the Independent Director shall, without action of any person and simultaneously
with the Sole Member ceasing to be a member of such Borrower, automatically
continue as a member of such Borrower and shall continue such Borrower without
dissolution.
(II)
shall
cause reputable Delaware counsel acceptable to Lender (the “
Delaware Law
Firm
”) to
deliver to Lender an opinion letter reasonably satisfactory to Lender, whereby
the Delaware Law Firm opines (which opinion may be subject to standard
assumptions, qualifications, limitations and exceptions acceptable to Lender),
among other requirements of Lender, that: (1) the unanimous consent of the Sole
Member and the Independent Director is required in order for such Borrower to
file a voluntary bankruptcy petition; (2) the provision in such Borrower’s
Borrower Organizational Documents that requires unanimous consent as a condition
to filing a voluntary bankruptcy petition is enforceable against the Sole
Member; (3) the bankruptcy, dissolution, liquidation or death of the Sole Member
will not cause such Borrower to be dissolved; (4) no creditor of the Solo Member
shall have the right to obtain possession of, or otherwise exercise legal or
equitable remedies with respect to, any of such Borrower’s property; and (5)
Delaware law, not federal law, governs the determination of what persons or
entities have the authority to file a voluntary bankruptcy petition on behalf of
such Borrower.
(JJ)
is and
shall at all times be governed by Borrower Organizational Documents which
provide and shall at all times continue to provide that such Borrower shall not
cause, permit, or empower the members, board of managers, or any other person to
vote on, authorize or take any Material Action (as defined below) without the
unanimous written consent of the Sole Member and the Independent Director. As
used herein, “
Material
Action
” shall
mean to consolidate or merge such Borrower into any other entity, or to
institute proceedings to have such Borrower adjudicated bankrupt or insolvent,
or consent to the institution of bankruptcy or insolvency proceedings against
such Borrower or file a petition seeking or consent to, reorganization or relief
with respect to such Borrower under any applicable federal or state law relating
to bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of such Borrower or
a substantial part of such Borrower’s property, or make any assignment for the
benefit of creditors of such Borrower, or admit in writing such Borrower’s
inability to pay its debts generally as they become due, or take action in
furtherance of any such action.
ARTICLE X
RESTRUCTURING LOAN, SECONDARY MARKET
TRANSACTIONS
Section 10.1
Secondary Market
Transactions Generally
.
Lender
shall have the right to engage in one or more Secondary Market Transactions with
respect to the Loan, and to structure and restructure all or any part of the
Loan, including in multiple tranches, as a wraparound loan, or for inclusion in
a Securitization. Without limitation, Lender shall have the right to cause the
Note and the Mortgages to be split into a first and a second mortgage loan, or
into a one or more loans secured by mortgages and by ownership interests in
Borrowers in whatever proportion Lender determines, and thereafter to engage in
Secondary Market Transactions with respect to all or any part of the
indebtedness and loan documentation. Each Borrower acknowledges that it is the
intention of the parties that all or a portion of the Loan will be securitized
and that all or a portion of the Loan will be rated by one or more Rating
Agencies. Each Borrower further acknowledges that additional structural
modifications may be required to satisfy issues raised by any Rating Agencies.
As used herein, “
Secondary Market
Transaction
” means
any of (i) the sale, assignment, or other transfer of all or any portion of the
Obligations or the Loan Documents or any interest therein to one or more
investors, (ii) the sale, assignment, or other transfer of one or more
participation interests in the Obligations or Loan Documents to one or more
investors, (iii) the transfer or deposit of all or any portion of the
Obligations or Loan Documents to or with one or more trusts or other entities
which may sell certificates or other instruments to investors evidencing an
ownership interest in the assets of such trust or the right to receive income or
proceeds therefrom or (iv) any other Securitization backed in whole or in part
by the Loan or any interest therein.
Section 10.2
Cooperation;
Limitations
.
Borrowers shall use all reasonable efforts and cooperate in good faith with
Lender in effecting any such restructuring or Secondary Market Transaction. Such
cooperation shall include without limitation, executing and delivering such
amendments to the Loan Documents and the organizational documents of any
Borrower as Lender may request at no material out-of-pocket cost to Borrowers,
provided however that no such amendment shall modify (i) the aggregate weighted
average of the interest rate payable under the Loan, (ii) the stated maturity
date of the Loan, (iii) the aggregate amortization of the principal amount of
the Loan, (iv) the non-recourse provisions of the Loan or (v) any provision, the
effect of which would materially and substantively increase Borrowers’
obligations or materially and substantively decrease Borrowers’ rights under the
Loan Documents. Such cooperation also shall include using reasonable efforts to
obtain such certificates and assurances from governmental entities and others as
Lender may reasonably request.
Section 10.3
Information
.
Borrowers shall provide such access to the Properties, personnel of the Manager
and of Borrowers’ constituent members and such information, reports, copies of
notices and documents relating to Borrower Parties, Manager, the Properties and
Collateral and the business and operations of all of the foregoing and such
opinions of counsel (including, without limitation, nonconsolidation opinions)
as Lender may reasonably request or as any Rating Agency may request in
connection with any such Secondary Market Transaction including, without
limitation, updated financial information, appraisals, market studies,
environmental reviews (Phase Is and, if appropriate, Phase IIs), property
condition reports and other due diligence investigations together with
appropriate verification of such updated information and reports through letters
of auditors and consultants and, as of the closing date of the Secondary Market
Transaction, updated representations and warranties made in the Loan Documents
and such additional representations and warranties any Rating Agency may request
or Lender or any purchaser, transferee, assignee, trustee, servicer or potential
investor (the Rating Agencies and all of the foregoing parties, collectively,
“
Interested
Parties
”) may
reasonably request. Within ten (10) days after request by Lender, Borrowers
shall provide an opinion of counsel reasonably satisfactory to Lender to the
effect that the description of the Loan and the terms of the Loan Documents
contained in the Disclosure Documents (hereinafter defined) and such other legal
matters contained therein as Lender may reasonably require do not contain any
untrue statement of any material fact or omit to state any material fact
necessary to make the statements therein not misleading and if required by any
Rating Agency or reasonably required by Lender, shall provide revisions or
“bringdowns” to the opinions delivered at Closing (including nonconsolidation
opinions), or if required new versions of such opinions, addressed to Lender,
any trustee under any Securitization backed in whole or in part by the Loan, any
Rating Agency that assigns a rating to any securities in connection therewith
and any investor purchasing securities therein. Lender shall be permitted to
share all such information with the investment banking firms, Rating Agencies,
accounting firms, law firms, other third party advisory firms, potential
investors, servicers and other service providers and other parties involved in
any proposed Secondary Market Transaction. Borrowers understand that any such
information may be incorporated into any offering circular, prospectus,
prospectus supplement, private placement memorandum or other offering documents
for any Secondary Market Transaction. Lender and all of the aforesaid
third-party advisors and professional firms and investors shall be entitled to
rely upon such information. Without limiting the foregoing, Borrowers and
Guarantor shall provide in connection with each of (i) a preliminary and a final
private placement memorandum or (ii) a preliminary and final prospectus or
prospectus supplement, as applicable (the documents referred to in the foregoing
clauses (i) and (ii), collectively, the “
Disclosure
Documents
”), an
agreement certifying that Borrowers and Guarantor have examined such Disclosure
Documents specified by Lender and that each such Disclosure Document, as it
relates to Borrowers, Guarantor, any Affiliates, the Properties, Manager and all
other aspects of the Loan, does not, and as to information provided in third
party reports of engineers and environmental consultants, to Borrowers’ and
Guarantor’s knowledge after due inquiry, does not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements made, in the light of the circumstances under which they were
made, not misleading (a “
Disclosure
Certificate
”).
Borrowers and Guarantor shall, jointly and severally, indemnify, defend, protect
and hold harmless Lender, its Affiliates, directors, employees, agents and each
Person, if any, who controls Lender or any such Affiliate within the meaning of
Section 15 of the Securities Act of 1933 or Section 20 of the Securities
Exchange Act of 1934, and any other placement agent or underwriter with respect
to any Securitization or Secondary Market Transaction from and against any
losses, claims, damages, liabilities, costs and expenses (including, without
limitation, reasonable attorneys’ fees and disbursements) that arise out of or
are based upon any untrue statement of any material fact contained in any
Disclosure Certificate or other information or documents furnished by any
Borrower, Guarantor or their Affiliates or in any representation or warranty of
any Borrower Party contained herein or in the other Loan Documents or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated in such information or necessary in order to
make the statements in such information not materially misleading. Lender and
its Affiliates may publicize the existence of the Obligations in connection with
Lender’s Secondary Market Transaction activities or otherwise.
Section 10.4
Additional
Provisions
.
In any
Secondary Market Transaction, Lender may transfer its obligations under this
Loan Agreement and under the other Loan Documents (or may transfer the portion
thereof corresponding to the transferred portion of the Obligations), and
thereafter Lender shall be relieved of any obligations hereunder and under the
other Loan Documents arising after the date of said transfer with respect to the
transferred interest. Each transferee investor shall become a “Lender”
hereunder. The holders from time to time of the Loan and/or any other interest
of the “Lender” under this Loan Agreement and the other Loan Documents may from
time to time enter into one or more co-lender agreements, intercreditor
agreements or other agreements with each other and/or with the holder(s) of any
other loans or other Persons in their discretion. Each Borrower acknowledges and
agrees that such agreements, as the same may from time to time be amended,
modified or restated, may govern the exercise of the powers and discretionary
authority of the Lender and/or any other interest of the Lender hereunder and
under the other Loan Documents, but Borrowers shall be entitled to rely upon any
actions taken by Lender or the designated servicer(s) or agent(s) for Lender,
whether or not within the scope of its power and authority under such other
agreements.
ARTICLE XI
RESTRICTIONS ON LIENS, TRANSFERS;
RELEASE OF PROPERTIES
Section 11.1
Restrictions on Transfer and
Encumbrance
.
Except
as expressly permitted in this Article XI, no Borrower shall cause or suffer to
occur or exist, directly or indirectly, voluntarily or involuntarily, by
operation of law or otherwise, any sale, transfer, mortgage, pledge, Lien or
encumbrance (other than Permitted Encumbrances) of (i) all or any part of any of
the Properties or any interest therein, or (ii) any direct or indirect ownership
or beneficial interest in any Borrower or Sole Member, irrespective of the
number of tiers of ownership or any profits or proceeds of any such direct or
indirect ownership interest, or (iii) any change of control of any Borrower or
Sole Member (any of the foregoing, a “
Transfer
”)
without the prior written consent of Lender, which Lender may withhold in its
sole and absolute discretion.
Section 11.2
Permitted Transfers of
Beneficial Interests in Sole Member
.
Transfers (but not pledges, collateral assignments or encumbrances) of direct or
indirect ownership interests in the Sole Member shall be permitted without
Lender’s consent provided that (i) no Event of Default then exists, (ii)
Borrowers shall give Lender written notice of such transfer together with copies
of all instruments effecting such transfer not less than ten (10) Business Days
prior to the date of such transfer; (iii) such transfer does not and will not
result in the termination or dissolution of any Borrower, by operation of law or
otherwise; (iv) Sole Member shall continue to be the sole member of each
Borrower; (v) no Person not currently owning, directly or indirectly, more than
49% of the beneficial director or indirect ownership interests in Sole Member
acquires (together with such Person’s immediate family members and Affiliates)
more than 49% of the beneficial direct or indirect ownership interests in Sole
Member; (vi) David Lichtenstein continues to directly or indirectly control Sole
Member and each Borrower; (vii) such transfer shall not result in a change of
control of such Borrower or Sole Member or a change of Manager without Lender’s
written consent; and (viii) in each case, the single purpose nature and
bankruptcy remoteness of each Borrower after such transfer is satisfactory to
Lender and in accordance with the standards of the Rating Agencies.
For
purposes of this Section 11.2, “
control
” shall
have the meaning given thereto in the definition of “Affiliate” in Section 1.1
and a “
change of
control
” of any
Person shall include the Transfer of legal or equitable ownership interests in
such Person which after giving effect to such Transfer results in any transferee
or pledgee of such interests holding more than a 49% legal or equitable
ownership interest or security interest in such Person.
Section 11.3
Assumability
.
In the
event that the Borrowers desire to transfer all of the Properties (it being
understood and agreed that no transfer of any Individual Property less than all
of the Properties shall be permitted pursuant to this Section 11.3) to another
party (the “
Transferee
Borrower
”) and
have the Transferee Borrower assume all Borrowers’ obligations under the Loan
Documents, and have replacement guarantors and indemnitors assume all of the
obligations of Guarantor under the Loan Documents from and after such transfer
(collectively, a “
Transfer and
Assumption
”),
Borrowers may make a written application to Lender for Lender’s consent to the
Transfer and Assumption, subject to the conditions set forth in this Section;
provided that no more than one Transfer and Assumption shall be permitted during
the term of the Loan. Together with such written application, Borrowers shall
pay to Lender the reasonable review fee then required by Lender. Borrowers also
shall pay on demand all of the out-of- pocket costs and expenses incurred by
Lender, including reasonable attorneys’ fees and expenses, and including the
fees and expenses of Rating Agencies and other outside entities, in connection
with considering any proposed Transfer and Assumption, whether or not the same
is permitted or occurs. Lender may grant or withhold its consent to a Transfer
and Assumption in its sole and absolute discretion. Completion of any Transfer
and Assumption shall be subject to such conditions as Lender may determine to
impose, and shall in any event be subject to satisfaction of the following
conditions:
(i)
No
Default or Event of Default shall have occurred and be continuing;
(ii)
Borrowers
shall have submitted to Lender true, correct and complete copies of information
and documents reasonably requested by Lender concerning the Properties, the
Transferee Borrower and any replacement guarantors and indemnitors;
(iii)
Evidence
satisfactory to Lender shall have been provided showing that the Transferee
Borrower and such of its Affiliates as shall be designated by Lender comply with
Article IX, as those provisions may be modified by Lender taking into account
the ownership structure of Transferee Borrower and its Affiliates;
(iv)
Borrowers
shall have obtained (and delivered to Lender) a Rating Confirmation with respect
to the Transfer and Assumption and all related transactions;
(v)
The
identity, experience, and financial condition of the Transferee Borrower and the
replacement guarantors and indemnitors shall be acceptable to Lender in its
reasonable discretion;
(vi)
Borrowers
shall deliver to Lender at the closing of the Transfer and Assumption an
assumption fee in the amount of one percent (1%) of the then unpaid principal
balance of the Loan;
(vii)
Borrowers,
Transferee Borrower, the original and replacement guarantors and indemnitors
shall execute and deliver such documents as Lender may require, in form and
substance satisfactory to Lender, to evidence the Transfer and Assumption,
including replacement guaranties and indemnities and Loan Document
modifications;
(viii)
Counsel
to the Transferee Borrower and replacement guarantors and indemnitors shall
deliver to Lender opinions in form and substance satisfactory to Lender as to
substantially the same matters for which opinions were required in connection
with the origination of the Loan (and as to such additional matters as the
Lender and Rating Agencies may require), including, without limitation, a
bankruptcy non-consolidation opinion;
(ix)
Borrowers
shall cause to be delivered to Lender, an endorsement to Lender’s policies of
title insurance in form and substance acceptable to Lender, in Lender’s
reasonable discretion, relating to, among other things, the change in the
identity of the vestee and execution and delivery of the Transfer and Assumption
documents and the continuing priority of the Lender’s Mortgages and the
continuing effect of the title insurance and all endorsements thereto;
and
(x)
Borrowers
shall pay to Lender all reasonable out-of-pocket costs and expenses incurred by
Lender in connection with the Transfer and Assumption, including but not limited
to, Lender’s reasonable attorneys’ fees and expenses, all recording fees, Rating
Agency fees and expenses, and all fees payable to the title company in
connection with the Transfer and Assumption.
Upon
completion of a Transfer and Assumption permitted under this Section 11.3 and
execution of replacement guaranties and indemnities by replacement guarantors
and indemnitors approved by Lender as provided in this Section 11.3, Borrower
and any original Guarantors shall, as part of the documentation executed at the
closing of the Transfer and Assumption, be released from liability under the
Loan Documents accruing from and after the completion of the Transfer and
Assumption, but not from any liabilities for acts and occurrences taking place
prior thereto.
ARTICLE XII
RECOURSE; LIMITATIONS ON
RECOURSE
Section 12.1
Limitations on
Recourse
.
Subject
to the provisions and qualifications of this Article, Lender shall not enforce
the liability and obligation of the Borrowers to perform and observe any of
their obligations that may be contained in the Note, this Loan Agreement, the
Mortgages or any other Loan Document by any action or proceeding wherein a money
judgment shall be sought against Borrowers, except that Lender may bring a
foreclosure action, an action for specific performance or any other appropriate
action or proceeding to enable Lender to enforce and realize upon its interest
under the Note, this Loan Agreement, the Mortgages and the other Loan Documents,
or in the Properties, the Rents, or any other Collateral pursuant to the Loan
Documents;
provided
,
however
, that,
except as specifically provided herein, any judgment in any such action or
proceeding shall be enforceable against Borrowers only to the extent of
Borrowers’ interest in the Properties, in the Rents and in any other Collateral.
Lender, by accepting the Note, this Loan Agreement, the Mortgages and the other
Loan Documents, shall not sue for, seek or demand any monetary judgment against
any Borrower in any such action or proceeding under or by reason of or under or
in connection with the Note, this Loan Agreement, the Mortgage or the other Loan
Documents. Notwithstanding anything to the contrary in this Loan Agreement, the
Mortgages or any of the Loan Documents, the provisions of this Section 12.1 and
the other provisions of the Loan Documents shall not, however: (a) constitute a
waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b)
or any other provisions of the Bankruptcy Code to file a claim for the full
amount of the Obligations secured by the Mortgages or to require that all
Collateral shall continue to secure all of the Obligations owing to Lender in
accordance with the Loan Documents; (b) constitute a waiver, release or
impairment of any obligation evidenced or secured by any of the Loan Documents;
(c) impair the right of Lender to name any Borrower as a party defendant in any
action or suit for foreclosure and sale under any of the Mortgages or other Loan
Documents; (d) impair the right of Lender to obtain the appointment of a
receiver; (e) impair the enforcement of any of the Assignments of Leases; or (f)
constitute a prohibition against Lender to seek a deficiency judgment against
Borrowers in order to fully realize the security granted by the Mortgages and
other Loan Documents or to commence any other appropriate action or proceeding
in order for Lender to exercise its remedies against the Properties or any other
Collateral.
Section 12.2
Recourse to Borrowers and
Guarantor
.
Notwithstanding the provisions of Section 12.1 or anything contained herein to
the contrary, Borrowers and Guarantor shall be personally liable for, and the
provisions of Section 12.1 shall not in any way limit or constitute a waiver of
the right of Lender to enforce the liability and obligation of Borrowers and
Guarantor, by money judgment or otherwise, for the following, all of which shall
be the personal obligation and liability of Borrowers under this Loan Agreement
and of Guarantor under the Guaranty: (A) the entire Loan and all the other
Obligations in the event of (i) a voluntary bankruptcy filing or other similar
event by any Borrower; (ii) any Involuntary Borrower Party Bankruptcy which is
solicited, procured, consented to or acquiesced in by any Borrower Party or any
Affiliate of any of them; (iii) any failure of any Borrower to comply with
Section 9.1 of this Agreement such that such failure was considered by a court
as a factor in the court’s finding for a consolidation of the assets of Borrower
with the assets of another Person; (iv) any transfer of, or grant by any
Borrower of a lien upon, the Property or any portion thereof in violation of
Section 11.1 of this Agreement, or any transfer or grant of a lien upon any
direct or indirect interest in any Borrower in violation of Section 11.1, or any
other intentional violation of Section 11.1 of this Agreement; or (v) the
failure of any Borrower to pay to Lender the first regularly scheduled
installment of principal and interest on the Loan on the First Payment Date; and
(B) without limiting the provisions of clause (A) above, any liability, loss,
damage, cost or expense (including, without limitation, attorneys’ fees and
expenses) suffered or incurred by Lender resulting from any and all of the
following: (i) the occurrence of any of the events described in the foregoing
clauses (A)(i) or (A)(ii), or any breach of Section 9.1 or Section 11.1 of this
Agreement (in each case without a duplication of recovery by virtue of such
matters resulting in recourse under both the foregoing clause (A) and this
clause (B)); (ii) fraud or intentional misrepresentation by any Borrower Party
or any Affiliate thereof in this Loan Agreement or any other Loan Document or
otherwise in connection with the Loan; (iii) misappropriation of, or other
failure by any Borrower Party or any Affiliate thereof to apply in accordance
with the provisions of the Loan Documents, any insurance proceeds, condemnation
awards or other sums or payments relating to the Properties or the insurance
required hereunder, or any rents, profits, issues, products and income of the
Properties, Security Deposits, Lease termination payments or recoveries upon
Leases, Prepaid Rents or any other funds received or collected by or on behalf
of any Borrower or any Borrower Party or any Affiliate, including any failure or
refusal to deliver Security Deposits to Lender as required under this Loan
Agreement; (iv) any payments made by any Borrower to any Affiliate thereof in
violation of the Loan Documents after the occurrence and during the continuance
of an Event of Default; (v) any removal or disposal of any portion of any of the
Properties by any Borrower Party, its agents, Affiliates, officers, employees or
property manager to the extent such portion of the Properties is not replaced by
the Borrowers with like property of equivalent value; (vi) intentional waste of
any of the Properties; (vii) any Borrower Party or any Affiliate of any of them
contests or in any way interferes with, directly or indirectly, any foreclosure
action or sale commenced by Lender or with any other enforcement of Lender’s
rights, powers or remedies under any of the Loan Documents or under any document
evidencing, securing or otherwise relating to any of the Properties or any other
collateral for the Obligations (whether by making any motion, bringing any
counterclaim, claiming any defense, seeking any injunction or other restraint,
commencing any action seeking to consolidate any such foreclosure or other
enforcement with any other action, or otherwise), other than contests brought in
good faith by any Borrower upon which such Borrower ultimately prevails pursuant
to a final, non-appealable judgment entered against Lender; (viii) the seizure
or forfeiture of any of the Properties, or any portion thereof, or Lender’s
interest therein, resulting from criminal wrongdoing by any Borrower, its
respective agents, Affiliates, officers or employees; (ix) any claims for
payment of any commission, charge or brokerage fee to anyone which may be
payable in connection with the Closing and funding of the Loan; (x) any
Borrower’s failure to pay transfer fees and charges due Lender under the Loan
Documents in connection with any transfer of all or any part of any of the
Properties, or any interest therein, from such Borrower to such Borrower’s
transferee, or transfer of any beneficial interest in such Borrower; (xi)
failure by any Borrower to comply with the covenants, obligations, liabilities,
warranties and representations contained in the Environmental Indemnity or
otherwise pertaining to environmental matters; (xii) in the event Lender has
waived (or any Borrower has failed to pay) the monthly collection for real and
personal property taxes, assessments, insurance premiums, or ground rents, then
failure by any Borrower to pay any or all such taxes, assessments, premiums and
rents to the extent that income from the Properties is available for such
purpose; (xiii) in the event that an Affiliate of any Borrower is the Manager,
then any management fee taken by such Manager after the occurrence and during
the continuation of an Event of Default unless otherwise approved by Lender in
writing; or (xiv) willful misconduct by any Borrower, its agents, Affiliates,
officers or employees which causes or results in a material diminution, or
material loss of value, of any of the Properties that is not reimbursed by
insurance or which willful misconduct exposes Lender to claims, liability or
costs of defense in any litigation or other legal proceeding. In addition,
Borrowers and Guarantors shall be personally liable for, and the provisions of
Section 12.1 shall not in any way limit or constitute a waiver of the right of
Lender to enforce the liability and obligation of Borrowers and Guarantor, by
money judgment or otherwise, for all reasonable costs and expenses, including
attorneys’ fees and expenses, incurred in collecting any amount due under the
Loan Documents which, as to Borrowers, are recourse obligations of Borrowers as
described in this Section 12.2 or, as to Guarantor, are recourse obligations of
Guarantor under the Guaranty, or is an obligation of Borrowers and/or Guarantor
under the Environmental Indemnity.
Section 12.3
Miscellaneous
.
No
provision of this Article shall (i) affect (A) the enforcement of, or (B) the
personal liability of and recourse against any guarantor or indemnitor
(including the Guarantor) and the assets of any such guarantor and indemnitor
for all liabilities and obligations under, the Environmental Indemnity, the
Guaranty or any guaranty or similar agreement executed in connection with the
Loan, (ii) release or reduce the debt evidenced by the Note, (iii) impair the
lien of the Mortgages, this Loan Agreement or any other Loan Document, (iv)
impair the rights of Lender to enforce any provisions of the Loan Documents, or
(v) limit Lender’s ability to obtain a deficiency judgment or judgment on the
Loan or otherwise against any Borrower Party to the extent necessary to obtain
any amount for which such Borrower Party may be personally liable in accordance
with this Article or any other Loan Document.
ARTICLE XIII
MISCELLANEOUS
Section 13.1
Expenses and Attorneys’
Fees
.
Whether
or not the transactions contemplated hereby shall be consummated, Borrowers
agree to promptly pay all reasonable out-of-pocket fees, costs and expenses
incurred by Lender in connection with any matters contemplated by or arising out
of this Loan Agreement, including the following, and all such fees, costs and
expenses shall be part of the Obligations, payable on demand: (A) reasonable
fees, costs and expenses (including reasonable attorneys’ fees, and other
professionals retained by Lender) incurred in connection with the examination,
review, due diligence investigation, documentation and closing of the financing
arrangements evidenced by the Loan Documents; (B) reasonable fees, costs and
expenses (including reasonable attorneys’ fees and other professionals retained
by Lender) incurred in connection with the administration of the Loan Documents
and the Loan and any amendments, modifications and waivers relating thereto; (C)
reasonable fees, costs and expenses (including reasonable attorneys’ fees)
incurred in connection with the review, documentation, negotiation and
administration of any requests initiated by any Borrower under or in connection
with the Loan Documents (including, without limitation, requests for lease,
budget and management approvals and subordination, non disturbance and/or
attornment agreements); and (D) reasonable fees, costs and expenses (including
attorneys’ fees and fees of other professionals retained by Lender) incurred in
any action to enforce or interpret this Loan Agreement or the other Loan
Documents or to collect any payments due from any Borrower under this Loan
Agreement, the Note or any other Loan Document or incurred in connection with
any refinancing or restructuring of the credit arrangements provided under this
Loan Agreement, whether in the nature of a “workout” or in connection with any
insolvency or bankruptcy proceedings or otherwise. Any costs and expenses due
and payable to Lender after the Closing Date may be paid to Lender pursuant to
the terms hereof.
Section 13.2
Indemnity
.
In
addition to the payment of expenses as required elsewhere herein, whether or not
the transactions contemplated hereby shall be consummated, Borrowers agree,
jointly and severally, to indemnify, defend, protect, pay and hold Lender, its
successors and assigns (including, without limitation, the trustee and/or the
trust under any trust agreement executed in connection with any Securitization
backed in whole or in part by the Loan and any other Person which may hereafter
be the holder of the Note or any interest therein), and the officers, directors,
stockholders, partners, members, employees, agents and Affiliates of Lender and
such successors and assigns (collectively called the “
Indemnitees
”)
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, Tax Liabilities, broker’s or
finders fees, reasonable costs, expenses and disbursements of any kind or nature
whatsoever (including the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee shall be
designated a party thereto) that may be imposed on, incurred by, or asserted
against that Indemnitee, in any manner relating to or arising out of any of the
following (to the extent that insurance proceeds paid on account of same shall
be inadequate) (A) the enforcement of any of the Loan Documents; (B) any breach
by any Borrower of any representation, warranty, covenant, or other agreement
contained in any of the Loan Documents; (C) the presence, release, threatened
release, disposal, removal, or cleanup of any Hazardous Material located on,
about, within or affecting any of the Properties or any violation of any
applicable Environmental Law for which any Borrower is liable; (D) any claim
brought by any third party arising out of any condition or occurrence at or
pertaining to any of the Properties; (E) any design, construction, operation,
repair, maintenance, use, non-use or condition of any of the Properties or
Improvements, including claims or penalties arising from violation of any
applicable laws or insurance requirements, as well as any claim based on any
patent or latent defect, whether or not discoverable by Lender; (F) any
performance of any labor or services or the furnishing of any materials or other
property in respect of any of the Properties or any part thereof; (G) any
contest referred to in Section 5.3(B) hereof; (H) any obligation or undertaking
relating to the performance or discharge of any of the terms, covenants and
conditions of the landlord contained in the Leases; or (I) the use or intended
use of the proceeds of any of the Loan (the foregoing liabilities herein
collectively referred to as the “
Indemnified
Liabilities
”),
except to the extent caused by Lender’s gross negligence or willful misconduct.
Any amounts payable to any Indemnitee by reason of the application of this
Section 13.2 shall be payable on demand and shall bear interest at the Default
Rate from the date such loss or damage is sustained by any Indemnitee until
paid. The obligations and liabilities of Borrowers under this Section 13.2 shall
survive the term of the Loan and the exercise by Lender of any of its rights or
remedies under the Loan Documents, including the acquisition of the Properties
(or any of them) by foreclosure or a conveyance in lieu of
foreclosure.
Section 13.3
Amendments and
Waivers
.
Except
as otherwise provided herein, no amendment, modification, termination or waiver
of any provision of this Loan Agreement, the Note or any other Loan Document, or
consent to any departure therefrom, shall in any event be effective unless the
same shall be in writing and signed by Lender and any other party to be charged.
Each amendment, modification, termination or waiver shall be effective only in
the specific instance and for the specific purpose for which it was given. No
notice to or demand on Borrowers in any case shall entitle any Borrower or other
Person to any other or further notice or demand in similar or other
circumstances (except for any notices as expressly required herein or under the
other Loan Documents).
Section 13.4
Retention of Borrowers’
Documents
.
Lender
may, in accordance with Lender’s customary practices, destroy or otherwise
dispose of all documents, schedules, invoices or other papers, delivered by
Borrowers to Lender unless Borrowers request in writing that same be returned.
Upon such request and at Borrowers’ expense, Lender shall return such papers
when Lender’s actual or anticipated need for same has terminated.
Section 13.5
Notices
.
Unless
otherwise specifically provided herein, any notice or other communication
required or permitted to be given shall be in writing and addressed to the
respective party as set forth below. Notices shall be effective (i) three (3)
Business Days after the date such notice is mailed, (ii) on the next Business
Day if sent by a nationally recognized overnight courier service, (iii) on the
date of delivery by personal delivery and (iv) on the date of transmission if
sent by telefax during business hours on a Business Day (otherwise on the next
Business Day) (with receipt of confirmation). Notices shall be addressed as
follows:
If to
Borrowers or any Borrower Party:
c/o
Lightstone Holdngs LLC
326 Third
Street
Lakewood,
New Jersey 08701
Attention:
David Lichtenstein
Facsimile:
732-363-7183
With
copies to:
Herrick,
Feinstein LLP
2 Park
Avenue
New York,
New York 10016
Attention:
Sheldon Chanales, Esq.
Facsimile:
212-545-3313
If to
Lender:
Citigroup
Global Markets Realty Corp.
388
Greenwich Street, 19
th
Floor
New York,
New York 10013
Attn:
Elisa DePalma
Facsimile:
212-816-4197
With
copies to:
Sidley
Austin LLP
One South
Dearborn Street
Chicago,
Illinois 60603
Attn:
Charles Schrank
Facsimile:
(312) 853-7036
Any party
may change the address at which it is to receive notices to another address in
the United States at which business is conducted (and not a post-office box or
other similar receptacle), by giving notice of such change of address in
accordance with the foregoing. This provision shall not invalidate or impose
additional requirements for the delivery or effectiveness of any notice (i)
given in accordance with applicable statutes or rules of court, or (ii) by
service of process in accordance with applicable law. If there is any assignment
or transfer of Lender interest in the Loan, then the new Lender may give notice
to the parties in accordance with this Section, specifying the addresses at
which the new Lender shall receive notice, such new Lender shall be entitled to
notice at such address in accordance with this Section. In the event that the
Borrowers hereunder shall at any time consist of more than one (1) person or
entity, then (x) any notice sent to the foregoing address(es) for notice for
Borrowers shall be binding on each and all of the Borrowers, and (y) any notice
sent by any of the persons or entities so comprising the Borrowers shall be
binding on the Borrowers hereunder and all of the persons or entities so
comprising the Borrowers (and, in the event of conflicting notices from the
persons or entities comprising the Borrowers, Lender shall be permitted to rely
on the first notice received by Lender from any person or entity comprising the
Borrowers with respect to the subject matter of such conflict, without
inquiry).
Section 13.6
Survival of Warranties and
Certain Agreements
.
All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Loan Agreement, the making of the Loan hereunder
and the execution and delivery of the Note. Notwithstanding anything in this
Loan Agreement or implied by law to the contrary, the agreements of Borrower
Parties to indemnify or release Lender or Persons related to Lender, or to pay
Lender’s costs, expenses, or taxes shall survive the payment of the Loan and the
termination of this Loan Agreement.
Section 13.7
Failure or Indulgence Not
Waiver; Remedies Cumulative
.
No
failure or delay on the part of Lender in the exercise of any power, right or
privilege hereunder or under the Note or any other Loan Document shall impair
such power, right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any
other right, power or privilege. All rights and remedies existing under this
Loan Agreement, the Note and the other Loan Documents are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
Section 13.8
Marshaling; Payments Set
Aside
.
Lender
shall not be under any obligation to marshal any assets in favor of any Person
or against or in payment of any or all of the Obligations. To the extent that
any Person makes a payment or payments to Lender, or Lender enforces its
remedies or exercises its rights of set off, and such payment or payments or the
proceeds of such enforcement or set off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Obligations or part thereof originally intended to
be satisfied, and all Liens, if any, and rights and remedies therefor, shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or set off had not occurred.
Section 13.9
Severability
.
The
invalidity, illegality or unenforceability in any jurisdiction of any provision
in or obligation under this Loan Agreement, the Note or other Loan Documents
shall not affect or impair the validity, legality or enforceability of the
remaining provisions or obligations under this Loan Agreement, the Note or other
Loan Documents or of such provision or obligation in any other
jurisdiction.
Section 13.10
Headings
.
Section
and subsection headings in this Loan Agreement are included herein for
convenience of reference only and shall not constitute a part of this Loan
Agreement for any other purpose or be given any substantive effect.
Section 13.11
APPLICABLE
LAW
. THE PARTIES HEREBY AGREE AND
IRREVOCABLY ELECT THAT THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE
OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES, AND PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA EXCEPT THAT AT ALL
TIMES THE PROVISIONS FOR THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS
AND SECURITY INTERESTS CREATED PURSUANT TO THE MORTGAGE AND THE ASSIGNMENT OF
LEASES SHALL BE GOVERNED BY THE LAWS OF THE STATE WHERE THE PROPERTIES ARE
LOCATED, EXCEPT THAT THE SECURITY INTERESTS IN ACCOUNT COLLATERAL SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
Section 13.12
Successors and
Assigns
.
This
Loan Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns except that no Borrower Party
may assign its rights or obligations hereunder or under any of the other Loan
Documents except as expressly provided in Article XI.
Section 13.13
Sophisticated Parties,
Reasonable Terms, No Fiduciary Relationship
.
Each
Borrower represents, warrants and acknowledges that (i) it is a sophisticated
real estate investor, familiar with transactions of this kind, and (ii) it has
entered into this Loan Agreement and the other Loan Documents after conducting
its own assessment of the alternatives available to it in the market, and after
lengthy negotiations in which it has been represented by competent legal counsel
of its choice. Each Borrower also acknowledges and agrees that the rights of
Lender under this Loan Agreement and the other Loan Documents are reasonable and
appropriate, taking into consideration all of the facts and circumstances
including the quantity of the Loan, the nature of the Properties, and the risks
incurred by Lender in this transaction. No provision in this Loan Agreement or
in any of the other Loan Documents and no course of dealing between the parties
shall be deemed to create (i) any partnership or joint venture between Lender
and any Borrower or any other Person, or (ii) any fiduciary or similar duty by
Lender to any Borrower or any other Person. The relationship between Lender and
Borrowers is exclusively the relationship of a creditor and a debtor, and all
relationships between Lender and any other Borrower Party are ancillary to such
creditor/debtor relationship.
Section 13.14
Reasonableness of
Determinations
.
In any
instance where any consent, approval, determination or other action by Lender
is, pursuant to the Loan Documents or applicable law, required to be done
reasonably or required not to be unreasonably withheld, Borrowers shall bear the
burden of proof of showing that the same was not reasonable. In all cases Lender
shall conclusively be deemed to be acting reasonably when implementing any
standard or requirement of any applicable Rating Agency, or in refusing or
delaying any consent due to the existence of any Event of Default. In no event
shall references herein or in the other Loan Documents to the “existence” or
“continuance” of an Event of Default imply that any Event of Default, or any
Default, once maturing into an Event of Default due to the expiration of any
applicable cure period or by operation of this Loan Agreement in the event no
cure period is provided hereunder, shall be further susceptible of cure by
Borrowers or otherwise cease to be an Event of Default in the absence of a
written waiver of such Event of Default by the Lender. In the event that a claim
or adjudication is made that Lender or its agents have acted unreasonably or
unreasonably delayed acting in any case where, by law or under this Loan
Agreement or the other Loan Documents, Lender or such agent, as the case may be,
has an obligation to act reasonably or promptly, neither Lender nor its agents
shall be liable for any monetary damages, and Borrowers’ sole remedy shall be
limited to commencing an action seeking injunctive relief or declaratory
judgment. Any action or proceeding to determine whether Lender has acted
reasonably shall be determined by an action seeking declaratory
judgment.
Section 13.15
No
Duty
.
All
attorneys, accountants, appraisers, and other professional Persons and
consultants retained by Lender shall have the right to act exclusively in the
interest of Lender and shall have no duty of disclosure, duty of loyalty, duty
of care, or other duty or obligation of any type or nature whatsoever to any
Borrower Party or Affiliates thereof, or any other Person.
Section 13.16
Entire
Agreement
.
This
Loan Agreement, the Note, and the other Loan Documents referred to herein embody
the final, entire agreement among the parties hereto and supersede any and all
prior commitments, agreements, representations, and understandings, whether
written or oral, relating to the subject matter hereof and may not be
contradicted or varied by evidence of prior, contemporaneous, or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties to the Loan Documents.
Section 13.17
Construction; Supremacy of
Loan Agreement
.
Borrowers and Lender acknowledge that each of them has had the benefit of legal
counsel of its own choice and has been afforded an opportunity to review this
Loan Agreement and the other Loan Documents with its legal counsel and that this
Loan Agreement and the other Loan Documents shall be construed as if jointly
drafted by Borrowers and Lender. If any term, condition or provision of this
Loan Agreement shall be inconsistent with any term, condition or provision of
any other Loan Document, then this Loan Agreement shall control.
Section 13.18
Consent to
Jurisdiction
. EACH BORROWER HEREBY CONSENTS TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK OR, AS APPLICABLE, WITHIN THE COUNTY AND STATE IN WHICH
THE PROPERTIES ARE LOCATED AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER’S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH
BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH THE PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS LOAN AGREEMENT, THE
NOTE, SUCH OTHER LOAN DOCUMENTS OR SUCH OBLIGATION. NOTHING HEREIN SHALL AFFECT
THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST ANY BORROWER PARTY IN THE
COURTS OF ANY OTHER JURISDICTION.
Section 13.19
Waiver of Jury
Trial
.
EACH OF BORROWERS AND LENDER HEREBY
WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS LOAN AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR
ANY DEALINGS BETWEEN BORROWERS AND LENDER RELATING TO THE SUBJECT MATTER OF THIS
LOAN TRANSACTION AND LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED.
EACH OF BORROWERS AND LENDER ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON
SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF IT. THE SCOPE OF THIS
WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. EACH OF BORROWERS AND LENDER ACKNOWLEDGES THAT
THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS LOAN AGREEMENT, THAT
EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS LOAN AGREEMENT AND
THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THE FUTURE. EACH OF BORROWERS
AND LENDER FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH
ITS LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A
MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 13.19 AND EXECUTED
BY EACH OF THE PARTIES HERETO), AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LOAN AGREEMENT, THE
LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOAN. IN
THE EVENT OF LITIGATION, THIS LOAN AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
Section 13.20
Counterparts;
Effectiveness
.
This
Loan Agreement and other Loan Documents and any amendments or supplements
thereto may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all of which counterparts together shall
constitute but one and the same instrument. This Loan Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto.
Section 13.21
Servicer
.
Lender
shall have the right from time to time to designate and appoint one or more
Servicers, and to change or replace any Servicer. All rights of the Lender
hereunder may exercised by Servicer. Servicer shall be entitled to the benefit
of all obligations of any of Borrower Party in favor of Lender.
Section 13.22
Waiver of
Notice
.
Borrowers shall not be entitled to any notices of any nature whatsoever from
Lender except with respect to matters for which this Agreement or another Loan
Document specifically and expressly provides for the giving of notice by Lender
to Borrowers and except with respect to matters for which Borrowers are not,
pursuant to applicable Legal Requirements, permitted to waive the giving of
notice. Each Borrower hereby expressly waives the right to receive any notice
from Lender with respect to any matter for which this Loan Agreement or other
Loan Documents does not specifically and expressly provide for the giving of
notice by Lender to Borrowers.
Section 13.23
Offsets, Counterclaims and
Defenses
.
Any
assignee of Lender’s interest in and to this Loan Agreement and the other Loan
Documents shall take the same free and clear of all offsets, counterclaims or
defenses which are unrelated to this Loan Agreement and the other Loan Documents
which any Borrower may otherwise have against any assignor or this Loan
Agreement and the other Loan Documents. No such unrelated counterclaim or
defense shall be interposed or asserted by any Borrower in any action or
proceeding brought by any such assignee upon this Loan Agreement or upon any
other Loan Document. Any such right to interpose or assert any such unrelated
offset, counterclaim or defense in any such action or proceeding is hereby
expressly waived by each Borrower.
Section 13.24
Waiver of
Counterclaim
.
Each
Borrower hereby waives the right to assert a counterclaim, other than compulsory
counterclaim, in any action or proceeding brought against it by Lender or its
agents.
Section 13.25
Brokers and Financial
Advisors
.
Each
Borrower hereby represents that neither it nor any of its Affiliates has dealt
with any financial advisors, brokers, underwriters, placement agents, agents or
finders in connection with the transactions contemplated by this Loan Agreement.
Borrowers hereby agree, jointly and severally, to indemnify and hold Lender
harmless from and against any and all claims, liabilities, costs and expenses of
any kind in any way relating to or arising from a claim by any Person that such
Person acted on behalf of the indemnifying party in connection with any Borrower
or its respective Affiliates transactions contemplated herein. The provisions of
this Section 13.25 shall survive the expiration and termination of this
Agreement and the repayment of the Obligations.
Section 13.26
Joint and Several
Liability
.
All
representations, warranties, covenants (both affirmative and negative) and all
other obligations hereunder shall be the joint and several obligation of each
Borrower and a default or Event of Default by any Borrower shall be deemed a
default or Event of Default by all of the Borrowers. The representations,
covenants and warranties contained herein or in any other Loan Document shall be
read to apply to each Borrower when the context so requires but a breach of any
such representation, covenant or warranty or a breach of any obligation under
the Loan Documents shall be deemed a breach by all the Borrowers, entitling
Lender to exercise all of its rights and remedies under all the Loan Documents
and under applicable law.
IN
WITNESS WHEREOF, the parties hereto have duly executed and delivered this Loan
Agreement as of the date first written above.
|
BORROWER:
|
|
|
|
|
SCOTSDALE MI
LLC
,
a Delaware
limited
liability
company
|
|
|
|
|
By:
|
LVP Michigan
Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
|
|
|
|
CARRIAGE PARK MI
LLC
, a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP Michigan
Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
|
|
|
|
MACOMB MANOR MI LLC
,
a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP Michigan
Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
|
|
|
|
CARRIAGE HILL MI
LLC
,
a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP Michigan
Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
|
LENDER
:
|
|
|
|
|
/s/ CITIGROUP GLOBAL MARKETS
REALTY CORP
.,
a New York corporation
|
|
|
|
|
|
|
|
|
|
|
LIST OF SCHEDULES
Schedules
A-1 - A-4
|
Individual
Properties
|
Schedule
3.1(N)
|
Budgets
|
Schedule
4.1(C)
|
Organizational
Chart for Borrower Parties
|
Schedule
6.4
|
Approved
Capital Expenditures
|
Schedule
6.6
|
Certain
Reserve Funding Conditions
|
Schedule
6.7
|
Immediate
Repairs
|
SCHEDULE A-1
SCHEDULE A-2
SCHEDULE A-3
SCHEDULE A-4
SCHEDULE 3.1(N)
Budgets
SCHEDULE
4.1(C)
Organizational
Chart
SCHEDULE 6.4
Approved Capital
Expenditures
SCHEDULE 6.6
REPLACEMENT RESERVE FUNDING
CONDITIONS
1.
Borrowers
shall have submitted to Lender a written request for disbursement at least ten
(10) days prior to the Payment Date on which Borrowers request such disbursement
be made, specifying the specific Capital Expenditures for which the disbursement
is requested and such other information (such as the price of materials and the
cost of contracted labor or other services) as Lender may reasonably require,
which request must be on a form specified or approved by Lender;
2.
On the
date such request is received by Lender and on the Payment Date such payment is
to be made, no Event of Default shall exist and remain uncured;
3.
Lender
shall have received a certificate from the Borrowers stating that all Capital
Expenditures at the applicable Individual Property to be funded by the requested
disbursement have been completed in a good and workmanlike manner and in
accordance with any plans and specifications approved by Lender and all Legal
Requirements of any Governmental Authority having jurisdiction over such
Individual Property, such certificate to be accompanied, in either case, by a
copy of any license, permit or other approval by any Governmental Authority
required to commence (only for the first advance with respect to each distinct
item of work) and/or complete (only for the final advance with respect to each
distinct item of work) such Capital Expenditures;
4.
Lender
shall have received a certificate from the Borrowers stating that each Person
that supplied materials or labor in connection with the Capital Expenditures to
be funded by the requested disbursement has been paid in full or will be paid in
full upon such disbursement, such certificate to be accompanied by copies of
invoices for all items or materials purchased and all contracted labor or
services provided;
5.
Lender
shall have received appropriate lien waivers from each contractor, supplier,
materialman, mechanic or subcontractor who receives payment in an amount equal
to or greater than $10,000 for completion of its work or delivery of its
materials, which lien waivers shall conform to the requirements of applicable
law and shall cover all work performed and materials supplied (including
equipment and fixtures) for the applicable Individual Property by that
contractor, supplier, subcontractor, mechanic or materialman through the date
covered by the current disbursement request; and
6.
At
Lender’s option, Lender shall have received a title search for the applicable
Individual Property effective to the date of the disbursement, which search
shows that no mechanic’s or materialmen’s liens or other Liens of any nature
have been placed against the applicable Individual Property since the date of
recordation of the Mortgage affecting such Individual Property and that title to
such Individual Property is free and clear of all Liens (other than the
Permitted Encumbrances).
SCHEDULE 6.7
Completion/Repair
Reserve
EXHIBIT 10.11
PROMISSORY NOTE
$52,000,000.00
|
June 30,
2006
|
FOR VALUE
RECEIVED,
SCOTSDALE MI LLC
(“
Scotsdale
”),
CARRIAGE PARK MI LLC
(“
Carriage
Park”
),
MACOMB MANOR MI
LLC
(“Macomb
Manor”), and
CARRIAGE HILL MI LLC
(“
Carriage
Hill”
),
each a
Delaware limited liability company, having its principal place of business c/o
Lightstone Holdings LLC, 326 Third Street, Lakewood, New Jersey
08701
(hereinafter
collectively referred to as
the
“
Borrower
”;
references herein to the Borrower unless otherwise specifically stated, shall
also mean and refer to each and every one of Scotsdale, Carriage Park, Macomb
Manor and Carriage Hill, jointly and severally)
, as
maker, hereby unconditionally promises to pay to the order of
CITIGROUP GLOBAL MARKETS REALTY
CORP.
, a New
York corporation
, as
lender, having an address at
388
Greenwich Street, 19
th
Floor,
New York, New York 10013
(“
Lender
”), or at
such other place as the holder hereof may from time to time designate in
writing, the principal sum of FIFTY-TWO MILLION AND NO/100 DOLLARS
($52,000,000.00), or so much thereof as is advanced, in lawful money of the
United States of America, with interest thereon to be computed from the date of
this Note at the Interest Rate, and to be paid in accordance with the terms of
this Note and that certain Loan and Security Agreement dated the date hereof
between Borrower and Lender (as amended, restated, supplemented or otherwise
modified from time to time, the “
Loan Agreement
”). All
capitalized terms not defined herein shall have the respective meanings set
forth in the Loan Agreement.
ARTICLE 1: PAYMENT
TERMS
Borrower
agrees to pay the principal sum of this Promissory Note (the
“Note”
) and
interest on the unpaid principal sum of this Note from time to time outstanding
at the rates and at the times specified in
Article II
of the
Loan Agreement and the outstanding balance of the principal sum of this Note and
all accrued and unpaid interest thereon shall be due and payable on the Maturity
Date.
ARTICLE 2: DEFAULT AND
ACCELERATION
The Loan
shall without notice (except as provided in the Loan Agreement) become
immediately due and payable at the option of Lender (except as otherwise set
forth in
Article VIII
of the
Loan Agreement) if any payment required in this Note is not paid on or prior to
the date when due or if not paid on the Maturity Date or on the happening of any
other Event of Default.
ARTICLE 3: LOAN
DOCUMENTS
This Note
is being executed and delivered pursuant to the Loan Agreement and is secured
by, among other things,
those
certain Mortgages
,
Assignment of Leases and Rents, Security Agreement and Fixture Filings, each
dated as of the date hereof (collectively, the “
Instrument
”)
executed by Borrower, encumbering each Borrower’s fee simple interest in and to
certain real properties and improvements, as more particularly described therein
(collectively, the “
Property
”), those
certain Assignments of Leases and Rents, each dated as of the date hereof
(collectively, the “
Assignment of
Leases
”),
executed by each Borrower and all other Loan Documents. All of the terms,
covenants and conditions contained in the Loan Agreement, the Instrument, the
Assignment of Leases and the other Loan Documents are hereby made part of this
Note to the same extent and with the same force as if they were fully set forth
herein. In the event of a conflict or inconsistency between the terms of this
Note and the Loan Agreement, the Instrument, the Assignment of Leases or the
other Loan Documents, the terms and provisions of the Loan Agreement shall
govern.
ARTICLE 4: SAVINGS
CLAUSE
Notwithstanding
anything to the contrary, (a) all agreements and communications between Borrower
and Lender are hereby and shall automatically be limited so that, after taking
into account all amounts deemed interest, the interest contracted for, charged
or received by Lender shall never exceed the maximum lawful rate or amount, (b)
in calculating whether any interest exceeds the lawful maximum, all such
interest shall be amortized, prorated, allocated and spread over the full amount
and term of all principal indebtedness of Borrower to Lender, and (c) if through
any contingency or event, Lender receives or is deemed to receive interest in
excess of the lawful maximum, any such excess shall be deemed to have been
applied toward payment of the principal of any and all then outstanding
indebtedness of Borrower to Lender, or if there is no such indebtedness, shall
promptly be returned to Borrower.
ARTICLE 5: NO ORAL
CHANGE
This Note
may not be modified, amended, waived, extended, changed, discharged or
terminated orally or by any act or failure to act on the part of Borrower or
Lender, but only by an agreement in writing signed by the party against whom
enforcement of any modification, amendment, waiver, extension, change, discharge
or termination is sought.
ARTICLE 6:
WAIVERS
Borrower
and all others who may become liable for the payment of all or any part of the
Loan do hereby severally waive presentment and demand for payment, notice of
dishonor, notice of intention to accelerate, notice of acceleration, protest and
notice of protest and non-payment and all other notices of any kind except those
expressly required by a Loan Document. No release of any security for the Loan
or extension of time for payment of this Note or any installment hereof, and no
alteration, amendment or waiver of any provision of this Note, the Loan
Agreement, the Instrument, the Assignment of Leases or the other Loan Documents
made by agreement between Lender or any other Person shall release, modify,
amend, waive, extend, change, discharge, terminate or affect the liability of
Borrower or any other Person who may become liable for the payment of all or any
part of the Loan under this Note, the Loan Agreement, the Instrument, the
Assignment of Leases or the other Loan Documents. No notice to or demand on
Borrower shall be deemed to be a waiver of the obligation of Borrower or of the
right of Lender to take further action without further notice or demand as
provided for in this Note, the Loan Agreement, the Instrument, the Assignment of
Leases or the other Loan Documents. If Borrower is a partnership or limited
liability company, the agreements herein contained shall remain in force and be
applicable, notwithstanding any changes in the individuals comprising the
partnership or limited liability company and their partners or members, and the
term “Borrower,” as used herein, shall include any alternate or successor
partnership or limited liability company, but any predecessor partnership or
limited liability company shall not thereby be released from any liability. If
Borrower is a corporation, the agreements contained herein shall remain in full
force and be applicable notwithstanding any changes in the shareholders
comprising, or the officers and directors relating to, the corporation, and the
term “Borrower,” as used herein, shall include any alternative or successor
corporation, but any predecessor corporation shall not be relieved of liability
hereunder. (Nothing in the foregoing sentence shall be construed as a consent
to, or a waiver of, any prohibition or restriction on transfers of interests in
such partnership, limited liability company or corporation, which may be set
forth in the Loan Agreement or any other Loan Document.)
ARTICLE 7:
TRANSFER
Upon the
transfer of this Note, Lender may deliver all the collateral granted, pledged or
assigned pursuant to the Loan Documents, or any part thereof, to the transferee
who shall thereupon become vested with all the rights and obligations herein or
under applicable law given to Lender with respect thereto, and Lender shall
thereafter forever be relieved and fully discharged from any liability or
responsibility in the matter; but Lender shall retain all rights and obligations
hereby given to it with respect to any liabilities and the collateral not so
transferred.
ARTICLE 8:
EXCULPATION
The
provisions of
Article XII
of the
Loan Agreement are hereby incorporated by reference into this Note to the same
extent and with the same force as if fully set forth herein.
ARTICLE 9: GOVERNING
LAW
(A)
THIS NOTE AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH
STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF
THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER
HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW
OF ANY OTHER JURISDICTION GOVERNS THIS NOTE AND THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
(B)
EACH OF BORROWER AND LENDER HEREBY
CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
COUNTY OF NEW YORK, STATE OF NEW YORK OR WITHIN THE COUNTY AND STATE IN WHICH
THE PROPERTY IS LOCATED AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER’S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE OR
THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. BORROWER ACCEPTS FOR
ITSELF AND IN CONNECTION WITH THE PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS NOTE, SUCH OTHER LOAN DOCUMENTS OR SUCH
OBLIGATION. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF LENDER TO BRING PROCEEDINGS
AGAINST ANY BORROWER PARTY IN THE COURTS OF ANY OTHER
JURISDICTION.
ARTICLE 10
: NOTICES
All
notices or other written communications hereunder shall be delivered in
accordance with
Section 13.5
of the
Loan Agreement.
[NO
FURTHER TEXT ON THIS PAGE]
IN
WITNESS WHEREOF, this Note has been executed as of the date first above
written.
|
BORROWER:
|
|
|
|
|
SCOTSDALE MI
LLC
,
a Delaware
limited
liability
company
|
|
|
|
|
By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
|
|
|
|
CARRIAGE PARK MI
LLC
, a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
|
|
|
|
MACOMB MANOR MI LLC
,
a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
|
|
|
|
CARRIAGE HILL MI
LLC
,
a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
EXHIBIT
10.12
SCOTSDALE MI
LLC.
,
as Mortgagor
|
|
|
|
To
|
|
CITIGROUP GLOBAL MARKETS
REALTY, INC.,
as
Mortgagee
|
|
|
|
|
|
|
|
MORTGAGE
|
|
|
|
|
|
|
|
|
Dated:
|
As
of June 30, 2006
|
|
|
|
|
|
|
Location:
|
37650
Dale Drive
Westland,
Michigan 48185
|
|
|
|
|
|
|
County:
|
Wayne
County
|
|
THIS MORTGAGE
(as the
same may be amended, restated, extended, supplemented or otherwise modified from
time to time, this “
Mortgage
”), is
made as of the 30th day of June, 2006, by SCOTSDALE MI LLC, a Delaware
limited liability company, having an address
c/o
Lightstone Holdings LLC, 326 Third Street, Lakewood, New Jersey
08701
(“
Mortgagor
”), to
and for the benefit of CITIGROUP GLOBAL MARKETS REALTY CORP., a New York
corporation, having an address at 388 Greenwich Street, 19th Floor, New York,
New York 10013 (together with its successors and assigns, “
Mortgagee
”).
Capitalized terms used herein but not otherwise defined shall have the
respective meanings assigned to such terms in the Loan Agreement (hereinafter
defined).
WITNESSETH:
To secure
the payment of a loan (the “
Loan
”) in the
original principal sum of Fifty-Two Million and NO/100ths Dollars
($52,000,000.00), lawful money of the United States of America, being made from
Mortgagee to Mortgagor and the Additional Borrowers (as hereinafter defined) on
the date hereof pursuant to the terms and conditions of a certain Loan and
Security Agreement, dated as of the date hereof (as amended, modified or
restated, the “
Loan
Agreement
”),
between Mortgagor, together with CARRIAGE PARK MI LLC, a Delaware limited
liability company, CHERRY HILL MI LLC, a Delaware limited liability company,
MACOMB MANOR MI LLC, a Delaware limited liability company and CARRIAGE HILL MI
LLC, a Delaware limited liability company (collectively, the “
Additional
Borrowers
”) and
Mortgagee, which Loan is evidenced by and is to be paid with interest according
to a Promissory Note in the principal sum of Fifty-Two Million and NO/100ths
Dollars ($52,000,000.00) dated as of the date hereof having a scheduled maturity
date of July 11, 2016 (collectively, as amended, modified, renewed or restated
and together with any substitutes or replacements therefor, the “
Note
”), made
by Mortgagor and the Additional Borrowers to Mortgagee and all other sums now or
hereafter due hereunder, or otherwise due under the Loan Documents (as defined
in the Loan Agreement) (the principal amount of the Loan, together with interest
thereon and all sums due hereunder and under the Loan Agreement, the Note and
the other Loan Documents being collectively called the “
Debt
”), and
all of the agreements, covenants, conditions, warranties, representations and
other obligations (other than to repay the Debt) made or undertaken by Mortgagor
or any other person or entity to Mortgagee or others as set forth in the Loan
Documents (collectively, the “
Obligations
”),
Mortgagor has mortgaged, given, granted, bargained, sold, alienated, enfeoffed,
conveyed, confirmed, pledged, assigned, and hypothecated and by these presents
does hereby mortgage, warrant, give, grant, bargain, sell, alien, enfeoff,
convey, confirm, pledge, assign, hypothecate, convey and grant a security
interest unto Mortgagee, with power of sale, subject to the Permitted
Encumbrances, all of Mortgagor’s right, title, interest and estate in and to the
real property
described
on
Exhibit A
attached
hereto (the “
Premises
”) and
the buildings, structures, fixtures, additions, enlargements, extensions,
modifications, repairs, replacements and improvements now or hereafter located
thereon (the “
Improvements
”);
TOGETHER
WITH: all right, title, interest and estate of Mortgagor now owned, or hereafter
acquired, in and to the following property, rights, interests and estates (the
Premises and the Improvements, together with the following property, rights,
interests and estates being hereinafter described, are collectively referred to
herein as the “
Mortgaged
Property
”):
(a)
all
easements, rights-of-way, strips and gores of land, streets, ways, alleys,
passages, sewer rights, water, water courses, water rights and powers, air
rights and development rights, and all estates, rights, titles, interests,
privileges, liberties, tenements, hereditaments and appurtenances of any nature
whatsoever, in any way belonging, relating or pertaining to the Premises and the
Improvements and the reversion and reversions, remainder and remainders, and all
land lying in the bed of any street, road or avenue, opened or proposed, in
front of or adjoining the Premises, to the center line thereof and all the
estates, rights, titles, interests, dower and rights of dower, curtesy and
rights of curtesy, property, possession, claim and demand whatsoever, both at
law and in equity, of Mortgagor of, in and to the Premises and the Improvements,
and every part and parcel thereof, with the appurtenances thereto and all rights
to divide the property pursuant to Public Act 591 of the Michigan Public Acts of
1966, as amended (MCL 560-101 et. seq.);
(b)
all
machinery, equipment, fixtures (including, but not limited to, all heating, air
conditioning, plumbing, lighting, communications and elevator fixtures) and
other property of every kind and nature, whether tangible or intangible,
whatsoever owned by Mortgagor, or in which Mortgagor has or shall have an
interest, now or hereafter located upon the Premises and the Improvements, or
appurtenant thereto, and usable in connection with the present or future
operation and occupancy of the Premises and the Improvements and all building
equipment, materials and supplies of any nature whatsoever owned by Mortgagor,
or in which Mortgagor has or shall have an interest, now or hereafter located
upon the Premises or the Improvements, or appurtenant thereto, and usable in
connection with the present or future operation, enjoyment and occupancy of the
Premises and the Improvements (hereinafter collectively called the “
Equipment
”),
including the proceeds of any sale or transfer of the foregoing, and the right,
title and interest of Mortgagor in and to any of the Equipment which may be
subject to any security interests, as defined in the Uniform Commercial Code, as
adopted and enacted by the state or states where any of the Mortgaged Property
is located (the “
Uniform Commercial
Code
”)
superior in lien to the lien of this Mortgage;
(c)
all
awards or payments, including interest thereon, which may heretofore and
hereafter be made with respect to the Mortgaged Property, whether from the
exercise of the right of eminent domain or condemnation (including, but not
limited to, any transfer made in lieu of or in anticipation of the exercise of
said rights), or for a change of grade, or for any other injury to or decrease
in the value of the Mortgaged Property;
(d)
all
leases, tenancies, licenses, subleases, assignments and/or other rental or
occupancy agreements (including, without limitation, any and all guarantees and
supporting obligations of and security deposit and letter of credit rights
relating to any of the foregoing) heretofore or hereafter entered into affecting
the use, enjoyment or occupancy of the Premises and the Improvements, including
any extensions, renewals, modifications or amendments thereof (collectively, the
“
Leases
”),
together with all rights, powers, privileges, options and other benefits of
Mortgagor as lessor under the Leases, including, without limitation, the
immediate and continuing right to receive and collect all rents, income,
revenues, issues, profits, condemnation awards, insurance proceeds, moneys and
security payable or receivable under the Leases or pursuant to any of the
provisions thereof, whether as rent or otherwise, the right to accept or reject
any offer made by any tenant pursuant to its Lease to purchase the Mortgaged
Property and any other property subject to the Lease as therein provided and to
perform all other necessary or appropriate acts with respect to such Leases as
agent and attorney-in-fact for Mortgagor, and the right to make all waivers and
agreements, to give and receive all notices, consents and releases, to take such
action upon the happening of a default under any Lease, including the
commencement, conduct and consummation of proceedings at law or in equity as
shall be permitted under any provision of any Lease or by any law, and to do any
and all other things whatsoever which Mortgagor is or may become entitled to do
under any such Lease together with all accounts receivable, contract rights,
franchises, interests, estates or other claims, both at law or in equity,
relating to the Mortgaged Property, to the extent not included in rent earnings
and income under any of the Leases, including the right to receive and collect
any sums payable to Mortgagor thereunder and all deposits or other security or
advance payments made by Mortgagor with respect to any of the services related
to the Mortgaged Property or the operation thereof, and together with all rents,
rent equivalents (including room revenues, if applicable), moneys payable as
damages or in lieu of rent or rent equivalents, royalties (including, without
limitation, all oil and gas or other mineral royalties and bonuses), income,
receivables, receipts, revenues, deposits (including, without limitation,
security, utility and other deposits), accounts, cash, issues, profits, charges
for services rendered, and other consideration of whatever form or nature
received by or paid to or for the account of or benefit of Mortgagor or its
agents or employees from any and all sources arising from or attributable to the
Premises and the Improvements (the “
Rents
”), and
together with all proceeds from the sale or other disposition of the Leases and
the right to receive and apply the Rents to the payment of the
Debt;
(e)
all of
Mortgagor’s right, title and interest in, to and under any and all reserve,
deposit or escrow accounts (the “
Accounts
”) made
pursuant to any of the Loan Documents, together with all income, profits,
benefits, investment property and advantages arising therefrom, and together
with all rights, powers, privileges, options and other benefits of Mortgagor
under the Accounts, and together with the right to do any and all other things
whatsoever which Mortgagor is or may become entitled to do under the
Accounts;
(f)
all trade
names, software, trademarks, trademark applications, trademark licenses,
servicemarks, logos, copyrights, copyright applications, goodwill, books and
records and all other general intangibles relating to or used in connection with
the operation of the Mortgaged Property;
(g)
all
proceeds of and any unearned premiums on any insurance policies covering the
Mortgaged Property, including, without limitation, the right to receive and
apply the proceeds of any insurance, judgments, or settlements made in lieu
thereof, for damage to the Mortgaged Property or any part thereof;
(h)
the
right, following an Event of Default, in the name and on behalf of Mortgagor, to
appear in and defend any action or proceeding brought with respect to the
Mortgaged Property and to commence any action or proceeding to protect the
interest of the Mortgagee in the Mortgaged Property or any part
thereof;
(i)
all
accounts, escrows, reserves, documents, instruments, chattel paper, monetary
obligations, claims, deposits, investment property and general intangibles, as
the foregoing terms are defined in the Uniform Commercial Code, and all books,
records, plans, specifications, designs, drawings, permits, consents, licenses,
franchises, management agreements, contracts, contract rights (including,
without limitation, any contract with any architect or engineer or with any
other provider of goods or services for or in connection with any construction,
repair, or other work upon the Mortgaged Property), approvals, actions, refunds
or real estate taxes and assessments (and any other governmental impositions
related to the Mortgaged Property), and causes of action that now or hereafter
relate to, are derived from or are used in connection with the Mortgaged
Property, or the use, operation, management, improvement, alteration, repair,
maintenance, occupancy or enjoyment thereof or the conduct of any business or
activities thereon;
(j)
all
accounts receivable, contract rights, interests, estate or other claims, both in
law and in equity, which Mortgagor now has or may hereafter acquire in the
Mortgaged Property or any part thereof;
(k)
all
rights which Mortgagor now has or may hereafter acquire, to be indemnified
and/or held harmless from any liability, loss, damage, cost or expense
(including, without limitation, attorneys’ fees and disbursements) relating to
the Mortgaged Property or any part thereof;
(l)
all
personal property of Mortgagor; and
(m)
any and
all proceeds and products of any of the foregoing.
TO HAVE
AND TO HOLD the above granted and described Mortgaged Property unto and to the
use and benefit of Mortgagee, and the successors and assigns of Mortgagee,
forever;
PROVIDED,
HOWEVER, these presents are upon the express condition that, if Mortgagor and
the Additional Borrowers shall well and truly pay to Mortgagee the Debt at the
time and in the manner provided in the Note and this Mortgage and shall pay all
other sums due under the Loan Agreement or any other Loan Document, these
presents and the estate hereby granted shall cease, terminate and be
void;
AND
Mortgagor represents and warrants to and covenants and agrees with Mortgagee as
follows:
1.
Payment of Debt and
Incorporation of Covenants, Conditions and Agreements.
Mortgagor and the Additional Borrowers shall pay the Debt at the time and in the
manner provided in the Note, the Loan Agreement and in this Mortgage. Mortgagor
and the Additional Borrowers will duly and punctually perform all of the
covenants, conditions and agreements contained in the Note, the Loan Agreement,
this Mortgage and the other Loan Documents all of which covenants, conditions
and agreements are hereby made a part of this Mortgage to the same extent and
with the same force as if fully set forth herein.
2.
Warranty of
Title.
Mortgagor warrants that Mortgagor has a good, marketable and insurable fee
simple interest in the Mortgaged Property and has the right to mortgage, give,
grant, bargain, sell, alien, enfeoff, convey, confirm, pledge, assign and
hypothecate the Mortgaged Property and that Mortgagor possesses a fee simple
estate in the Mortgaged Property and that it owns the Mortgaged Property free
and clear of all liens, encumbrances and charges whatsoever except for the
Permitted Encumbrances. Mortgagor represents and warrants that none of the
Permitted Encumbrances will materially and adversely affect (i) Mortgagor’s
ability to pay in full in a timely manner its obligations, including, without
limitation, the Debt, (ii) the use of the Mortgaged Property for the use
currently being made thereof, (iii) the operation of the Mortgaged Property, or
(iv) the value of the Mortgaged Property. Mortgagor shall forever warrant,
defend and preserve such title and the validity and priority of the lien of this
Mortgage and shall forever warrant and defend the same to Mortgagee against the
claims of all persons whomsoever.
3.
Insurance.
(a)
Mortgagor, at its sole cost and expense, shall maintain or cause to be
maintained insurance with respect to the Mortgaged Property for the mutual
benefit of Mortgagor and Mortgagee as required by Section 5.4 of the Loan
Agreement.
(b)
If the
Mortgaged Property shall be damaged or destroyed, in whole or in part, by fire
or other casualty (an “
Insured
Casualty
”),
Mortgagor shall give immediate notice thereof to Mortgagee and to the insurance
carrier. Subject to the terms of the Loan Agreement, Mortgagor shall promptly
repair, replace or rebuild the Mortgaged Property in accordance with, and all
amounts paid with respect to such Insured Casualty under all insurance policies
maintained by Mortgagor shall be governed by, the terms and conditions of
Section 5.5 of the Loan Agreement. The expenses incurred by Mortgagee in the
adjustment and collection of insurance proceeds shall become part of the Debt
and shall be secured hereby and shall be reimbursed by Mortgagor to Mortgagee
upon demand.
4.
Payment of Impositions and
Other Charges
. Subject
to Mortgagor’s right to contest set forth in Section 5.3(B) of the Loan
Agreement and the provisions of Section 5 below, Mortgagor shall cause to be
paid all Impositions now or hereafter levied or assessed or imposed against the
Mortgaged Property or any part thereof as the same become due and payable.
Mortgagor shall promptly pay for all utility services provided to the Mortgaged
Property. Mortgagor shall furnish to Mortgagee or its designee receipts for the
payment of the Impositions prior to the date the same shall become delinquent
(provided, however, that Mortgagor shall not be required to furnish such
receipts for payment of Impositions in the event that such Impositions are to be
paid by Mortgagee pursuant to Section 5 hereof).
5.
Impositions and Insurance
Reserve
.
Mortgagor shall make monthly deposits into the Impositions and Insurance Reserve
of amounts sufficient to pay Impositions and Insurance Premiums in accordance
with the terms of Article VI of the Loan Agreement.
6.
Condemnation
.
Mortgagor shall promptly give Mortgagee written notice of the actual or
threatened commencement of any condemnation or eminent domain proceeding
affecting the Mortgaged Property or any portion thereof and shall deliver to
Mortgagee copies of any and all papers served in connection with such
proceedings. Subject to the terms of Section 5.5 of the Loan Agreement,
Mortgagee is hereby irrevocably appointed as Mortgagor’s attorney-in-fact,
coupled with an interest, with exclusive power to collect, receive and retain
any award or payment for said condemnation or eminent domain and to make any
compromise or settlement in connection with such proceeding. Notwithstanding any
taking by any public or quasi public authority through eminent domain or
otherwise (including but not limited to any transfer made in lieu of or in
anticipation of the exercise of such taking), Mortgagor shall continue to pay
the Debt at the time and in the manner provided for its payment in the Loan
Agreement. Subject to the terms of the Loan Agreement, Mortgagor shall cause the
award or payment made in any condemnation or eminent domain proceeding, which is
payable to Mortgagor, to be paid directly to Mortgagee. The application of any
such award or payment shall be governed by the applicable provisions of the Loan
Agreement.
7.
Maintenance of Mortgaged
Property.
Mortgagor shall cause the Mortgaged Property to be operated and maintained in a
good and safe condition and repair and in keeping with the condition and repair
of properties of a similar use, value, age, nature and construction. Mortgagor
shall not use, maintain or operate the Mortgaged Property in any manner which
constitutes a public or private nuisance or which makes void, voidable, or
cancelable, or increases the premium of, any insurance then in force with
respect thereto. The Improvements and the Equipment shall not be removed or
demolished and no Material Alterations shall be made thereto (except for normal
replacement or disposal of the Equipment and except as otherwise expressly
permitted in the Loan Agreement) without the consent of Mortgagee. Mortgagor
shall promptly comply in all material respects with all laws, orders and
ordinances affecting the Mortgaged Property, or the use thereof.
8.
Use of Mortgaged
Property
.
Mortgagor shall not initiate, join in, acquiesce in, or consent to any change in
any private restrictive covenant, zoning law or other public or private
restriction, limiting or defining the uses which may be made of the Mortgaged
Property or any part thereof, nor shall Mortgagor initiate, join in, acquiesce
in, or consent to any zoning change or zoning matter affecting the Mortgaged
Property, which in any of the foregoing cases could reasonably be expected to
result in a Material Adverse Effect. If under applicable zoning provisions the
use of all or any portion of the Mortgaged Property is or shall become a
nonconforming use, Mortgagor will not cause or permit such nonconforming use to
be discontinued or abandoned without the express written consent of Mortgagee,
which consent shall not be unreasonably withheld. Mortgagor shall not permit or
suffer to occur any waste on or to the Mortgaged Property or to any portion
thereof and shall not take any steps whatsoever to convert the Mortgaged
Property, or any portion thereof, to a condominium or cooperative form of
management. Mortgagor will not install or permit to be installed on the Premises
any underground storage tank or above-ground storage tank in violation of the
Environmental Laws.
9.
Transfer or Encumbrance of
the Mortgaged Property
. (a)
Mortgagor acknowledges that Mortgagee has examined and relied on the
creditworthiness and experience of Mortgagor in owning and operating properties
such as the Mortgaged Property in agreeing to make the Loan, and that Mortgagee
will continue to rely on Mortgagor’s ownership of the Mortgaged Property as a
means of maintaining the value of the Mortgaged Property as security for
repayment of the Debt. Except as expressly permitted under this Mortgage, the
Loan Agreement or under the other Loan Documents, Mortgagor shall not cause or
suffer to occur or exist, directly or indirectly, voluntarily or involuntarily,
by operation of law or otherwise, any sale, transfer, mortgage, pledge, lien or
encumbrance (other than Permitted Encumbrances) (collectively, “
Transfers
”) of (i)
all or any part of the Mortgaged Property or any interest therein, or (ii) any
direct or indirect beneficial ownership interest (in whole or in part) in
Mortgagor, irrespective of the number of tiers of ownership, without the prior
written consent of Mortgagee.
(b)
The
occurrence of any Transfer in violation of this Section 9 shall constitute an
Event of Default hereunder, whereupon Mortgagee at its option, without being
required to demonstrate any actual impairment of its security or any increased
risk of default hereunder, may declare the Debt immediately due and payable.
(c)
Mortgagee’s
consent to any Transfer of the Mortgaged Property or any interest in Mortgagor
shall not be deemed to be a waiver of Mortgagee’s right to require such consent
to any future occurrence of same. Any attempted or purported Transfer of the
Mortgaged Property or of any direct or indirect interest in Mortgagor, if made
in contravention of this Section 9, shall be null and void and of no force and
effect.
10.
Taxes on Security;
Documentary Stamps; Intangibles Tax.
(a)
Mortgagor shall pay all taxes, charges, filing, registration and recording fees,
excises and levies payable with respect to the Note, this Mortgage or the liens
created or secured by the Loan Documents, other than income, franchise and doing
business taxes imposed on Mortgagee. If there shall be enacted any law
(i) deducting the Loan from the value of the Mortgaged Property for the
purpose of taxation, (ii) affecting any lien on the Mortgaged Property, or
(iii) changing existing laws of taxation of mortgages, deeds of trust, security
deeds, or debts secured by real property, or changing the manner of collecting
any such taxes, Mortgagor shall promptly pay to Mortgagee, on demand, all taxes,
costs and charges for which Mortgagee is or may be liable as a result thereof;
however, if such payment would be prohibited by law or would render the Loan
usurious, then instead of collecting such payment, Mortgagee may declare all
amounts owing under the Loan Documents to be immediately due and payable.
(b)
If at any
time the United States of America, any State thereof or any subdivision of any
such State shall require revenue or other stamps to be affixed to the Note or
this Mortgage, or impose any other tax or charge on the same, Mortgagor will pay
for the same, with interest and penalties thereon, if any. Mortgagor hereby
agrees that, in the event that it is determined that additional documentary
stamp tax or intangible tax is due hereon or any mortgage or promissory note
executed in connection herewith (including, without limitation, the Note),
Mortgagor shall indemnify and hold harmless Mortgagee for all such documentary
stamp tax and/or intangible tax, including all penalties and interest assessed
or charged in connection therewith. Mortgagor shall pay same within ten (10)
days after demand of payment from Mortgagee and the payment of such sums shall
be secured by this Mortgage and such sums shall bear interest at the Default
Rate (as defined in the Note) from and after the eleventh (11
th
) day
after demand until paid in full.
(c)
Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage.
11.
No Credits on Account of the
Debt.
Mortgagor will not claim or demand or be entitled to any credit or credits on
account of the Debt for any part of the Impositions assessed against the
Mortgaged Property, or any part thereof, and no deduction shall otherwise be
made or claimed from the assessed value of the Mortgaged Property, or any part
thereof, for real estate tax purposes by reason of this Mortgage or the Debt. In
the event such claim, credit or deduction shall be required by law, Mortgagee
shall have the option, by written notice of not less than ninety (90) days, to
declare the Debt immediately due and payable.
12.
Performance of Other
Agreements.
Mortgagor shall duly and punctually observe and perform each and every material
term, provision, condition, and covenant to be observed or performed by
Mortgagor pursuant to the terms of any agreement or recorded instrument
(including all instruments comprising the Permitted Encumbrances) affecting or
pertaining to the Mortgaged Property, and will not suffer or permit any default
or event of default (after giving effect to any applicable notice requirements
and cure periods) to exist under any of the foregoing.
13.
Further Acts; Secondary
Market Transactions.
(a)
Mortgagor will, at its sole cost and expense, and without expense to Mortgagee,
do, execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, mortgages, assignments, notices of assignment, Uniform Commercial
Code financing statements or continuation statements, transfers and assurances
as Mortgagee shall, from time to time, reasonably require, for the better
assuring, conveying, assigning, transferring, and confirming unto Mortgagee the
property and rights hereby mortgaged, given, granted, bargained, sold,
alienated, enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated or
intended now or hereafter so to be, or which Mortgagor may be or may hereafter
become bound to convey or assign to Mortgagee, or for carrying out the intention
or facilitating the performance of the terms of this Mortgage or for filing,
registering or recording this Mortgage. Mortgagor, on demand, will execute and
deliver and, upon Mortgagor’s failure to do so within five (5) Business Days
after Mortgagee’s request therefor, hereby authorizes Mortgagee to execute in
the name of Mortgagor or without the signature of Mortgagor to the extent
Mortgagee may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Mortgagee in the Mortgaged Property. Upon foreclosure or the
appointment of a receiver, Mortgagor will, at its sole cost and expense,
cooperate fully and completely to effect the assignment or transfer of any
license, permit, agreement or any other right necessary or useful to the
operation of the Mortgaged Property. Mortgagor grants to Mortgagee an
irrevocable power of attorney coupled with an interest for the purpose of
exercising and perfecting any and all rights and remedies available to Mortgagee
at law and in equity, including, without limitation, such rights and remedies
available to Mortgagee pursuant to this Section.
(b)
Subject
to the terms and conditions set forth in the Loan Agreement, Mortgagee shall
have the right to engage in one or more Secondary Market Transactions and, in
connection therewith, Mortgagee may transfer its obligations under this
Mortgage, the Note, the Loan Agreement and under the other Loan Documents (or
may transfer the portion thereof corresponding to the transferred portion of the
Obligations), and thereafter Mortgagee shall be relieved of any obligations
hereunder and under the other Loan Documents arising after the date of said
transfer with respect to the transferred interest.
14.
Recording of Mortgage,
Etc.
Upon the
execution and delivery of this Mortgage and thereafter, from time to time,
Mortgagor will cause this Mortgage, and any security instrument creating a lien
or security interest or evidencing the lien hereof upon the Mortgaged Property
and each instrument of further assurance to be filed, registered or recorded in
such manner and in such places as may be required by any present or future law
in order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property. Mortgagor
will pay all filing, registration or recording fees, and all expenses incident
to the preparation, execution and acknowledgment of this Mortgage, any mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property and any instrument of further assurance, and all federal, state, county
and municipal, taxes, duties, imposts, assessments and charges arising out of or
in connection with the execution and delivery of this Mortgage, any mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance, except where prohibited by law
so to do.
15.
Reporting
Requirements.
Mortgagor agrees to give prompt notice to Mortgagee of the insolvency or
bankruptcy filing of Mortgagor or the death, insolvency or bankruptcy filing of
any Guarantor.
16.
Intentionally
Deleted
.
17.
Remedies.
Upon the
occurrence and during the continuance of an Event of Default, Mortgagee may, at
Mortgagee’s option, by Mortgagee itself, or otherwise, invoke the power of sale
and immediately exercise or pursue or cause to be exercised or pursued any or
all of the rights and remedies contained in this Mortgage and in any other Loan
Document or otherwise available at law or in equity including the right to do
any one or more of the following:
(a)
Right to Perform Mortgagor’s
Covenants
. If
Mortgagor has failed to keep or perform any covenant whatsoever contained in
this Mortgage or the other Loan Documents, Mortgagee may, but shall not be
obligated to do so, perform or attempt to perform said covenant; and any payment
made or expense incurred in the performance or attempted performance of any such
covenant, together with any sum expended by Mortgagee that is chargeable to
Mortgagor or subject to reimbursement by Mortgagor under the Loan Documents,
shall be and become a part of the Debt, and Mortgagor promises, upon demand, to
pay to Mortgagee, at the place where the Note is payable, all sums so incurred,
paid or expended by Mortgagee, with interest from the date when paid, incurred
or expended by Mortgagee at the Default Rate (as defined in the
Note).
(b)
Right of
Entry
. Subject
to any applicable law, the license granted to Mortgagor under
Error! Reference source not
found.
hereof
shall automatically be revoked and Mortgagee may, prior or subsequent to the
institution of any foreclosure proceedings, enter upon the Mortgaged Property,
or any part thereof, and take exclusive possession of the Mortgaged Property and
of all books, records, and accounts relating thereto and to exercise without
interference from Mortgagor any and all rights which Mortgagor has with respect
to the management, possession, operation, protection, or preservation of the
Mortgaged Property, including, without limitation, the right to rent the same
for the account of Mortgagor and to deduct from such Rents all costs, expenses,
and liabilities of every character incurred by the Mortgagee in collecting such
Rents and in managing, operating, maintaining, protecting, or preserving the
Mortgaged Property and to apply the remainder of such Rents on the Debt in such
manner as Mortgagee may elect. All such costs, expenses, and liabilities
incurred by Mortgagee in collecting such Rents and in managing, operating,
maintaining, protecting, or preserving the Mortgaged Property, if not paid out
of Rents as hereinabove provided, shall constitute a demand obligation owing by
Mortgagor and shall bear interest from the date of expenditure until paid at the
Default Rate as specified in the Note, all of which shall constitute a portion
of the Debt. If Mortgagee elects to enter the Mortgaged Property as provided for
herein, Mortgagee may invoke any and all legal remedies to dispossess Mortgagor,
including specifically one or more actions for forcible entry and detainer,
trespass to try title, and restitution. In connection with any action taken by
the Mortgagee pursuant to this subsection, Mortgagee shall not be liable for any
loss sustained by Mortgagor resulting from any failure to let the Mortgaged
Property, or any part thereof, or from any other act or omission of Mortgagee in
managing the Mortgaged Property unless such loss is caused by the willful
misconduct or gross negligence of Mortgagee, its agents, employees or officers,
nor shall Mortgagee be obligated to perform or discharge any obligation, duty,
or liability under any Lease or under or by reason hereof or the exercise of
rights or remedies hereunder. Mortgagor shall and does hereby agree to
indemnify, defend and hold harmless the Indemnified Parties (as defined in
Section 23 below) from and against, any and all liability, claim, demand,
loss, damage, cost or expense (including, without limitation, reasonable
attorneys’ fees and disbursements) which may or might be suffered or incurred by
any Indemnified Party under any such Lease or under or by reason hereof or the
exercise of rights or remedies hereunder, or by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants, or agreements contained in any such Lease as and to the extent
provided under Section 23 below. Nothing in this subsection shall impose any
duty, obligation, or responsibility upon any Indemnified Party for the control,
care, management, leasing, or repair of the Mortgaged Property, nor for the
carrying out of any of the terms and conditions of any such Lease prior to the
transfer of title to the Mortgaged Property to any Indemnified Party by
foreclosure, deed-in-lieu thereof, exercise of power of sale or otherwise.
Mortgagor hereby assents to, ratifies, and confirms any and all actions of the
Mortgagee with respect to the Mortgaged Property taken under this
subsection.
(c)
Right to
Accelerate
.
Mortgagee may, without notice or demand, declare the entire unpaid balance of
the Debt immediately due and payable.
(d)
Mortgagee’s Judicial
Remedies
.
Mortgagee may proceed by suit or suits, at law or in equity, to enforce the
payment of the Debt to foreclose the liens and security interests of this
Mortgage as against all or any part of the Mortgaged Property, and to have all
or any part of the Mortgaged Property sold under the judgment or decree of a
court of competent jurisdiction. This remedy shall be cumulative of any other
nonjudicial remedies available to the Mortgagee under this Mortgage or the other
Loan Documents. Proceeding with a request or receiving a judgment for legal
relief shall not be or be deemed to be an election of remedies or bar any
available nonjudicial remedy of the Mortgagee.
(e)
Mortgagee’s Right to
Appointment of Receiver
.
Mortgagee, as a matter of right and (i) without regard to the sufficiency
of the security for repayment of the Debt and without notice to Mortgagor,
(ii) without any showing of insolvency, fraud, or mismanagement on the part
of Mortgagor, (iii) without the necessity of filing any judicial or other
proceeding other than the proceeding for appointment of a receiver, and
(iv) without regard to the then value of the Mortgaged Property, shall be
entitled to the appointment of a receiver or receivers for the protection,
possession, control, management and operation of the Mortgaged Property,
including (without limitation), the power to collect the Rents, enforce this
Mortgage and, in case of a sale and deficiency, during the full statutory period
of redemption (if any), whether there be a redemption or not, as well as during
any further times when Mortgagor, except for the intervention of such receiver,
would be entitled to collection of such Rents. Mortgagor hereby irrevocably
consents to the appointment of a receiver or receivers. Any receiver appointed
pursuant to the provisions of this subsection shall have the usual powers and
duties of receivers in such matters.
(f)
Mortgagee’s Uniform
Commercial Code Remedies
.
Mortgagee may exercise its rights of enforcement under the Uniform Commercial
Code in effect in the state in which the Mortgaged Property is
located.
(g)
Sale of Mortgaged
Property
. Sell
for cash or upon credit the Mortgaged Property or any part thereof and all
estate, claim, demand, right, title and interest of Mortgagor therein and rights
of redemption thereof, pursuant to the power of sale contained herein or
otherwise, at one or more sales, as an entirety or in parcels, at such time and
place, upon such terms and after such notice thereof as may be required or
permitted by law.
(h)
Other
Rights
.
Mortgagee (i) may surrender the insurance policies maintained pursuant to the
Loan Agreement or any part thereof, and upon receipt of the proceeds shall apply
the unearned Insurance Premiums as a credit on the Debt, and, in connection
therewith, Mortgagor hereby appoints Mortgagee as agent and attorney-in-fact
(which is coupled with an interest and is therefore irrevocable) for Mortgagor
to collect such Insurance Premiums; (ii) may apply the Impositions and Insurance
Reserve and/or any other Reserves held pursuant to this Mortgage or the other
Loan Documents, and any other funds held by Mortgagee toward payment of the
Debt; and (iii) shall have and may exercise any and all other rights and
remedies which Mortgagee may have at law or in equity, or by virtue of any of
the Loan Documents, or otherwise.
(i)
Discontinuance of
Remedies
. If
Mortgagee shall have proceeded to invoke any right, remedy, or recourse
permitted under the Loan Documents and shall thereafter elect to discontinue or
abandon same for any reason, Mortgagee shall have the unqualified right so to do
and, in such event, Mortgagor and Mortgagee shall be restored to their former
positions with respect to the Debt, the Loan Documents, the Mortgaged Property
or otherwise, and the rights, remedies, recourses and powers of Mortgagee shall
continue as if same had never been invoked.
(j)
Remedies
Cumulative
. All
rights, remedies, and recourses of Mortgagee granted in the Note, this Mortgage,
the Loan Agreement and the other Loan Documents, any other pledge of collateral,
or otherwise available at law or equity: (i) shall be cumulative; (ii) may be
pursued separately, successively, or concurrently against Mortgagor, the
Mortgaged Property, or any one or more of them, at such time and in such order
as Mortgagee may determine in its sole discretion; (iii) may be exercised as
often as occasion therefor shall arise, it being agreed by Mortgagor that the
exercise or failure to exercise any of same shall in no event be construed as a
waiver or release thereof or of any other right, remedy, or recourse; (iv) shall
be nonexclusive of any other right, power or remedy which Mortgagee may have
against Mortgagor pursuant to this Mortgage, the Loan Agreement or the other
Loan Documents, or otherwise available at law or in equity; (v) shall not be
conditioned upon Mortgagee exercising or pursuing any remedy in relation to the
Mortgaged Property prior to Mortgagee bringing suit to recover the Debt; and
(vi) in the event Mortgagee elects to bring suit on the Debt and obtains a
judgment against Mortgagor prior to exercising any remedies in relation to the
Mortgaged Property, all liens and security interests, including the lien of this
Mortgage, shall remain in full force and effect and may be exercised thereafter
at Mortgagee’s option.
(k)
Election of
Remedies
.
Mortgagee may release, regardless of consideration, any part of the Mortgaged
Property without, as to the remainder, in any way impairing, affecting,
subordinating, or releasing the lien or security interests evidenced by this
Mortgage or the other Loan Documents or affecting the obligations of Mortgagor
or any other party to pay the Debt. For payment of the Debt, Mortgagee may
resort to any collateral securing the payment of the Debt in such order and
manner as Mortgagee may elect. No collateral taken by Mortgagee shall in any
manner impair or affect the lien or security interests given pursuant to the
Loan Documents, and all collateral shall be taken, considered, and held as
cumulative.
(l)
Bankruptcy
Acknowledgment
. If the
Mortgaged Property or any portion thereof or any interest therein becomes
property of any bankruptcy estate or subject to any state or federal insolvency
proceeding, or in the event of the filing of any voluntary or involuntary
petition under the Bankruptcy Code by or against Mortgagor then Mortgagee shall
immediately become entitled, in addition to all other relief to which Mortgagee
may be entitled under this Mortgage, to obtain (i) an order from any
bankruptcy court or other appropriate court granting immediate relief from the
automatic stay pursuant to § 362 of the Bankruptcy Code so as to permit
Mortgagee to pursue its rights and remedies against Mortgagor as provided under
this Mortgage and all other rights and remedies of Mortgagee at law and in
equity under applicable state law, and (ii) an order from the Bankruptcy
Court prohibiting Mortgagor’s use of all “cash collateral” as defined under
§ 363 of the Bankruptcy Code. Mortgagor shall not assert or request any
other party to assert, that the automatic stay under § 362 of the
Bankruptcy Code operate or be interpreted to stay, interdict, condition, reduce
or inhibit the ability of Mortgagee to enforce any rights it has by virtue of
this Mortgage, or any other rights that Mortgagee has, whether now or hereafter
acquired, against any guarantor of the Debt. Mortgagor shall not seek a
supplemental stay or any other relief, whether injunctive or otherwise, pursuant
to § 105 of the Bankruptcy Code or any other provision therein to stay,
interdict, condition, reduce or inhibit the ability of Mortgagee to enforce any
rights it has by virtue of this Mortgage against any guarantor of the Debt. Any
bankruptcy petition or other action taken by Mortgagor to stay, condition, or
inhibit Mortgagee from exercising its remedies are hereby admitted by Mortgagor
to be in bad faith and Mortgagor further admits that Mortgagee would have just
cause for relief from the automatic stay in order to take such actions
authorized under state law.
(m)
Application of
Proceeds
. The
proceeds from any sale, lease, or other disposition made pursuant to this
Mortgage, or the proceeds from the surrender of any insurance policies pursuant
hereto, or any Rents collected by Mortgagee from the Mortgaged Property or the
Impositions and Insurance Reserve or other Reserves under the Loan Agreement or
sums received pursuant to Section 6 hereof, or proceeds from insurance
which Mortgagee elects to apply to the Debt pursuant to Section 3 hereof,
shall be applied by Mortgagee to the Debt in such order, priority and
proportions as Mortgagee in its sole discretion shall determine.
18.
Security
Agreement.
This
Mortgage is both a real property mortgage and a “security agreement” within the
meaning of the Uniform Commercial Code. The Mortgaged Property includes both
real and personal property and all other rights and interests, whether tangible
or intangible in nature, of Mortgagor in the Mortgaged Property. Mortgagor by
executing and delivering this Mortgage has granted and hereby grants to
Mortgagee, as security for the Debt, a security interest in the Mortgaged
Property to the full extent that the Mortgaged Property may be subject to the
Uniform Commercial Code (said portion of the Mortgaged Property so subject to
the Uniform Commercial Code being called in this Section 18 the “
Collateral
”).
Mortgagor hereby agrees to execute and deliver to Mortgagee, in form and
substance reasonably satisfactory to Mortgagee, such financing statements and
such further assurances as Mortgagee may from time to time reasonably consider
necessary to create, perfect, and preserve Mortgagee’s security interest herein
granted. This Mortgage shall also constitute a “fixture filing” for the purposes
of the Uniform Commercial Code as to all or any part of the Mortgaged Property
which now or hereafter constitute “fixtures” under the Uniform Commercial Code.
Information concerning the security interest herein granted may be obtained from
the parties at the addresses of the parties set forth in the first paragraph of
this Mortgage. If an Event of Default shall occur, Mortgagee, in addition to any
other rights and remedies which it may have, shall have and may exercise
immediately and without demand, any and all rights and remedies granted to a
secured party upon default under the Uniform Commercial Code, including, without
limiting the generality of the foregoing, the right to take possession of the
Collateral or any part thereof, and to take such other measures as Mortgagee may
deem necessary for the care, protection and preservation of the Collateral. Upon
request or demand of Mortgagee, Mortgagor shall at its expense assemble the
Collateral and make it available to Mortgagee at a convenient place acceptable
to Mortgagee. Mortgagor shall pay to Mortgagee on demand any and all expenses,
including legal expenses and attorneys’ fees, incurred or paid by Mortgagee in
protecting the interest in the Collateral and in enforcing the rights hereunder
with respect to the Collateral. Any notice of sale, disposition or other
intended action by Mortgagee with respect to the Collateral sent to Mortgagor in
accordance with the provisions hereof at least five (5) days prior to such
action, shall constitute commercially reasonable notice to Mortgagor. The
proceeds of any disposition of the Collateral, or any part thereof, may be
applied by Mortgagee to the payment of the Debt in such priority and proportions
as Mortgagee in its discretion shall deem proper. In the event of any change in
name, identity or structure of any Mortgagor, such Mortgagor shall notify
Mortgagee thereof and promptly after Mortgagee’s request shall execute, file and
record such Uniform Commercial Code forms as are necessary to maintain the
priority of Mortgagee’s lien upon and security interest in the Collateral, and
shall pay all expenses and fees in connection with the filing and recording
thereof. If Mortgagee shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Mortgagor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Mortgagee shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
increase Mortgagor’s obligations under the Note, this Mortgage and the other
Loan Documents. Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact, coupled with an interest upon Mortgagor’s failure to do so
within five (5) Business Days after request by Mortgagee, to file with the
appropriate public office on its behalf any financing or other statements signed
only by Mortgagee, as Mortgagor’s attorney-in-fact, in connection with the
Collateral covered by this Mortgage. Notwithstanding the foregoing, Mortgagor
shall appear and defend in any action or proceeding which affects or purports to
affect the Mortgaged Property and any interest or right therein, whether such
proceeding affects title or any other rights in the Mortgaged Property (and in
conjunction therewith, Mortgagor shall fully cooperate with Mortgagee in the
event Mortgagee is a party to such action or proceeding).
19.
Actions and
Proceedings.
Upon the
occurrence and during the continuance of an Event of Default, Mortgagee has the
right to appear in and defend any action or proceeding brought with respect to
the Mortgaged Property and to bring any action or proceeding, in the name and on
behalf of Mortgagor, which Mortgagee, in its discretion, decides should be
brought to protect its interest in the Mortgaged Property. Mortgagee shall, at
its option, be subrogated to the lien of any mortgage or other security
instrument discharged in whole or in part by the Debt, and any such subrogation
rights shall constitute additional security for the payment of the
Debt.
20.
Waiver of Setoff and
Counterclaim, Marshalling, Statute of Limitations, Automatic or Supplemental
Stay, Etc.
(a)
All
amounts due under this Mortgage, the Note and the other Loan Documents shall be
payable without setoff, counterclaim or any deduction whatsoever. Mortgagor
hereby waives the right to assert a setoff, counterclaim or deduction in any
action or proceeding in which Mortgagee is a participant, or arising out of or
in any way connected with this Mortgage, the Note, any of the other Loan
Documents, or the Debt.
(b)
Mortgagor
hereby expressly, irrevocably, and unconditionally waives and releases, to the
extent permitted by law (i) the benefit of all appraisement, valuation, stay,
extension, reinstatement and redemption laws now or hereafter in force and all
rights of marshalling, sale in the inverse order of alienation, or any other
right to direct in any manner the order or sale of any of the Mortgaged Property
in the event of any sale hereunder of the Mortgaged Property or any part thereof
or any interest therein; (ii) any and all rights of redemption from sale under
any order or decree of foreclosure of this Mortgage on behalf of Mortgagor, and
on behalf of each and every person acquiring any interest in or title to the
Mortgaged Property subsequent to the date of this Mortgage and on behalf of all
persons to the extent permitted by applicable law; and (iii) all benefits that
might accrue to Mortgagor by virtue of any present or future law exempting the
Mortgaged Property from attachment, levy or sale on execution or providing for
any appraisement, valuation, stay of execution, exemption from civil process,
redemption, or extension of time for payment. Mortgagee shall not be under any
obligation to marshal any assets in favor of any Person or against or in payment
of any or all of the Obligations.
(c)
To the
extent permitted by applicable law, Mortgagee’s rights hereunder shall continue
even to the extent that a suit for collection of the Debt, or part thereof, is
barred by a statute of limitations. Mortgagor hereby expressly waives and
releases to the fullest extent permitted by law, the pleading of any statute of
limitations as a defense to payment of the Debt.
21.
Recovery of Sums Required to
Be Paid.
Mortgagee shall have the right from time to time to take action to recover any
sum or sums which constitute a part of the Debt as the same become due, without
regard to whether or not the balance of the Debt shall be due, and without
prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
22.
Handicapped
Access.
(a)
Mortgagor
agrees that the Mortgaged Property shall at all times comply in all material
respects with applicable requirements of the Americans with Disabilities Act of
1990, the Fair Housing Amendments Act of 1988, all state and local laws and
ordinances related to handicapped access and all rules, regulations, and orders
issued pursuant thereto including, without limitation, the Americans with
Disabilities Act Accessibility Guidelines for Buildings and Facilities
(collectively “
Access
Laws
”).
(b)
Mortgagor
agrees to give prompt notice to Mortgagee of the receipt by Mortgagor of any
complaints related to violation of any Access Laws and of the commencement of
any proceedings or investigations which relate to compliance with applicable
Access Laws but only to the extent that such complaints, proceedings or
investigations, if adversely determined, could have a Material Adverse
Effect.
23.
Indemnification
. In
addition to the payment of expenses as required elsewhere herein and in the
other Loan Documents, Mortgagor agrees to indemnify, defend, protect, pay and
hold Mortgagee, its successors and assigns (including, without limitation, the
trustee and/or the trust under any trust agreement executed in connection with
any Securitization backed in whole or in part by the Loan and any other person
which may hereafter be the holder of the Note or any interest therein), and the
officers, directors, stockholders, partners, members, employees, agents, and
Affiliates of Mortgagee and such successors and assigns (collectively, the
“
Indemnified
Parties
”)
harmless from and against any and all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation
reasonable attorneys’ fees and expenses) (collectively, the “
Indemnified
Claims
”),
imposed upon or incurred by or asserted against any Indemnified Party by reason
of any of the following (to the extent that insurance proceeds paid to the
applicable Indemnified Party on account of the following shall be inadequate):
(i) ownership of the Mortgage, the Mortgaged Property or any interest therein or
receipt of any rents; (ii) any accident, injury to or death of persons or loss
of or damage to property occurring in, on or about the Mortgaged Property or any
part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (iii) any use, nonuse or condition in, on or
about the Mortgaged Property or any part thereof or on the adjoining sidewalks,
curbs, adjacent property or adjacent parking areas, streets or ways;
(iv) performance of any labor or services or the furnishing of any
materials or other property in respect of the Mortgaged Property or any part
thereof; (v) any failure of the Premises or the Improvements to comply with any
applicable law, statute, code, ordinance, rule or regulation; (vi) any Event of
Default by Mortgagor under this Mortgage, the Loan Agreement or any other Loan
Documents; (vii) any actions taken by any Indemnified Party in the
enforcement of this Mortgage and the other Loan Documents in accordance with
their respective terms; (viii) any failure to act on the part of any
Indemnified Party hereunder; (ix) any representation or warranty made in the
Note, this Mortgage or any of the other Loan Documents being false or misleading
in any material respect as of the date such representation or warranty was made;
(x) any claim by brokers, finders or similar persons claiming to be entitled to
a commission in connection with any Lease or other transaction involving the
Mortgaged Property or any part thereof under any legal requirement or any
liability asserted against Mortgagee with respect thereto; and (xi) the claims
of any lessee of any or any portion of the Mortgaged Property or any person
acting through or under any lessee or otherwise arising under or as a
consequence of any Lease. Notwithstanding the foregoing, Mortgagor shall not be
liable for any Indemnified Claims arising (A) from the gross negligence or
willful misconduct of any Indemnified Party or (B) under clauses (i) - (v) above
to the extent the facts, events or circumstances giving rise to such Indemnified
Claim arise after the date that any Indemnified Party takes title to the
Mortgaged Property by foreclosure, deed-in-lieu thereof, the exercise of any
power of sale or otherwise. Any amounts payable to an Indemnified Party by
reason of the application of this Section 23 shall be secured by this Mortgage
shall become immediately due and payable and shall bear interest at the Default
Rate from the date loss or damage is sustained by such Indemnified Party until
paid. The obligations and liabilities of Mortgagor under this paragraph shall
survive the termination, satisfaction, or assignment of this Mortgage and the
exercise by Mortgagee of any of its rights or remedies hereunder, including, but
not limited to, the acquisition of the Mortgaged Property by foreclosure or a
conveyance in lieu of foreclosure.
24.
Notices.
Any
notice, demand, statement, request or consent made hereunder shall be in
writing, addressed to the intended recipient at its address set forth in the
Loan Agreement, and shall be made and deemed given in accordance with the terms
of the Loan Agreement.
25.
Authority.
(a)
Mortgagor (and the undersigned representative of Mortgagor, if any) has full
power, authority and right to execute, deliver and perform its obligations
pursuant to this Mortgage, and to mortgage, give, grant, bargain, sell, alien,
enfeoff, convey, confirm, warrant, pledge, hypothecate and assign the Mortgaged
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Mortgage on Mortgagor’s part to be performed; and (b) Mortgagor
represents and warrants that Mortgagor is not a “foreign person” within the
meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended
and the related Treasury Department regulations.
26.
Waiver of
Notice.
Mortgagor shall not be entitled to any notices of any nature whatsoever from
Mortgagee except with respect to matters for which this Mortgage or the Loan
Agreement specifically and expressly provides for the giving of notice by
Mortgagee to Mortgagor and except with respect to matters for which Mortgagee is
required by applicable law to give notice, and Mortgagor hereby expressly waives
the right to receive any notice from Mortgagee with respect to any matter for
which this Mortgage or the Loan Agreement do not specifically and expressly
provide for the giving of notice by Mortgagee to Mortgagor.
27.
Remedies of
Mortgagor.
In the
event that a claim or adjudication is made that Mortgagee has acted unreasonably
or unreasonably delayed acting in any case where by law or under the Note, this
Mortgage or the other Loan Documents, it has an obligation to act reasonably or
promptly, Mortgagee shall not be liable for any monetary damages, and
Mortgagor’s remedies shall be limited to injunctive relief or declaratory
judgment.
28.
Sole Discretion of
Mortgagee.
Whenever
pursuant to this Mortgage or the other Loan Documents, Mortgagee exercises any
right given to it to consent, approve or disapprove, or any arrangement or term
is to be satisfactory to Mortgagee, the decision of Mortgagee to consent,
approve or disapprove, or to decide that arrangements or terms are satisfactory
or not satisfactory shall be in the sole discretion of Mortgagee and shall be
final and conclusive, except as may be otherwise expressly and specifically
provided herein. Notwithstanding anything to the contrary contained herein, it
shall be understood and agreed that any such consent, approval, or disapproval
may be conditioned, among other things, upon Mortgagee obtaining confirmation by
the Rating Agencies that the action or other matter subject to Mortgagee’s
consent, approval, or disapproval shall not adversely affect the rating of any
securities issued or to be issued in connection with any Secondary Market
Transaction, notwithstanding that such condition may not be expressly set forth
in the provision or provisions of the Loan Documents which require that
Mortgagee’s consent be obtained.
29.
Non-Waiver.
The
failure of Mortgagee to insist upon strict performance of any term hereof shall
not be deemed to be a waiver of any term of this Mortgage. Mortgagor shall not
be relieved of Mortgagor’s obligations hereunder by reason of (a) the failure of
Mortgagee to comply with any request of Mortgagor or Guarantor to take any
action to foreclose this Mortgage or otherwise enforce any of the provisions
hereof or of the Note or other Loan Documents, (b) the release, regardless of
consideration, of the whole or any part of the Mortgaged Property, or of any
person liable for the Debt or any portion thereof, or (c) any agreement or
stipulation by Mortgagee extending the time of payment or otherwise modifying or
supplementing the terms of the Note, this Mortgage, or the other Loan Documents.
Mortgagee may resort for the payment of the Debt to any other security held by
Mortgagee in such order and manner as Mortgagee, in its discretion, may elect.
Mortgagee may take action to recover the Debt, or any portion thereof, or to
enforce any covenant hereof without prejudice to the right of Mortgagee
thereafter to foreclosure this Mortgage. The rights and remedies of Mortgagee
under this Mortgage shall be separate, distinct and cumulative and none shall be
given effect to the exclusion of the others. No act of Mortgagee shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Mortgagee shall not be limited exclusively to
the rights and remedies herein stated but shall be entitled to every right and
remedy now or hereafter afforded at law or in equity.
30.
Liability.
Subject
to the provisions hereof requiring Mortgagee’s consent to any transfer of the
Mortgaged Property, this Mortgage shall be binding upon and inure to the benefit
of Mortgagor and Mortgagee and their respective successors and assigns
forever.
31.
Inapplicable
Provisions.
If any
term, covenant or condition of this Mortgage is held to be invalid, illegal or
unenforceable in any respect, this Mortgage shall be construed without such
provision.
32.
Headings,
Etc.
The
headings and captions of various Sections of this Mortgage are for convenience
of reference only and are not to be construed as defining or limiting, in any
way, the scope or intent of the provisions hereof.
33.
Counterparts.
This
Mortgage may be executed in any number of counterparts each of which shall be
deemed to be an original but all of which when taken together shall constitute
one agreement.
34.
Definitions.
Unless
the context clearly indicates a contrary intent or unless otherwise specifically
provided herein, words used in this Mortgage may be used interchangeably in
singular or plural form and the word “Mortgagor” shall mean “each Mortgagor and
any subsequent owner or owners of the Mortgaged Property or any part thereof or
any interest therein,” the word “Mortgagee” shall mean “Mortgagee and any
subsequent holder of the Note,” the word “Debt” shall mean “the Note and any
other evidence of indebtedness secured by this Mortgage,” the word “person”
shall include an individual, corporation, partnership, trust, unincorporated
association, government, governmental authority, and any other entity, and the
words “Mortgaged Property” shall include any portion of the Mortgaged Property
and any interest therein and the words “attorneys’ fees” shall include any and
all reasonable attorneys’ fees, paralegal and law clerk fees, including, but not
limited to, fees at the pre-trial, trial and appellate levels incurred or paid
by Mortgagee in protecting its interest in the Mortgaged Property and Collateral
and enforcing its rights hereunder. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
35.
Homestead.
Mortgagor hereby waives and renounces all homestead and exemption rights
provided by the constitution and the laws of the United States and of any state,
in and to the Mortgaged Property as against the collection of the Debt, or any
part hereof.
36.
Assignments.
Mortgagee shall have the right to assign or transfer its rights under this
Mortgage and the other Loan Documents without limitation, including, without
limitation, the right to assign or transfer its rights to a servicing agent. Any
assignee or transferee shall be entitled to all the benefits afforded Mortgagee
under this Mortgage and the other Loan Documents. Mortgagee agrees to provide
Mortgagor with notice of any such assignment; provided, however, that
Mortgagor’s consent shall not be required in connection with any such assignment
and no delay or failure by Mortgagee to provide such notice shall limit the
effectiveness of such assignment.
37.
Survival of Obligations;
Survival of Warranties and Representations.
Each and
all of the covenants, obligations, representations and warranties of Mortgagor
shall survive the execution and delivery of the Loan Documents and the transfer
or assignment of this Mortgage (including, without limitation, any transfer of
the Mortgage by Mortgagee of any of its rights, title and interest in and to the
Mortgaged Property to any party, whether or not affiliated with
Mortgagee).
38.
Covenants Running with the
Land.
All
covenants, conditions, warranties, representations and other obligations
contained in this Mortgage and the other Loan Documents are intended by
Mortgagor and Mortgagee to be, and shall be construed as, covenants running with
the Mortgaged Property until the lien of this Mortgage has been fully released
by Mortgagee, pursuant to the terms hereof.
39.
Governing Law;
Jurisdiction.
THIS
MORTGAGE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF NEW
YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL
TIMES THE PROVISIONS FOR THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS
AND SECURITY INTERESTS CREATED PURSUANT TO THIS MORTGAGE SHALL BE GOVERNED BY
THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.
40.
Time of
Essence.
Time is
of the essence as to all of the terms, covenants and condition of this Mortgage
and the other Loan Documents.
41.
No Third-Party
Beneficiaries.
The
provisions of this Mortgage and the other Loan Documents are for the benefit of
Mortgagor and Mortgagee and shall not inure to the benefit of any third party
(other than any successor or assignee of Mortgagee or permitted assignee of
Mortgagor). This Mortgage and the other Loan Documents shall not be construed as
creating any rights, claims or causes of action against Mortgagee or any of its
officers, directors, agents or employees in favor of any party other than
Mortgagor including but not limited to any claims to any sums held in the
Impositions and Insurance Reserve or any other Reserves.
42.
Relationship of
Parties.
The
relationship of Mortgagee and Mortgagor is solely that of debtor and creditor,
and Mortgagee has no fiduciary or other special relationship with the Mortgagor,
and no term or condition of any of the Loan Documents shall be construed to be
other than that of debtor and creditor. Mortgagor represents and acknowledges
that neither the Loan Documents nor any course of dealing between the parties
creates any partnership or joint venture between Mortgagor and Mortgagee or any
other person, nor does it provide for any shared appreciation rights or other
equity participation interest.
43.
Successors and
Assigns
. This
Mortgage shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that Mortgagor may not
assign its rights or obligations hereunder except as expressly provided in
Section 9 hereof or as permitted under the Loan Agreement.
44.
Investigations.
Any and
all representations, warranties, covenants and agreements made in this Mortgage
(and/or in other Loan Documents) shall survive any investigation or inspection
made by or on behalf of Mortgagee.
45.
Assignment of
Leases.
Mortgagor acknowledges and confirms that it has executed and delivered to
Mortgagee the Assignment of Leases and Rents (the “
Assignment of
Leases
”)
intending that such instrument create a present, absolute assignment to
Mortgagee of the Leases and Rents. Without limiting the intended benefits or the
remedies provided under the Assignment of Leases, Mortgagor hereby assigns to
Mortgagee, as further security for the Debt and the Obligations, the Leases and
Rents. While any Event of Default exists, Mortgagee shall be entitled to
exercise any or all of the remedies provided in the Assignment of Leases and in
Section 17 hereof, including, without limitation, the right to have a
receiver appointed. If any conflict or inconsistency exists between the
assignment of the Leases and Rents in this Mortgage and the absolute assignment
of the Leases and the Rents in the Assignment of Leases, the terms of the
Assignment of Leases shall control. Nevertheless, subject to the terms of this
Section 45 and 17(b) hereof and the Loan Agreement, Lender grants to Mortgagor a
revocable license to collect and receive the Rents. For so long as an Event of
Default exists, Mortgagor shall hold the Rents, or a portion thereof sufficient
to discharge all current sums due on the Debt, for use in the payment of such
sums.
46.
Waiver of Right to Trial by
Jury.
EACH OF
MORTGAGOR AND MORTGAGEE HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS
MORTGAGE OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION
ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN
KNOWINGLY AND VOLUNTARILY BY EACH OF MORTGAGOR AND MORTGAGEE, AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED TO FILE A
COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY
MORTGAGOR.
47.
Expenses and Attorneys’
Fees.
Mortgagor agrees to promptly pay all reasonable fees, costs and expenses
incurred by Mortgagee in connection with any matters contemplated by or arising
out of this Mortgage and the other Loan Documents, including, without
limitation, reasonable fees, costs and expenses (including reasonable attorneys’
fees and fees of other professionals retained by Mortgagee) incurred in any
action to enforce this Mortgage or the other Loan Documents or to collect any
payments due from Mortgagor under this Mortgage, the Loan Agreement, the Note or
any other Loan Document or incurred in connection with any refinancing or
restructuring of the credit arrangements provided under this Mortgage incurred
in connection with a “workout” or in connection with any insolvency or
bankruptcy proceedings with respect to Mortgagor, and all such fees, costs and
expenses shall be part of the Obligations, payable on demand.
48.
Amendments and
Waivers
. Except
as otherwise provided herein, no amendment, modification, termination or waiver
of any provision of this Mortgage, the Note or any other Loan Document, or
consent to any departure therefrom, shall in any event be effective unless the
same shall be in writing and signed by Mortgagee and any other party to be
charged. Each amendment, modification, termination or waiver shall be effective
only in the specific instance and for the specific purpose for which it was
given. No notice to or demand on Mortgagor in any case shall entitle Mortgagor
to any other or further notice or demand in similar or other
circumstances.
49.
Servicer
.
Mortgagee shall have the right at any time throughout the term of the Loan to
designate or appoint one or more Servicers (as defined in the Loan Agreement) to
administer this Mortgage and the other Loan Documents, and to change or replace
any Servicer. All of Mortgagee’s rights under this Mortgage and the other Loan
Documents may be exercised by any such Servicer designated by Mortgagee. Any
such Servicer shall be entitled to the benefit of all obligations of Mortgagor
in favor of Mortgagee.
50.
Copy of
Mortgage
.
MORTGAGOR REPRESENTS AND WARRANTS THAT IT HAS RECEIVED A TRUE COPY OF THIS
MORTGAGE WITHOUT CHARGE.
51.
Limitation on
Recourse.
The
obligations of Mortgagor hereunder are subject to limitations on recourse as
provided in Article XII of the Loan Agreement.
52.
Satisfaction of
Mortgage.
Upon
payment of the Debt in full, Mortgagee, at Mortgagor’s sole cost and upon
Mortgagor’s request, shall execute and deliver to Mortgagor a satisfaction or
reconveyance of Mortgage, duly acknowledged and in recordable form, UCC-3
financing statements terminating any UCC-1 financing statements filed by
Mortgagee relating to the Mortgaged Property, and such other documents or
instruments as may be required to release the Lien of the Loan Documents from
the Mortgaged Property.
53.
Conflict
. The
terms and provisions of this Mortgage shall be construed to the extent possible
consistently with those of the Loan Agreement as being in addition to and
supplementing the provisions of the Loan Agreement and the other Loan Documents;
however, in the event that notwithstanding such construction there is an
irresolvable conflict between the provisions of this Mortgage and the provisions
of the Loan Agreement, the provisions of the Loan Agreement shall govern and
control.
54.
State Specific
Provisions
.
(a)
Inconsistencies
. In the
event of any inconsistencies between the terms and conditions of this Article 18
and the other provisions of this Security Instrument, the terms and conditions
of this Article 18 shall control and be binding.
(b)
Special Michigan
Provisions
. The
following provisions shall also constitute an integral part of this Security
Instrument. Furthermore, in the event that any prior provisions of this Security
Instrument conflict with the following provisions of this Section, the
provisions of this Section shall control and shall be deemed a modification of
or amendment to the section or provision at issue.
(i)
Additional Provisions
Regarding Foreclosure by Power of Sale
.
Mortgagor acknowledges that, after the occurrence and during the continuance of
an Event of Default, Lender is authorized and empowered to sell the Property or
to cause the same to be sold, and to convey the same to the purchaser in any
lawful manner, including that provided by Chapter 32 of the Revised Judicature
Act of Michigan, entitled “Foreclosure of Mortgages by Advertisement,” (the
“Michigan Statute”) which permits Lender to sell the Property without affording
Mortgagor a hearing or giving Mortgagor actual personal notice. The only notice
required under such Chapter 32 is to publish notice in a local newspaper and to
post a copy of the notice at the Property. In the event of a public sale, the
Property, at the option of the Lender, may be sold as one parcel. MORTGAGOR
HEREBY WAIVES ALL RIGHTS UNDER THE CONSTITUTION AND LAWS OF THE UNITED STATES
AND THE STATE OF MICHIGAN TO A HEARING PRIOR TO SALE IN CONNECTION WITH
FORECLOSURE OF THIS SECURITY INSTRUMENT BY ADVERTISEMENT AND ALL NOTICE
REQUIREMENTS EXCEPT AS SET FORTH IN THE MICHIGAN STATUTE.
(ii)
Lender’s Statutory Rights
Regarding Leases and Rents
. In
addition to all other rights of Mortgagor provided for herein or in any other
Loan Documents, Lender shall be entitled to all of the rights and benefits
conferred by Act 210 of the Michigan Public Acts of 1953 as amended (MCL
554.231, et seq.).
(iii)
Construction
Liens
. All
references in this Security Instrument or in any of the other Loan Documents to
mechanic’s liens, or materialman’s liens, or similar liens shall be deemed to
include “construction liens” as defined in MCL 570.1103(3).
(iv)
Waste
. Subject
to the provisions of Section 3.6 hereof and the applicable provisions of the
Loan Agreement, if Mortgagor shall fail to pay any Impositions, the same shall
constitute waste as provided by MCL 600.2927. Mortgagor consents to the
appointment of a receiver under said statute if Lender elects to seek such
relief.
(v)
Future
Advances
. This
Security Instrument secures future advances and is a future advance mortgage
under Act No. 348 of the Michigan Public Acts of 1990 (MCL 565.901 et. seq.).
All future advances under the Note, this Security Instrument and the other Loan
Documents shall have the same priority as if the future advance was made on the
date that this Security Instrument was recorded. [Insert Appropriate State
Specific Provisions]
55.
Contemporaneous Security
Instruments.
THIS
MORTGAGE IS MADE CONTEMPORANEOUSLY WITH THE OTHER SECURITY INSTRUMENTS DATED AS
OF THE DATE HEREOF GIVEN BY ADDITIONAL BORROWERS TO MORTGAGEE, COVERING
PROPERTIES LOCATED IN THE STATE OF MICHIGAN (the “
Other Security
Instruments
”). The
Other Security Instruments further secure the obligations of Mortgagor to
Mortgagee under the Note. Upon the occurrence of an Event of Default, Mortgagee
may proceed under this Mortgage and/or the Other Security Instruments against
any of such property and/or the Mortgaged Property in one or more parcels and in
such manner and order as Mortgagee shall elect. Mortgagor hereby irrevocably
waives and releases, to the extent permitted by law, and whether now or
hereafter in force, any right to have the Mortgaged Property and/or the property
covered by the Other Security Instruments marshalled upon any foreclosure of
this Mortgage or the Other Security Instruments.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, Mortgagor has executed this instrument as of the day and year
first above written.
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SCOTSDALE MI
LLC
,
a Delaware
limited
liability
company
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By:
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LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
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its sole Managing Member
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By:
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/s/ David
Lichtenstein
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Name:
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David
Lichtenstein
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Title:
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President
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ACKNOWLEDGMENT
STATE
OF
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)
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:
ss.:
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COUNTY
OF
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)
:
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The
foregoing instrument was acknowledged before me in the County of _____________,
State of ________________________ this 30 day of June, 2006, by
__________________, the ________________ of SCOTSDALE MI LLC, a Delaware limited
liability company.
Notary
Public, _____County,
______
Acting in
the County of ________, ______
My
commission expires:
This
instrument was prepared by
and
return when recorded to:
Sidley
Austin LLP
One S.
Dearborn St.
Chicago,
Illinois 60603
Attn:
Rebecca Janovsky, Esq.
EXHIBIT A
Legal Description of
Premises
EXHIBIT
10.13
CARRIAGE PARK MI
LLC.
, as
Mortgagor
To
CITIGROUP GLOBAL MARKETS REALTY,
INC.,
as
Mortgagee
MORTGAGE
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Dated:
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As
of June 30, 2006
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Location:
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27201
West Canfield Dr.
Dearborn
Heights, Michigan
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County:
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Wayne
County
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THIS
MORTGAGE CONSTITUTES A FUTURE ADVANCE MORTGAGE AND SECURES FUTURE ADVANCES UNDER
ACT 348 OF THE PUBLIC ACTS OF 1990, AS AMENDED (MCLA §565.901,
ET
SEQ
.) UNDER
MICHIGAN LAW.
THIS MORTGAGE
(as the
same may be amended, restated, extended, supplemented or otherwise modified from
time to time, this “
Mortgage
”), is
made as of the 30
th
day of June, 2006, by CARRIAGE PARK MI LLC, a Delaware limited liability
company, having an address
c/o
Lightstone Holdings LLC, 326 Third Street, Lakewood, New Jersey
08701
(“
Mortgagor
”), to
and for the benefit of CITIGROUP GLOBAL MARKETS REALTY CORP., a New York
corporation, having an address at 388 Greenwich Street, 19th Floor, New York,
New York 10013 (together with its successors and assigns, “
Mortgagee
”).
Capitalized terms used herein but not otherwise defined shall have the
respective meanings assigned to such terms in the Loan Agreement (hereinafter
defined).
W I T N E S S E T
H:
To secure
the payment of a loan (the “
Loan
”) in the
original principal sum of Forty Million Seven Hundred Twenty-Five Thousand and
NO/100ths Dollars ($40,725,000.00), lawful money of the United States of
America, being made from Mortgagee to Mortgagor and the Additional Borrowers (as
hereinafter defined) on the date hereof pursuant to the terms and conditions of
a certain Loan and Security Agreement, dated as of the date hereof (as amended,
modified or restated, the “
Loan
Agreement
”),
between Mortgagor, together with Carriage Hill MI LLC, a Delaware limited
liability company, Scotsdale Manor MI LLC, a Delaware limited liability company
and Macomb Manor MI LLC, a Delaware limited liability company (collectively, the
“
Additional
Borrowers
”) and
Mortgagee, which Loan is evidenced by and is to be paid with interest according
to a Promissory Note in the principal sum of Forty Million Seven Hundred
Twenty-Five Thousand and NO/100ths Dollars ($40,725,000.00) dated as of the date
hereof having a scheduled maturity date of July 11, 2016 (collectively, as
amended, modified, renewed or restated and together with any substitutes or
replacements therefor, the “
Note
”), made
by Mortgagor and the Additional Borrowers to Mortgagee and all other sums now or
hereafter due hereunder, or otherwise due under the Loan Documents (as defined
in the Loan Agreement) (the principal amount of the Loan, together with interest
thereon and all sums due hereunder and under the Loan Agreement, the Note and
the other Loan Documents being collectively called the “
Debt
”), and
all of the agreements, covenants, conditions, warranties, representations and
other obligations (other than to repay the Debt) made or undertaken by Mortgagor
or any other person or entity to Mortgagee or others as set forth in the Loan
Documents (collectively, the “
Obligations
”),
Mortgagor has mortgaged, given, granted, bargained, sold, alienated, enfeoffed,
conveyed, confirmed, pledged, assigned, and hypothecated and by these presents
does hereby mortgage, warrant, give, grant, bargain, sell, alien, enfeoff,
convey, confirm, pledge, assign, hypothecate, convey and grant a security
interest unto Mortgagee, with power of sale, subject to the Permitted
Encumbrances, all of Mortgagor’s right, title, interest and estate in and to the
real property
described
on
Exhibit A
attached
hereto (the “
Premises
”) and
the buildings, structures, fixtures, additions, enlargements, extensions,
modifications, repairs, replacements and improvements now or hereafter located
thereon (the “
Improvements
”);
TOGETHER
WITH: all right, title, interest and estate of Mortgagor now owned, or hereafter
acquired, in and to the following property, rights, interests and estates (the
Premises and the Improvements, together with the following property, rights,
interests and estates being hereinafter described, are collectively referred to
herein as the “
Mortgaged
Property
”):
(a)
all
easements, rights-of-way, strips and gores of land, streets, ways, alleys,
passages, sewer rights, water, water courses, water rights and powers, air
rights and development rights, and all estates, rights, titles, interests,
privileges, liberties, tenements, hereditaments and appurtenances of any nature
whatsoever, in any way belonging, relating or pertaining to the Premises and the
Improvements and the reversion and reversions, remainder and remainders, and all
land lying in the bed of any street, road or avenue, opened or proposed, in
front of or adjoining the Premises, to the center line thereof and all the
estates, rights, titles, interests, dower and rights of dower, curtesy and
rights of curtesy, property, possession, claim and demand whatsoever, both at
law and in equity, of Mortgagor of, in and to the Premises and the Improvements,
and every part and parcel thereof, with the appurtenances thereto and all rights
to divide the property pursuant to Public Act 591 of the Michigan Public Acts of
1966, as amended (MCL 560-101 et. seq.);
(b)
all
machinery, equipment, fixtures (including, but not limited to, all heating, air
conditioning, plumbing, lighting, communications and elevator fixtures) and
other property of every kind and nature, whether tangible or intangible,
whatsoever owned by Mortgagor, or in which Mortgagor has or shall have an
interest, now or hereafter located upon the Premises and the Improvements, or
appurtenant thereto, and usable in connection with the present or future
operation and occupancy of the Premises and the Improvements and all building
equipment, materials and supplies of any nature whatsoever owned by Mortgagor,
or in which Mortgagor has or shall have an interest, now or hereafter located
upon the Premises or the Improvements, or appurtenant thereto, and usable in
connection with the present or future operation, enjoyment and occupancy of the
Premises and the Improvements (hereinafter collectively called the “
Equipment
”),
including the proceeds of any sale or transfer of the foregoing, and the right,
title and interest of Mortgagor in and to any of the Equipment which may be
subject to any security interests, as defined in the Uniform Commercial Code, as
adopted and enacted by the state or states where any of the Mortgaged Property
is located (the “
Uniform Commercial
Code
”)
superior in lien to the lien of this Mortgage;
(c)
all
awards or payments, including interest thereon, which may heretofore and
hereafter be made with respect to the Mortgaged Property, whether from the
exercise of the right of eminent domain or condemnation (including, but not
limited to, any transfer made in lieu of or in anticipation of the exercise of
said rights), or for a change of grade, or for any other injury to or decrease
in the value of the Mortgaged Property;
(d)
all
leases, tenancies, licenses, subleases, assignments and/or other rental or
occupancy agreements (including, without limitation, any and all guarantees and
supporting obligations of and security deposit and letter of credit rights
relating to any of the foregoing) heretofore or hereafter entered into affecting
the use, enjoyment or occupancy of the Premises and the Improvements, including
any extensions, renewals, modifications or amendments thereof (collectively, the
“
Leases
”),
together with all rights, powers, privileges, options and other benefits of
Mortgagor as lessor under the Leases, including, without limitation, the
immediate and continuing right to receive and collect all rents, income,
revenues, issues, profits, condemnation awards, insurance proceeds, moneys and
security payable or receivable under the Leases or pursuant to any of the
provisions thereof, whether as rent or otherwise, the right to accept or reject
any offer made by any tenant pursuant to its Lease to purchase the Mortgaged
Property and any other property subject to the Lease as therein provided and to
perform all other necessary or appropriate acts with respect to such Leases as
agent and attorney-in-fact for Mortgagor, and the right to make all waivers and
agreements, to give and receive all notices, consents and releases, to take such
action upon the happening of a default under any Lease, including the
commencement, conduct and consummation of proceedings at law or in equity as
shall be permitted under any provision of any Lease or by any law, and to do any
and all other things whatsoever which Mortgagor is or may become entitled to do
under any such Lease together with all accounts receivable, contract rights,
franchises, interests, estates or other claims, both at law or in equity,
relating to the Mortgaged Property, to the extent not included in rent earnings
and income under any of the Leases, including the right to receive and collect
any sums payable to Mortgagor thereunder and all deposits or other security or
advance payments made by Mortgagor with respect to any of the services related
to the Mortgaged Property or the operation thereof, and together with all rents,
rent equivalents (including room revenues, if applicable), moneys payable as
damages or in lieu of rent or rent equivalents, royalties (including, without
limitation, all oil and gas or other mineral royalties and bonuses), income,
receivables, receipts, revenues, deposits (including, without limitation,
security, utility and other deposits), accounts, cash, issues, profits, charges
for services rendered, and other consideration of whatever form or nature
received by or paid to or for the account of or benefit of Mortgagor or its
agents or employees from any and all sources arising from or attributable to the
Premises and the Improvements (the “
Rents
”), and
together with all proceeds from the sale or other disposition of the Leases and
the right to receive and apply the Rents to the payment of the
Debt;
(e)
all of
Mortgagor’s right, title and interest in, to and under any and all reserve,
deposit or escrow accounts (the “
Accounts
”) made
pursuant to any of the Loan Documents, together with all income, profits,
benefits, investment property and advantages arising therefrom, and together
with all rights, powers, privileges, options and other benefits of Mortgagor
under the Accounts, and together with the right to do any and all other things
whatsoever which Mortgagor is or may become entitled to do under the
Accounts;
(f)
all trade
names, software, trademarks, trademark applications, trademark licenses,
servicemarks, logos, copyrights, copyright applications, goodwill, books and
records and all other general intangibles relating to or used in connection with
the operation of the Mortgaged Property;
(g)
all
proceeds of and any unearned premiums on any insurance policies covering the
Mortgaged Property, including, without limitation, the right to receive and
apply the proceeds of any insurance, judgments, or settlements made in lieu
thereof, for damage to the Mortgaged Property or any part thereof;
(h)
the
right, following an Event of Default, in the name and on behalf of Mortgagor, to
appear in and defend any action or proceeding brought with respect to the
Mortgaged Property and to commence any action or proceeding to protect the
interest of the Mortgagee in the Mortgaged Property or any part
thereof;
(i)
all
accounts, escrows, reserves, documents, instruments, chattel paper, monetary
obligations, claims, deposits, investment property and general intangibles, as
the foregoing terms are defined in the Uniform Commercial Code, and all books,
records, plans, specifications, designs, drawings, permits, consents, licenses,
franchises, management agreements, contracts, contract rights (including,
without limitation, any contract with any architect or engineer or with any
other provider of goods or services for or in connection with any construction,
repair, or other work upon the Mortgaged Property), approvals, actions, refunds
or real estate taxes and assessments (and any other governmental impositions
related to the Mortgaged Property), and causes of action that now or hereafter
relate to, are derived from or are used in connection with the Mortgaged
Property, or the use, operation, management, improvement, alteration, repair,
maintenance, occupancy or enjoyment thereof or the conduct of any business or
activities thereon;
(j)
all
accounts receivable, contract rights, interests, estate or other claims, both in
law and in equity, which Mortgagor now has or may hereafter acquire in the
Mortgaged Property or any part thereof;
(k)
all
rights which Mortgagor now has or may hereafter acquire, to be indemnified
and/or held harmless from any liability, loss, damage, cost or expense
(including, without limitation, attorneys’ fees and disbursements) relating to
the Mortgaged Property or any part thereof;
(l)
all
personal property of Mortgagor; and
(m)
any and
all proceeds and products of any of the foregoing.
TO HAVE
AND TO HOLD the above granted and described Mortgaged Property unto and to the
use and benefit of Mortgagee, and the successors and assigns of Mortgagee,
forever;
PROVIDED,
HOWEVER, these presents are upon the express condition that, if Mortgagor and
the Additional Borrowers shall well and truly pay to Mortgagee the Debt at the
time and in the manner provided in the Note and this Mortgage and shall pay all
other sums due under the Loan Agreement or any other Loan Document, these
presents and the estate hereby granted shall cease, terminate and be
void;
AND
Mortgagor represents and warrants to and covenants and agrees with Mortgagee as
follows:
1.
Payment of Debt and
Incorporation of Covenants, Conditions and Agreements.
Mortgagor and the Additional Borrowers shall pay the Debt at the time and in the
manner provided in the Note, the Loan Agreement and in this Mortgage. Mortgagor
and the Additional Borrowers will duly and punctually perform all of the
covenants, conditions and agreements contained in the Note, the Loan Agreement,
this Mortgage and the other Loan Documents all of which covenants, conditions
and agreements are hereby made a part of this Mortgage to the same extent and
with the same force as if fully set forth herein.
2.
Warranty of
Title.
Mortgagor warrants that Mortgagor has a good, marketable and insurable fee
simple interest in the Mortgaged Property and has the right to mortgage, give,
grant, bargain, sell, alien, enfeoff, convey, confirm, pledge, assign and
hypothecate the Mortgaged Property and that Mortgagor possesses a fee simple
estate in the Mortgaged Property and that it owns the Mortgaged Property free
and clear of all liens, encumbrances and charges whatsoever except for the
Permitted Encumbrances. Mortgagor represents and warrants that none of the
Permitted Encumbrances will materially and adversely affect (i) Mortgagor’s
ability to pay in full in a timely manner its obligations, including, without
limitation, the Debt, (ii) the use of the Mortgaged Property for the use
currently being made thereof, (iii) the operation of the Mortgaged Property, or
(iv) the value of the Mortgaged Property. Mortgagor shall forever warrant,
defend and preserve such title and the validity and priority of the lien of this
Mortgage and shall forever warrant and defend the same to Mortgagee against the
claims of all persons whomsoever.
3.
Insurance.
(a)
Mortgagor, at its sole cost and expense, shall maintain or cause to be
maintained insurance with respect to the Mortgaged Property for the mutual
benefit of Mortgagor and Mortgagee as required by Section 5.4 of the Loan
Agreement.
(b)
If the
Mortgaged Property shall be damaged or destroyed, in whole or in part, by fire
or other casualty (an “
Insured
Casualty
”),
Mortgagor shall give immediate notice thereof to Mortgagee and to the insurance
carrier. Subject to the terms of the Loan Agreement, Mortgagor shall promptly
repair, replace or rebuild the Mortgaged Property in accordance with, and all
amounts paid with respect to such Insured Casualty under all insurance policies
maintained by Mortgagor shall be governed by, the terms and conditions of
Section 5.5 of the Loan Agreement. The expenses incurred by Mortgagee in the
adjustment and collection of insurance proceeds shall become part of the Debt
and shall be secured hereby and shall be reimbursed by Mortgagor to Mortgagee
upon demand.
4.
Payment of Impositions and
Other Charges
. Subject
to Mortgagor’s right to contest set forth in Section 5.3(B) of the Loan
Agreement and the provisions of Section 5 below, Mortgagor shall cause to be
paid all Impositions now or hereafter levied or assessed or imposed against the
Mortgaged Property or any part thereof as the same become due and payable.
Mortgagor shall promptly pay for all utility services provided to the Mortgaged
Property. Mortgagor shall furnish to Mortgagee or its designee receipts for the
payment of the Impositions prior to the date the same shall become delinquent
(provided, however, that Mortgagor shall not be required to furnish such
receipts for payment of Impositions in the event that such Impositions are to be
paid by Mortgagee pursuant to Section 5 hereof).
5.
Impositions and Insurance
Reserve
.
Mortgagor shall make monthly deposits into the Impositions and Insurance Reserve
of amounts sufficient to pay Impositions and Insurance Premiums in accordance
with the terms of Article VI of the Loan Agreement.
6.
Condemnation
.
Mortgagor shall promptly give Mortgagee written notice of the actual or
threatened commencement of any condemnation or eminent domain proceeding
affecting the Mortgaged Property or any portion thereof and shall deliver to
Mortgagee copies of any and all papers served in connection with such
proceedings. Subject to the terms of Section 5.5 of the Loan Agreement,
Mortgagee is hereby irrevocably appointed as Mortgagor’s attorney-in-fact,
coupled with an interest, with exclusive power to collect, receive and retain
any award or payment for said condemnation or eminent domain and to make any
compromise or settlement in connection with such proceeding. Notwithstanding any
taking by any public or quasi public authority through eminent domain or
otherwise (including but not limited to any transfer made in lieu of or in
anticipation of the exercise of such taking), Mortgagor shall continue to pay
the Debt at the time and in the manner provided for its payment in the Loan
Agreement. Subject to the terms of the Loan Agreement, Mortgagor shall cause the
award or payment made in any condemnation or eminent domain proceeding, which is
payable to Mortgagor, to be paid directly to Mortgagee. The application of any
such award or payment shall be governed by the applicable provisions of the Loan
Agreement.
7.
Maintenance of Mortgaged
Property.
Mortgagor shall cause the Mortgaged Property to be operated and maintained in a
good and safe condition and repair and in keeping with the condition and repair
of properties of a similar use, value, age, nature and construction. Mortgagor
shall not use, maintain or operate the Mortgaged Property in any manner which
constitutes a public or private nuisance or which makes void, voidable, or
cancelable, or increases the premium of, any insurance then in force with
respect thereto. The Improvements and the Equipment shall not be removed or
demolished and no Material Alterations shall be made thereto (except for normal
replacement or disposal of the Equipment and except as otherwise expressly
permitted in the Loan Agreement) without the consent of Mortgagee. Mortgagor
shall promptly comply in all material respects with all laws, orders and
ordinances affecting the Mortgaged Property, or the use thereof.
8.
Use of Mortgaged
Property
.
Mortgagor shall not initiate, join in, acquiesce in, or consent to any change in
any private restrictive covenant, zoning law or other public or private
restriction, limiting or defining the uses which may be made of the Mortgaged
Property or any part thereof, nor shall Mortgagor initiate, join in, acquiesce
in, or consent to any zoning change or zoning matter affecting the Mortgaged
Property, which in any of the foregoing cases could reasonably be expected to
result in a Material Adverse Effect. If under applicable zoning provisions the
use of all or any portion of the Mortgaged Property is or shall become a
nonconforming use, Mortgagor will not cause or permit such nonconforming use to
be discontinued or abandoned without the express written consent of Mortgagee,
which consent shall not be unreasonably withheld. Mortgagor shall not permit or
suffer to occur any waste on or to the Mortgaged Property or to any portion
thereof and shall not take any steps whatsoever to convert the Mortgaged
Property, or any portion thereof, to a condominium or cooperative form of
management. Mortgagor will not install or permit to be installed on the Premises
any underground storage tank or above-ground storage tank in violation of the
Environmental Laws.
9.
Transfer or Encumbrance of
the Mortgaged Property
. (a)
Mortgagor acknowledges that Mortgagee has examined and relied on the
creditworthiness and experience of Mortgagor in owning and operating properties
such as the Mortgaged Property in agreeing to make the Loan, and that Mortgagee
will continue to rely on Mortgagor’s ownership of the Mortgaged Property as a
means of maintaining the value of the Mortgaged Property as security for
repayment of the Debt. Except as expressly permitted under this Mortgage, the
Loan Agreement or under the other Loan Documents, Mortgagor shall not cause or
suffer to occur or exist, directly or indirectly, voluntarily or involuntarily,
by operation of law or otherwise, any sale, transfer, mortgage, pledge, lien or
encumbrance (other than Permitted Encumbrances) (collectively, “
Transfers
”) of (i)
all or any part of the Mortgaged Property or any interest therein, or (ii) any
direct or indirect beneficial ownership interest (in whole or in part) in
Mortgagor, irrespective of the number of tiers of ownership, without the prior
written consent of Mortgagee.
(b)
The
occurrence of any Transfer in violation of this Section 9 shall constitute an
Event of Default hereunder, whereupon Mortgagee at its option, without being
required to demonstrate any actual impairment of its security or any increased
risk of default hereunder, may declare the Debt immediately due and payable.
(c)
Mortgagee’s
consent to any Transfer of the Mortgaged Property or any interest in Mortgagor
shall not be deemed to be a waiver of Mortgagee’s right to require such consent
to any future occurrence of same. Any attempted or purported Transfer of the
Mortgaged Property or of any direct or indirect interest in Mortgagor, if made
in contravention of this Section 9, shall be null and void and of no force and
effect.
10.
Taxes on Security;
Documentary Stamps; Intangibles Tax.
(a)
Mortgagor shall pay all taxes, charges, filing, registration and recording fees,
excises and levies payable with respect to the Note, this Mortgage or the liens
created or secured by the Loan Documents, other than income, franchise and doing
business taxes imposed on Mortgagee. If there shall be enacted any law
(i) deducting the Loan from the value of the Mortgaged Property for the
purpose of taxation, (ii) affecting any lien on the Mortgaged Property, or
(iii) changing existing laws of taxation of mortgages, deeds of trust, security
deeds, or debts secured by real property, or changing the manner of collecting
any such taxes, Mortgagor shall promptly pay to Mortgagee, on demand, all taxes,
costs and charges for which Mortgagee is or may be liable as a result thereof;
however, if such payment would be prohibited by law or would render the Loan
usurious, then instead of collecting such payment, Mortgagee may declare all
amounts owing under the Loan Documents to be immediately due and payable.
(b)
If at any
time the United States of America, any State thereof or any subdivision of any
such State shall require revenue or other stamps to be affixed to the Note or
this Mortgage, or impose any other tax or charge on the same, Mortgagor will pay
for the same, with interest and penalties thereon, if any. Mortgagor hereby
agrees that, in the event that it is determined that additional documentary
stamp tax or intangible tax is due hereon or any mortgage or promissory note
executed in connection herewith (including, without limitation, the Note),
Mortgagor shall indemnify and hold harmless Mortgagee for all such documentary
stamp tax and/or intangible tax, including all penalties and interest assessed
or charged in connection therewith. Mortgagor shall pay same within ten (10)
days after demand of payment from Mortgagee and the payment of such sums shall
be secured by this Mortgage and such sums shall bear interest at the Default
Rate (as defined in the Note) from and after the eleventh (11
th
) day
after demand until paid in full.
(c)
Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage.
11.
No Credits on Account of the
Debt.
Mortgagor will not claim or demand or be entitled to any credit or credits on
account of the Debt for any part of the Impositions assessed against the
Mortgaged Property, or any part thereof, and no deduction shall otherwise be
made or claimed from the assessed value of the Mortgaged Property, or any part
thereof, for real estate tax purposes by reason of this Mortgage or the Debt. In
the event such claim, credit or deduction shall be required by law, Mortgagee
shall have the option, by written notice of not less than ninety (90) days, to
declare the Debt immediately due and payable.
12.
Performance of Other
Agreements.
Mortgagor shall duly and punctually observe and perform each and every material
term, provision, condition, and covenant to be observed or performed by
Mortgagor pursuant to the terms of any agreement or recorded instrument
(including all instruments comprising the Permitted Encumbrances) affecting or
pertaining to the Mortgaged Property, and will not suffer or permit any default
or event of default (after giving effect to any applicable notice requirements
and cure periods) to exist under any of the foregoing.
13.
Further Acts; Secondary
Market Transactions.
(a)
Mortgagor will, at its sole cost and expense, and without expense to Mortgagee,
do, execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, mortgages, assignments, notices of assignment, Uniform Commercial
Code financing statements or continuation statements, transfers and assurances
as Mortgagee shall, from time to time, reasonably require, for the better
assuring, conveying, assigning, transferring, and confirming unto Mortgagee the
property and rights hereby mortgaged, given, granted, bargained, sold,
alienated, enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated or
intended now or hereafter so to be, or which Mortgagor may be or may hereafter
become bound to convey or assign to Mortgagee, or for carrying out the intention
or facilitating the performance of the terms of this Mortgage or for filing,
registering or recording this Mortgage. Mortgagor, on demand, will execute and
deliver and, upon Mortgagor’s failure to do so within five (5) Business Days
after Mortgagee’s request therefor, hereby authorizes Mortgagee to execute in
the name of Mortgagor or without the signature of Mortgagor to the extent
Mortgagee may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Mortgagee in the Mortgaged Property. Upon foreclosure or the
appointment of a receiver, Mortgagor will, at its sole cost and expense,
cooperate fully and completely to effect the assignment or transfer of any
license, permit, agreement or any other right necessary or useful to the
operation of the Mortgaged Property. Mortgagor grants to Mortgagee an
irrevocable power of attorney coupled with an interest for the purpose of
exercising and perfecting any and all rights and remedies available to Mortgagee
at law and in equity, including, without limitation, such rights and remedies
available to Mortgagee pursuant to this Section.
(b)
Subject
to the terms and conditions set forth in the Loan Agreement, Mortgagee shall
have the right to engage in one or more Secondary Market Transactions and, in
connection therewith, Mortgagee may transfer its obligations under this
Mortgage, the Note, the Loan Agreement and under the other Loan Documents (or
may transfer the portion thereof corresponding to the transferred portion of the
Obligations), and thereafter Mortgagee shall be relieved of any obligations
hereunder and under the other Loan Documents arising after the date of said
transfer with respect to the transferred interest.
14.
Recording of Mortgage,
Etc.
Upon the
execution and delivery of this Mortgage and thereafter, from time to time,
Mortgagor will cause this Mortgage, and any security instrument creating a lien
or security interest or evidencing the lien hereof upon the Mortgaged Property
and each instrument of further assurance to be filed, registered or recorded in
such manner and in such places as may be required by any present or future law
in order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property. Mortgagor
will pay all filing, registration or recording fees, and all expenses incident
to the preparation, execution and acknowledgment of this Mortgage, any mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property and any instrument of further assurance, and all federal, state, county
and municipal, taxes, duties, imposts, assessments and charges arising out of or
in connection with the execution and delivery of this Mortgage, any mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance, except where prohibited by law
so to do.
15.
Reporting
Requirements.
Mortgagor agrees to give prompt notice to Mortgagee of the insolvency or
bankruptcy filing of Mortgagor or the death, insolvency or bankruptcy filing of
any Guarantor.
16.
Intentionally
Deleted
.
17.
Remedies.
Upon the
occurrence and during the continuance of an Event of Default, Mortgagee may, at
Mortgagee’s option, by Mortgagee itself, or otherwise, invoke the power of sale
and immediately exercise or pursue or cause to be exercised or pursued any or
all of the rights and remedies contained in this Mortgage and in any other Loan
Document or otherwise available at law or in equity including the right to do
any one or more of the following:
(a)
Right to Perform Mortgagor’s
Covenants
. If
Mortgagor has failed to keep or perform any covenant whatsoever contained in
this Mortgage or the other Loan Documents, Mortgagee may, but shall not be
obligated to do so, perform or attempt to perform said covenant; and any payment
made or expense incurred in the performance or attempted performance of any such
covenant, together with any sum expended by Mortgagee that is chargeable to
Mortgagor or subject to reimbursement by Mortgagor under the Loan Documents,
shall be and become a part of the Debt, and Mortgagor promises, upon demand, to
pay to Mortgagee, at the place where the Note is payable, all sums so incurred,
paid or expended by Mortgagee, with interest from the date when paid, incurred
or expended by Mortgagee at the Default Rate (as defined in the
Note).
(b)
Right of
Entry
. Subject
to any applicable law, the license granted to Mortgagor under Section 45 below
shall automatically be revoked and Mortgagee may, prior or subsequent to the
institution of any foreclosure proceedings, enter upon the Mortgaged Property,
or any part thereof, and take exclusive possession of the Mortgaged Property and
of all books, records, and accounts relating thereto and to exercise without
interference from Mortgagor any and all rights which Mortgagor has with respect
to the management, possession, operation, protection, or preservation of the
Mortgaged Property, including, without limitation, the right to rent the same
for the account of Mortgagor and to deduct from such Rents all costs, expenses,
and liabilities of every character incurred by the Mortgagee in collecting such
Rents and in managing, operating, maintaining, protecting, or preserving the
Mortgaged Property and to apply the remainder of such Rents on the Debt in such
manner as Mortgagee may elect. All such costs, expenses, and liabilities
incurred by Mortgagee in collecting such Rents and in managing, operating,
maintaining, protecting, or preserving the Mortgaged Property, if not paid out
of Rents as hereinabove provided, shall constitute a demand obligation owing by
Mortgagor and shall bear interest from the date of expenditure until paid at the
Default Rate as specified in the Note, all of which shall constitute a portion
of the Debt. If Mortgagee elects to enter the Mortgaged Property as provided for
herein, Mortgagee may invoke any and all legal remedies to dispossess Mortgagor,
including specifically one or more actions for forcible entry and detainer,
trespass to try title, and restitution. In connection with any action taken by
the Mortgagee pursuant to this subsection, Mortgagee shall not be liable for any
loss sustained by Mortgagor resulting from any failure to let the Mortgaged
Property, or any part thereof, or from any other act or omission of Mortgagee in
managing the Mortgaged Property unless such loss is caused by the willful
misconduct or gross negligence of Mortgagee, its agents, employees or officers,
nor shall Mortgagee be obligated to perform or discharge any obligation, duty,
or liability under any Lease or under or by reason hereof or the exercise of
rights or remedies hereunder. Mortgagor shall and does hereby agree to
indemnify, defend and hold harmless the Indemnified Parties (as defined in
Section 23 below) from and against, any and all liability, claim, demand,
loss, damage, cost or expense (including, without limitation, reasonable
attorneys’ fees and disbursements) which may or might be suffered or incurred by
any Indemnified Party under any such Lease or under or by reason hereof or the
exercise of rights or remedies hereunder, or by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants, or agreements contained in any such Lease as and to the extent
provided under Section 23 below. Nothing in this subsection shall impose any
duty, obligation, or responsibility upon any Indemnified Party for the control,
care, management, leasing, or repair of the Mortgaged Property, nor for the
carrying out of any of the terms and conditions of any such Lease prior to the
transfer of title to the Mortgaged Property to any Indemnified Party by
foreclosure, deed-in-lieu thereof, exercise of power of sale or otherwise.
Mortgagor hereby assents to, ratifies, and confirms any and all actions of the
Mortgagee with respect to the Mortgaged Property taken under this
subsection.
(c)
Right to
Accelerate
.
Mortgagee may, without notice or demand, declare the entire unpaid balance of
the Debt immediately due and payable.
(d)
Mortgagee’s Judicial
Remedies
.
Mortgagee may proceed by suit or suits, at law or in equity, to enforce the
payment of the Debt to foreclose the liens and security interests of this
Mortgage as against all or any part of the Mortgaged Property, and to have all
or any part of the Mortgaged Property sold under the judgment or decree of a
court of competent jurisdiction. This remedy shall be cumulative of any other
nonjudicial remedies available to the Mortgagee under this Mortgage or the other
Loan Documents. Proceeding with a request or receiving a judgment for legal
relief shall not be or be deemed to be an election of remedies or bar any
available nonjudicial remedy of the Mortgagee.
(e)
Mortgagee’s Right to
Appointment of Receiver
.
Mortgagee, as a matter of right and (i) without regard to the sufficiency
of the security for repayment of the Debt and without notice to Mortgagor,
(ii) without any showing of insolvency, fraud, or mismanagement on the part
of Mortgagor, (iii) without the necessity of filing any judicial or other
proceeding other than the proceeding for appointment of a receiver, and
(iv) without regard to the then value of the Mortgaged Property, shall be
entitled to the appointment of a receiver or receivers for the protection,
possession, control, management and operation of the Mortgaged Property,
including (without limitation), the power to collect the Rents, enforce this
Mortgage and, in case of a sale and deficiency, during the full statutory period
of redemption (if any), whether there be a redemption or not, as well as during
any further times when Mortgagor, except for the intervention of such receiver,
would be entitled to collection of such Rents. Mortgagor hereby irrevocably
consents to the appointment of a receiver or receivers. Any receiver appointed
pursuant to the provisions of this subsection shall have the usual powers and
duties of receivers in such matters.
(f)
Mortgagee’s Uniform
Commercial Code Remedies
.
Mortgagee may exercise its rights of enforcement under the Uniform Commercial
Code in effect in the state in which the Mortgaged Property is
located.
(g)
Sale of Mortgaged
Property
. Sell
for cash or upon credit the Mortgaged Property or any part thereof and all
estate, claim, demand, right, title and interest of Mortgagor therein and rights
of redemption thereof, pursuant to the power of sale contained herein or
otherwise, at one or more sales, as an entirety or in parcels, at such time and
place, upon such terms and after such notice thereof as may be required or
permitted by law.
(h)
Other
Rights
.
Mortgagee (i) may surrender the insurance policies maintained pursuant to the
Loan Agreement or any part thereof, and upon receipt of the proceeds shall apply
the unearned Insurance Premiums as a credit on the Debt, and, in connection
therewith, Mortgagor hereby appoints Mortgagee as agent and attorney-in-fact
(which is coupled with an interest and is therefore irrevocable) for Mortgagor
to collect such Insurance Premiums; (ii) may apply the Impositions and Insurance
Reserve and/or any other Reserves held pursuant to this Mortgage or the other
Loan Documents, and any other funds held by Mortgagee toward payment of the
Debt; and (iii) shall have and may exercise any and all other rights and
remedies which Mortgagee may have at law or in equity, or by virtue of any of
the Loan Documents, or otherwise.
(i)
Discontinuance of
Remedies
. If
Mortgagee shall have proceeded to invoke any right, remedy, or recourse
permitted under the Loan Documents and shall thereafter elect to discontinue or
abandon same for any reason, Mortgagee shall have the unqualified right so to do
and, in such event, Mortgagor and Mortgagee shall be restored to their former
positions with respect to the Debt, the Loan Documents, the Mortgaged Property
or otherwise, and the rights, remedies, recourses and powers of Mortgagee shall
continue as if same had never been invoked.
(j)
Remedies
Cumulative
. All
rights, remedies, and recourses of Mortgagee granted in the Note, this Mortgage,
the Loan Agreement and the other Loan Documents, any other pledge of collateral,
or otherwise available at law or equity: (i) shall be cumulative; (ii) may be
pursued separately, successively, or concurrently against Mortgagor, the
Mortgaged Property, or any one or more of them, at such time and in such order
as Mortgagee may determine in its sole discretion; (iii) may be exercised as
often as occasion therefor shall arise, it being agreed by Mortgagor that the
exercise or failure to exercise any of same shall in no event be construed as a
waiver or release thereof or of any other right, remedy, or recourse; (iv) shall
be nonexclusive of any other right, power or remedy which Mortgagee may have
against Mortgagor pursuant to this Mortgage, the Loan Agreement or the other
Loan Documents, or otherwise available at law or in equity; (v) shall not be
conditioned upon Mortgagee exercising or pursuing any remedy in relation to the
Mortgaged Property prior to Mortgagee bringing suit to recover the Debt; and
(vi) in the event Mortgagee elects to bring suit on the Debt and obtains a
judgment against Mortgagor prior to exercising any remedies in relation to the
Mortgaged Property, all liens and security interests, including the lien of this
Mortgage, shall remain in full force and effect and may be exercised thereafter
at Mortgagee’s option.
(k)
Election of
Remedies
.
Mortgagee may release, regardless of consideration, any part of the Mortgaged
Property without, as to the remainder, in any way impairing, affecting,
subordinating, or releasing the lien or security interests evidenced by this
Mortgage or the other Loan Documents or affecting the obligations of Mortgagor
or any other party to pay the Debt. For payment of the Debt, Mortgagee may
resort to any collateral securing the payment of the Debt in such order and
manner as Mortgagee may elect. No collateral taken by Mortgagee shall in any
manner impair or affect the lien or security interests given pursuant to the
Loan Documents, and all collateral shall be taken, considered, and held as
cumulative.
(l)
Bankruptcy
Acknowledgment
. If the
Mortgaged Property or any portion thereof or any interest therein becomes
property of any bankruptcy estate or subject to any state or federal insolvency
proceeding, or in the event of the filing of any voluntary or involuntary
petition under the Bankruptcy Code by or against Mortgagor then Mortgagee shall
immediately become entitled, in addition to all other relief to which Mortgagee
may be entitled under this Mortgage, to obtain (i) an order from any
bankruptcy court or other appropriate court granting immediate relief from the
automatic stay pursuant to § 362 of the Bankruptcy Code so as to permit
Mortgagee to pursue its rights and remedies against Mortgagor as provided under
this Mortgage and all other rights and remedies of Mortgagee at law and in
equity under applicable state law, and (ii) an order from the Bankruptcy
Court prohibiting Mortgagor’s use of all “cash collateral” as defined under
§ 363 of the Bankruptcy Code. Mortgagor shall not assert or request any
other party to assert, that the automatic stay under § 362 of the
Bankruptcy Code operate or be interpreted to stay, interdict, condition, reduce
or inhibit the ability of Mortgagee to enforce any rights it has by virtue of
this Mortgage, or any other rights that Mortgagee has, whether now or hereafter
acquired, against any guarantor of the Debt. Mortgagor shall not seek a
supplemental stay or any other relief, whether injunctive or otherwise, pursuant
to § 105 of the Bankruptcy Code or any other provision therein to stay,
interdict, condition, reduce or inhibit the ability of Mortgagee to enforce any
rights it has by virtue of this Mortgage against any guarantor of the Debt. Any
bankruptcy petition or other action taken by Mortgagor to stay, condition, or
inhibit Mortgagee from exercising its remedies are hereby admitted by Mortgagor
to be in bad faith and Mortgagor further admits that Mortgagee would have just
cause for relief from the automatic stay in order to take such actions
authorized under state law.
(m)
Application of
Proceeds
. The
proceeds from any sale, lease, or other disposition made pursuant to this
Mortgage, or the proceeds from the surrender of any insurance policies pursuant
hereto, or any Rents collected by Mortgagee from the Mortgaged Property or the
Impositions and Insurance Reserve or other Reserves under the Loan Agreement or
sums received pursuant to Section 6 hereof, or proceeds from insurance
which Mortgagee elects to apply to the Debt pursuant to Section 3 hereof,
shall be applied by Mortgagee to the Debt in such order, priority and
proportions as Mortgagee in its sole discretion shall determine.
18.
Security
Agreement.
This
Mortgage is both a real property mortgage and a “security agreement” within the
meaning of the Uniform Commercial Code. The Mortgaged Property includes both
real and personal property and all other rights and interests, whether tangible
or intangible in nature, of Mortgagor in the Mortgaged Property. Mortgagor by
executing and delivering this Mortgage has granted and hereby grants to
Mortgagee, as security for the Debt, a security interest in the Mortgaged
Property to the full extent that the Mortgaged Property may be subject to the
Uniform Commercial Code (said portion of the Mortgaged Property so subject to
the Uniform Commercial Code being called in this Section 18 the “
Collateral
”).
Mortgagor hereby agrees to execute and deliver to Mortgagee, in form and
substance reasonably satisfactory to Mortgagee, such financing statements and
such further assurances as Mortgagee may from time to time reasonably consider
necessary to create, perfect, and preserve Mortgagee’s security interest herein
granted. This Mortgage shall also constitute a “fixture filing” for the purposes
of the Uniform Commercial Code as to all or any part of the Mortgaged Property
which now or hereafter constitute “fixtures” under the Uniform Commercial Code.
Information concerning the security interest herein granted may be obtained from
the parties at the addresses of the parties set forth in the first paragraph of
this Mortgage. If an Event of Default shall occur, Mortgagee, in addition to any
other rights and remedies which it may have, shall have and may exercise
immediately and without demand, any and all rights and remedies granted to a
secured party upon default under the Uniform Commercial Code, including, without
limiting the generality of the foregoing, the right to take possession of the
Collateral or any part thereof, and to take such other measures as Mortgagee may
deem necessary for the care, protection and preservation of the Collateral. Upon
request or demand of Mortgagee, Mortgagor shall at its expense assemble the
Collateral and make it available to Mortgagee at a convenient place acceptable
to Mortgagee. Mortgagor shall pay to Mortgagee on demand any and all expenses,
including legal expenses and attorneys’ fees, incurred or paid by Mortgagee in
protecting the interest in the Collateral and in enforcing the rights hereunder
with respect to the Collateral. Any notice of sale, disposition or other
intended action by Mortgagee with respect to the Collateral sent to Mortgagor in
accordance with the provisions hereof at least five (5) days prior to such
action, shall constitute commercially reasonable notice to Mortgagor. The
proceeds of any disposition of the Collateral, or any part thereof, may be
applied by Mortgagee to the payment of the Debt in such priority and proportions
as Mortgagee in its discretion shall deem proper. In the event of any change in
name, identity or structure of any Mortgagor, such Mortgagor shall notify
Mortgagee thereof and promptly after Mortgagee’s request shall execute, file and
record such Uniform Commercial Code forms as are necessary to maintain the
priority of Mortgagee’s lien upon and security interest in the Collateral, and
shall pay all expenses and fees in connection with the filing and recording
thereof. If Mortgagee shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Mortgagor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Mortgagee shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
increase Mortgagor’s obligations under the Note, this Mortgage and the other
Loan Documents. Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact, coupled with an interest upon Mortgagor’s failure to do so
within five (5) Business Days after request by Mortgagee, to file with the
appropriate public office on its behalf any financing or other statements signed
only by Mortgagee, as Mortgagor’s attorney-in-fact, in connection with the
Collateral covered by this Mortgage. Notwithstanding the foregoing, Mortgagor
shall appear and defend in any action or proceeding which affects or purports to
affect the Mortgaged Property and any interest or right therein, whether such
proceeding affects title or any other rights in the Mortgaged Property (and in
conjunction therewith, Mortgagor shall fully cooperate with Mortgagee in the
event Mortgagee is a party to such action or proceeding).
19.
Actions and
Proceedings.
Upon the
occurrence and during the continuance of an Event of Default, Mortgagee has the
right to appear in and defend any action or proceeding brought with respect to
the Mortgaged Property and to bring any action or proceeding, in the name and on
behalf of Mortgagor, which Mortgagee, in its discretion, decides should be
brought to protect its interest in the Mortgaged Property. Mortgagee shall, at
its option, be subrogated to the lien of any mortgage or other security
instrument discharged in whole or in part by the Debt, and any such subrogation
rights shall constitute additional security for the payment of the
Debt.
20.
Waiver of Setoff and
Counterclaim, Marshalling, Statute of Limitations, Automatic or Supplemental
Stay, Etc.
(a)
All
amounts due under this Mortgage, the Note and the other Loan Documents shall be
payable without setoff, counterclaim or any deduction whatsoever. Mortgagor
hereby waives the right to assert a setoff, counterclaim or deduction in any
action or proceeding in which Mortgagee is a participant, or arising out of or
in any way connected with this Mortgage, the Note, any of the other Loan
Documents, or the Debt.
(b)
Mortgagor
hereby expressly, irrevocably, and unconditionally waives and releases, to the
extent permitted by law (i) the benefit of all appraisement, valuation, stay,
extension, reinstatement and redemption laws now or hereafter in force and all
rights of marshalling, sale in the inverse order of alienation, or any other
right to direct in any manner the order or sale of any of the Mortgaged Property
in the event of any sale hereunder of the Mortgaged Property or any part thereof
or any interest therein; (ii) any and all rights of redemption from sale under
any order or decree of foreclosure of this Mortgage on behalf of Mortgagor, and
on behalf of each and every person acquiring any interest in or title to the
Mortgaged Property subsequent to the date of this Mortgage and on behalf of all
persons to the extent permitted by applicable law; and (iii) all benefits that
might accrue to Mortgagor by virtue of any present or future law exempting the
Mortgaged Property from attachment, levy or sale on execution or providing for
any appraisement, valuation, stay of execution, exemption from civil process,
redemption, or extension of time for payment. Mortgagee shall not be under any
obligation to marshal any assets in favor of any Person or against or in payment
of any or all of the Obligations.
(c)
To the
extent permitted by applicable law, Mortgagee’s rights hereunder shall continue
even to the extent that a suit for collection of the Debt, or part thereof, is
barred by a statute of limitations. Mortgagor hereby expressly waives and
releases to the fullest extent permitted by law, the pleading of any statute of
limitations as a defense to payment of the Debt.
21.
Recovery of Sums Required to
Be Paid.
Mortgagee shall have the right from time to time to take action to recover any
sum or sums which constitute a part of the Debt as the same become due, without
regard to whether or not the balance of the Debt shall be due, and without
prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
22.
Handicapped
Access.
(a)
Mortgagor
agrees that the Mortgaged Property shall at all times comply in all material
respects with applicable requirements of the Americans with Disabilities Act of
1990, the Fair Housing Amendments Act of 1988, all state and local laws and
ordinances related to handicapped access and all rules, regulations, and orders
issued pursuant thereto including, without limitation, the Americans with
Disabilities Act Accessibility Guidelines for Buildings and Facilities
(collectively “
Access
Laws
”).
(b)
Mortgagor
agrees to give prompt notice to Mortgagee of the receipt by Mortgagor of any
complaints related to violation of any Access Laws and of the commencement of
any proceedings or investigations which relate to compliance with applicable
Access Laws but only to the extent that such complaints, proceedings or
investigations, if adversely determined, could have a Material Adverse
Effect.
23.
Indemnification
. In
addition to the payment of expenses as required elsewhere herein and in the
other Loan Documents, Mortgagor agrees to indemnify, defend, protect, pay and
hold Mortgagee, its successors and assigns (including, without limitation, the
trustee and/or the trust under any trust agreement executed in connection with
any Securitization backed in whole or in part by the Loan and any other person
which may hereafter be the holder of the Note or any interest therein), and the
officers, directors, stockholders, partners, members, employees, agents, and
Affiliates of Mortgagee and such successors and assigns (collectively, the
“
Indemnified
Parties
”)
harmless from and against any and all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation
reasonable attorneys’ fees and expenses) (collectively, the “
Indemnified
Claims
”),
imposed upon or incurred by or asserted against any Indemnified Party by reason
of any of the following (to the extent that insurance proceeds paid to the
applicable Indemnified Party on account of the following shall be inadequate):
(i) ownership of the Mortgage, the Mortgaged Property or any interest therein or
receipt of any rents; (ii) any accident, injury to or death of persons or loss
of or damage to property occurring in, on or about the Mortgaged Property or any
part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (iii) any use, nonuse or condition in, on or
about the Mortgaged Property or any part thereof or on the adjoining sidewalks,
curbs, adjacent property or adjacent parking areas, streets or ways;
(iv) performance of any labor or services or the furnishing of any
materials or other property in respect of the Mortgaged Property or any part
thereof; (v) any failure of the Premises or the Improvements to comply with any
applicable law, statute, code, ordinance, rule or regulation; (vi) any Event of
Default by Mortgagor under this Mortgage, the Loan Agreement or any other Loan
Documents; (vii) any actions taken by any Indemnified Party in the
enforcement of this Mortgage and the other Loan Documents in accordance with
their respective terms; (viii) any failure to act on the part of any
Indemnified Party hereunder; (ix) any representation or warranty made in the
Note, this Mortgage or any of the other Loan Documents being false or misleading
in any material respect as of the date such representation or warranty was made;
(x) any claim by brokers, finders or similar persons claiming to be entitled to
a commission in connection with any Lease or other transaction involving the
Mortgaged Property or any part thereof under any legal requirement or any
liability asserted against Mortgagee with respect thereto; and (xi) the claims
of any lessee of any or any portion of the Mortgaged Property or any person
acting through or under any lessee or otherwise arising under or as a
consequence of any Lease. Notwithstanding the foregoing, Mortgagor shall not be
liable for any Indemnified Claims arising (A) from the gross negligence or
willful misconduct of any Indemnified Party or (B) under clauses (i) - (v) above
to the extent the facts, events or circumstances giving rise to such Indemnified
Claim arise after the date that any Indemnified Party takes possession of or
title to the Mortgaged Property by foreclosure, deed-in-lieu thereof, the
exercise of any power of sale or otherwise. Any amounts payable to an
Indemnified Party by reason of the application of this Section 23 shall be
secured by this Mortgage shall become immediately due and payable and shall bear
interest at the Default Rate from the date loss or damage is sustained by such
Indemnified Party until paid. The obligations and liabilities of Mortgagor under
this paragraph shall survive the termination, satisfaction, or assignment of
this Mortgage and the exercise by Mortgagee of any of its rights or remedies
hereunder, including, but not limited to, the acquisition of the Mortgaged
Property by foreclosure or a conveyance in lieu of foreclosure.
24.
Notices.
Any
notice, demand, statement, request or consent made hereunder shall be in
writing, addressed to the intended recipient at its address set forth in the
Loan Agreement, and shall be made and deemed given in accordance with the terms
of the Loan Agreement.
25.
Authority.
(a)
Mortgagor (and the undersigned representative of Mortgagor, if any) has full
power, authority and right to execute, deliver and perform its obligations
pursuant to this Mortgage, and to mortgage, give, grant, bargain, sell, alien,
enfeoff, convey, confirm, warrant, pledge, hypothecate and assign the Mortgaged
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Mortgage on Mortgagor’s part to be performed; and (b) Mortgagor
represents and warrants that Mortgagor is not a “foreign person” within the
meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended
and the related Treasury Department regulations.
26.
Waiver of
Notice.
Mortgagor shall not be entitled to any notices of any nature whatsoever from
Mortgagee except with respect to matters for which this Mortgage or the Loan
Agreement specifically and expressly provides for the giving of notice by
Mortgagee to Mortgagor and except with respect to matters for which Mortgagee is
required by applicable law to give notice, and Mortgagor hereby expressly waives
the right to receive any notice from Mortgagee with respect to any matter for
which this Mortgage or the Loan Agreement do not specifically and expressly
provide for the giving of notice by Mortgagee to Mortgagor.
27.
Remedies of
Mortgagor.
In the
event that a claim or adjudication is made that Mortgagee has acted unreasonably
or unreasonably delayed acting in any case where by law or under the Note, this
Mortgage or the other Loan Documents, it has an obligation to act reasonably or
promptly, Mortgagee shall not be liable for any monetary damages, and
Mortgagor’s remedies shall be limited to injunctive relief or declaratory
judgment.
28.
Sole Discretion of
Mortgagee.
Whenever
pursuant to this Mortgage or the other Loan Documents, Mortgagee exercises any
right given to it to consent, approve or disapprove, or any arrangement or term
is to be satisfactory to Mortgagee, the decision of Mortgagee to consent,
approve or disapprove, or to decide that arrangements or terms are satisfactory
or not satisfactory shall be in the sole discretion of Mortgagee and shall be
final and conclusive, except as may be otherwise expressly and specifically
provided herein. Notwithstanding anything to the contrary contained herein, it
shall be understood and agreed that any such consent, approval, or disapproval
may be conditioned, among other things, upon Mortgagee obtaining confirmation by
the Rating Agencies that the action or other matter subject to Mortgagee’s
consent, approval, or disapproval shall not adversely affect the rating of any
securities issued or to be issued in connection with any Secondary Market
Transaction, notwithstanding that such condition may not be expressly set forth
in the provision or provisions of the Loan Documents which require that
Mortgagee’s consent be obtained.
29.
Non-Waiver.
The
failure of Mortgagee to insist upon strict performance of any term hereof shall
not be deemed to be a waiver of any term of this Mortgage. Mortgagor shall not
be relieved of Mortgagor’s obligations hereunder by reason of (a) the failure of
Mortgagee to comply with any request of Mortgagor or Guarantor to take any
action to foreclose this Mortgage or otherwise enforce any of the provisions
hereof or of the Note or other Loan Documents, (b) the release, regardless of
consideration, of the whole or any part of the Mortgaged Property, or of any
person liable for the Debt or any portion thereof, or (c) any agreement or
stipulation by Mortgagee extending the time of payment or otherwise modifying or
supplementing the terms of the Note, this Mortgage, or the other Loan Documents.
Mortgagee may resort for the payment of the Debt to any other security held by
Mortgagee in such order and manner as Mortgagee, in its discretion, may elect.
Mortgagee may take action to recover the Debt, or any portion thereof, or to
enforce any covenant hereof without prejudice to the right of Mortgagee
thereafter to foreclosure this Mortgage. The rights and remedies of Mortgagee
under this Mortgage shall be separate, distinct and cumulative and none shall be
given effect to the exclusion of the others. No act of Mortgagee shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Mortgagee shall not be limited exclusively to
the rights and remedies herein stated but shall be entitled to every right and
remedy now or hereafter afforded at law or in equity.
30.
Liability.
Subject
to the provisions hereof requiring Mortgagee’s consent to any transfer of the
Mortgaged Property, this Mortgage shall be binding upon and inure to the benefit
of Mortgagor and Mortgagee and their respective successors and assigns
forever.
31.
Inapplicable
Provisions.
If any
term, covenant or condition of this Mortgage is held to be invalid, illegal or
unenforceable in any respect, this Mortgage shall be construed without such
provision.
32.
Headings,
Etc.
The
headings and captions of various Sections of this Mortgage are for convenience
of reference only and are not to be construed as defining or limiting, in any
way, the scope or intent of the provisions hereof.
33.
Counterparts.
This
Mortgage may be executed in any number of counterparts each of which shall be
deemed to be an original but all of which when taken together shall constitute
one agreement.
34.
Definitions.
Unless
the context clearly indicates a contrary intent or unless otherwise specifically
provided herein, words used in this Mortgage may be used interchangeably in
singular or plural form and the word “Mortgagor” shall mean “each Mortgagor and
any subsequent owner or owners of the Mortgaged Property or any part thereof or
any interest therein,” the word “Mortgagee” shall mean “Mortgagee and any
subsequent holder of the Note,” the word “Debt” shall mean “the Note and any
other evidence of indebtedness secured by this Mortgage,” the word “person”
shall include an individual, corporation, partnership, trust, unincorporated
association, government, governmental authority, and any other entity, and the
words “Mortgaged Property” shall include any portion of the Mortgaged Property
and any interest therein and the words “attorneys’ fees” shall include any and
all reasonable attorneys’ fees, paralegal and law clerk fees, including, but not
limited to, fees at the pre-trial, trial and appellate levels incurred or paid
by Mortgagee in protecting its interest in the Mortgaged Property and Collateral
and enforcing its rights hereunder. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
35.
Homestead.
Mortgagor hereby waives and renounces all homestead and exemption rights
provided by the constitution and the laws of the United States and of any state,
in and to the Mortgaged Property as against the collection of the Debt, or any
part hereof.
36.
Assignments.
Mortgagee shall have the right to assign or transfer its rights under this
Mortgage and the other Loan Documents without limitation, including, without
limitation, the right to assign or transfer its rights to a servicing agent. Any
assignee or transferee shall be entitled to all the benefits afforded Mortgagee
under this Mortgage and the other Loan Documents. Mortgagee agrees to provide
Mortgagor with notice of any such assignment; provided, however, that
Mortgagor’s consent shall not be required in connection with any such assignment
and no delay or failure by Mortgagee to provide such notice shall limit the
effectiveness of such assignment.
37.
Survival of Obligations;
Survival of Warranties and Representations.
Each and
all of the covenants, obligations, representations and warranties of Mortgagor
shall survive the execution and delivery of the Loan Documents and the transfer
or assignment of this Mortgage (including, without limitation, any transfer of
the Mortgage by Mortgagee of any of its rights, title and interest in and to the
Mortgaged Property to any party, whether or not affiliated with
Mortgagee).
38.
Covenants Running with the
Land.
All
covenants, conditions, warranties, representations and other obligations
contained in this Mortgage and the other Loan Documents are intended by
Mortgagor and Mortgagee to be, and shall be construed as, covenants running with
the Mortgaged Property until the lien of this Mortgage has been fully released
by Mortgagee, pursuant to the terms hereof.
39.
Governing Law;
Jurisdiction.
THIS
MORTGAGE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF NEW
YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL
TIMES THE PROVISIONS FOR THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS
AND SECURITY INTERESTS CREATED PURSUANT TO THIS MORTGAGE SHALL BE GOVERNED BY
THE LAWS OF THE STATE IN WHICH THE MORTGAGED PROPERTY IS LOCATED.
40.
Time of
Essence.
Time is
of the essence as to all of the terms, covenants and condition of this Mortgage
and the other Loan Documents.
41.
No Third-Party
Beneficiaries.
The
provisions of this Mortgage and the other Loan Documents are for the benefit of
Mortgagor and Mortgagee and shall not inure to the benefit of any third party
(other than any successor or assignee of Mortgagee or permitted assignee of
Mortgagor). This Mortgage and the other Loan Documents shall not be construed as
creating any rights, claims or causes of action against Mortgagee or any of its
officers, directors, agents or employees in favor of any party other than
Mortgagor including but not limited to any claims to any sums held in the
Impositions and Insurance Reserve or any other Reserves.
42.
Relationship of
Parties.
The
relationship of Mortgagee and Mortgagor is solely that of debtor and creditor,
and Mortgagee has no fiduciary or other special relationship with the Mortgagor,
and no term or condition of any of the Loan Documents shall be construed to be
other than that of debtor and creditor. Mortgagor represents and acknowledges
that neither the Loan Documents nor any course of dealing between the parties
creates any partnership or joint venture between Mortgagor and Mortgagee or any
other person, nor does it provide for any shared appreciation rights or other
equity participation interest.
43.
Successors and
Assigns
. This
Mortgage shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that Mortgagor may not
assign its rights or obligations hereunder except as expressly provided in
Section 9 hereof or as permitted under the Loan Agreement.
44.
Investigations.
Any and
all representations, warranties, covenants and agreements made in this Mortgage
(and/or in other Loan Documents) shall survive any investigation or inspection
made by or on behalf of Mortgagee.
45.
Assignment of
Leases.
Mortgagor acknowledges and confirms that it has executed and delivered to
Mortgagee the Assignment of Leases and Rents (the “
Assignment of
Leases
”)
intending that such instrument create a present, absolute assignment to
Mortgagee of the Leases and Rents. Without limiting the intended benefits or the
remedies provided under the Assignment of Leases, Mortgagor hereby assigns to
Mortgagee, as further security for the Debt and the Obligations, the Leases and
Rents. While any Event of Default exists, Mortgagee shall be entitled to
exercise any or all of the remedies provided in the Assignment of Leases and in
Section 17 hereof, including, without limitation, the right to have a
receiver appointed. If any conflict or inconsistency exists between the
assignment of the Leases and Rents in this Mortgage and the absolute assignment
of the Leases and the Rents in the Assignment of Leases, the terms of the
Assignment of Leases shall control. Nevertheless, subject to the terms of this
Section 45 and 17(b) hereof and the Loan Agreement, Lender grants to Mortgagor a
revocable license to collect and receive the Rents. For so long as an Event of
Default exists, Mortgagor shall hold the Rents, or a portion thereof sufficient
to discharge all current sums due on the Debt, for use in the payment of such
sums.
46.
Waiver of Right to Trial by
Jury.
EACH OF
MORTGAGOR AND MORTGAGEE HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS
MORTGAGE OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION
ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN
KNOWINGLY AND VOLUNTARILY BY EACH OF MORTGAGOR AND MORTGAGEE, AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED TO FILE A
COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY
MORTGAGOR.
47.
Expenses and Attorneys’
Fees.
Mortgagor agrees to promptly pay all reasonable fees, costs and expenses
incurred by Mortgagee in connection with any matters contemplated by or arising
out of this Mortgage and the other Loan Documents, including, without
limitation, reasonable fees, costs and expenses (including reasonable attorneys’
fees and fees of other professionals retained by Mortgagee) incurred in any
action to enforce this Mortgage or the other Loan Documents or to collect any
payments due from Mortgagor under this Mortgage, the Loan Agreement, the Note or
any other Loan Document or incurred in connection with any refinancing or
restructuring of the credit arrangements provided under this Mortgage incurred
in connection with a “workout” or in connection with any insolvency or
bankruptcy proceedings with respect to Mortgagor, and all such fees, costs and
expenses shall be part of the Obligations, payable on demand.
48.
Amendments and
Waivers
. Except
as otherwise provided herein, no amendment, modification, termination or waiver
of any provision of this Mortgage, the Note or any other Loan Document, or
consent to any departure therefrom, shall in any event be effective unless the
same shall be in writing and signed by Mortgagee and any other party to be
charged. Each amendment, modification, termination or waiver shall be effective
only in the specific instance and for the specific purpose for which it was
given. No notice to or demand on Mortgagor in any case shall entitle Mortgagor
to any other or further notice or demand in similar or other
circumstances.
49.
Servicer
.
Mortgagee shall have the right at any time throughout the term of the Loan to
designate or appoint one or more Servicers (as defined in the Loan Agreement) to
administer this Mortgage and the other Loan Documents, and to change or replace
any Servicer. All of Mortgagee’s rights under this Mortgage and the other Loan
Documents may be exercised by any such Servicer designated by Mortgagee. Any
such Servicer shall be entitled to the benefit of all obligations of Mortgagor
in favor of Mortgagee.
50.
Copy of
Mortgage
.
MORTGAGOR REPRESENTS AND WARRANTS THAT IT HAS RECEIVED A TRUE COPY OF THIS
MORTGAGE WITHOUT CHARGE.
51.
Limitation on
Recourse.
The
obligations of Mortgagor hereunder are subject to limitations on recourse as
provided in Article XII of the Loan Agreement.
52.
Satisfaction of
Mortgage.
Upon
payment of the Debt in full, Mortgagee, at Mortgagor’s sole cost and upon
Mortgagor’s request, shall execute and deliver to Mortgagor a satisfaction or
reconveyance of Mortgage, duly acknowledged and in recordable form, UCC-3
financing statements terminating any UCC-1 financing statements filed by
Mortgagee relating to the Mortgaged Property, and such other documents or
instruments as may be required to release the Lien of the Loan Documents from
the Mortgaged Property.
53.
Conflict
. The
terms and provisions of this Mortgage shall be construed to the extent possible
consistently with those of the Loan Agreement as being in addition to and
supplementing the provisions of the Loan Agreement and the other Loan Documents;
however, in the event that notwithstanding such construction there is an
irresolvable conflict between the provisions of this Mortgage and the provisions
of the Loan Agreement, the provisions of the Loan Agreement shall govern and
control.
54.
State Specific
Provisions
.
(a)
Inconsistencies
. In the
event of any inconsistencies between the terms and conditions of this Article 18
and the other provisions of this Mortgage, the terms and conditions of this
Article 18 shall control and be binding.
(b)
Special Michigan
Provisions
. The
following provisions shall also constitute an integral part of this Mortgage.
Furthermore, in the event that any prior provisions of this Mortgage conflict
with the following provisions of this Section, the provisions of this Section
shall control and shall be deemed a modification of or amendment to the section
or provision at issue.
(i)
Additional Provisions
Regarding Foreclosure by Power of Sale
.
Mortgagor acknowledges that, after the occurrence and during the continuance of
an Event of Default, Lender is authorized and empowered to sell the Mortgaged
Property or to cause the same to be sold, and to convey the same to the
purchaser in any lawful manner, including that provided by Chapter 32 of the
Revised Judicature Act of Michigan, entitled “Foreclosure of Mortgages by
Advertisement,” (the “Michigan Statute”) which permits Lender to sell the
Mortgaged Property without affording Mortgagor a hearing or giving Mortgagor
actual personal notice. The only notice required under such Chapter 32 is to
publish notice in a local newspaper and to post a copy of the notice at the
Mortgaged Property. In the event of a public sale, the Mortgaged Property, at
the option of the Lender, may be sold as one parcel. MORTGAGOR HEREBY WAIVES ALL
RIGHTS UNDER THE CONSTITUTION AND LAWS OF THE UNITED STATES AND THE STATE OF
MICHIGAN TO A HEARING PRIOR TO SALE IN CONNECTION WITH FORECLOSURE OF THIS
MORTGAGE BY ADVERTISEMENT AND ALL NOTICE REQUIREMENTS EXCEPT AS SET FORTH IN THE
MICHIGAN STATUTE.
(ii)
Lender’s Statutory Rights
Regarding Leases and Rents
. In
addition to all other rights of Mortgagor provided for herein or in any other
Loan Documents, Lender shall be entitled to all of the rights and benefits
conferred by Act 210 of the Michigan Public Acts of 1953 as amended (MCL
554.231, et seq.).
(iii)
Construction
Liens
. All
references in this Mortgage or in any of the other Loan Documents to mechanic’s
liens, or materialman’s liens, or similar liens shall be deemed to include
“construction liens” as defined in MCL 570.1103(3).
(iv)
Waste
. Subject
to the provisions of Section 3.6 hereof and the applicable provisions of the
Loan Agreement, if Mortgagor shall fail to pay any Impositions, the same shall
constitute waste as provided by MCL 600.2927. Mortgagor consents to the
appointment of a receiver under said statute if Lender elects to seek such
relief.
(v)
Future
Advances
. This
Mortgage secures future advances and is a future advance mortgage under Act No.
348 of the Michigan Public Acts of 1990 (MCL 565.901 et. seq.). All future
advances under the Note, this Mortgage and the other Loan Documents shall have
the same priority as if the future advance was made on the date that this
Mortgage was recorded.
55.
Contemporaneous
Mortgages.
THIS
MORTGAGE IS MADE CONTEMPORANEOUSLY WITH THE OTHER MORTGAGES DATED AS OF THE DATE
HEREOF GIVEN BY ADDITIONAL BORROWERS TO MORTGAGEE, COVERING PROPERTIES LOCATED
IN THE STATE OF MICHIGAN (the “
Other
Mortgages
”). The
Other Mortgages further secure the obligations of Mortgagor to Mortgagee under
the Note. Upon the occurrence of an Event of Default, Mortgagee may proceed
under this Mortgage and/or the Other Mortgages against any of such property
and/or the Mortgaged Property in one or more parcels and in such manner and
order as Mortgagee shall elect. Mortgagor hereby irrevocably waives and
releases, to the extent permitted by law, and whether now or hereafter in force,
any right to have the Mortgaged Property and/or the property covered by the
Other Mortgages marshalled upon any foreclosure of this Mortgage or the Other
Mortgages.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, Mortgagor has executed this instrument as of the day and year
first above written.
|
MORTGAGOR:
|
|
|
|
|
CARRIAGE HILL MI
LLC
,
a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP Michigan
Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
ACKNOWLEDGMENT
STATE OF
_________________
)
:
ss.:
COUNTY OF
________________
):
The
foregoing instrument was acknowledged before me in the County of _____________,
State of ________________________ this _____ day of _________, 2006, by David
Lichtenstein, the President of LVP Michigan Multifamily Portfolio LLC, a
Delaware limited liability company, the Managing Member of Carriage Park MI LLC,
a Delaware limited liability company.
Notary
Public, _____County,
______
Acting in
the County of ________, ______
My
commission expires:
This
instrument was prepared by
and
return when recorded to:
Sidley
Austin LLP
One S.
Dearborn St.
Chicago,
Illinois 60603
Attn:
Rebecca Janovsky, Esq.
Carriage
Park Apartments
27201
West Canfield Dr.
Dearborn
Heights, Michigan
EXHIBIT A
Legal Description of
Premises
Land
situated in the City of Dearborn Heights, County of Wayne, State of Michigan,
described as:
A parcel
of land located in the Northwest ¼ of Section 6, Town 2 South, Range 10 East,
City of Dearborn Heights, Wayne County, Michigan, Beginning at point (P.O.B. 1)
distant South 01 degree 52 minutes 20 seconds East, 306.50 feet and North 88
degrees 07 minutes 40 seconds East, 60.00 feet from the Northwest corner of said
Section 6; proceeding thence North 88 degrees 07 minutes 40 seconds East, 165.00
feet; thence North 01 degree 52 minutes 20 seconds West, 11.22 feet; thence
North 84 degrees 14 minutes 25 seconds East, 104.43 feet; thence North 01 degree
53 minutes 30 seconds West, 95.85 feet; thence North 88 degrees 02 minutes 30
seconds East, 178.98 feet; thence North 01 degree 57 minutes 30 seconds West,
30.00 feet; thence along a curve to the left whose radius is 89.11 feet, central
angle equals 30 degrees 55 minutes 55 seconds, a distance of 48.11 feet (long
chord of North 17 degrees 23 minutes 53 seconds West, 47.53 feet); thence along
a curve to the right whose radius is 115.11 feet, central angle equals 30
degrees 55 minutes 55 seconds, a distance of 62.14 feet (long chord of North 17
degrees 23 minutes 53 seconds West, 61.39 feet); thence North 01 degree 57
minutes 30 seconds West, 29.69 West, to the South line of Joy Road; thence North
84 degrees 14 minutes 34 seconds East, 26.06 feet along the Southerly line of
Joy Road; thence South 01 degree 57 minutes 30 seconds East, 31.41 feet; thence
along a curve to the left whose radius is 89.11 feet, central angle equals 30
degrees 55 minutes 55 seconds, a distance of 48.11 feet (long chord of South 17
degrees 23 minutes 53 seconds East, 47.53 feet); thence along a curve to the
right whose radius is 115.11 feet, central angle equals 30 degrees 55 minutes 55
seconds, a distance of 62.14 feet (long chord of South 17 degrees 23 minutes 53
seconds East, 61.39 feet); thence South 01 degrees 57 minutes 30 seconds East,
30.00 feet; thence North 88 degrees 02 minutes 30 seconds East, 124.60 feet;
thence South 01 degree 56 minutes 01 second East, 1089.68 feet; thence South 67
degrees 20 minutes 20 seconds West, 425.17 feet; thence South 69 degrees 04
minutes 37 seconds West, 34.27 feet; thence North 01 degree 52 minutes 20
seconds West, 256.32 feet; thence South 88 degrees 07 minutes 40 seconds West,
170.00 feet; thence North 01 degree 52 minutes 20 seconds West, 880.81 feet
along the East line of Inkster Road to the Point of Beginning (P.O.B. 1),
EXCEPTING
the Southerly 60 feet for Ann Arbor Trail,
ALSO
EXCEPTING THEREFROM that part described as:
A parcel
of land located in the Northwest ¼ of Section 6, Town 2 South, Range 10 East,
City of Dearborn Heights, Wayne County, Michigan, Beginning at a point (P.O.B.
2) distant South 01 degree 52 minutes 20 seconds East, 306.50 feet and North 88
degrees 07 minutes 40 seconds East, 60.00 feet and South 01 degree 52 minutes 20
seconds East, 163.00 feet from the Northwest corner of said Section 6;
proceeding thence North 88 degrees 07 minutes 40 seconds East, 110.00 feet;
thence South 75 degrees 36 minutes 43 seconds East, 25.00 feet; thence North 88
degrees 07 minutes 40 seconds East, 271.34 feet; thence South 01 degree 52
minutes 20 seconds East, 749.99 feet; thence South 23 degrees 50 minutes 40
seconds East, 60.52 feet to the Northerly line of Ann Arbor Trail; thence South
67 degrees 20 minutes 20 seconds West, 76.00 feet along said Northerly line;
thence North 23 degrees 50 minutes 40 seconds West, 30.96 feet; thence North 01
degree 52 minutes 20 seconds West, 744.39 feet; thence South 88 degrees 07
minutes 40 seconds West, 211.34 feet; thence South 71 degrees 52 minutes 03
seconds West, 25.00 feet; thence South 88 degrees 07 minutes 40 seconds West,
110.00 feet to the East line of Inkster Road; thence North 01 degree 52 minutes
20 seconds West, 74.00 feet along said East line to the Point of Beginning
(P.O.B. 2).
Tax
Identification No.
:
33-008-99-0019-000
33-008-99-0018-000
EXHIBIT
10.14
MACOMB MANOR MI
LLC.
, as
Mortgagor
To
CITIGROUP GLOBAL MARKETS REALTY,
INC.,
as
Mortgagee
MORTGAGE
|
Dated:
|
As
of June 30, 2006
|
|
|
Location:
|
19700
Masonic Blvd.
Roseville,
Michigan
|
|
|
County:
|
Macomb
County
|
|
THIS
MORTGAGE CONSTITUTES A FUTURE ADVANCE MORTGAGE AND SECURES FUTURE ADVANCES UNDER
ACT 348 OF THE PUBLIC ACTS OF 1990, AS AMENDED (MCLA §565.901,
ET
SEQ
.) UNDER
MICHIGAN LAW.
THIS MORTGAGE
(as the
same may be amended, restated, extended, supplemented or otherwise modified from
time to time, this “
Mortgage
”), is
made as of the 30th day of June, 2006, by MACOMB MANOR MI LLC, a Delaware
limited liability company, having an address
c/o
Lightstone Holdings LLC, 326 Third Street, Lakewood, New Jersey
08701
(“
Mortgagor
”), to
and for the benefit of CITIGROUP GLOBAL MARKETS REALTY CORP., a New York
corporation, having an address at 388 Greenwich Street, 19th Floor, New York,
New York 10013 (together with its successors and assigns, “
Mortgagee
”).
Capitalized terms used herein but not otherwise defined shall have the
respective meanings assigned to such terms in the Loan Agreement (hereinafter
defined).
W I T N E S S E T
H:
To secure
the payment of a loan (the “
Loan
”) in the
original principal sum of Forty Million Seven Hundred Twenty-Five Thousand and
NO/100ths Dollars ($40,725,000.00), lawful money of the United States of
America, being made from Mortgagee to Mortgagor and the Additional Borrowers (as
hereinafter defined) on the date hereof pursuant to the terms and conditions of
a certain Loan and Security Agreement, dated as of the date hereof (as amended,
modified or restated, the “
Loan
Agreement
”),
between Mortgagor, together with Carriage Park MI LLC, a Delaware limited
liability company, Scotsdale Manor MI LLC, a Delaware limited liability company
and Carriage Hill MI LLC, a Delaware limited liability company (collectively,
the “
Additional
Borrowers
”) and
Mortgagee, which Loan is evidenced by and is to be paid with interest according
to a Promissory Note in the principal sum of Forty Million Seven Hundred
Twenty-Five Thousand and NO/100ths Dollars ($40,725,000.00) dated as of the date
hereof having a scheduled maturity date of July 11, 2016 (collectively, as
amended, modified, renewed or restated and together with any substitutes or
replacements therefor, the “
Note
”), made
by Mortgagor and the Additional Borrowers to Mortgagee and all other sums now or
hereafter due hereunder, or otherwise due under the Loan Documents (as defined
in the Loan Agreement) (the principal amount of the Loan, together with interest
thereon and all sums due hereunder and under the Loan Agreement, the Note and
the other Loan Documents being collectively called the “
Debt
”), and
all of the agreements, covenants, conditions, warranties, representations and
other obligations (other than to repay the Debt) made or undertaken by Mortgagor
or any other person or entity to Mortgagee or others as set forth in the Loan
Documents (collectively, the “
Obligations
”),
Mortgagor has mortgaged, given, granted, bargained, sold, alienated, enfeoffed,
conveyed, confirmed, pledged, assigned, and hypothecated and by these presents
does hereby mortgage, warrant, give, grant, bargain, sell, alien, enfeoff,
convey, confirm, pledge, assign, hypothecate, convey and grant a security
interest unto Mortgagee, with power of sale, subject to the Permitted
Encumbrances, all of Mortgagor’s right, title, interest and estate in and to the
real property
described
on
Exhibit A
attached
hereto (the “
Premises
”) and
the buildings, structures, fixtures, additions, enlargements, extensions,
modifications, repairs, replacements and improvements now or hereafter located
thereon (the “
Improvements
”);
TOGETHER
WITH: all right, title, interest and estate of Mortgagor now owned, or hereafter
acquired, in and to the following property, rights, interests and estates (the
Premises and the Improvements, together with the following property, rights,
interests and estates being hereinafter described, are collectively referred to
herein as the “
Mortgaged
Property
”):
(a)
all
easements, rights-of-way, strips and gores of land, streets, ways, alleys,
passages, sewer rights, water, water courses, water rights and powers, air
rights and development rights, and all estates, rights, titles, interests,
privileges, liberties, tenements, hereditaments and appurtenances of any nature
whatsoever, in any way belonging, relating or pertaining to the Premises and the
Improvements and the reversion and reversions, remainder and remainders, and all
land lying in the bed of any street, road or avenue, opened or proposed, in
front of or adjoining the Premises, to the center line thereof and all the
estates, rights, titles, interests, dower and rights of dower, curtesy and
rights of curtesy, property, possession, claim and demand whatsoever, both at
law and in equity, of Mortgagor of, in and to the Premises and the Improvements,
and every part and parcel thereof, with the appurtenances thereto and all rights
to divide the property pursuant to Public Act 591 of the Michigan Public Acts of
1966, as amended (MCL 560-101 et. seq.);
(b)
all
machinery, equipment, fixtures (including, but not limited to, all heating, air
conditioning, plumbing, lighting, communications and elevator fixtures) and
other property of every kind and nature, whether tangible or intangible,
whatsoever owned by Mortgagor, or in which Mortgagor has or shall have an
interest, now or hereafter located upon the Premises and the Improvements, or
appurtenant thereto, and usable in connection with the present or future
operation and occupancy of the Premises and the Improvements and all building
equipment, materials and supplies of any nature whatsoever owned by Mortgagor,
or in which Mortgagor has or shall have an interest, now or hereafter located
upon the Premises or the Improvements, or appurtenant thereto, and usable in
connection with the present or future operation, enjoyment and occupancy of the
Premises and the Improvements (hereinafter collectively called the “
Equipment
”),
including the proceeds of any sale or transfer of the foregoing, and the right,
title and interest of Mortgagor in and to any of the Equipment which may be
subject to any security interests, as defined in the Uniform Commercial Code, as
adopted and enacted by the state or states where any of the Mortgaged Property
is located (the “
Uniform Commercial
Code
”)
superior in lien to the lien of this Mortgage;
(c)
all
awards or payments, including interest thereon, which may heretofore and
hereafter be made with respect to the Mortgaged Property, whether from the
exercise of the right of eminent domain or condemnation (including, but not
limited to, any transfer made in lieu of or in anticipation of the exercise of
said rights), or for a change of grade, or for any other injury to or decrease
in the value of the Mortgaged Property;
(d)
all
leases, tenancies, licenses, subleases, assignments and/or other rental or
occupancy agreements (including, without limitation, any and all guarantees and
supporting obligations of and security deposit and letter of credit rights
relating to any of the foregoing) heretofore or hereafter entered into affecting
the use, enjoyment or occupancy of the Premises and the Improvements, including
any extensions, renewals, modifications or amendments thereof (collectively, the
“
Leases
”),
together with all rights, powers, privileges, options and other benefits of
Mortgagor as lessor under the Leases, including, without limitation, the
immediate and continuing right to receive and collect all rents, income,
revenues, issues, profits, condemnation awards, insurance proceeds, moneys and
security payable or receivable under the Leases or pursuant to any of the
provisions thereof, whether as rent or otherwise, the right to accept or reject
any offer made by any tenant pursuant to its Lease to purchase the Mortgaged
Property and any other property subject to the Lease as therein provided and to
perform all other necessary or appropriate acts with respect to such Leases as
agent and attorney-in-fact for Mortgagor, and the right to make all waivers and
agreements, to give and receive all notices, consents and releases, to take such
action upon the happening of a default under any Lease, including the
commencement, conduct and consummation of proceedings at law or in equity as
shall be permitted under any provision of any Lease or by any law, and to do any
and all other things whatsoever which Mortgagor is or may become entitled to do
under any such Lease together with all accounts receivable, contract rights,
franchises, interests, estates or other claims, both at law or in equity,
relating to the Mortgaged Property, to the extent not included in rent earnings
and income under any of the Leases, including the right to receive and collect
any sums payable to Mortgagor thereunder and all deposits or other security or
advance payments made by Mortgagor with respect to any of the services related
to the Mortgaged Property or the operation thereof, and together with all rents,
rent equivalents (including room revenues, if applicable), moneys payable as
damages or in lieu of rent or rent equivalents, royalties (including, without
limitation, all oil and gas or other mineral royalties and bonuses), income,
receivables, receipts, revenues, deposits (including, without limitation,
security, utility and other deposits), accounts, cash, issues, profits, charges
for services rendered, and other consideration of whatever form or nature
received by or paid to or for the account of or benefit of Mortgagor or its
agents or employees from any and all sources arising from or attributable to the
Premises and the Improvements (the “
Rents
”), and
together with all proceeds from the sale or other disposition of the Leases and
the right to receive and apply the Rents to the payment of the
Debt;
(e)
all of
Mortgagor’s right, title and interest in, to and under any and all reserve,
deposit or escrow accounts (the “
Accounts
”) made
pursuant to any of the Loan Documents, together with all income, profits,
benefits, investment property and advantages arising therefrom, and together
with all rights, powers, privileges, options and other benefits of Mortgagor
under the Accounts, and together with the right to do any and all other things
whatsoever which Mortgagor is or may become entitled to do under the
Accounts;
(f)
all trade
names, software, trademarks, trademark applications, trademark licenses,
servicemarks, logos, copyrights, copyright applications, goodwill, books and
records and all other general intangibles relating to or used in connection with
the operation of the Mortgaged Property;
(g)
all
proceeds of and any unearned premiums on any insurance policies covering the
Mortgaged Property, including, without limitation, the right to receive and
apply the proceeds of any insurance, judgments, or settlements made in lieu
thereof, for damage to the Mortgaged Property or any part thereof;
(h)
the
right, following an Event of Default, in the name and on behalf of Mortgagor, to
appear in and defend any action or proceeding brought with respect to the
Mortgaged Property and to commence any action or proceeding to protect the
interest of the Mortgagee in the Mortgaged Property or any part
thereof;
(i)
all
accounts, escrows, reserves, documents, instruments, chattel paper, monetary
obligations, claims, deposits, investment property and general intangibles, as
the foregoing terms are defined in the Uniform Commercial Code, and all books,
records, plans, specifications, designs, drawings, permits, consents, licenses,
franchises, management agreements, contracts, contract rights (including,
without limitation, any contract with any architect or engineer or with any
other provider of goods or services for or in connection with any construction,
repair, or other work upon the Mortgaged Property), approvals, actions, refunds
or real estate taxes and assessments (and any other governmental impositions
related to the Mortgaged Property), and causes of action that now or hereafter
relate to, are derived from or are used in connection with the Mortgaged
Property, or the use, operation, management, improvement, alteration, repair,
maintenance, occupancy or enjoyment thereof or the conduct of any business or
activities thereon;
(j)
all
accounts receivable, contract rights, interests, estate or other claims, both in
law and in equity, which Mortgagor now has or may hereafter acquire in the
Mortgaged Property or any part thereof;
(k)
all
rights which Mortgagor now has or may hereafter acquire, to be indemnified
and/or held harmless from any liability, loss, damage, cost or expense
(including, without limitation, attorneys’ fees and disbursements) relating to
the Mortgaged Property or any part thereof;
(l)
all
personal property of Mortgagor; and
(m)
any and
all proceeds and products of any of the foregoing.
TO HAVE
AND TO HOLD the above granted and described Mortgaged Property unto and to the
use and benefit of Mortgagee, and the successors and assigns of Mortgagee,
forever;
PROVIDED,
HOWEVER, these presents are upon the express condition that, if Mortgagor and
the Additional Borrowers shall well and truly pay to Mortgagee the Debt at the
time and in the manner provided in the Note and this Mortgage and shall pay all
other sums due under the Loan Agreement or any other Loan Document, these
presents and the estate hereby granted shall cease, terminate and be
void;
AND
Mortgagor represents and warrants to and covenants and agrees with Mortgagee as
follows:
1.
Payment of Debt and
Incorporation of Covenants, Conditions and Agreements.
Mortgagor and the Additional Borrowers shall pay the Debt at the time and in the
manner provided in the Note, the Loan Agreement and in this Mortgage. Mortgagor
and the Additional Borrowers will duly and punctually perform all of the
covenants, conditions and agreements contained in the Note, the Loan Agreement,
this Mortgage and the other Loan Documents all of which covenants, conditions
and agreements are hereby made a part of this Mortgage to the same extent and
with the same force as if fully set forth herein.
2.
Warranty of
Title.
Mortgagor warrants that Mortgagor has a good, marketable and insurable fee
simple interest in the Mortgaged Property and has the right to mortgage, give,
grant, bargain, sell, alien, enfeoff, convey, confirm, pledge, assign and
hypothecate the Mortgaged Property and that Mortgagor possesses a fee simple
estate in the Mortgaged Property and that it owns the Mortgaged Property free
and clear of all liens, encumbrances and charges whatsoever except for the
Permitted Encumbrances. Mortgagor represents and warrants that none of the
Permitted Encumbrances will materially and adversely affect (i) Mortgagor’s
ability to pay in full in a timely manner its obligations, including, without
limitation, the Debt, (ii) the use of the Mortgaged Property for the use
currently being made thereof, (iii) the operation of the Mortgaged Property, or
(iv) the value of the Mortgaged Property. Mortgagor shall forever warrant,
defend and preserve such title and the validity and priority of the lien of this
Mortgage and shall forever warrant and defend the same to Mortgagee against the
claims of all persons whomsoever.
3.
Insurance.
(a)
Mortgagor, at its sole cost and expense, shall maintain or cause to be
maintained insurance with respect to the Mortgaged Property for the mutual
benefit of Mortgagor and Mortgagee as required by Section 5.4 of the Loan
Agreement.
(b)
If the
Mortgaged Property shall be damaged or destroyed, in whole or in part, by fire
or other casualty (an “
Insured
Casualty
”),
Mortgagor shall give immediate notice thereof to Mortgagee and to the insurance
carrier. Subject to the terms of the Loan Agreement, Mortgagor shall promptly
repair, replace or rebuild the Mortgaged Property in accordance with, and all
amounts paid with respect to such Insured Casualty under all insurance policies
maintained by Mortgagor shall be governed by, the terms and conditions of
Section 5.5 of the Loan Agreement. The expenses incurred by Mortgagee in the
adjustment and collection of insurance proceeds shall become part of the Debt
and shall be secured hereby and shall be reimbursed by Mortgagor to Mortgagee
upon demand.
4.
Payment of Impositions and
Other Charges
. Subject
to Mortgagor’s right to contest set forth in Section 5.3(B) of the Loan
Agreement and the provisions of Section 5 below, Mortgagor shall cause to be
paid all Impositions now or hereafter levied or assessed or imposed against the
Mortgaged Property or any part thereof as the same become due and payable.
Mortgagor shall promptly pay for all utility services provided to the Mortgaged
Property. Mortgagor shall furnish to Mortgagee or its designee receipts for the
payment of the Impositions prior to the date the same shall become delinquent
(provided, however, that Mortgagor shall not be required to furnish such
receipts for payment of Impositions in the event that such Impositions are to be
paid by Mortgagee pursuant to Section 5 hereof).
5.
Impositions and Insurance
Reserve
.
Mortgagor shall make monthly deposits into the Impositions and Insurance Reserve
of amounts sufficient to pay Impositions and Insurance Premiums in accordance
with the terms of Article VI of the Loan Agreement.
6.
Condemnation
.
Mortgagor shall promptly give Mortgagee written notice of the actual or
threatened commencement of any condemnation or eminent domain proceeding
affecting the Mortgaged Property or any portion thereof and shall deliver to
Mortgagee copies of any and all papers served in connection with such
proceedings. Subject to the terms of Section 5.5 of the Loan Agreement,
Mortgagee is hereby irrevocably appointed as Mortgagor’s attorney-in-fact,
coupled with an interest, with exclusive power to collect, receive and retain
any award or payment for said condemnation or eminent domain and to make any
compromise or settlement in connection with such proceeding. Notwithstanding any
taking by any public or quasi public authority through eminent domain or
otherwise (including but not limited to any transfer made in lieu of or in
anticipation of the exercise of such taking), Mortgagor shall continue to pay
the Debt at the time and in the manner provided for its payment in the Loan
Agreement. Subject to the terms of the Loan Agreement, Mortgagor shall cause the
award or payment made in any condemnation or eminent domain proceeding, which is
payable to Mortgagor, to be paid directly to Mortgagee. The application of any
such award or payment shall be governed by the applicable provisions of the Loan
Agreement.
7.
Maintenance of Mortgaged
Property.
Mortgagor shall cause the Mortgaged Property to be operated and maintained in a
good and safe condition and repair and in keeping with the condition and repair
of properties of a similar use, value, age, nature and construction. Mortgagor
shall not use, maintain or operate the Mortgaged Property in any manner which
constitutes a public or private nuisance or which makes void, voidable, or
cancelable, or increases the premium of, any insurance then in force with
respect thereto. The Improvements and the Equipment shall not be removed or
demolished and no Material Alterations shall be made thereto (except for normal
replacement or disposal of the Equipment and except as otherwise expressly
permitted in the Loan Agreement) without the consent of Mortgagee. Mortgagor
shall promptly comply in all material respects with all laws, orders and
ordinances affecting the Mortgaged Property, or the use thereof.
8.
Use of Mortgaged
Property
.
Mortgagor shall not initiate, join in, acquiesce in, or consent to any change in
any private restrictive covenant, zoning law or other public or private
restriction, limiting or defining the uses which may be made of the Mortgaged
Property or any part thereof, nor shall Mortgagor initiate, join in, acquiesce
in, or consent to any zoning change or zoning matter affecting the Mortgaged
Property, which in any of the foregoing cases could reasonably be expected to
result in a Material Adverse Effect. If under applicable zoning provisions the
use of all or any portion of the Mortgaged Property is or shall become a
nonconforming use, Mortgagor will not cause or permit such nonconforming use to
be discontinued or abandoned without the express written consent of Mortgagee,
which consent shall not be unreasonably withheld. Mortgagor shall not permit or
suffer to occur any waste on or to the Mortgaged Property or to any portion
thereof and shall not take any steps whatsoever to convert the Mortgaged
Property, or any portion thereof, to a condominium or cooperative form of
management. Mortgagor will not install or permit to be installed on the Premises
any underground storage tank or above-ground storage tank in violation of the
Environmental Laws.
9.
Transfer or Encumbrance of
the Mortgaged Property
. (a)
Mortgagor acknowledges that Mortgagee has examined and relied on the
creditworthiness and experience of Mortgagor in owning and operating properties
such as the Mortgaged Property in agreeing to make the Loan, and that Mortgagee
will continue to rely on Mortgagor’s ownership of the Mortgaged Property as a
means of maintaining the value of the Mortgaged Property as security for
repayment of the Debt. Except as expressly permitted under this Mortgage, the
Loan Agreement or under the other Loan Documents, Mortgagor shall not cause or
suffer to occur or exist, directly or indirectly, voluntarily or involuntarily,
by operation of law or otherwise, any sale, transfer, mortgage, pledge, lien or
encumbrance (other than Permitted Encumbrances) (collectively, “
Transfers
”) of (i)
all or any part of the Mortgaged Property or any interest therein, or (ii) any
direct or indirect beneficial ownership interest (in whole or in part) in
Mortgagor, irrespective of the number of tiers of ownership, without the prior
written consent of Mortgagee.
(b)
The
occurrence of any Transfer in violation of this Section 9 shall constitute an
Event of Default hereunder, whereupon Mortgagee at its option, without being
required to demonstrate any actual impairment of its security or any increased
risk of default hereunder, may declare the Debt immediately due and payable.
(c)
Mortgagee’s
consent to any Transfer of the Mortgaged Property or any interest in Mortgagor
shall not be deemed to be a waiver of Mortgagee’s right to require such consent
to any future occurrence of same. Any attempted or purported Transfer of the
Mortgaged Property or of any direct or indirect interest in Mortgagor, if made
in contravention of this Section 9, shall be null and void and of no force and
effect.
10.
Taxes on Security;
Documentary Stamps; Intangibles Tax.
(a)
Mortgagor shall pay all taxes, charges, filing, registration and recording fees,
excises and levies payable with respect to the Note, this Mortgage or the liens
created or secured by the Loan Documents, other than income, franchise and doing
business taxes imposed on Mortgagee. If there shall be enacted any law
(i) deducting the Loan from the value of the Mortgaged Property for the
purpose of taxation, (ii) affecting any lien on the Mortgaged Property, or
(iii) changing existing laws of taxation of mortgages, deeds of trust, security
deeds, or debts secured by real property, or changing the manner of collecting
any such taxes, Mortgagor shall promptly pay to Mortgagee, on demand, all taxes,
costs and charges for which Mortgagee is or may be liable as a result thereof;
however, if such payment would be prohibited by law or would render the Loan
usurious, then instead of collecting such payment, Mortgagee may declare all
amounts owing under the Loan Documents to be immediately due and payable.
(b)
If at any
time the United States of America, any State thereof or any subdivision of any
such State shall require revenue or other stamps to be affixed to the Note or
this Mortgage, or impose any other tax or charge on the same, Mortgagor will pay
for the same, with interest and penalties thereon, if any. Mortgagor hereby
agrees that, in the event that it is determined that additional documentary
stamp tax or intangible tax is due hereon or any mortgage or promissory note
executed in connection herewith (including, without limitation, the Note),
Mortgagor shall indemnify and hold harmless Mortgagee for all such documentary
stamp tax and/or intangible tax, including all penalties and interest assessed
or charged in connection therewith. Mortgagor shall pay same within ten (10)
days after demand of payment from Mortgagee and the payment of such sums shall
be secured by this Mortgage and such sums shall bear interest at the Default
Rate (as defined in the Note) from and after the eleventh (11
th
) day
after demand until paid in full.
(c)
Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage.
11.
No Credits on Account of the
Debt.
Mortgagor will not claim or demand or be entitled to any credit or credits on
account of the Debt for any part of the Impositions assessed against the
Mortgaged Property, or any part thereof, and no deduction shall otherwise be
made or claimed from the assessed value of the Mortgaged Property, or any part
thereof, for real estate tax purposes by reason of this Mortgage or the Debt. In
the event such claim, credit or deduction shall be required by law, Mortgagee
shall have the option, by written notice of not less than ninety (90) days, to
declare the Debt immediately due and payable.
12.
Performance of Other
Agreements.
Mortgagor shall duly and punctually observe and perform each and every material
term, provision, condition, and covenant to be observed or performed by
Mortgagor pursuant to the terms of any agreement or recorded instrument
(including all instruments comprising the Permitted Encumbrances) affecting or
pertaining to the Mortgaged Property, and will not suffer or permit any default
or event of default (after giving effect to any applicable notice requirements
and cure periods) to exist under any of the foregoing.
13.
Further Acts; Secondary
Market Transactions.
(a)
Mortgagor will, at its sole cost and expense, and without expense to Mortgagee,
do, execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, mortgages, assignments, notices of assignment, Uniform Commercial
Code financing statements or continuation statements, transfers and assurances
as Mortgagee shall, from time to time, reasonably require, for the better
assuring, conveying, assigning, transferring, and confirming unto Mortgagee the
property and rights hereby mortgaged, given, granted, bargained, sold,
alienated, enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated or
intended now or hereafter so to be, or which Mortgagor may be or may hereafter
become bound to convey or assign to Mortgagee, or for carrying out the intention
or facilitating the performance of the terms of this Mortgage or for filing,
registering or recording this Mortgage. Mortgagor, on demand, will execute and
deliver and, upon Mortgagor’s failure to do so within five (5) Business Days
after Mortgagee’s request therefor, hereby authorizes Mortgagee to execute in
the name of Mortgagor or without the signature of Mortgagor to the extent
Mortgagee may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Mortgagee in the Mortgaged Property. Upon foreclosure or the
appointment of a receiver, Mortgagor will, at its sole cost and expense,
cooperate fully and completely to effect the assignment or transfer of any
license, permit, agreement or any other right necessary or useful to the
operation of the Mortgaged Property. Mortgagor grants to Mortgagee an
irrevocable power of attorney coupled with an interest for the purpose of
exercising and perfecting any and all rights and remedies available to Mortgagee
at law and in equity, including, without limitation, such rights and remedies
available to Mortgagee pursuant to this Section.
(b)
Subject
to the terms and conditions set forth in the Loan Agreement, Mortgagee shall
have the right to engage in one or more Secondary Market Transactions and, in
connection therewith, Mortgagee may transfer its obligations under this
Mortgage, the Note, the Loan Agreement and under the other Loan Documents (or
may transfer the portion thereof corresponding to the transferred portion of the
Obligations), and thereafter Mortgagee shall be relieved of any obligations
hereunder and under the other Loan Documents arising after the date of said
transfer with respect to the transferred interest.
14.
Recording of Mortgage,
Etc.
Upon the
execution and delivery of this Mortgage and thereafter, from time to time,
Mortgagor will cause this Mortgage, and any security instrument creating a lien
or security interest or evidencing the lien hereof upon the Mortgaged Property
and each instrument of further assurance to be filed, registered or recorded in
such manner and in such places as may be required by any present or future law
in order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property. Mortgagor
will pay all filing, registration or recording fees, and all expenses incident
to the preparation, execution and acknowledgment of this Mortgage, any mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property and any instrument of further assurance, and all federal, state, county
and municipal, taxes, duties, imposts, assessments and charges arising out of or
in connection with the execution and delivery of this Mortgage, any mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance, except where prohibited by law
so to do.
15.
Reporting
Requirements.
Mortgagor agrees to give prompt notice to Mortgagee of the insolvency or
bankruptcy filing of Mortgagor or the death, insolvency or bankruptcy filing of
any Guarantor.
16.
Intentionally
Deleted
.
17.
Remedies.
Upon the
occurrence and during the continuance of an Event of Default, Mortgagee may, at
Mortgagee’s option, by Mortgagee itself, or otherwise, invoke the power of sale
and immediately exercise or pursue or cause to be exercised or pursued any or
all of the rights and remedies contained in this Mortgage and in any other Loan
Document or otherwise available at law or in equity including the right to do
any one or more of the following:
(a)
Right to Perform Mortgagor’s
Covenants
. If
Mortgagor has failed to keep or perform any covenant whatsoever contained in
this Mortgage or the other Loan Documents, Mortgagee may, but shall not be
obligated to do so, perform or attempt to perform said covenant; and any payment
made or expense incurred in the performance or attempted performance of any such
covenant, together with any sum expended by Mortgagee that is chargeable to
Mortgagor or subject to reimbursement by Mortgagor under the Loan Documents,
shall be and become a part of the Debt, and Mortgagor promises, upon demand, to
pay to Mortgagee, at the place where the Note is payable, all sums so incurred,
paid or expended by Mortgagee, with interest from the date when paid, incurred
or expended by Mortgagee at the Default Rate (as defined in the
Note).
(b)
Right of
Entry
. Subject
to any applicable law, the license granted to Mortgagor under Section 45 below
shall automatically be revoked and Mortgagee may, prior or subsequent to the
institution of any foreclosure proceedings, enter upon the Mortgaged Property,
or any part thereof, and take exclusive possession of the Mortgaged Property and
of all books, records, and accounts relating thereto and to exercise without
interference from Mortgagor any and all rights which Mortgagor has with respect
to the management, possession, operation, protection, or preservation of the
Mortgaged Property, including, without limitation, the right to rent the same
for the account of Mortgagor and to deduct from such Rents all costs, expenses,
and liabilities of every character incurred by the Mortgagee in collecting such
Rents and in managing, operating, maintaining, protecting, or preserving the
Mortgaged Property and to apply the remainder of such Rents on the Debt in such
manner as Mortgagee may elect. All such costs, expenses, and liabilities
incurred by Mortgagee in collecting such Rents and in managing, operating,
maintaining, protecting, or preserving the Mortgaged Property, if not paid out
of Rents as hereinabove provided, shall constitute a demand obligation owing by
Mortgagor and shall bear interest from the date of expenditure until paid at the
Default Rate as specified in the Note, all of which shall constitute a portion
of the Debt. If Mortgagee elects to enter the Mortgaged Property as provided for
herein, Mortgagee may invoke any and all legal remedies to dispossess Mortgagor,
including specifically one or more actions for forcible entry and detainer,
trespass to try title, and restitution. In connection with any action taken by
the Mortgagee pursuant to this subsection, Mortgagee shall not be liable for any
loss sustained by Mortgagor resulting from any failure to let the Mortgaged
Property, or any part thereof, or from any other act or omission of Mortgagee in
managing the Mortgaged Property unless such loss is caused by the willful
misconduct or gross negligence of Mortgagee, its agents, employees or officers,
nor shall Mortgagee be obligated to perform or discharge any obligation, duty,
or liability under any Lease or under or by reason hereof or the exercise of
rights or remedies hereunder. Mortgagor shall and does hereby agree to
indemnify, defend and hold harmless the Indemnified Parties (as defined in
Section 23 below) from and against, any and all liability, claim, demand,
loss, damage, cost or expense (including, without limitation, reasonable
attorneys’ fees and disbursements) which may or might be suffered or incurred by
any Indemnified Party under any such Lease or under or by reason hereof or the
exercise of rights or remedies hereunder, or by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants, or agreements contained in any such Lease as and to the extent
provided under Section 23 below. Nothing in this subsection shall impose any
duty, obligation, or responsibility upon any Indemnified Party for the control,
care, management, leasing, or repair of the Mortgaged Property, nor for the
carrying out of any of the terms and conditions of any such Lease prior to the
transfer of title to the Mortgaged Property to any Indemnified Party by
foreclosure, deed-in-lieu thereof, exercise of power of sale or otherwise.
Mortgagor hereby assents to, ratifies, and confirms any and all actions of the
Mortgagee with respect to the Mortgaged Property taken under this
subsection.
(c)
Right to
Accelerate
.
Mortgagee may, without notice or demand, declare the entire unpaid balance of
the Debt immediately due and payable.
(d)
Mortgagee’s Judicial
Remedies
.
Mortgagee may proceed by suit or suits, at law or in equity, to enforce the
payment of the Debt to foreclose the liens and security interests of this
Mortgage as against all or any part of the Mortgaged Property, and to have all
or any part of the Mortgaged Property sold under the judgment or decree of a
court of competent jurisdiction. This remedy shall be cumulative of any other
nonjudicial remedies available to the Mortgagee under this Mortgage or the other
Loan Documents. Proceeding with a request or receiving a judgment for legal
relief shall not be or be deemed to be an election of remedies or bar any
available nonjudicial remedy of the Mortgagee.
(e)
Mortgagee’s Right to
Appointment of Receiver
.
Mortgagee, as a matter of right and (i) without regard to the sufficiency
of the security for repayment of the Debt and without notice to Mortgagor,
(ii) without any showing of insolvency, fraud, or mismanagement on the part
of Mortgagor, (iii) without the necessity of filing any judicial or other
proceeding other than the proceeding for appointment of a receiver, and
(iv) without regard to the then value of the Mortgaged Property, shall be
entitled to the appointment of a receiver or receivers for the protection,
possession, control, management and operation of the Mortgaged Property,
including (without limitation), the power to collect the Rents, enforce this
Mortgage and, in case of a sale and deficiency, during the full statutory period
of redemption (if any), whether there be a redemption or not, as well as during
any further times when Mortgagor, except for the intervention of such receiver,
would be entitled to collection of such Rents. Mortgagor hereby irrevocably
consents to the appointment of a receiver or receivers. Any receiver appointed
pursuant to the provisions of this subsection shall have the usual powers and
duties of receivers in such matters.
(f)
Mortgagee’s Uniform
Commercial Code Remedies
.
Mortgagee may exercise its rights of enforcement under the Uniform Commercial
Code in effect in the state in which the Mortgaged Property is
located.
(g)
Sale of Mortgaged
Property
. Sell
for cash or upon credit the Mortgaged Property or any part thereof and all
estate, claim, demand, right, title and interest of Mortgagor therein and rights
of redemption thereof, pursuant to the power of sale contained herein or
otherwise, at one or more sales, as an entirety or in parcels, at such time and
place, upon such terms and after such notice thereof as may be required or
permitted by law.
(h)
Other
Rights
.
Mortgagee (i) may surrender the insurance policies maintained pursuant to the
Loan Agreement or any part thereof, and upon receipt of the proceeds shall apply
the unearned Insurance Premiums as a credit on the Debt, and, in connection
therewith, Mortgagor hereby appoints Mortgagee as agent and attorney-in-fact
(which is coupled with an interest and is therefore irrevocable) for Mortgagor
to collect such Insurance Premiums; (ii) may apply the Impositions and Insurance
Reserve and/or any other Reserves held pursuant to this Mortgage or the other
Loan Documents, and any other funds held by Mortgagee toward payment of the
Debt; and (iii) shall have and may exercise any and all other rights and
remedies which Mortgagee may have at law or in equity, or by virtue of any of
the Loan Documents, or otherwise.
(i)
Discontinuance of
Remedies
. If
Mortgagee shall have proceeded to invoke any right, remedy, or recourse
permitted under the Loan Documents and shall thereafter elect to discontinue or
abandon same for any reason, Mortgagee shall have the unqualified right so to do
and, in such event, Mortgagor and Mortgagee shall be restored to their former
positions with respect to the Debt, the Loan Documents, the Mortgaged Property
or otherwise, and the rights, remedies, recourses and powers of Mortgagee shall
continue as if same had never been invoked.
(j)
Remedies
Cumulative
. All
rights, remedies, and recourses of Mortgagee granted in the Note, this Mortgage,
the Loan Agreement and the other Loan Documents, any other pledge of collateral,
or otherwise available at law or equity: (i) shall be cumulative; (ii) may be
pursued separately, successively, or concurrently against Mortgagor, the
Mortgaged Property, or any one or more of them, at such time and in such order
as Mortgagee may determine in its sole discretion; (iii) may be exercised as
often as occasion therefor shall arise, it being agreed by Mortgagor that the
exercise or failure to exercise any of same shall in no event be construed as a
waiver or release thereof or of any other right, remedy, or recourse; (iv) shall
be nonexclusive of any other right, power or remedy which Mortgagee may have
against Mortgagor pursuant to this Mortgage, the Loan Agreement or the other
Loan Documents, or otherwise available at law or in equity; (v) shall not be
conditioned upon Mortgagee exercising or pursuing any remedy in relation to the
Mortgaged Property prior to Mortgagee bringing suit to recover the Debt; and
(vi) in the event Mortgagee elects to bring suit on the Debt and obtains a
judgment against Mortgagor prior to exercising any remedies in relation to the
Mortgaged Property, all liens and security interests, including the lien of this
Mortgage, shall remain in full force and effect and may be exercised thereafter
at Mortgagee’s option.
(k)
Election of
Remedies
.
Mortgagee may release, regardless of consideration, any part of the Mortgaged
Property without, as to the remainder, in any way impairing, affecting,
subordinating, or releasing the lien or security interests evidenced by this
Mortgage or the other Loan Documents or affecting the obligations of Mortgagor
or any other party to pay the Debt. For payment of the Debt, Mortgagee may
resort to any collateral securing the payment of the Debt in such order and
manner as Mortgagee may elect. No collateral taken by Mortgagee shall in any
manner impair or affect the lien or security interests given pursuant to the
Loan Documents, and all collateral shall be taken, considered, and held as
cumulative.
(l)
Bankruptcy
Acknowledgment
. If the
Mortgaged Property or any portion thereof or any interest therein becomes
property of any bankruptcy estate or subject to any state or federal insolvency
proceeding, or in the event of the filing of any voluntary or involuntary
petition under the Bankruptcy Code by or against Mortgagor then Mortgagee shall
immediately become entitled, in addition to all other relief to which Mortgagee
may be entitled under this Mortgage, to obtain (i) an order from any
bankruptcy court or other appropriate court granting immediate relief from the
automatic stay pursuant to § 362 of the Bankruptcy Code so as to permit
Mortgagee to pursue its rights and remedies against Mortgagor as provided under
this Mortgage and all other rights and remedies of Mortgagee at law and in
equity under applicable state law, and (ii) an order from the Bankruptcy
Court prohibiting Mortgagor’s use of all “cash collateral” as defined under
§ 363 of the Bankruptcy Code. Mortgagor shall not assert or request any
other party to assert, that the automatic stay under § 362 of the
Bankruptcy Code operate or be interpreted to stay, interdict, condition, reduce
or inhibit the ability of Mortgagee to enforce any rights it has by virtue of
this Mortgage, or any other rights that Mortgagee has, whether now or hereafter
acquired, against any guarantor of the Debt. Mortgagor shall not seek a
supplemental stay or any other relief, whether injunctive or otherwise, pursuant
to § 105 of the Bankruptcy Code or any other provision therein to stay,
interdict, condition, reduce or inhibit the ability of Mortgagee to enforce any
rights it has by virtue of this Mortgage against any guarantor of the Debt. Any
bankruptcy petition or other action taken by Mortgagor to stay, condition, or
inhibit Mortgagee from exercising its remedies are hereby admitted by Mortgagor
to be in bad faith and Mortgagor further admits that Mortgagee would have just
cause for relief from the automatic stay in order to take such actions
authorized under state law.
(m)
Application of
Proceeds
. The
proceeds from any sale, lease, or other disposition made pursuant to this
Mortgage, or the proceeds from the surrender of any insurance policies pursuant
hereto, or any Rents collected by Mortgagee from the Mortgaged Property or the
Impositions and Insurance Reserve or other Reserves under the Loan Agreement or
sums received pursuant to Section 6 hereof, or proceeds from insurance
which Mortgagee elects to apply to the Debt pursuant to Section 3 hereof,
shall be applied by Mortgagee to the Debt in such order, priority and
proportions as Mortgagee in its sole discretion shall determine.
18.
Security
Agreement.
This
Mortgage is both a real property mortgage and a “security agreement” within the
meaning of the Uniform Commercial Code. The Mortgaged Property includes both
real and personal property and all other rights and interests, whether tangible
or intangible in nature, of Mortgagor in the Mortgaged Property. Mortgagor by
executing and delivering this Mortgage has granted and hereby grants to
Mortgagee, as security for the Debt, a security interest in the Mortgaged
Property to the full extent that the Mortgaged Property may be subject to the
Uniform Commercial Code (said portion of the Mortgaged Property so subject to
the Uniform Commercial Code being called in this Section 18 the “
Collateral
”).
Mortgagor hereby agrees to execute and deliver to Mortgagee, in form and
substance reasonably satisfactory to Mortgagee, such financing statements and
such further assurances as Mortgagee may from time to time reasonably consider
necessary to create, perfect, and preserve Mortgagee’s security interest herein
granted. This Mortgage shall also constitute a “fixture filing” for the purposes
of the Uniform Commercial Code as to all or any part of the Mortgaged Property
which now or hereafter constitute “fixtures” under the Uniform Commercial Code.
Information concerning the security interest herein granted may be obtained from
the parties at the addresses of the parties set forth in the first paragraph of
this Mortgage. If an Event of Default shall occur, Mortgagee, in addition to any
other rights and remedies which it may have, shall have and may exercise
immediately and without demand, any and all rights and remedies granted to a
secured party upon default under the Uniform Commercial Code, including, without
limiting the generality of the foregoing, the right to take possession of the
Collateral or any part thereof, and to take such other measures as Mortgagee may
deem necessary for the care, protection and preservation of the Collateral. Upon
request or demand of Mortgagee, Mortgagor shall at its expense assemble the
Collateral and make it available to Mortgagee at a convenient place acceptable
to Mortgagee. Mortgagor shall pay to Mortgagee on demand any and all expenses,
including legal expenses and attorneys’ fees, incurred or paid by Mortgagee in
protecting the interest in the Collateral and in enforcing the rights hereunder
with respect to the Collateral. Any notice of sale, disposition or other
intended action by Mortgagee with respect to the Collateral sent to Mortgagor in
accordance with the provisions hereof at least five (5) days prior to such
action, shall constitute commercially reasonable notice to Mortgagor. The
proceeds of any disposition of the Collateral, or any part thereof, may be
applied by Mortgagee to the payment of the Debt in such priority and proportions
as Mortgagee in its discretion shall deem proper. In the event of any change in
name, identity or structure of any Mortgagor, such Mortgagor shall notify
Mortgagee thereof and promptly after Mortgagee’s request shall execute, file and
record such Uniform Commercial Code forms as are necessary to maintain the
priority of Mortgagee’s lien upon and security interest in the Collateral, and
shall pay all expenses and fees in connection with the filing and recording
thereof. If Mortgagee shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Mortgagor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Mortgagee shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
increase Mortgagor’s obligations under the Note, this Mortgage and the other
Loan Documents. Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact, coupled with an interest upon Mortgagor’s failure to do so
within five (5) Business Days after request by Mortgagee, to file with the
appropriate public office on its behalf any financing or other statements signed
only by Mortgagee, as Mortgagor’s attorney-in-fact, in connection with the
Collateral covered by this Mortgage. Notwithstanding the foregoing, Mortgagor
shall appear and defend in any action or proceeding which affects or purports to
affect the Mortgaged Property and any interest or right therein, whether such
proceeding affects title or any other rights in the Mortgaged Property (and in
conjunction therewith, Mortgagor shall fully cooperate with Mortgagee in the
event Mortgagee is a party to such action or proceeding).
19.
Actions and
Proceedings.
Upon the
occurrence and during the continuance of an Event of Default, Mortgagee has the
right to appear in and defend any action or proceeding brought with respect to
the Mortgaged Property and to bring any action or proceeding, in the name and on
behalf of Mortgagor, which Mortgagee, in its discretion, decides should be
brought to protect its interest in the Mortgaged Property. Mortgagee shall, at
its option, be subrogated to the lien of any mortgage or other security
instrument discharged in whole or in part by the Debt, and any such subrogation
rights shall constitute additional security for the payment of the
Debt.
20.
Waiver of Setoff and
Counterclaim, Marshalling, Statute of Limitations, Automatic or Supplemental
Stay, Etc.
(a)
All
amounts due under this Mortgage, the Note and the other Loan Documents shall be
payable without setoff, counterclaim or any deduction whatsoever. Mortgagor
hereby waives the right to assert a setoff, counterclaim or deduction in any
action or proceeding in which Mortgagee is a participant, or arising out of or
in any way connected with this Mortgage, the Note, any of the other Loan
Documents, or the Debt.
(b)
Mortgagor
hereby expressly, irrevocably, and unconditionally waives and releases, to the
extent permitted by law (i) the benefit of all appraisement, valuation, stay,
extension, reinstatement and redemption laws now or hereafter in force and all
rights of marshalling, sale in the inverse order of alienation, or any other
right to direct in any manner the order or sale of any of the Mortgaged Property
in the event of any sale hereunder of the Mortgaged Property or any part thereof
or any interest therein; (ii) any and all rights of redemption from sale under
any order or decree of foreclosure of this Mortgage on behalf of Mortgagor, and
on behalf of each and every person acquiring any interest in or title to the
Mortgaged Property subsequent to the date of this Mortgage and on behalf of all
persons to the extent permitted by applicable law; and (iii) all benefits that
might accrue to Mortgagor by virtue of any present or future law exempting the
Mortgaged Property from attachment, levy or sale on execution or providing for
any appraisement, valuation, stay of execution, exemption from civil process,
redemption, or extension of time for payment. Mortgagee shall not be under any
obligation to marshal any assets in favor of any Person or against or in payment
of any or all of the Obligations.
(c)
To the
extent permitted by applicable law, Mortgagee’s rights hereunder shall continue
even to the extent that a suit for collection of the Debt, or part thereof, is
barred by a statute of limitations. Mortgagor hereby expressly waives and
releases to the fullest extent permitted by law, the pleading of any statute of
limitations as a defense to payment of the Debt.
21.
Recovery of Sums Required to
Be Paid.
Mortgagee shall have the right from time to time to take action to recover any
sum or sums which constitute a part of the Debt as the same become due, without
regard to whether or not the balance of the Debt shall be due, and without
prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
22.
Handicapped
Access.
(a)
Mortgagor
agrees that the Mortgaged Property shall at all times comply in all material
respects with applicable requirements of the Americans with Disabilities Act of
1990, the Fair Housing Amendments Act of 1988, all state and local laws and
ordinances related to handicapped access and all rules, regulations, and orders
issued pursuant thereto including, without limitation, the Americans with
Disabilities Act Accessibility Guidelines for Buildings and Facilities
(collectively “
Access
Laws
”).
(b)
Mortgagor
agrees to give prompt notice to Mortgagee of the receipt by Mortgagor of any
complaints related to violation of any Access Laws and of the commencement of
any proceedings or investigations which relate to compliance with applicable
Access Laws but only to the extent that such complaints, proceedings or
investigations, if adversely determined, could have a Material Adverse
Effect.
23.
Indemnification
. In
addition to the payment of expenses as required elsewhere herein and in the
other Loan Documents, Mortgagor agrees to indemnify, defend, protect, pay and
hold Mortgagee, its successors and assigns (including, without limitation, the
trustee and/or the trust under any trust agreement executed in connection with
any Securitization backed in whole or in part by the Loan and any other person
which may hereafter be the holder of the Note or any interest therein), and the
officers, directors, stockholders, partners, members, employees, agents, and
Affiliates of Mortgagee and such successors and assigns (collectively, the
“
Indemnified
Parties
”)
harmless from and against any and all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation
reasonable attorneys’ fees and expenses) (collectively, the “
Indemnified
Claims
”),
imposed upon or incurred by or asserted against any Indemnified Party by reason
of any of the following (to the extent that insurance proceeds paid to the
applicable Indemnified Party on account of the following shall be inadequate):
(i) ownership of the Mortgage, the Mortgaged Property or any interest therein or
receipt of any rents; (ii) any accident, injury to or death of persons or loss
of or damage to property occurring in, on or about the Mortgaged Property or any
part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (iii) any use, nonuse or condition in, on or
about the Mortgaged Property or any part thereof or on the adjoining sidewalks,
curbs, adjacent property or adjacent parking areas, streets or ways;
(iv) performance of any labor or services or the furnishing of any
materials or other property in respect of the Mortgaged Property or any part
thereof; (v) any failure of the Premises or the Improvements to comply with any
applicable law, statute, code, ordinance, rule or regulation; (vi) any Event of
Default by Mortgagor under this Mortgage, the Loan Agreement or any other Loan
Documents; (vii) any actions taken by any Indemnified Party in the
enforcement of this Mortgage and the other Loan Documents in accordance with
their respective terms; (viii) any failure to act on the part of any
Indemnified Party hereunder; (ix) any representation or warranty made in the
Note, this Mortgage or any of the other Loan Documents being false or misleading
in any material respect as of the date such representation or warranty was made;
(x) any claim by brokers, finders or similar persons claiming to be entitled to
a commission in connection with any Lease or other transaction involving the
Mortgaged Property or any part thereof under any legal requirement or any
liability asserted against Mortgagee with respect thereto; and (xi) the claims
of any lessee of any or any portion of the Mortgaged Property or any person
acting through or under any lessee or otherwise arising under or as a
consequence of any Lease. Notwithstanding the foregoing, Mortgagor shall not be
liable for any Indemnified Claims arising (A) from the gross negligence or
willful misconduct of any Indemnified Party or (B) under clauses (i) - (v) above
to the extent the facts, events or circumstances giving rise to such Indemnified
Claim arise after the date that any Indemnified Party takes possession of or
title to the Mortgaged Property by foreclosure, deed-in-lieu thereof, the
exercise of any power of sale or otherwise. Any amounts payable to an
Indemnified Party by reason of the application of this Section 23 shall be
secured by this Mortgage shall become immediately due and payable and shall bear
interest at the Default Rate from the date loss or damage is sustained by such
Indemnified Party until paid. The obligations and liabilities of Mortgagor under
this paragraph shall survive the termination, satisfaction, or assignment of
this Mortgage and the exercise by Mortgagee of any of its rights or remedies
hereunder, including, but not limited to, the acquisition of the Mortgaged
Property by foreclosure or a conveyance in lieu of foreclosure.
24.
Notices.
Any
notice, demand, statement, request or consent made hereunder shall be in
writing, addressed to the intended recipient at its address set forth in the
Loan Agreement, and shall be made and deemed given in accordance with the terms
of the Loan Agreement.
25.
Authority.
(a)
Mortgagor (and the undersigned representative of Mortgagor, if any) has full
power, authority and right to execute, deliver and perform its obligations
pursuant to this Mortgage, and to mortgage, give, grant, bargain, sell, alien,
enfeoff, convey, confirm, warrant, pledge, hypothecate and assign the Mortgaged
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Mortgage on Mortgagor’s part to be performed; and (b) Mortgagor
represents and warrants that Mortgagor is not a “foreign person” within the
meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended
and the related Treasury Department regulations.
26.
Waiver of
Notice.
Mortgagor shall not be entitled to any notices of any nature whatsoever from
Mortgagee except with respect to matters for which this Mortgage or the Loan
Agreement specifically and expressly provides for the giving of notice by
Mortgagee to Mortgagor and except with respect to matters for which Mortgagee is
required by applicable law to give notice, and Mortgagor hereby expressly waives
the right to receive any notice from Mortgagee with respect to any matter for
which this Mortgage or the Loan Agreement do not specifically and expressly
provide for the giving of notice by Mortgagee to Mortgagor.
27.
Remedies of
Mortgagor.
In the
event that a claim or adjudication is made that Mortgagee has acted unreasonably
or unreasonably delayed acting in any case where by law or under the Note, this
Mortgage or the other Loan Documents, it has an obligation to act reasonably or
promptly, Mortgagee shall not be liable for any monetary damages, and
Mortgagor’s remedies shall be limited to injunctive relief or declaratory
judgment.
28.
Sole Discretion of
Mortgagee.
Whenever
pursuant to this Mortgage or the other Loan Documents, Mortgagee exercises any
right given to it to consent, approve or disapprove, or any arrangement or term
is to be satisfactory to Mortgagee, the decision of Mortgagee to consent,
approve or disapprove, or to decide that arrangements or terms are satisfactory
or not satisfactory shall be in the sole discretion of Mortgagee and shall be
final and conclusive, except as may be otherwise expressly and specifically
provided herein. Notwithstanding anything to the contrary contained herein, it
shall be understood and agreed that any such consent, approval, or disapproval
may be conditioned, among other things, upon Mortgagee obtaining confirmation by
the Rating Agencies that the action or other matter subject to Mortgagee’s
consent, approval, or disapproval shall not adversely affect the rating of any
securities issued or to be issued in connection with any Secondary Market
Transaction, notwithstanding that such condition may not be expressly set forth
in the provision or provisions of the Loan Documents which require that
Mortgagee’s consent be obtained.
29.
Non-Waiver.
The
failure of Mortgagee to insist upon strict performance of any term hereof shall
not be deemed to be a waiver of any term of this Mortgage. Mortgagor shall not
be relieved of Mortgagor’s obligations hereunder by reason of (a) the failure of
Mortgagee to comply with any request of Mortgagor or Guarantor to take any
action to foreclose this Mortgage or otherwise enforce any of the provisions
hereof or of the Note or other Loan Documents, (b) the release, regardless of
consideration, of the whole or any part of the Mortgaged Property, or of any
person liable for the Debt or any portion thereof, or (c) any agreement or
stipulation by Mortgagee extending the time of payment or otherwise modifying or
supplementing the terms of the Note, this Mortgage, or the other Loan Documents.
Mortgagee may resort for the payment of the Debt to any other security held by
Mortgagee in such order and manner as Mortgagee, in its discretion, may elect.
Mortgagee may take action to recover the Debt, or any portion thereof, or to
enforce any covenant hereof without prejudice to the right of Mortgagee
thereafter to foreclosure this Mortgage. The rights and remedies of Mortgagee
under this Mortgage shall be separate, distinct and cumulative and none shall be
given effect to the exclusion of the others. No act of Mortgagee shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Mortgagee shall not be limited exclusively to
the rights and remedies herein stated but shall be entitled to every right and
remedy now or hereafter afforded at law or in equity.
30.
Liability.
Subject
to the provisions hereof requiring Mortgagee’s consent to any transfer of the
Mortgaged Property, this Mortgage shall be binding upon and inure to the benefit
of Mortgagor and Mortgagee and their respective successors and assigns
forever.
31.
Inapplicable
Provisions.
If any
term, covenant or condition of this Mortgage is held to be invalid, illegal or
unenforceable in any respect, this Mortgage shall be construed without such
provision.
32.
Headings,
Etc.
The
headings and captions of various Sections of this Mortgage are for convenience
of reference only and are not to be construed as defining or limiting, in any
way, the scope or intent of the provisions hereof.
33.
Counterparts.
This
Mortgage may be executed in any number of counterparts each of which shall be
deemed to be an original but all of which when taken together shall constitute
one agreement.
34.
Definitions.
Unless
the context clearly indicates a contrary intent or unless otherwise specifically
provided herein, words used in this Mortgage may be used interchangeably in
singular or plural form and the word “Mortgagor” shall mean “each Mortgagor and
any subsequent owner or owners of the Mortgaged Property or any part thereof or
any interest therein,” the word “Mortgagee” shall mean “Mortgagee and any
subsequent holder of the Note,” the word “Debt” shall mean “the Note and any
other evidence of indebtedness secured by this Mortgage,” the word “person”
shall include an individual, corporation, partnership, trust, unincorporated
association, government, governmental authority, and any other entity, and the
words “Mortgaged Property” shall include any portion of the Mortgaged Property
and any interest therein and the words “attorneys’ fees” shall include any and
all reasonable attorneys’ fees, paralegal and law clerk fees, including, but not
limited to, fees at the pre-trial, trial and appellate levels incurred or paid
by Mortgagee in protecting its interest in the Mortgaged Property and Collateral
and enforcing its rights hereunder. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
35.
Homestead.
Mortgagor hereby waives and renounces all homestead and exemption rights
provided by the constitution and the laws of the United States and of any state,
in and to the Mortgaged Property as against the collection of the Debt, or any
part hereof.
36.
Assignments.
Mortgagee shall have the right to assign or transfer its rights under this
Mortgage and the other Loan Documents without limitation, including, without
limitation, the right to assign or transfer its rights to a servicing agent. Any
assignee or transferee shall be entitled to all the benefits afforded Mortgagee
under this Mortgage and the other Loan Documents. Mortgagee agrees to provide
Mortgagor with notice of any such assignment; provided, however, that
Mortgagor’s consent shall not be required in connection with any such assignment
and no delay or failure by Mortgagee to provide such notice shall limit the
effectiveness of such assignment.
37.
Survival of Obligations;
Survival of Warranties and Representations.
Each and
all of the covenants, obligations, representations and warranties of Mortgagor
shall survive the execution and delivery of the Loan Documents and the transfer
or assignment of this Mortgage (including, without limitation, any transfer of
the Mortgage by Mortgagee of any of its rights, title and interest in and to the
Mortgaged Property to any party, whether or not affiliated with
Mortgagee).
38.
Covenants Running with the
Land.
All
covenants, conditions, warranties, representations and other obligations
contained in this Mortgage and the other Loan Documents are intended by
Mortgagor and Mortgagee to be, and shall be construed as, covenants running with
the Mortgaged Property until the lien of this Mortgage has been fully released
by Mortgagee, pursuant to the terms hereof.
39.
Governing Law;
Jurisdiction.
THIS
MORTGAGE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF NEW
YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL
TIMES THE PROVISIONS FOR THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS
AND SECURITY INTERESTS CREATED PURSUANT TO THIS MORTGAGE SHALL BE GOVERNED BY
THE LAWS OF THE STATE IN WHICH THE MORTGAGED PROPERTY IS LOCATED.
40.
Time of
Essence.
Time is
of the essence as to all of the terms, covenants and condition of this Mortgage
and the other Loan Documents.
41.
No Third-Party
Beneficiaries.
The
provisions of this Mortgage and the other Loan Documents are for the benefit of
Mortgagor and Mortgagee and shall not inure to the benefit of any third party
(other than any successor or assignee of Mortgagee or permitted assignee of
Mortgagor). This Mortgage and the other Loan Documents shall not be construed as
creating any rights, claims or causes of action against Mortgagee or any of its
officers, directors, agents or employees in favor of any party other than
Mortgagor including but not limited to any claims to any sums held in the
Impositions and Insurance Reserve or any other Reserves.
42.
Relationship of
Parties.
The
relationship of Mortgagee and Mortgagor is solely that of debtor and creditor,
and Mortgagee has no fiduciary or other special relationship with the Mortgagor,
and no term or condition of any of the Loan Documents shall be construed to be
other than that of debtor and creditor. Mortgagor represents and acknowledges
that neither the Loan Documents nor any course of dealing between the parties
creates any partnership or joint venture between Mortgagor and Mortgagee or any
other person, nor does it provide for any shared appreciation rights or other
equity participation interest.
43.
Successors and
Assigns
. This
Mortgage shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that Mortgagor may not
assign its rights or obligations hereunder except as expressly provided in
Section 9 hereof or as permitted under the Loan Agreement.
44.
Investigations.
Any and
all representations, warranties, covenants and agreements made in this Mortgage
(and/or in other Loan Documents) shall survive any investigation or inspection
made by or on behalf of Mortgagee.
45.
Assignment of
Leases.
Mortgagor acknowledges and confirms that it has executed and delivered to
Mortgagee the Assignment of Leases and Rents (the “
Assignment of
Leases
”)
intending that such instrument create a present, absolute assignment to
Mortgagee of the Leases and Rents. Without limiting the intended benefits or the
remedies provided under the Assignment of Leases, Mortgagor hereby assigns to
Mortgagee, as further security for the Debt and the Obligations, the Leases and
Rents. While any Event of Default exists, Mortgagee shall be entitled to
exercise any or all of the remedies provided in the Assignment of Leases and in
Section 17 hereof, including, without limitation, the right to have a
receiver appointed. If any conflict or inconsistency exists between the
assignment of the Leases and Rents in this Mortgage and the absolute assignment
of the Leases and the Rents in the Assignment of Leases, the terms of the
Assignment of Leases shall control. Nevertheless, subject to the terms of this
Section 45 and 17(b) hereof and the Loan Agreement, Lender grants to Mortgagor a
revocable license to collect and receive the Rents. For so long as an Event of
Default exists, Mortgagor shall hold the Rents, or a portion thereof sufficient
to discharge all current sums due on the Debt, for use in the payment of such
sums.
46.
Waiver of Right to Trial by
Jury.
EACH OF
MORTGAGOR AND MORTGAGEE HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS
MORTGAGE OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION
ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN
KNOWINGLY AND VOLUNTARILY BY EACH OF MORTGAGOR AND MORTGAGEE, AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED TO FILE A
COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY
MORTGAGOR.
47.
Expenses and Attorneys’
Fees.
Mortgagor agrees to promptly pay all reasonable fees, costs and expenses
incurred by Mortgagee in connection with any matters contemplated by or arising
out of this Mortgage and the other Loan Documents, including, without
limitation, reasonable fees, costs and expenses (including reasonable attorneys’
fees and fees of other professionals retained by Mortgagee) incurred in any
action to enforce this Mortgage or the other Loan Documents or to collect any
payments due from Mortgagor under this Mortgage, the Loan Agreement, the Note or
any other Loan Document or incurred in connection with any refinancing or
restructuring of the credit arrangements provided under this Mortgage incurred
in connection with a “workout” or in connection with any insolvency or
bankruptcy proceedings with respect to Mortgagor, and all such fees, costs and
expenses shall be part of the Obligations, payable on demand.
48.
Amendments and
Waivers
. Except
as otherwise provided herein, no amendment, modification, termination or waiver
of any provision of this Mortgage, the Note or any other Loan Document, or
consent to any departure therefrom, shall in any event be effective unless the
same shall be in writing and signed by Mortgagee and any other party to be
charged. Each amendment, modification, termination or waiver shall be effective
only in the specific instance and for the specific purpose for which it was
given. No notice to or demand on Mortgagor in any case shall entitle Mortgagor
to any other or further notice or demand in similar or other
circumstances.
49.
Servicer
.
Mortgagee shall have the right at any time throughout the term of the Loan to
designate or appoint one or more Servicers (as defined in the Loan Agreement) to
administer this Mortgage and the other Loan Documents, and to change or replace
any Servicer. All of Mortgagee’s rights under this Mortgage and the other Loan
Documents may be exercised by any such Servicer designated by Mortgagee. Any
such Servicer shall be entitled to the benefit of all obligations of Mortgagor
in favor of Mortgagee.
50.
Copy of
Mortgage
.
MORTGAGOR REPRESENTS AND WARRANTS THAT IT HAS RECEIVED A TRUE COPY OF THIS
MORTGAGE WITHOUT CHARGE.
51.
Limitation on
Recourse.
The
obligations of Mortgagor hereunder are subject to limitations on recourse as
provided in Article XII of the Loan Agreement.
52.
Satisfaction of
Mortgage.
Upon
payment of the Debt in full, Mortgagee, at Mortgagor’s sole cost and upon
Mortgagor’s request, shall execute and deliver to Mortgagor a satisfaction or
reconveyance of Mortgage, duly acknowledged and in recordable form, UCC-3
financing statements terminating any UCC-1 financing statements filed by
Mortgagee relating to the Mortgaged Property, and such other documents or
instruments as may be required to release the Lien of the Loan Documents from
the Mortgaged Property.
53.
Conflict
. The
terms and provisions of this Mortgage shall be construed to the extent possible
consistently with those of the Loan Agreement as being in addition to and
supplementing the provisions of the Loan Agreement and the other Loan Documents;
however, in the event that notwithstanding such construction there is an
irresolvable conflict between the provisions of this Mortgage and the provisions
of the Loan Agreement, the provisions of the Loan Agreement shall govern and
control.
54.
State Specific
Provisions
.
(a)
Inconsistencies
. In the
event of any inconsistencies between the terms and conditions of this Article 18
and the other provisions of this Mortgage, the terms and conditions of this
Article 18 shall control and be binding.
(b)
Special Michigan
Provisions
. The
following provisions shall also constitute an integral part of this Mortgage.
Furthermore, in the event that any prior provisions of this Mortgage conflict
with the following provisions of this Section, the provisions of this Section
shall control and shall be deemed a modification of or amendment to the section
or provision at issue.
(i)
Additional Provisions
Regarding Foreclosure by Power of Sale
.
Mortgagor acknowledges that, after the occurrence and during the continuance of
an Event of Default, Lender is authorized and empowered to sell the Mortgaged
Property or to cause the same to be sold, and to convey the same to the
purchaser in any lawful manner, including that provided by Chapter 32 of the
Revised Judicature Act of Michigan, entitled “Foreclosure of Mortgages by
Advertisement,” (the “Michigan Statute”) which permits Lender to sell the
Mortgaged Property without affording Mortgagor a hearing or giving Mortgagor
actual personal notice. The only notice required under such Chapter 32 is to
publish notice in a local newspaper and to post a copy of the notice at the
Mortgaged Property. In the event of a public sale, the Mortgaged Property, at
the option of the Lender, may be sold as one parcel. MORTGAGOR HEREBY WAIVES ALL
RIGHTS UNDER THE CONSTITUTION AND LAWS OF THE UNITED STATES AND THE STATE OF
MICHIGAN TO A HEARING PRIOR TO SALE IN CONNECTION WITH FORECLOSURE OF THIS
MORTGAGE BY ADVERTISEMENT AND ALL NOTICE REQUIREMENTS EXCEPT AS SET FORTH IN THE
MICHIGAN STATUTE.
(ii)
Lender’s Statutory Rights
Regarding Leases and Rents
. In
addition to all other rights of Mortgagor provided for herein or in any other
Loan Documents, Lender shall be entitled to all of the rights and benefits
conferred by Act 210 of the Michigan Public Acts of 1953 as amended (MCL
554.231, et seq.).
(iii)
Construction
Liens
. All
references in this Mortgage or in any of the other Loan Documents to mechanic’s
liens, or materialman’s liens, or similar liens shall be deemed to include
“construction liens” as defined in MCL 570.1103(3).
(iv)
Waste
. Subject
to the provisions of Section 3.6 hereof and the applicable provisions of the
Loan Agreement, if Mortgagor shall fail to pay any Impositions, the same shall
constitute waste as provided by MCL 600.2927. Mortgagor consents to the
appointment of a receiver under said statute if Lender elects to seek such
relief.
(v)
Future
Advances
. This
Mortgage secures future advances and is a future advance mortgage under Act No.
348 of the Michigan Public Acts of 1990 (MCL 565.901 et. seq.). All future
advances under the Note, this Mortgage and the other Loan Documents shall have
the same priority as if the future advance was made on the date that this
Mortgage was recorded.
55.
Contemporaneous
Mortgages.
THIS
MORTGAGE IS MADE CONTEMPORANEOUSLY WITH THE OTHER MORTGAGES DATED AS OF THE DATE
HEREOF GIVEN BY ADDITIONAL BORROWERS TO MORTGAGEE, COVERING PROPERTIES LOCATED
IN THE STATE OF MICHIGAN (the “
Other
Mortgages
”). The
Other Mortgages further secure the obligations of Mortgagor to Mortgagee under
the Note. Upon the occurrence of an Event of Default, Mortgagee may proceed
under this Mortgage and/or the Other Mortgages against any of such property
and/or the Mortgaged Property in one or more parcels and in such manner and
order as Mortgagee shall elect. Mortgagor hereby irrevocably waives and
releases, to the extent permitted by law, and whether now or hereafter in force,
any right to have the Mortgaged Property and/or the property covered by the
Other Mortgages marshalled upon any foreclosure of this Mortgage or the Other
Mortgages.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, Mortgagor has executed this instrument as of the day and year
first above written.
|
MORTGAGOR:
|
|
|
|
|
MACOMB MANOR MI LLC
,
a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP Michigan
Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
ACKNOWLEDGMENT
STATE OF
____________________
)
: ss.:
COUNTY OF
__________________
):
The
foregoing instrument was acknowledged before me in the County of _____________,
State of ________________________ this _____ day of _________, 2006, by David
Lichtenstein, the President of LVP Michigan Multifamily Portfolio LLC, a
Delaware limited liability company, the Managing Member of Macomb Manor MI LLC,
a Delaware limited liability company.
Notary
Public, _____County,
______
Acting in
the County of ________, ______
My
commission expires:
This
instrument was prepared by
and
return when recorded to:
Sidley
Austin LLP
One S.
Dearborn St.
Chicago,
Illinois 60603
Attn:
Rebecca Janovsky, Esq.
Macomb
Manor
19700
Masonic Blvd.
Roseville,
Michigan
EXHIBIT A
Legal Description of
Premises
A parcel
of land located and being a part of the South 1/2 of Section 4, Town 1 North,
Range 13 East, City of Roseville, Macomb County, Michigan and being more
particularly described as follows: Beginning at a point 33.00 feet, South 01
degrees 19 minutes 15 seconds West of the center post of said Section 4 and
thence extending South 88 degrees 02 minutes 30 seconds East, 973.81 feet;
thence South 01 degrees 08 minutes West, 201.46 feet; thence North 88 degrees 34
minutes 20 seconds West, 31.51 feet; thence South 28 degrees 39 minutes 00
seconds West, 359.81 feet; thence North 88 degrees 30 minutes 30 seconds West,
980.41 feet; thence North 02 degrees 37 minutes 00 seconds East, 526.98 feet;
thence South 89 degrees 19 minutes East, 190.80 feet to point of
beginning.
Tax
Identification No.
:
14-04-401-019
EXHIBIT
10.15
CARRIAGE HILL MI
LLC.
, as
Mortgagor
To
CITIGROUP GLOBAL MARKETS REALTY,
INC.,
as
Mortgagee
|
Dated:
|
As
of June 30, 2006
|
|
|
Location:
|
26322
Westphal Dr.
Dearborn
Heights, Michigan
|
|
|
County:
|
Wayne
County
|
|
THIS
MORTGAGE CONSTITUTES A FUTURE ADVANCE MORTGAGE AND SECURES FUTURE ADVANCES UNDER
ACT 348 OF THE PUBLIC ACTS OF 1990, AS AMENDED (MCLA §565.901,
ET
SEQ
.) UNDER
MICHIGAN LAW.
THIS MORTGAGE
(as the
same may be amended, restated, extended, supplemented or otherwise modified from
time to time, this “
Mortgage
”), is
made as of the 30th day of June, 2006, by CARRIAGE HILL MI LLC, a
Delaware limited liability company, having an address
c/o
Lightstone Holdings LLC, 326 Third Street, Lakewood, New Jersey
08701
(“
Mortgagor
”), to
and for the benefit of CITIGROUP GLOBAL MARKETS REALTY CORP., a New York
corporation, having an address at 388 Greenwich Street, 19th Floor, New York,
New York 10013 (together with its successors and assigns, “
Mortgagee
”).
Capitalized terms used herein but not otherwise defined shall have the
respective meanings assigned to such terms in the Loan Agreement (hereinafter
defined).
W I T N E S S E T
H:
To secure
the payment of a loan (the “
Loan
”) in the
original principal sum of Forty Million Seven Hundred Twenty-Five Thousand and
NO/100ths Dollars ($40,725,000.00), lawful money of the United States of
America, being made from Mortgagee to Mortgagor and the Additional Borrowers (as
hereinafter defined) on the date hereof pursuant to the terms and conditions of
a certain Loan and Security Agreement, dated as of the date hereof (as amended,
modified or restated, the “
Loan
Agreement
”),
between Mortgagor, together with Carriage Park MI LLC, a Delaware limited
liability company, Scotsdale Manor MI LLC, a Delaware limited liability company
and Macomb Manor MI LLC, a Delaware limited liability company (collectively, the
“
Additional
Borrowers
”) and
Mortgagee, which Loan is evidenced by and is to be paid with interest according
to a Promissory Note in the principal sum of Forty Million Seven Hundred
Twenty-Five Thousand and NO/100ths Dollars ($40,725,000.00) dated as of the date
hereof having a scheduled maturity date of July 11, 2016 (collectively, as
amended, modified, renewed or restated and together with any substitutes or
replacements therefor, the “
Note
”), made
by Mortgagor and the Additional Borrowers to Mortgagee and all other sums now or
hereafter due hereunder, or otherwise due under the Loan Documents (as defined
in the Loan Agreement) (the principal amount of the Loan, together with interest
thereon and all sums due hereunder and under the Loan Agreement, the Note and
the other Loan Documents being collectively called the “
Debt
”), and
all of the agreements, covenants, conditions, warranties, representations and
other obligations (other than to repay the Debt) made or undertaken by Mortgagor
or any other person or entity to Mortgagee or others as set forth in the Loan
Documents (collectively, the “
Obligations
”),
Mortgagor has mortgaged, given, granted, bargained, sold, alienated, enfeoffed,
conveyed, confirmed, pledged, assigned, and hypothecated and by these presents
does hereby mortgage, warrant, give, grant, bargain, sell, alien, enfeoff,
convey, confirm, pledge, assign, hypothecate, convey and grant a security
interest unto Mortgagee, with power of sale, subject to the Permitted
Encumbrances, all of Mortgagor’s right, title, interest and estate in and to the
real property
described
on
Exhibit A
attached
hereto (the “
Premises
”) and
the buildings, structures, fixtures, additions, enlargements, extensions,
modifications, repairs, replacements and improvements now or hereafter located
thereon (the “
Improvements
”);
TOGETHER
WITH: all right, title, interest and estate of Mortgagor now owned, or hereafter
acquired, in and to the following property, rights, interests and estates (the
Premises and the Improvements, together with the following property, rights,
interests and estates being hereinafter described, are collectively referred to
herein as the “
Mortgaged
Property
”):
(a)
all
easements, rights-of-way, strips and gores of land, streets, ways, alleys,
passages, sewer rights, water, water courses, water rights and powers, air
rights and development rights, and all estates, rights, titles, interests,
privileges, liberties, tenements, hereditaments and appurtenances of any nature
whatsoever, in any way belonging, relating or pertaining to the Premises and the
Improvements and the reversion and reversions, remainder and remainders, and all
land lying in the bed of any street, road or avenue, opened or proposed, in
front of or adjoining the Premises, to the center line thereof and all the
estates, rights, titles, interests, dower and rights of dower, curtesy and
rights of curtesy, property, possession, claim and demand whatsoever, both at
law and in equity, of Mortgagor of, in and to the Premises and the Improvements,
and every part and parcel thereof, with the appurtenances thereto and all rights
to divide the property pursuant to Public Act 591 of the Michigan Public Acts of
1966, as amended (MCL 560-101 et. seq.);
(b)
all
machinery, equipment, fixtures (including, but not limited to, all heating, air
conditioning, plumbing, lighting, communications and elevator fixtures) and
other property of every kind and nature, whether tangible or intangible,
whatsoever owned by Mortgagor, or in which Mortgagor has or shall have an
interest, now or hereafter located upon the Premises and the Improvements, or
appurtenant thereto, and usable in connection with the present or future
operation and occupancy of the Premises and the Improvements and all building
equipment, materials and supplies of any nature whatsoever owned by Mortgagor,
or in which Mortgagor has or shall have an interest, now or hereafter located
upon the Premises or the Improvements, or appurtenant thereto, and usable in
connection with the present or future operation, enjoyment and occupancy of the
Premises and the Improvements (hereinafter collectively called the “
Equipment
”),
including the proceeds of any sale or transfer of the foregoing, and the right,
title and interest of Mortgagor in and to any of the Equipment which may be
subject to any security interests, as defined in the Uniform Commercial Code, as
adopted and enacted by the state or states where any of the Mortgaged Property
is located (the “
Uniform Commercial
Code
”)
superior in lien to the lien of this Mortgage;
(c)
all
awards or payments, including interest thereon, which may heretofore and
hereafter be made with respect to the Mortgaged Property, whether from the
exercise of the right of eminent domain or condemnation (including, but not
limited to, any transfer made in lieu of or in anticipation of the exercise of
said rights), or for a change of grade, or for any other injury to or decrease
in the value of the Mortgaged Property;
(d)
all
leases, tenancies, licenses, subleases, assignments and/or other rental or
occupancy agreements (including, without limitation, any and all guarantees and
supporting obligations of and security deposit and letter of credit rights
relating to any of the foregoing) heretofore or hereafter entered into affecting
the use, enjoyment or occupancy of the Premises and the Improvements, including
any extensions, renewals, modifications or amendments thereof (collectively, the
“
Leases
”),
together with all rights, powers, privileges, options and other benefits of
Mortgagor as lessor under the Leases, including, without limitation, the
immediate and continuing right to receive and collect all rents, income,
revenues, issues, profits, condemnation awards, insurance proceeds, moneys and
security payable or receivable under the Leases or pursuant to any of the
provisions thereof, whether as rent or otherwise, the right to accept or reject
any offer made by any tenant pursuant to its Lease to purchase the Mortgaged
Property and any other property subject to the Lease as therein provided and to
perform all other necessary or appropriate acts with respect to such Leases as
agent and attorney-in-fact for Mortgagor, and the right to make all waivers and
agreements, to give and receive all notices, consents and releases, to take such
action upon the happening of a default under any Lease, including the
commencement, conduct and consummation of proceedings at law or in equity as
shall be permitted under any provision of any Lease or by any law, and to do any
and all other things whatsoever which Mortgagor is or may become entitled to do
under any such Lease together with all accounts receivable, contract rights,
franchises, interests, estates or other claims, both at law or in equity,
relating to the Mortgaged Property, to the extent not included in rent earnings
and income under any of the Leases, including the right to receive and collect
any sums payable to Mortgagor thereunder and all deposits or other security or
advance payments made by Mortgagor with respect to any of the services related
to the Mortgaged Property or the operation thereof, and together with all rents,
rent equivalents (including room revenues, if applicable), moneys payable as
damages or in lieu of rent or rent equivalents, royalties (including, without
limitation, all oil and gas or other mineral royalties and bonuses), income,
receivables, receipts, revenues, deposits (including, without limitation,
security, utility and other deposits), accounts, cash, issues, profits, charges
for services rendered, and other consideration of whatever form or nature
received by or paid to or for the account of or benefit of Mortgagor or its
agents or employees from any and all sources arising from or attributable to the
Premises and the Improvements (the “
Rents
”), and
together with all proceeds from the sale or other disposition of the Leases and
the right to receive and apply the Rents to the payment of the
Debt;
(e)
all of
Mortgagor’s right, title and interest in, to and under any and all reserve,
deposit or escrow accounts (the “
Accounts
”) made
pursuant to any of the Loan Documents, together with all income, profits,
benefits, investment property and advantages arising therefrom, and together
with all rights, powers, privileges, options and other benefits of Mortgagor
under the Accounts, and together with the right to do any and all other things
whatsoever which Mortgagor is or may become entitled to do under the
Accounts;
(f)
all trade
names, software, trademarks, trademark applications, trademark licenses,
servicemarks, logos, copyrights, copyright applications, goodwill, books and
records and all other general intangibles relating to or used in connection with
the operation of the Mortgaged Property;
(g)
all
proceeds of and any unearned premiums on any insurance policies covering the
Mortgaged Property, including, without limitation, the right to receive and
apply the proceeds of any insurance, judgments, or settlements made in lieu
thereof, for damage to the Mortgaged Property or any part thereof;
(h)
the
right, following an Event of Default, in the name and on behalf of Mortgagor, to
appear in and defend any action or proceeding brought with respect to the
Mortgaged Property and to commence any action or proceeding to protect the
interest of the Mortgagee in the Mortgaged Property or any part
thereof;
(i)
all
accounts, escrows, reserves, documents, instruments, chattel paper, monetary
obligations, claims, deposits, investment property and general intangibles, as
the foregoing terms are defined in the Uniform Commercial Code, and all books,
records, plans, specifications, designs, drawings, permits, consents, licenses,
franchises, management agreements, contracts, contract rights (including,
without limitation, any contract with any architect or engineer or with any
other provider of goods or services for or in connection with any construction,
repair, or other work upon the Mortgaged Property), approvals, actions, refunds
or real estate taxes and assessments (and any other governmental impositions
related to the Mortgaged Property), and causes of action that now or hereafter
relate to, are derived from or are used in connection with the Mortgaged
Property, or the use, operation, management, improvement, alteration, repair,
maintenance, occupancy or enjoyment thereof or the conduct of any business or
activities thereon;
(j)
all
accounts receivable, contract rights, interests, estate or other claims, both in
law and in equity, which Mortgagor now has or may hereafter acquire in the
Mortgaged Property or any part thereof;
(k)
all
rights which Mortgagor now has or may hereafter acquire, to be indemnified
and/or held harmless from any liability, loss, damage, cost or expense
(including, without limitation, attorneys’ fees and disbursements) relating to
the Mortgaged Property or any part thereof;
(l)
all
personal property of Mortgagor; and
(m)
any and
all proceeds and products of any of the foregoing.
TO HAVE
AND TO HOLD the above granted and described Mortgaged Property unto and to the
use and benefit of Mortgagee, and the successors and assigns of Mortgagee,
forever;
PROVIDED,
HOWEVER, these presents are upon the express condition that, if Mortgagor and
the Additional Borrowers shall well and truly pay to Mortgagee the Debt at the
time and in the manner provided in the Note and this Mortgage and shall pay all
other sums due under the Loan Agreement or any other Loan Document, these
presents and the estate hereby granted shall cease, terminate and be
void;
AND
Mortgagor represents and warrants to and covenants and agrees with Mortgagee as
follows:
1.
Payment of Debt and
Incorporation of Covenants, Conditions and Agreements.
Mortgagor and the Additional Borrowers shall pay the Debt at the time and in the
manner provided in the Note, the Loan Agreement and in this Mortgage. Mortgagor
and the Additional Borrowers will duly and punctually perform all of the
covenants, conditions and agreements contained in the Note, the Loan Agreement,
this Mortgage and the other Loan Documents all of which covenants, conditions
and agreements are hereby made a part of this Mortgage to the same extent and
with the same force as if fully set forth herein.
2.
Warranty of
Title.
Mortgagor warrants that Mortgagor has a good, marketable and insurable fee
simple interest in the Mortgaged Property and has the right to mortgage, give,
grant, bargain, sell, alien, enfeoff, convey, confirm, pledge, assign and
hypothecate the Mortgaged Property and that Mortgagor possesses a fee simple
estate in the Mortgaged Property and that it owns the Mortgaged Property free
and clear of all liens, encumbrances and charges whatsoever except for the
Permitted Encumbrances. Mortgagor represents and warrants that none of the
Permitted Encumbrances will materially and adversely affect (i) Mortgagor’s
ability to pay in full in a timely manner its obligations, including, without
limitation, the Debt, (ii) the use of the Mortgaged Property for the use
currently being made thereof, (iii) the operation of the Mortgaged Property, or
(iv) the value of the Mortgaged Property. Mortgagor shall forever warrant,
defend and preserve such title and the validity and priority of the lien of this
Mortgage and shall forever warrant and defend the same to Mortgagee against the
claims of all persons whomsoever.
3.
Insurance.
(a)
Mortgagor, at its sole cost and expense, shall maintain or cause to be
maintained insurance with respect to the Mortgaged Property for the mutual
benefit of Mortgagor and Mortgagee as required by Section 5.4 of the Loan
Agreement.
(b)
If the
Mortgaged Property shall be damaged or destroyed, in whole or in part, by fire
or other casualty (an “
Insured
Casualty
”),
Mortgagor shall give immediate notice thereof to Mortgagee and to the insurance
carrier. Subject to the terms of the Loan Agreement, Mortgagor shall promptly
repair, replace or rebuild the Mortgaged Property in accordance with, and all
amounts paid with respect to such Insured Casualty under all insurance policies
maintained by Mortgagor shall be governed by, the terms and conditions of
Section 5.5 of the Loan Agreement. The expenses incurred by Mortgagee in the
adjustment and collection of insurance proceeds shall become part of the Debt
and shall be secured hereby and shall be reimbursed by Mortgagor to Mortgagee
upon demand.
4.
Payment of Impositions and
Other Charges
. Subject
to Mortgagor’s right to contest set forth in Section 5.3(B) of the Loan
Agreement and the provisions of Section 5 below, Mortgagor shall cause to be
paid all Impositions now or hereafter levied or assessed or imposed against the
Mortgaged Property or any part thereof as the same become due and payable.
Mortgagor shall promptly pay for all utility services provided to the Mortgaged
Property. Mortgagor shall furnish to Mortgagee or its designee receipts for the
payment of the Impositions prior to the date the same shall become delinquent
(provided, however, that Mortgagor shall not be required to furnish such
receipts for payment of Impositions in the event that such Impositions are to be
paid by Mortgagee pursuant to Section 5 hereof).
5.
Impositions and Insurance
Reserve
.
Mortgagor shall make monthly deposits into the Impositions and Insurance Reserve
of amounts sufficient to pay Impositions and Insurance Premiums in accordance
with the terms of Article VI of the Loan Agreement.
6.
Condemnation
.
Mortgagor shall promptly give Mortgagee written notice of the actual or
threatened commencement of any condemnation or eminent domain proceeding
affecting the Mortgaged Property or any portion thereof and shall deliver to
Mortgagee copies of any and all papers served in connection with such
proceedings. Subject to the terms of Section 5.5 of the Loan Agreement,
Mortgagee is hereby irrevocably appointed as Mortgagor’s attorney-in-fact,
coupled with an interest, with exclusive power to collect, receive and retain
any award or payment for said condemnation or eminent domain and to make any
compromise or settlement in connection with such proceeding. Notwithstanding any
taking by any public or quasi public authority through eminent domain or
otherwise (including but not limited to any transfer made in lieu of or in
anticipation of the exercise of such taking), Mortgagor shall continue to pay
the Debt at the time and in the manner provided for its payment in the Loan
Agreement. Subject to the terms of the Loan Agreement, Mortgagor shall cause the
award or payment made in any condemnation or eminent domain proceeding, which is
payable to Mortgagor, to be paid directly to Mortgagee. The application of any
such award or payment shall be governed by the applicable provisions of the Loan
Agreement.
7.
Maintenance of Mortgaged
Property.
Mortgagor shall cause the Mortgaged Property to be operated and maintained in a
good and safe condition and repair and in keeping with the condition and repair
of properties of a similar use, value, age, nature and construction. Mortgagor
shall not use, maintain or operate the Mortgaged Property in any manner which
constitutes a public or private nuisance or which makes void, voidable, or
cancelable, or increases the premium of, any insurance then in force with
respect thereto. The Improvements and the Equipment shall not be removed or
demolished and no Material Alterations shall be made thereto (except for normal
replacement or disposal of the Equipment and except as otherwise expressly
permitted in the Loan Agreement) without the consent of Mortgagee. Mortgagor
shall promptly comply in all material respects with all laws, orders and
ordinances affecting the Mortgaged Property, or the use thereof.
8.
Use of Mortgaged
Property
.
Mortgagor shall not initiate, join in, acquiesce in, or consent to any change in
any private restrictive covenant, zoning law or other public or private
restriction, limiting or defining the uses which may be made of the Mortgaged
Property or any part thereof, nor shall Mortgagor initiate, join in, acquiesce
in, or consent to any zoning change or zoning matter affecting the Mortgaged
Property, which in any of the foregoing cases could reasonably be expected to
result in a Material Adverse Effect. If under applicable zoning provisions the
use of all or any portion of the Mortgaged Property is or shall become a
nonconforming use, Mortgagor will not cause or permit such nonconforming use to
be discontinued or abandoned without the express written consent of Mortgagee,
which consent shall not be unreasonably withheld. Mortgagor shall not permit or
suffer to occur any waste on or to the Mortgaged Property or to any portion
thereof and shall not take any steps whatsoever to convert the Mortgaged
Property, or any portion thereof, to a condominium or cooperative form of
management. Mortgagor will not install or permit to be installed on the Premises
any underground storage tank or above-ground storage tank in violation of the
Environmental Laws.
9.
Transfer or
Encumbrance of the Mortgaged Property
. (a) Mortgagor acknowledges that
Mortgagee has examined and relied on the creditworthiness and experience of
Mortgagor in owning and operating properties such as the Mortgaged Property in
agreeing to make the Loan, and that Mortgagee will continue to rely on
Mortgagor’s ownership of the Mortgaged Property as a means of maintaining the
value of the Mortgaged Property as security for repayment of the Debt. Except as
expressly permitted under this Mortgage, the Loan Agreement or under the other
Loan Documents, Mortgagor shall not cause or suffer to occur or exist, directly
or indirectly, voluntarily or involuntarily, by operation of law or otherwise,
any sale, transfer, mortgage, pledge, lien or encumbrance (other than Permitted
Encumbrances) (collectively, “
Transfers
”) of (i)
all or any part of the Mortgaged Property or any interest therein, or (ii) any
direct or indirect beneficial ownership interest (in whole or in part) in
Mortgagor, irrespective of the number of tiers of ownership, without the prior
written consent of Mortgagee.
(b)
The
occurrence of any Transfer in violation of this Section 9 shall constitute an
Event of Default hereunder, whereupon Mortgagee at its option, without being
required to demonstrate any actual impairment of its security or any increased
risk of default hereunder, may declare the Debt immediately due and payable.
(c)
Mortgagee’s
consent to any Transfer of the Mortgaged Property or any interest in Mortgagor
shall not be deemed to be a waiver of Mortgagee’s right to require such consent
to any future occurrence of same. Any attempted or purported Transfer of the
Mortgaged Property or of any direct or indirect interest in Mortgagor, if made
in contravention of this Section 9, shall be null and void and of no force and
effect.
10.
Taxes on Security;
Documentary Stamps; Intangibles Tax.
(a)
Mortgagor shall pay all taxes, charges, filing, registration and recording fees,
excises and levies payable with respect to the Note, this Mortgage or the liens
created or secured by the Loan Documents, other than income, franchise and doing
business taxes imposed on Mortgagee. If there shall be enacted any law
(i) deducting the Loan from the value of the Mortgaged Property for the
purpose of taxation, (ii) affecting any lien on the Mortgaged Property, or
(iii) changing existing laws of taxation of mortgages, deeds of trust, security
deeds, or debts secured by real property, or changing the manner of collecting
any such taxes, Mortgagor shall promptly pay to Mortgagee, on demand, all taxes,
costs and charges for which Mortgagee is or may be liable as a result thereof;
however, if such payment would be prohibited by law or would render the Loan
usurious, then instead of collecting such payment, Mortgagee may declare all
amounts owing under the Loan Documents to be immediately due and payable.
(b)
If at any
time the United States of America, any State thereof or any subdivision of any
such State shall require revenue or other stamps to be affixed to the Note or
this Mortgage, or impose any other tax or charge on the same, Mortgagor will pay
for the same, with interest and penalties thereon, if any. Mortgagor hereby
agrees that, in the event that it is determined that additional documentary
stamp tax or intangible tax is due hereon or any mortgage or promissory note
executed in connection herewith (including, without limitation, the Note),
Mortgagor shall indemnify and hold harmless Mortgagee for all such documentary
stamp tax and/or intangible tax, including all penalties and interest assessed
or charged in connection therewith. Mortgagor shall pay same within ten (10)
days after demand of payment from Mortgagee and the payment of such sums shall
be secured by this Mortgage and such sums shall bear interest at the Default
Rate (as defined in the Note) from and after the eleventh (11
th
) day
after demand until paid in full.
(c)
Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage.
11.
No Credits on Account of the
Debt.
Mortgagor will not claim or demand or be entitled to any credit or credits on
account of the Debt for any part of the Impositions assessed against the
Mortgaged Property, or any part thereof, and no deduction shall otherwise be
made or claimed from the assessed value of the Mortgaged Property, or any part
thereof, for real estate tax purposes by reason of this Mortgage or the Debt. In
the event such claim, credit or deduction shall be required by law, Mortgagee
shall have the option, by written notice of not less than ninety (90) days, to
declare the Debt immediately due and payable.
12.
Performance of Other
Agreements.
Mortgagor shall duly and punctually observe and perform each and every material
term, provision, condition, and covenant to be observed or performed by
Mortgagor pursuant to the terms of any agreement or recorded instrument
(including all instruments comprising the Permitted Encumbrances) affecting or
pertaining to the Mortgaged Property, and will not suffer or permit any default
or event of default (after giving effect to any applicable notice requirements
and cure periods) to exist under any of the foregoing.
13.
Further Acts; Secondary
Market Transactions.
(a)
Mortgagor will, at its sole cost and expense, and without expense to Mortgagee,
do, execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, mortgages, assignments, notices of assignment, Uniform Commercial
Code financing statements or continuation statements, transfers and assurances
as Mortgagee shall, from time to time, reasonably require, for the better
assuring, conveying, assigning, transferring, and confirming unto Mortgagee the
property and rights hereby mortgaged, given, granted, bargained, sold,
alienated, enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated or
intended now or hereafter so to be, or which Mortgagor may be or may hereafter
become bound to convey or assign to Mortgagee, or for carrying out the intention
or facilitating the performance of the terms of this Mortgage or for filing,
registering or recording this Mortgage. Mortgagor, on demand, will execute and
deliver and, upon Mortgagor’s failure to do so within five (5) Business Days
after Mortgagee’s request therefor, hereby authorizes Mortgagee to execute in
the name of Mortgagor or without the signature of Mortgagor to the extent
Mortgagee may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Mortgagee in the Mortgaged Property. Upon foreclosure or the
appointment of a receiver, Mortgagor will, at its sole cost and expense,
cooperate fully and completely to effect the assignment or transfer of any
license, permit, agreement or any other right necessary or useful to the
operation of the Mortgaged Property. Mortgagor grants to Mortgagee an
irrevocable power of attorney coupled with an interest for the purpose of
exercising and perfecting any and all rights and remedies available to Mortgagee
at law and in equity, including, without limitation, such rights and remedies
available to Mortgagee pursuant to this Section.
(b)
Subject
to the terms and conditions set forth in the Loan Agreement, Mortgagee shall
have the right to engage in one or more Secondary Market Transactions and, in
connection therewith, Mortgagee may transfer its obligations under this
Mortgage, the Note, the Loan Agreement and under the other Loan Documents (or
may transfer the portion thereof corresponding to the transferred portion of the
Obligations), and thereafter Mortgagee shall be relieved of any obligations
hereunder and under the other Loan Documents arising after the date of said
transfer with respect to the transferred interest.
14.
Recording of Mortgage,
Etc.
Upon the
execution and delivery of this Mortgage and thereafter, from time to time,
Mortgagor will cause this Mortgage, and any security instrument creating a lien
or security interest or evidencing the lien hereof upon the Mortgaged Property
and each instrument of further assurance to be filed, registered or recorded in
such manner and in such places as may be required by any present or future law
in order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property. Mortgagor
will pay all filing, registration or recording fees, and all expenses incident
to the preparation, execution and acknowledgment of this Mortgage, any mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property and any instrument of further assurance, and all federal, state, county
and municipal, taxes, duties, imposts, assessments and charges arising out of or
in connection with the execution and delivery of this Mortgage, any mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance, except where prohibited by law
so to do.
15.
Reporting
Requirements.
Mortgagor agrees to give prompt notice to Mortgagee of the insolvency or
bankruptcy filing of Mortgagor or the death, insolvency or bankruptcy filing of
any Guarantor.
16.
Intentionally
Deleted
.
17.
Remedies.
Upon the
occurrence and during the continuance of an Event of Default, Mortgagee may, at
Mortgagee’s option, by Mortgagee itself, or otherwise, invoke the power of sale
and immediately exercise or pursue or cause to be exercised or pursued any or
all of the rights and remedies contained in this Mortgage and in any other Loan
Document or otherwise available at law or in equity including the right to do
any one or more of the following:
(a)
Right to Perform Mortgagor’s
Covenants
. If
Mortgagor has failed to keep or perform any covenant whatsoever contained in
this Mortgage or the other Loan Documents, Mortgagee may, but shall not be
obligated to do so, perform or attempt to perform said covenant; and any payment
made or expense incurred in the performance or attempted performance of any such
covenant, together with any sum expended by Mortgagee that is chargeable to
Mortgagor or subject to reimbursement by Mortgagor under the Loan Documents,
shall be and become a part of the Debt, and Mortgagor promises, upon demand, to
pay to Mortgagee, at the place where the Note is payable, all sums so incurred,
paid or expended by Mortgagee, with interest from the date when paid, incurred
or expended by Mortgagee at the Default Rate (as defined in the
Note).
(b)
Right of
Entry
. Subject
to any applicable law, the license granted to Mortgagor under Section 45 below
shall automatically be revoked and Mortgagee may, prior or subsequent to the
institution of any foreclosure proceedings, enter upon the Mortgaged Property,
or any part thereof, and take exclusive possession of the Mortgaged Property and
of all books, records, and accounts relating thereto and to exercise without
interference from Mortgagor any and all rights which Mortgagor has with respect
to the management, possession, operation, protection, or preservation of the
Mortgaged Property, including, without limitation, the right to rent the same
for the account of Mortgagor and to deduct from such Rents all costs, expenses,
and liabilities of every character incurred by the Mortgagee in collecting such
Rents and in managing, operating, maintaining, protecting, or preserving the
Mortgaged Property and to apply the remainder of such Rents on the Debt in such
manner as Mortgagee may elect. All such costs, expenses, and liabilities
incurred by Mortgagee in collecting such Rents and in managing, operating,
maintaining, protecting, or preserving the Mortgaged Property, if not paid out
of Rents as hereinabove provided, shall constitute a demand obligation owing by
Mortgagor and shall bear interest from the date of expenditure until paid at the
Default Rate as specified in the Note, all of which shall constitute a portion
of the Debt. If Mortgagee elects to enter the Mortgaged Property as provided for
herein, Mortgagee may invoke any and all legal remedies to dispossess Mortgagor,
including specifically one or more actions for forcible entry and detainer,
trespass to try title, and restitution. In connection with any action taken by
the Mortgagee pursuant to this subsection, Mortgagee shall not be liable for any
loss sustained by Mortgagor resulting from any failure to let the Mortgaged
Property, or any part thereof, or from any other act or omission of Mortgagee in
managing the Mortgaged Property unless such loss is caused by the willful
misconduct or gross negligence of Mortgagee, its agents, employees or officers,
nor shall Mortgagee be obligated to perform or discharge any obligation, duty,
or liability under any Lease or under or by reason hereof or the exercise of
rights or remedies hereunder. Mortgagor shall and does hereby agree to
indemnify, defend and hold harmless the Indemnified Parties (as defined in
Section 23 below) from and against, any and all liability, claim, demand,
loss, damage, cost or expense (including, without limitation, reasonable
attorneys’ fees and disbursements) which may or might be suffered or incurred by
any Indemnified Party under any such Lease or under or by reason hereof or the
exercise of rights or remedies hereunder, or by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants, or agreements contained in any such Lease as and to the extent
provided under Section 23 below. Nothing in this subsection shall impose any
duty, obligation, or responsibility upon any Indemnified Party for the control,
care, management, leasing, or repair of the Mortgaged Property, nor for the
carrying out of any of the terms and conditions of any such Lease prior to the
transfer of title to the Mortgaged Property to any Indemnified Party by
foreclosure, deed-in-lieu thereof, exercise of power of sale or otherwise.
Mortgagor hereby assents to, ratifies, and confirms any and all actions of the
Mortgagee with respect to the Mortgaged Property taken under this
subsection.
(c)
Right to
Accelerate
.
Mortgagee may, without notice or demand, declare the entire unpaid balance of
the Debt immediately due and payable.
(d)
Mortgagee’s Judicial
Remedies
.
Mortgagee may proceed by suit or suits, at law or in equity, to enforce the
payment of the Debt to foreclose the liens and security interests of this
Mortgage as against all or any part of the Mortgaged Property, and to have all
or any part of the Mortgaged Property sold under the judgment or decree of a
court of competent jurisdiction. This remedy shall be cumulative of any other
nonjudicial remedies available to the Mortgagee under this Mortgage or the other
Loan Documents. Proceeding with a request or receiving a judgment for legal
relief shall not be or be deemed to be an election of remedies or bar any
available nonjudicial remedy of the Mortgagee.
(e)
Mortgagee’s Right to
Appointment of Receiver
.
Mortgagee, as a matter of right and (i) without regard to the sufficiency
of the security for repayment of the Debt and without notice to Mortgagor,
(ii) without any showing of insolvency, fraud, or mismanagement on the part
of Mortgagor, (iii) without the necessity of filing any judicial or other
proceeding other than the proceeding for appointment of a receiver, and
(iv) without regard to the then value of the Mortgaged Property, shall be
entitled to the appointment of a receiver or receivers for the protection,
possession, control, management and operation of the Mortgaged Property,
including (without limitation), the power to collect the Rents, enforce this
Mortgage and, in case of a sale and deficiency, during the full statutory period
of redemption (if any), whether there be a redemption or not, as well as during
any further times when Mortgagor, except for the intervention of such receiver,
would be entitled to collection of such Rents. Mortgagor hereby irrevocably
consents to the appointment of a receiver or receivers. Any receiver appointed
pursuant to the provisions of this subsection shall have the usual powers and
duties of receivers in such matters.
(f)
Mortgagee’s Uniform
Commercial Code Remedies
.
Mortgagee may exercise its rights of enforcement under the Uniform Commercial
Code in effect in the state in which the Mortgaged Property is
located.
(g)
Sale of Mortgaged
Property
. Sell
for cash or upon credit the Mortgaged Property or any part thereof and all
estate, claim, demand, right, title and interest of Mortgagor therein and rights
of redemption thereof, pursuant to the power of sale contained herein or
otherwise, at one or more sales, as an entirety or in parcels, at such time and
place, upon such terms and after such notice thereof as may be required or
permitted by law.
(h)
Other
Rights
.
Mortgagee (i) may surrender the insurance policies maintained pursuant to the
Loan Agreement or any part thereof, and upon receipt of the proceeds shall apply
the unearned Insurance Premiums as a credit on the Debt, and, in connection
therewith, Mortgagor hereby appoints Mortgagee as agent and attorney-in-fact
(which is coupled with an interest and is therefore irrevocable) for Mortgagor
to collect such Insurance Premiums; (ii) may apply the Impositions and Insurance
Reserve and/or any other Reserves held pursuant to this Mortgage or the other
Loan Documents, and any other funds held by Mortgagee toward payment of the
Debt; and (iii) shall have and may exercise any and all other rights and
remedies which Mortgagee may have at law or in equity, or by virtue of any of
the Loan Documents, or otherwise.
(i)
Discontinuance of
Remedies
. If
Mortgagee shall have proceeded to invoke any right, remedy, or recourse
permitted under the Loan Documents and shall thereafter elect to discontinue or
abandon same for any reason, Mortgagee shall have the unqualified right so to do
and, in such event, Mortgagor and Mortgagee shall be restored to their former
positions with respect to the Debt, the Loan Documents, the Mortgaged Property
or otherwise, and the rights, remedies, recourses and powers of Mortgagee shall
continue as if same had never been invoked.
(j)
Remedies
Cumulative
. All
rights, remedies, and recourses of Mortgagee granted in the Note, this Mortgage,
the Loan Agreement and the other Loan Documents, any other pledge of collateral,
or otherwise available at law or equity: (i) shall be cumulative; (ii) may be
pursued separately, successively, or concurrently against Mortgagor, the
Mortgaged Property, or any one or more of them, at such time and in such order
as Mortgagee may determine in its sole discretion; (iii) may be exercised as
often as occasion therefor shall arise, it being agreed by Mortgagor that the
exercise or failure to exercise any of same shall in no event be construed as a
waiver or release thereof or of any other right, remedy, or recourse; (iv) shall
be nonexclusive of any other right, power or remedy which Mortgagee may have
against Mortgagor pursuant to this Mortgage, the Loan Agreement or the other
Loan Documents, or otherwise available at law or in equity; (v) shall not be
conditioned upon Mortgagee exercising or pursuing any remedy in relation to the
Mortgaged Property prior to Mortgagee bringing suit to recover the Debt; and
(vi) in the event Mortgagee elects to bring suit on the Debt and obtains a
judgment against Mortgagor prior to exercising any remedies in relation to the
Mortgaged Property, all liens and security interests, including the lien of this
Mortgage, shall remain in full force and effect and may be exercised thereafter
at Mortgagee’s option.
(k)
Election of
Remedies
.
Mortgagee may release, regardless of consideration, any part of the Mortgaged
Property without, as to the remainder, in any way impairing, affecting,
subordinating, or releasing the lien or security interests evidenced by this
Mortgage or the other Loan Documents or affecting the obligations of Mortgagor
or any other party to pay the Debt. For payment of the Debt, Mortgagee may
resort to any collateral securing the payment of the Debt in such order and
manner as Mortgagee may elect. No collateral taken by Mortgagee shall in any
manner impair or affect the lien or security interests given pursuant to the
Loan Documents, and all collateral shall be taken, considered, and held as
cumulative.
(l)
Bankruptcy
Acknowledgment
. If the
Mortgaged Property or any portion thereof or any interest therein becomes
property of any bankruptcy estate or subject to any state or federal insolvency
proceeding, or in the event of the filing of any voluntary or involuntary
petition under the Bankruptcy Code by or against Mortgagor then Mortgagee shall
immediately become entitled, in addition to all other relief to which Mortgagee
may be entitled under this Mortgage, to obtain (i) an order from any
bankruptcy court or other appropriate court granting immediate relief from the
automatic stay pursuant to § 362 of the Bankruptcy Code so as to permit
Mortgagee to pursue its rights and remedies against Mortgagor as provided under
this Mortgage and all other rights and remedies of Mortgagee at law and in
equity under applicable state law, and (ii) an order from the Bankruptcy
Court prohibiting Mortgagor’s use of all “cash collateral” as defined under
§ 363 of the Bankruptcy Code. Mortgagor shall not assert or request any
other party to assert, that the automatic stay under § 362 of the
Bankruptcy Code operate or be interpreted to stay, interdict, condition, reduce
or inhibit the ability of Mortgagee to enforce any rights it has by virtue of
this Mortgage, or any other rights that Mortgagee has, whether now or hereafter
acquired, against any guarantor of the Debt. Mortgagor shall not seek a
supplemental stay or any other relief, whether injunctive or otherwise, pursuant
to § 105 of the Bankruptcy Code or any other provision therein to stay,
interdict, condition, reduce or inhibit the ability of Mortgagee to enforce any
rights it has by virtue of this Mortgage against any guarantor of the Debt. Any
bankruptcy petition or other action taken by Mortgagor to stay, condition, or
inhibit Mortgagee from exercising its remedies are hereby admitted by Mortgagor
to be in bad faith and Mortgagor further admits that Mortgagee would have just
cause for relief from the automatic stay in order to take such actions
authorized under state law.
(m)
Application of
Proceeds
. The
proceeds from any sale, lease, or other disposition made pursuant to this
Mortgage, or the proceeds from the surrender of any insurance policies pursuant
hereto, or any Rents collected by Mortgagee from the Mortgaged Property or the
Impositions and Insurance Reserve or other Reserves under the Loan Agreement or
sums received pursuant to Section 6 hereof, or proceeds from insurance
which Mortgagee elects to apply to the Debt pursuant to Section 3 hereof,
shall be applied by Mortgagee to the Debt in such order, priority and
proportions as Mortgagee in its sole discretion shall determine.
18.
Security
Agreement.
This
Mortgage is both a real property mortgage and a “security agreement” within the
meaning of the Uniform Commercial Code. The Mortgaged Property includes both
real and personal property and all other rights and interests, whether tangible
or intangible in nature, of Mortgagor in the Mortgaged Property. Mortgagor by
executing and delivering this Mortgage has granted and hereby grants to
Mortgagee, as security for the Debt, a security interest in the Mortgaged
Property to the full extent that the Mortgaged Property may be subject to the
Uniform Commercial Code (said portion of the Mortgaged Property so subject to
the Uniform Commercial Code being called in this Section 18 the “
Collateral
”).
Mortgagor hereby agrees to execute and deliver to Mortgagee, in form and
substance reasonably satisfactory to Mortgagee, such financing statements and
such further assurances as Mortgagee may from time to time reasonably consider
necessary to create, perfect, and preserve Mortgagee’s security interest herein
granted. This Mortgage shall also constitute a “fixture filing” for the purposes
of the Uniform Commercial Code as to all or any part of the Mortgaged Property
which now or hereafter constitute “fixtures” under the Uniform Commercial Code.
Information concerning the security interest herein granted may be obtained from
the parties at the addresses of the parties set forth in the first paragraph of
this Mortgage. If an Event of Default shall occur, Mortgagee, in addition to any
other rights and remedies which it may have, shall have and may exercise
immediately and without demand, any and all rights and remedies granted to a
secured party upon default under the Uniform Commercial Code, including, without
limiting the generality of the foregoing, the right to take possession of the
Collateral or any part thereof, and to take such other measures as Mortgagee may
deem necessary for the care, protection and preservation of the Collateral. Upon
request or demand of Mortgagee, Mortgagor shall at its expense assemble the
Collateral and make it available to Mortgagee at a convenient place acceptable
to Mortgagee. Mortgagor shall pay to Mortgagee on demand any and all expenses,
including legal expenses and attorneys’ fees, incurred or paid by Mortgagee in
protecting the interest in the Collateral and in enforcing the rights hereunder
with respect to the Collateral. Any notice of sale, disposition or other
intended action by Mortgagee with respect to the Collateral sent to Mortgagor in
accordance with the provisions hereof at least five (5) days prior to such
action, shall constitute commercially reasonable notice to Mortgagor. The
proceeds of any disposition of the Collateral, or any part thereof, may be
applied by Mortgagee to the payment of the Debt in such priority and proportions
as Mortgagee in its discretion shall deem proper. In the event of any change in
name, identity or structure of any Mortgagor, such Mortgagor shall notify
Mortgagee thereof and promptly after Mortgagee’s request shall execute, file and
record such Uniform Commercial Code forms as are necessary to maintain the
priority of Mortgagee’s lien upon and security interest in the Collateral, and
shall pay all expenses and fees in connection with the filing and recording
thereof. If Mortgagee shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Mortgagor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Mortgagee shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
increase Mortgagor’s obligations under the Note, this Mortgage and the other
Loan Documents. Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact, coupled with an interest upon Mortgagor’s failure to do so
within five (5) Business Days after request by Mortgagee, to file with the
appropriate public office on its behalf any financing or other statements signed
only by Mortgagee, as Mortgagor’s attorney-in-fact, in connection with the
Collateral covered by this Mortgage. Notwithstanding the foregoing, Mortgagor
shall appear and defend in any action or proceeding which affects or purports to
affect the Mortgaged Property and any interest or right therein, whether such
proceeding affects title or any other rights in the Mortgaged Property (and in
conjunction therewith, Mortgagor shall fully cooperate with Mortgagee in the
event Mortgagee is a party to such action or proceeding).
19.
Actions and
Proceedings.
Upon the
occurrence and during the continuance of an Event of Default, Mortgagee has the
right to appear in and defend any action or proceeding brought with respect to
the Mortgaged Property and to bring any action or proceeding, in the name and on
behalf of Mortgagor, which Mortgagee, in its discretion, decides should be
brought to protect its interest in the Mortgaged Property. Mortgagee shall, at
its option, be subrogated to the lien of any mortgage or other security
instrument discharged in whole or in part by the Debt, and any such subrogation
rights shall constitute additional security for the payment of the
Debt.
20.
Waiver of Setoff and
Counterclaim, Marshalling, Statute of Limitations, Automatic or Supplemental
Stay, Etc.
(a)
All
amounts due under this Mortgage, the Note and the other Loan Documents shall be
payable without setoff, counterclaim or any deduction whatsoever. Mortgagor
hereby waives the right to assert a setoff, counterclaim or deduction in any
action or proceeding in which Mortgagee is a participant, or arising out of or
in any way connected with this Mortgage, the Note, any of the other Loan
Documents, or the Debt.
(b)
Mortgagor
hereby expressly, irrevocably, and unconditionally waives and releases, to the
extent permitted by law (i) the benefit of all appraisement, valuation, stay,
extension, reinstatement and redemption laws now or hereafter in force and all
rights of marshalling, sale in the inverse order of alienation, or any other
right to direct in any manner the order or sale of any of the Mortgaged Property
in the event of any sale hereunder of the Mortgaged Property or any part thereof
or any interest therein; (ii) any and all rights of redemption from sale under
any order or decree of foreclosure of this Mortgage on behalf of Mortgagor, and
on behalf of each and every person acquiring any interest in or title to the
Mortgaged Property subsequent to the date of this Mortgage and on behalf of all
persons to the extent permitted by applicable law; and (iii) all benefits that
might accrue to Mortgagor by virtue of any present or future law exempting the
Mortgaged Property from attachment, levy or sale on execution or providing for
any appraisement, valuation, stay of execution, exemption from civil process,
redemption, or extension of time for payment. Mortgagee shall not be under any
obligation to marshal any assets in favor of any Person or against or in payment
of any or all of the Obligations.
(c)
To the
extent permitted by applicable law, Mortgagee’s rights hereunder shall continue
even to the extent that a suit for collection of the Debt, or part thereof, is
barred by a statute of limitations. Mortgagor hereby expressly waives and
releases to the fullest extent permitted by law, the pleading of any statute of
limitations as a defense to payment of the Debt.
21.
Recovery of Sums Required to
Be Paid.
Mortgagee shall have the right from time to time to take action to recover any
sum or sums which constitute a part of the Debt as the same become due, without
regard to whether or not the balance of the Debt shall be due, and without
prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
22.
Handicapped
Access.
(a)
Mortgagor
agrees that the Mortgaged Property shall at all times comply in all material
respects with applicable requirements of the Americans with Disabilities Act of
1990, the Fair Housing Amendments Act of 1988, all state and local laws and
ordinances related to handicapped access and all rules, regulations, and orders
issued pursuant thereto including, without limitation, the Americans with
Disabilities Act Accessibility Guidelines for Buildings and Facilities
(collectively “
Access
Laws
”).
(b)
Mortgagor
agrees to give prompt notice to Mortgagee of the receipt by Mortgagor of any
complaints related to violation of any Access Laws and of the commencement of
any proceedings or investigations which relate to compliance with applicable
Access Laws but only to the extent that such complaints, proceedings or
investigations, if adversely determined, could have a Material Adverse
Effect.
23.
Indemnification
. In
addition to the payment of expenses as required elsewhere herein and in the
other Loan Documents, Mortgagor agrees to indemnify, defend, protect, pay and
hold Mortgagee, its successors and assigns (including, without limitation, the
trustee and/or the trust under any trust agreement executed in connection with
any Securitization backed in whole or in part by the Loan and any other person
which may hereafter be the holder of the Note or any interest therein), and the
officers, directors, stockholders, partners, members, employees, agents, and
Affiliates of Mortgagee and such successors and assigns (collectively, the
“
Indemnified
Parties
”)
harmless from and against any and all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation
reasonable attorneys’ fees and expenses) (collectively, the “
Indemnified
Claims
”),
imposed upon or incurred by or asserted against any Indemnified Party by reason
of any of the following (to the extent that insurance proceeds paid to the
applicable Indemnified Party on account of the following shall be inadequate):
(i) ownership of the Mortgage, the Mortgaged Property or any interest therein or
receipt of any rents; (ii) any accident, injury to or death of persons or loss
of or damage to property occurring in, on or about the Mortgaged Property or any
part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (iii) any use, nonuse or condition in, on or
about the Mortgaged Property or any part thereof or on the adjoining sidewalks,
curbs, adjacent property or adjacent parking areas, streets or ways;
(iv) performance of any labor or services or the furnishing of any
materials or other property in respect of the Mortgaged Property or any part
thereof; (v) any failure of the Premises or the Improvements to comply with any
applicable law, statute, code, ordinance, rule or regulation; (vi) any Event of
Default by Mortgagor under this Mortgage, the Loan Agreement or any other Loan
Documents; (vii) any actions taken by any Indemnified Party in the
enforcement of this Mortgage and the other Loan Documents in accordance with
their respective terms; (viii) any failure to act on the part of any
Indemnified Party hereunder; (ix) any representation or warranty made in the
Note, this Mortgage or any of the other Loan Documents being false or misleading
in any material respect as of the date such representation or warranty was made;
(x) any claim by brokers, finders or similar persons claiming to be entitled to
a commission in connection with any Lease or other transaction involving the
Mortgaged Property or any part thereof under any legal requirement or any
liability asserted against Mortgagee with respect thereto; and (xi) the claims
of any lessee of any or any portion of the Mortgaged Property or any person
acting through or under any lessee or otherwise arising under or as a
consequence of any Lease. Notwithstanding the foregoing, Mortgagor shall not be
liable for any Indemnified Claims arising (A) from the gross negligence or
willful misconduct of any Indemnified Party or (B) under clauses (i) - (v) above
to the extent the facts, events or circumstances giving rise to such Indemnified
Claim arise after the date that any Indemnified Party takes possession of or
title to the Mortgaged Property by foreclosure, deed-in-lieu thereof, the
exercise of any power of sale or otherwise. Any amounts payable to an
Indemnified Party by reason of the application of this Section 23 shall be
secured by this Mortgage shall become immediately due and payable and shall bear
interest at the Default Rate from the date loss or damage is sustained by such
Indemnified Party until paid. The obligations and liabilities of Mortgagor under
this paragraph shall survive the termination, satisfaction, or assignment of
this Mortgage and the exercise by Mortgagee of any of its rights or remedies
hereunder, including, but not limited to, the acquisition of the Mortgaged
Property by foreclosure or a conveyance in lieu of foreclosure.
24.
Notices.
Any
notice, demand, statement, request or consent made hereunder shall be in
writing, addressed to the intended recipient at its address set forth in the
Loan Agreement, and shall be made and deemed given in accordance with the terms
of the Loan Agreement.
25.
Authority.
(a)
Mortgagor (and the undersigned representative of Mortgagor, if any) has full
power, authority and right to execute, deliver and perform its obligations
pursuant to this Mortgage, and to mortgage, give, grant, bargain, sell, alien,
enfeoff, convey, confirm, warrant, pledge, hypothecate and assign the Mortgaged
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Mortgage on Mortgagor’s part to be performed; and (b) Mortgagor
represents and warrants that Mortgagor is not a “foreign person” within the
meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended
and the related Treasury Department regulations.
26.
Waiver of
Notice.
Mortgagor shall not be entitled to any notices of any nature whatsoever from
Mortgagee except with respect to matters for which this Mortgage or the Loan
Agreement specifically and expressly provides for the giving of notice by
Mortgagee to Mortgagor and except with respect to matters for which Mortgagee is
required by applicable law to give notice, and Mortgagor hereby expressly waives
the right to receive any notice from Mortgagee with respect to any matter for
which this Mortgage or the Loan Agreement do not specifically and expressly
provide for the giving of notice by Mortgagee to Mortgagor.
27.
Remedies of
Mortgagor.
In the
event that a claim or adjudication is made that Mortgagee has acted unreasonably
or unreasonably delayed acting in any case where by law or under the Note, this
Mortgage or the other Loan Documents, it has an obligation to act reasonably or
promptly, Mortgagee shall not be liable for any monetary damages, and
Mortgagor’s remedies shall be limited to injunctive relief or declaratory
judgment.
28.
Sole Discretion of
Mortgagee.
Whenever
pursuant to this Mortgage or the other Loan Documents, Mortgagee exercises any
right given to it to consent, approve or disapprove, or any arrangement or term
is to be satisfactory to Mortgagee, the decision of Mortgagee to consent,
approve or disapprove, or to decide that arrangements or terms are satisfactory
or not satisfactory shall be in the sole discretion of Mortgagee and shall be
final and conclusive, except as may be otherwise expressly and specifically
provided herein. Notwithstanding anything to the contrary contained herein, it
shall be understood and agreed that any such consent, approval, or disapproval
may be conditioned, among other things, upon Mortgagee obtaining confirmation by
the Rating Agencies that the action or other matter subject to Mortgagee’s
consent, approval, or disapproval shall not adversely affect the rating of any
securities issued or to be issued in connection with any Secondary Market
Transaction, notwithstanding that such condition may not be expressly set forth
in the provision or provisions of the Loan Documents which require that
Mortgagee’s consent be obtained.
29.
Non-Waiver.
The
failure of Mortgagee to insist upon strict performance of any term hereof shall
not be deemed to be a waiver of any term of this Mortgage. Mortgagor shall not
be relieved of Mortgagor’s obligations hereunder by reason of (a) the failure of
Mortgagee to comply with any request of Mortgagor or Guarantor to take any
action to foreclose this Mortgage or otherwise enforce any of the provisions
hereof or of the Note or other Loan Documents, (b) the release, regardless of
consideration, of the whole or any part of the Mortgaged Property, or of any
person liable for the Debt or any portion thereof, or (c) any agreement or
stipulation by Mortgagee extending the time of payment or otherwise modifying or
supplementing the terms of the Note, this Mortgage, or the other Loan Documents.
Mortgagee may resort for the payment of the Debt to any other security held by
Mortgagee in such order and manner as Mortgagee, in its discretion, may elect.
Mortgagee may take action to recover the Debt, or any portion thereof, or to
enforce any covenant hereof without prejudice to the right of Mortgagee
thereafter to foreclosure this Mortgage. The rights and remedies of Mortgagee
under this Mortgage shall be separate, distinct and cumulative and none shall be
given effect to the exclusion of the others. No act of Mortgagee shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Mortgagee shall not be limited exclusively to
the rights and remedies herein stated but shall be entitled to every right and
remedy now or hereafter afforded at law or in equity.
30.
Liability.
Subject
to the provisions hereof requiring Mortgagee’s consent to any transfer of the
Mortgaged Property, this Mortgage shall be binding upon and inure to the benefit
of Mortgagor and Mortgagee and their respective successors and assigns
forever.
31.
Inapplicable
Provisions.
If any
term, covenant or condition of this Mortgage is held to be invalid, illegal or
unenforceable in any respect, this Mortgage shall be construed without such
provision.
32.
Headings,
Etc.
The
headings and captions of various Sections of this Mortgage are for convenience
of reference only and are not to be construed as defining or limiting, in any
way, the scope or intent of the provisions hereof.
33.
Counterparts.
This
Mortgage may be executed in any number of counterparts each of which shall be
deemed to be an original but all of which when taken together shall constitute
one agreement.
34.
Definitions.
Unless
the context clearly indicates a contrary intent or unless otherwise specifically
provided herein, words used in this Mortgage may be used interchangeably in
singular or plural form and the word “Mortgagor” shall mean “each Mortgagor and
any subsequent owner or owners of the Mortgaged Property or any part thereof or
any interest therein,” the word “Mortgagee” shall mean “Mortgagee and any
subsequent holder of the Note,” the word “Debt” shall mean “the Note and any
other evidence of indebtedness secured by this Mortgage,” the word “person”
shall include an individual, corporation, partnership, trust, unincorporated
association, government, governmental authority, and any other entity, and the
words “Mortgaged Property” shall include any portion of the Mortgaged Property
and any interest therein and the words “attorneys’ fees” shall include any and
all reasonable attorneys’ fees, paralegal and law clerk fees, including, but not
limited to, fees at the pre-trial, trial and appellate levels incurred or paid
by Mortgagee in protecting its interest in the Mortgaged Property and Collateral
and enforcing its rights hereunder. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
35.
Homestead.
Mortgagor hereby waives and renounces all homestead and exemption rights
provided by the constitution and the laws of the United States and of any state,
in and to the Mortgaged Property as against the collection of the Debt, or any
part hereof.
36.
Assignments.
Mortgagee shall have the right to assign or transfer its rights under this
Mortgage and the other Loan Documents without limitation, including, without
limitation, the right to assign or transfer its rights to a servicing agent. Any
assignee or transferee shall be entitled to all the benefits afforded Mortgagee
under this Mortgage and the other Loan Documents. Mortgagee agrees to provide
Mortgagor with notice of any such assignment; provided, however, that
Mortgagor’s consent shall not be required in connection with any such assignment
and no delay or failure by Mortgagee to provide such notice shall limit the
effectiveness of such assignment.
37.
Survival of Obligations;
Survival of Warranties and Representations.
Each and
all of the covenants, obligations, representations and warranties of Mortgagor
shall survive the execution and delivery of the Loan Documents and the transfer
or assignment of this Mortgage (including, without limitation, any transfer of
the Mortgage by Mortgagee of any of its rights, title and interest in and to the
Mortgaged Property to any party, whether or not affiliated with
Mortgagee).
38.
Covenants Running with the
Land.
All
covenants, conditions, warranties, representations and other obligations
contained in this Mortgage and the other Loan Documents are intended by
Mortgagor and Mortgagee to be, and shall be construed as, covenants running with
the Mortgaged Property until the lien of this Mortgage has been fully released
by Mortgagee, pursuant to the terms hereof.
39.
Governing Law;
Jurisdiction.
THIS
MORTGAGE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF NEW
YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL
TIMES THE PROVISIONS FOR THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS
AND SECURITY INTERESTS CREATED PURSUANT TO THIS MORTGAGE SHALL BE GOVERNED BY
THE LAWS OF THE STATE IN WHICH THE MORTGAGED PROPERTY IS LOCATED.
40.
Time of
Essence.
Time is
of the essence as to all of the terms, covenants and condition of this Mortgage
and the other Loan Documents.
41.
No Third-Party
Beneficiaries.
The
provisions of this Mortgage and the other Loan Documents are for the benefit of
Mortgagor and Mortgagee and shall not inure to the benefit of any third party
(other than any successor or assignee of Mortgagee or permitted assignee of
Mortgagor). This Mortgage and the other Loan Documents shall not be construed as
creating any rights, claims or causes of action against Mortgagee or any of its
officers, directors, agents or employees in favor of any party other than
Mortgagor including but not limited to any claims to any sums held in the
Impositions and Insurance Reserve or any other Reserves.
42.
Relationship of
Parties.
The
relationship of Mortgagee and Mortgagor is solely that of debtor and creditor,
and Mortgagee has no fiduciary or other special relationship with the Mortgagor,
and no term or condition of any of the Loan Documents shall be construed to be
other than that of debtor and creditor. Mortgagor represents and acknowledges
that neither the Loan Documents nor any course of dealing between the parties
creates any partnership or joint venture between Mortgagor and Mortgagee or any
other person, nor does it provide for any shared appreciation rights or other
equity participation interest.
43.
Successors and
Assigns
. This
Mortgage shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that Mortgagor may not
assign its rights or obligations hereunder except as expressly provided in
Section 9 hereof or as permitted under the Loan Agreement.
44.
Investigations.
Any and
all representations, warranties, covenants and agreements made in this Mortgage
(and/or in other Loan Documents) shall survive any investigation or inspection
made by or on behalf of Mortgagee.
45.
Assignment of
Leases.
Mortgagor acknowledges and confirms that it has executed and delivered to
Mortgagee the Assignment of Leases and Rents (the “
Assignment of
Leases
”)
intending that such instrument create a present, absolute assignment to
Mortgagee of the Leases and Rents. Without limiting the intended benefits or the
remedies provided under the Assignment of Leases, Mortgagor hereby assigns to
Mortgagee, as further security for the Debt and the Obligations, the Leases and
Rents. While any Event of Default exists, Mortgagee shall be entitled to
exercise any or all of the remedies provided in the Assignment of Leases and in
Section 17 hereof, including, without limitation, the right to have a
receiver appointed. If any conflict or inconsistency exists between the
assignment of the Leases and Rents in this Mortgage and the absolute assignment
of the Leases and the Rents in the Assignment of Leases, the terms of the
Assignment of Leases shall control. Nevertheless, subject to the terms of this
Section 45 and 17(b) hereof and the Loan Agreement, Lender grants to Mortgagor a
revocable license to collect and receive the Rents. For so long as an Event of
Default exists, Mortgagor shall hold the Rents, or a portion thereof sufficient
to discharge all current sums due on the Debt, for use in the payment of such
sums.
46.
Waiver of Right to Trial by
Jury.
EACH OF
MORTGAGOR AND MORTGAGEE HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS
MORTGAGE OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION
ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN
KNOWINGLY AND VOLUNTARILY BY EACH OF MORTGAGOR AND MORTGAGEE, AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED TO FILE A
COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY
MORTGAGOR.
47.
Expenses and Attorneys’
Fees.
Mortgagor agrees to promptly pay all reasonable fees, costs and expenses
incurred by Mortgagee in connection with any matters contemplated by or arising
out of this Mortgage and the other Loan Documents, including, without
limitation, reasonable fees, costs and expenses (including reasonable attorneys’
fees and fees of other professionals retained by Mortgagee) incurred in any
action to enforce this Mortgage or the other Loan Documents or to collect any
payments due from Mortgagor under this Mortgage, the Loan Agreement, the Note or
any other Loan Document or incurred in connection with any refinancing or
restructuring of the credit arrangements provided under this Mortgage incurred
in connection with a “workout” or in connection with any insolvency or
bankruptcy proceedings with respect to Mortgagor, and all such fees, costs and
expenses shall be part of the Obligations, payable on demand.
48.
Amendments and
Waivers
. Except
as otherwise provided herein, no amendment, modification, termination or waiver
of any provision of this Mortgage, the Note or any other Loan Document, or
consent to any departure therefrom, shall in any event be effective unless the
same shall be in writing and signed by Mortgagee and any other party to be
charged. Each amendment, modification, termination or waiver shall be effective
only in the specific instance and for the specific purpose for which it was
given. No notice to or demand on Mortgagor in any case shall entitle Mortgagor
to any other or further notice or demand in similar or other
circumstances.
49.
Servicer
.
Mortgagee shall have the right at any time throughout the term of the Loan to
designate or appoint one or more Servicers (as defined in the Loan Agreement) to
administer this Mortgage and the other Loan Documents, and to change or replace
any Servicer. All of Mortgagee’s rights under this Mortgage and the other Loan
Documents may be exercised by any such Servicer designated by Mortgagee. Any
such Servicer shall be entitled to the benefit of all obligations of Mortgagor
in favor of Mortgagee.
50.
Copy of
Mortgage
.
MORTGAGOR REPRESENTS AND WARRANTS THAT IT HAS RECEIVED A TRUE COPY OF THIS
MORTGAGE WITHOUT CHARGE.
51.
Limitation on
Recourse.
The
obligations of Mortgagor hereunder are subject to limitations on recourse as
provided in Article XII of the Loan Agreement.
52.
Satisfaction of
Mortgage.
Upon
payment of the Debt in full, Mortgagee, at Mortgagor’s sole cost and upon
Mortgagor’s request, shall execute and deliver to Mortgagor a satisfaction or
reconveyance of Mortgage, duly acknowledged and in recordable form, UCC-3
financing statements terminating any UCC-1 financing statements filed by
Mortgagee relating to the Mortgaged Property, and such other documents or
instruments as may be required to release the Lien of the Loan Documents from
the Mortgaged Property.
53.
Conflict
. The
terms and provisions of this Mortgage shall be construed to the extent possible
consistently with those of the Loan Agreement as being in addition to and
supplementing the provisions of the Loan Agreement and the other Loan Documents;
however, in the event that notwithstanding such construction there is an
irresolvable conflict between the provisions of this Mortgage and the provisions
of the Loan Agreement, the provisions of the Loan Agreement shall govern and
control.
54.
State Specific
Provisions
.
(a)
Inconsistencies
. In the
event of any inconsistencies between the terms and conditions of this Article 18
and the other provisions of this Mortgage, the terms and conditions of this
Article 18 shall control and be binding.
(b)
Special Michigan
Provisions
. The
following provisions shall also constitute an integral part of this Mortgage.
Furthermore, in the event that any prior provisions of this Mortgage conflict
with the following provisions of this Section, the provisions of this Section
shall control and shall be deemed a modification of or amendment to the section
or provision at issue.
(i)
Additional Provisions
Regarding Foreclosure by Power of Sale
.
Mortgagor acknowledges that, after the occurrence and during the continuance of
an Event of Default, Lender is authorized and empowered to sell the Mortgaged
Property or to cause the same to be sold, and to convey the same to the
purchaser in any lawful manner, including that provided by Chapter 32 of the
Revised Judicature Act of Michigan, entitled “Foreclosure of Mortgages by
Advertisement,” (the “Michigan Statute”) which permits Lender to sell the
Mortgaged Property without affording Mortgagor a hearing or giving Mortgagor
actual personal notice. The only notice required under such Chapter 32 is to
publish notice in a local newspaper and to post a copy of the notice at the
Mortgaged Property. In the event of a public sale, the Mortgaged Property, at
the option of the Lender, may be sold as one parcel. MORTGAGOR HEREBY WAIVES ALL
RIGHTS UNDER THE CONSTITUTION AND LAWS OF THE UNITED STATES AND THE STATE OF
MICHIGAN TO A HEARING PRIOR TO SALE IN CONNECTION WITH FORECLOSURE OF THIS
MORTGAGE BY ADVERTISEMENT AND ALL NOTICE REQUIREMENTS EXCEPT AS SET FORTH IN THE
MICHIGAN STATUTE.
(ii)
Lender’s Statutory Rights
Regarding Leases and Rents
. In
addition to all other rights of Mortgagor provided for herein or in any other
Loan Documents, Lender shall be entitled to all of the rights and benefits
conferred by Act 210 of the Michigan Public Acts of 1953 as amended (MCL
554.231, et seq.).
(iii)
Construction
Liens
. All
references in this Mortgage or in any of the other Loan Documents to mechanic’s
liens, or materialman’s liens, or similar liens shall be deemed to include
“construction liens” as defined in MCL 570.1103(3).
(iv)
Waste
. Subject
to the provisions of Section 3.6 hereof and the applicable provisions of the
Loan Agreement, if Mortgagor shall fail to pay any Impositions, the same shall
constitute waste as provided by MCL 600.2927. Mortgagor consents to the
appointment of a receiver under said statute if Lender elects to seek such
relief.
(v)
Future
Advances
. This
Mortgage secures future advances and is a future advance mortgage under Act No.
348 of the Michigan Public Acts of 1990 (MCL 565.901 et. seq.). All future
advances under the Note, this Mortgage and the other Loan Documents shall have
the same priority as if the future advance was made on the date that this
Mortgage was recorded.
55.
Contemporaneous
Mortgages.
THIS
MORTGAGE IS MADE CONTEMPORANEOUSLY WITH THE OTHER MORTGAGES DATED AS OF THE DATE
HEREOF GIVEN BY ADDITIONAL BORROWERS TO MORTGAGEE, COVERING PROPERTIES LOCATED
IN THE STATE OF MICHIGAN (the “
Other
Mortgages
”). The
Other Mortgages further secure the obligations of Mortgagor to Mortgagee under
the Note. Upon the occurrence of an Event of Default, Mortgagee may proceed
under this Mortgage and/or the Other Mortgages against any of such property
and/or the Mortgaged Property in one or more parcels and in such manner and
order as Mortgagee shall elect. Mortgagor hereby irrevocably waives and
releases, to the extent permitted by law, and whether now or hereafter in force,
any right to have the Mortgaged Property and/or the property covered by the
Other Mortgages marshalled upon any foreclosure of this Mortgage or the Other
Mortgages.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, Mortgagor has executed this instrument as of the day and year
first above written.
|
MORTGAGOR:
|
|
|
|
|
CARRIAGE HILL MI
LLC
,
a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP Michigan
Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
ACKNOWLEDGMENT
STATE OF
___________________
)
:
ss.:
COUNTY OF
_________________
):
The
foregoing instrument was acknowledged before me in the County of _____________,
State of ________________________ this _____ day of _________, 2006, by David
Lichtenstein, the President of LVP Michigan Multifamily Portfolio LLC, a
Delaware limited liability company, the Managing Member of Carriage Hill MI LLC,
a Delaware limited liability company.
Notary
Public, _____County,
______
Acting in
the County of ________, ______
My
commission expires:
This
instrument was prepared by
and
return when recorded to:
Sidley
Austin LLP
One S.
Dearborn St.
Chicago,
Illinois 60603
Attn:
Rebecca Janovsky, Esq.
Carriage
Hill Apartments
26322
Westphal Dr.
Dearborn
Heights, Michigan
EXHIBIT A
Legal Description of
Premises
Land
situated in the City of Dearborn Heights, County of Wayne, State of Michigan,
described as:
Part of
the Southeast ¼ of Section 18, Town 2 South, Range 10 East, City of Dearborn
Heights, Wayne County, Michigan, more particularly described as follows:
Beginning at a point (point of beginning 1) distant South 89 degrees 41 minutes
30 seconds East, 331.02 feet from the South ¼ corner of said Section 18;
proceeding thence North 00 degrees 14 minutes 51 seconds West, 667.76 feet;
thence South 89 degrees 34 minutes 40 seconds East, 704.80 feet; thence South 00
degrees 33 minutes 36 seconds East, 205.44 feet; thence South 27 degrees 38
minutes 28 seconds West, 190.41 feet; thence South 06 degrees 32 minutes 03
seconds West, 152.66 feet; thence South 00 degrees 18 minutes 30 seconds West,
140.00 feet; thence North 89 degrees 41 minutes 30 seconds West, 597.45 feet; to
the Point of Beginning (from Point of Beginning 1),
Excepting
the South 60 feet lying in Cherry Hill Road,
Also
Excepting therefrom that part in the Southeast ¼ of Section 18, Town 2 South,
Range 10 East, City of Dearborn, Wayne County, Michigan, described as:
Beginning
at a point (point of beginning 2) on the North line of Cherry Hill Road distant
South 89 degrees 41 minutes 30 seconds East, 463.86 feet and North 00 degrees 18
minutes 30 seconds East, 60.00 feet from the South ¼ corner of Section 18;
proceeding thence North 30 degrees 18 minutes 30 seconds East, 28.87 feet;
thence North 00 degrees 18 minutes 30 seconds East, 212.50 feet; thence on a
curve to the right radius 85.00 feet, central angle 90 degrees, arc distance
133.52 feet, chord North 45 degrees 18 minutes 30 seconds East, 120.21 feet;
thence South 89 degrees 41 minutes 30 seconds East, 133.00 feet; thence on a
curve to the right radius of 85.00 feet, central angle 90 degrees, arc distance
133.52 feet, chord South 44 degrees 41 minutes 30 seconds East, 120.21 feet;
thence South 00 degrees 18 minutes 30 seconds West, 212.50 feet; thence South 29
degrees 41 minutes 30 seconds East, 28.87 feet to a point on the North line of
Cherry Hill Road; thence North 89 degrees 41 minutes 30 seconds West, 88.86 feet
along said North line; thence North 30 degrees 18 minutes 30 seconds East, 28.87
feet; thence North 00 degrees 18 minutes 30 seconds East, 212.50 feet; thence on
a curve to the left radius 25.00 feet, central angle 90 degrees, arc distance
39.27 feet, chord North 44 degrees 41 minutes 30 seconds West, 35.36 feet;
thence North 89 degrees 41 minutes 30 seconds West, 133.00 feet; thence on a
curve to the left radius 25.00 feet, central angle 90 degrees, arc distance
39.27 feet, chord South 45 degrees 18 minutes 30 seconds West, 35.36 feet;
thence South 00 degrees 18 minutes 30 seconds West, 212.50 feet; thence South 29
degrees
41 minutes 30 seconds East, 28.87 feet to a point on the North line of Cherry
Hill Road; thence North 89 degrees 41 minutes 30 seconds West, along said North
line, 88.86 feet to the Point of Beginning (point of beginning 2).
Tax
Identification No.
:
|
33-034-99-0003-000
|
|
33-034-99-0004-000
|
EXHIBIT 10.16
ENVIRONMENTAL INDEMNITY
AGREEMENT
This
ENVIRONMENTAL INDEMNITY AGREEMENT (this “
Agreement
”) is
made as of June 30, 2006, by
SCOTSDALE MI LLC
(“
Scotsdale
”),
CARRIAGE PARK MI LLC
(“
Carriage
Park
”),
MACOMB MANOR MI
LLC
(“
Macomb
Manor
”), and
CARRIAGE HILL MI LLC
(“
Carriage
Hill
”),
each a
Delaware limited liability company, having its principal place of business c/o
Lightstone Holdings LLC, 326 Third Street, Lakewood, New Jersey 08701
(hereinafter collectively referred to as the “
Borrower
”;
references herein to the Borrower unless otherwise specifically stated, shall
also mean and refer to each and every one of Scotsdale, Carriage Park, Cherry
Hill, Macomb Manor and Carriage Hill, jointly and severally)
,
LIGHTSTONE HOLDINGS
LLC
, a
Delaware limited liability company, having an office at 326 Third Street,
Lakewood, New Jersey 08701 (“
Principal
”;
Borrower
and Principal, collectively, are referred to herein as “
Indemnitor
”), in
favor of
CITIGROUP GLOBAL MARKETS REALTY
CORP.
, a New
York corporation, having an office at
388
Greenwich Street, 19
th
Floor,
New York, New York 10013
(Citigroup Global Markets Realty Corp., in such capacity, together with its
successors and assigns, “
Lender
”).
Preliminary
Statement
WHEREAS,
Lender is prepared to make a loan (the “
Loan
”) to
Borrower in the principal amount of $52,000,000.00 pursuant to a Loan and
Security Agreement executed by Borrower and Lender of even date herewith (the
“
Loan
Agreement
”) to be
evidenced by that certain Promissory Note, dated of the date herein, made by
Borrower to Lender (the “
Note
”), and
secured by, among other things, those certain Mortgages dated the same date as
the Note from Borrower to Lender (collectively, the “
Instrument
”);
and
WHEREAS,
Borrower owns or has rights in all of the real properties and improvements to be
encumbered by each Instrument (individually, each a “
Property
” and
collectively, the “
Properties
”);
and
WHEREAS,
as a condition to making the Loan to Borrower, Lender requires Indemnitor to
provide certain indemnities concerning Hazardous Materials (as hereinafter
defined) and Asbestos (as hereinafter defined); and
WHEREAS,
Borrower and Principal will derive substantial benefits from Lender’s making the
Loan to Borrower; and
WHEREAS,
to induce Lender to consummate the above described transaction, Indemnitor has
agreed to enter into this Agreement;
NOW,
THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, Indemnitor
hereby represents, warrants and covenants to Lender as follows:
1. (a)
Indemnitor represents and warrants that there are no claims, liabilities,
investigations, litigation, or administrative proceedings pending or, to the
knowledge of Indemnitor, threatened, or judgments or orders relating to any
Hazardous Materials or Asbestos (collectively, “
Environmental
Claims
”)
asserted or, to Indemnitor’s knowledge, threatened in writing against Borrower
or relating to any of the Properties. Neither Borrower nor, to the knowledge of
Indemnitor after due inquiry, any other person or entity has caused or permitted
any Hazardous Materials or Asbestos to be used, generated, reclaimed,
transported, released, treated, stored or disposed of in a manner which could
form the basis for an Environmental Claim against Borrower or relating to any of
the Properties.
(b)
Indemnitor represents and warrants that, except as set forth in the
environmental report prepared for each of the Properties by Lender prior to the
date hereof and except for materials customarily used or stored in
connection
with the
ordinary course of operation and management of properties similar to any of the
Properties, which materials at any of the Properties exist only in reasonable
quantities and are stored, contained, transported, used, released, and disposed
of reasonably and without violation of any Hazardous Materials Law (as
hereinafter defined), to the knowledge of Indemnitor after due inquiry and
investigation, no Hazardous Materials or Asbestos are or were stored or
otherwise located, and no underground storage tanks or surface impoundments are
or were located, on any of the Properties or any other real property currently
or formerly owned, leased or operated by Borrower, and no part of such real
property, or to the knowledge of Indemnitor, no part of such adjacent parcels of
real property, including the groundwater located therein or thereunder, is
presently contaminated by Hazardous Materials or Asbestos.
(c)
Indemnitor represents and warrants that to its knowledge no owner or occupant of
any of the Properties, nor to its knowledge any prior owner or occupant of any
of the Properties, has received any notice or advice from any governmental
agency or any source whatsoever with respect to Hazardous Materials or Asbestos
on, from or affecting any of the Properties.
(d)
Indemnitor represents and warrants that Borrower has been and is currently in
compliance in all material respects with all applicable Hazardous Materials Law,
including obtaining and maintaining in effect all permits, licenses or other
authorizations required by applicable Hazardous Materials Law.
2.
(a) Indemnitor covenants that Indemnitor shall cause Borrower to at all times
comply with all applicable Hazardous Materials Law in all material respects and
shall ensure compliance by all occupants of any of the Properties with all
applicable Hazardous Materials Law in all material respects. Indemnitor shall
conduct and complete all investigations, studies, sampling, testing and all
remedial actions necessary to clean up and remove any Hazardous Materials and
Asbestos from any of the Properties in accordance with all applicable Hazardous
Materials Law. Indemnitor shall not: (i) violate any applicable Hazardous
Materials Law; or (ii) generate, use, transport, handle, store, release or
dispose of any Hazardous Materials or Asbestos in or into, on or onto, or from
any of the Properties (except in accordance with applicable law); or (iii)
permit any lien imposed pursuant to any Hazardous Materials Law to be imposed or
to remain on any of the Properties.
(b)
Indemnitor covenants that Indemnitor shall cause Borrower to promptly take and
diligently prosecute any and all reasonably necessary remedial actions upon
obtaining knowledge of the presence, storage, use, disposal, transportation,
active or passive migration, release or discharge of any Hazardous Materials or
Asbestos on, under or about any of the Properties in violation of any Hazardous
Materials Law. In the event Indemnitor undertakes any remedial action with
respect to any Hazardous Materials or Asbestos on, under or about any of the
Properties, Indemnitor shall conduct and complete such remedial action in
compliance with all applicable Hazardous Materials Law, and in accordance with
the applicable policies, orders and directives of all federal, state and local
governmental authorities.
(c)
Indemnitor covenants that if Lender at any time has a reasonable basis to
believe that a material violation of any Hazardous Materials Law related to any
of the Properties has occurred and is continuing or that a reasonable basis for
a material Environmental Claim affecting Borrower or related to any of the
Properties exists, then Indemnitor agrees, promptly after written request from
Lender, to provide Lender with such reports, certificates, engineering studies
or other written material or data as Lender may reasonably require so as to
satisfy Lender that Borrower and each of the Properties are in material
compliance with all applicable Hazardous Materials Law.
3.
(a) Indemnitor covenants and agrees, at its sole cost and expense, to
protect, defend, indemnify and hold Lender, its directors, officers,
shareholders, employees, agents, successors, assigns and attorneys harmless from
and against any and all losses (including diminution in the value of any of the
Properties), liabilities, obligations, claims, damages, penalties, causes of
action, fines, costs and expenses, including without limitation, litigation
costs (including, without limitation, attorney’s fees, expenses, sums paid in
settlement of claims and any such fees and expenses incurred in enforcing this
Agreement or collecting any sums due hereunder), other than those arising solely
from the willful misconduct or gross negligence of Lender (collectively, the
“
Indemnified
Claims
”),
directly or indirectly imposed upon or incurred by or asserted against Lender,
its directors, officers, shareholders, employees, agents, successors, assigns
and attorneys, whether as mortgagee, mortgagee in possession, successor in
interest to Indemnitor by foreclosure, exercise of power of sale, acceptance of
a deed in lieu of foreclosure or otherwise, or in any other capacity, arising
out of or in connection with (1) any violation of Hazardous Materials Law
including, without limitation, reasonable attorney’s and consultant’s fees,
investigation and laboratory fees, court costs, and litigation expenses;
(2) any lawsuit brought or threatened in writing, settlement reached, or
government order relating to such Hazardous Materials or Asbestos; (3) the
use, generation, refining, manufacture, transportation, transfer, production,
processing, storage, handling, or treatment of any Hazardous Materials or
Asbestos, on, under, from, or affecting any of the Properties or any other
property; (4) the presence, disposal, dumping, escape, seepage, leakage,
spillage, discharge, emission, pumping, emptying, injecting, leaching, pouring,
release, or threatened release of any Hazardous Materials or Asbestos on, under,
from, or affecting any of the Properties or any other property; (5) any
remedial action, or imposition of standards of conduct, including the clean-up,
encapsulation, treatment, abatement, removal and/or disposal of any Hazardous
Materials or Asbestos on, under, from or affecting any of the Properties or any
other property to the extent required by any Hazardous Materials Law;
(6) any personal injury (including wrongful death) or property damage (real
or personal) arising out of or related to such Hazardous Materials or Asbestos;
or (7) a material misrepresentation or material inaccuracy in any
representation or warranty or a material breach of or failure to perform any
covenant made by Indemnitor in this Agreement, the Loan Agreement or the
Instrument.
(b)
Indemnitor
understands and agrees that its liability to Lender shall arise upon the earlier
to occur of (1) the discovery of, or the threatened or suspected presence of,
any Hazardous Materials or Asbestos on, under or about any of the Properties,
whether or not the Environmental Protection Agency, any other federal agency or
any state or local environmental or other agency or political subdivision or any
court, administrative panel or tribunal has taken or threatened any action in
connection with the presence, or threatened or suspected presence, of any
Hazardous Materials or Asbestos or (2) the institution of any Indemnified
Claims, and not upon the realization of loss or damage. Indemnitor shall also
indemnify and hold harmless Lender from and against all loss, costs, damages, or
expenses (including, without limitation, attorney’s fees) arising out of
the enforcement of this Agreement.
4.
The term “
Hazardous
Materials
” as used
in this Agreement shall mean all or any of the following: (i) substances,
materials, compounds, wastes, products, emissions and vapors that are defined or
listed in, regulated by, or otherwise classified pursuant to, any applicable
Hazardous Materials Laws, including any so defined, listed, regulated or
classified as “hazardous substances,” “hazardous materials,” “hazardous wastes,”
“toxic substances,” “pollutants,” “contaminants,” or any other formulation
intended to regulate, define, list or classify substances by reason of
deleterious, harmful or dangerous properties; (ii) waste oil, oil, petroleum or
petroleum-derived substances, natural gas, natural gas liquids or synthetic gas
and drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal
resources; (iii) any flammable substances or explosives or any radioactive
materials; (iv) fungus, mold, mildew or other biological agents the presence of
which may adversely affect the health of individuals or other animals or
materially adversely affect the value or utility of any of the Properties; (v)
electrical or hydraulic equipment which contains any oil or dielectric fluid
containing polychlorinated biphenyls; (vi) radon; or (vii) urea
formaldehyde.
5.
The term “
Asbestos
” as used
in this Agreement shall mean any asbestos or material containing
asbestos.
6.
The term “
Hazardous Materials
Law
” as used
in this Agreement shall mean any federal, state, or local law, ordinance or
regulation or any court judgment or order of any federal, state or local agency
or regulatory body applicable to Indemnitor or to any of the Properties relating
to industrial hygiene or to environmental or unsafe conditions including, but
not limited to, those relating to the generation, manufacture, storage,
handling, transportation, disposal, release, emission or discharge of Hazardous
Materials and Asbestos, those in connection with the construction, fuel supply,
power generation and transmission, waste disposal or any other operations or
processes relating to any of the Properties, and those relating to the
atmosphere, soil, surface and ground water, wetlands, stream sediments and
vegetation on, under, in or about any of the Properties. “Hazardous Materials
Law” also shall include, but not be limited to, the Comprehensive Environmental
Response, Compensation and Liability Act, the Emergency Planning and Community
Right-to-Know Act of 1986, the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Solid Waste Disposal Act, the Clean
Water Act, the Clean Air Act, the Toxic Substance Control Act, the Safe Drinking
Water Act and the Occupational Safety and Health Act, and all regulations
adopted in respect to the foregoing laws.
7.
This Agreement, the payment of all sums due hereunder and the performance and
discharge of each and every obligation, covenant and agreement of Indemnitor
contained herein, are, and shall be deemed to be, secured by the Instrument.
8.
The liability of Indemnitor under this Agreement shall in no way be limited or
impaired by, and Indemnitor hereby consents to and agrees to be bound by, any
amendment or modification of the provisions of the Note, the Instrument, the
Loan Agreement or any other document which evidences, secures or guarantees all
or any portion of the Loan (the “
Other Security
Documents
”) to or
with Lender or Indemnitor or any person who succeeds Borrower as owner of any of
the Properties. In addition, the liability of Indemnitor under this Agreement
shall in no way be limited or impaired by (i) any extensions of time for
performance required by the Note, the Loan Agreement, the Instrument or any of
the Other Security Documents, (ii) any sale or transfer of all or part of
any of the Properties, (iii) except as provided herein, any exculpatory
provision in the Note, the Loan Agreement, the Instrument, or any of the Other
Security Documents limiting Lender’s recourse to property encumbered by the
Instrument or to any other security, or limiting Lender’s rights to a deficiency
judgment against Borrower, (iv) the accuracy or inaccuracy of the
representations and warranties made by Borrower or Indemnitor under the Note,
the Loan Agreement, the Instrument or any of the Other Security Documents or
herein, (v) the release of Borrower, any Indemnitor or any other person
from performance or observance of any of the agreements, covenants, terms or
conditions contained in any of the Other Security Documents by operation of law,
Lender’s voluntary act, or otherwise, (vi) the release or substitution in
whole or in part of any security for the Note, or (vii) Lender’s failure to
record the Instrument or to file any UCC financing statements (or Lender’s
improper recording or filing of any thereof) or to otherwise perfect, protect,
secure or insure any security interest or lien given as security for the Note;
and, in any such case, whether with or without notice to Indemnitor and with or
without consideration.
9.
Lender may enforce the obligations of Indemnitor without first resorting to or
exhausting any security or collateral or without first having recourse to the
Note, the Loan Agreement, the Instrument, or any Other Security Documents or any
of the Properties, through foreclosure proceedings or otherwise,
provided
,
however
, that
nothing herein shall inhibit or prevent Lender from suing on the Note,
foreclosing, or exercising any power of sale under the Instrument, or exercising
any other rights and remedies thereunder.
10.
The obligations and liabilities of Indemnitor under this Agreement shall survive
any termination, satisfaction, assignment, entry of a judgment of foreclosure,
exercise of any power of sale, or delivery of a deed in lieu of foreclosure of
the Instrument.
11.
Any amounts payable to Lender under this Agreement shall become immediately due
and payable and, if not paid within thirty (30) days of written demand therefor,
shall bear interest at a per annum rate five percent in excess of the rate
applicable to indebtedness under the Note, or the maximum rate permitted by law
from the earlier to occur of (i) the date payment is made or loss or damage
is sustained by Lender or (ii) the date Indemnitor’s liability shall arise
pursuant to Paragraph 3(b) hereof, until paid.
12.
Indemnitor hereby waives (i) any right or claim of right to cause a
marshalling of Borrower’s assets or to cause Lender to proceed against any of
the security for the Loan before proceeding under this Agreement against
Indemnitor; (ii) and relinquishes all rights and remedies accorded by
applicable law to indemnitors or guarantors, except any rights of subrogation
which Indemnitor may have,
provided
that the
indemnity provided for hereunder shall neither be contingent upon the existence
of any such rights of subrogation nor subject to any claims or defenses
whatsoever which may be asserted in connection with the enforcement or attempted
enforcement of such subrogation rights including, without limitation, any claim
that such subrogation rights were abrogated by any acts of Lender;
(iii) the right to assert a counterclaim, other than a mandatory or
compulsory counterclaim, in any action or proceeding brought against or by
Lender; (iv) trial by jury in any action or proceeding brought by
Indemnitor or Lender or in any counterclaim asserted by Lender against
Indemnitor or in any matter whatsoever arising out of or in any way connected
with this Agreement; (v) notice of acceptance hereof and of any action
taken or omitted in reliance hereon; (vi) presentment for payment, demand
of payment, protest or notice of nonpayment or failure to perform or observe, or
other proof, or notice or demand; and (vii) all homestead exemption rights
against the obligations hereunder and the benefits of any statutes of
limitations or repose. Notwithstanding anything to the contrary contained
herein, Indemnitor hereby agrees to postpone the exercise of any rights of
subrogation with respect to any collateral securing the Loan until the Loan
shall have been indefeasibly paid and satisfied in full, all obligations owed to
Lender under the Loan Documents have been fully performed and there has expired
the maximum possible period thereafter during which any payment made by Borrower
or others to Lender with respect to the Obligations and/or the Indebtedness
could be deemed a preference under the Bankruptcy Code (as hereinafter
defined).
13.
Principal
agrees to the provisions of the Loan Documents (as defined in the Loan
Agreement), and hereby waives notice of (i) any loans or advances made by Lender
to Borrower, (ii) acceptance of this Agreement, (iii) any amendment or extension
of the Note or of any other Loan Documents, (iv) the execution and delivery by
Borrower and Lender of any other loan or credit agreement or of Borrower’s
execution and delivery of any promissory notes or other documents arising under
the Loan Documents or in connection with any of the Properties, (v) the
occurrence of any breach by Borrower or the occurrence of any Event of Default
(as defined in the Loan Agreement), (vi) Lender’s transfer or disposition of any
of the agreements, covenants, conditions, warranties, representations and other
obligations made or undertaken by Borrower or any other person or entity for the
benefit of Lender or others as set forth in the Loan Documents (the
“
Obligations
”), or
any part thereof, (vii) sale or foreclosure (or posting or advertising for sale
or foreclosure) of any collateral for the Obligations, (viii) protest, proof of
nonpayment or default by Borrower, (ix) the accuracy or inaccuracy of the
representations and warranties made by Borrower under the Note, the Loan
Agreement, the Instrument or any of the other Loan Documents or herein, (x) the
release of Borrower or any other person from performance or observance of any of
the agreements, covenants, terms or conditions contained in any of the other
Loan Documents by operation of law, Lender’s voluntary act, or otherwise, (xi)
the release or substitution in whole or in part of any security or guaranty for
the Note, (xii) Lender’s failure to record the Instrument or file any UCC
financing statements (or Lender’s improper recording or filing of any thereof)
or to otherwise perfect, protect, secure or insure any security interest or lien
given as security for the Note, or (xiii) any other action at any time taken or
omitted by Lender and, generally, all demands and notices of every kind in
connection with this Agreement, the Loan Documents, or any documents or
agreements evidencing, securing or relating to any of the
Obligations.
14.
Principal
shall have no right to assert or exercise, or attempt to assert or exercise, and
hereby waives any right to assert or attempt to assert any claim for,
subrogation, reimbursement, indemnification, and contribution against Borrower
and against any general partner, member or other constituent of Borrower and
against any other person or any collateral or security for the Obligations,
until the Obligations have been indefeasibly paid and satisfied in full, all
obligations owed to Lender under the Loan Documents have been fully performed,
and Lender has released, transferred or disposed of all of its right, title and
interest in such collateral or security, and there has expired the maximum
possible period thereafter during which any payment made by Borrower or others
to Lender with respect to the Obligations and/or the Indebtedness could be
deemed a preference under the Bankruptcy Code (as hereinafter
defined).
15.
It is the
intention of the parties that no Principal shall be deemed to be a “creditor” or
“creditors” (as defined in Section 101 of the United States Bankruptcy Code
(the “
Bankruptcy
Code
”)) of
Borrower by reason of the existence of this Agreement, in the event that
Borrower becomes a debtor in any proceeding under the Bankruptcy Code, and in
connection herewith, such Principal hereby waives any such right as a “creditor”
under the Bankruptcy Code. This waiver is given to induce Lender to make the
Loan evidenced by the Note to Borrower.
16.
(a)
Borrower
shall cooperate with Lender, and provide access to Lender and any professionals
engaged by Lender, upon Lender’s request, to conduct, contract for, evaluate or
interpret any environmental assessments, audits, investigations, testing,
sampling, analysis and similar procedures on any of the Properties.
(b)
Borrower
shall take (and Principal shall cause Borrower to take) any and all reasonable
actions, including institution of legal action against third parties, necessary
or appropriate to obtain reimbursement, payment or compensation from such
persons responsible for the presence of any Hazardous Materials or Asbestos at,
in, on, under or near any of the Properties or otherwise obligated by law to
bear the cost thereof. Lender shall be and hereby is subrogated to all of
Borrower’s and/or Principal’s rights now or hereafter in such
claims.
17.
Each Indemnitor represents and warrants that, with respect to such
Indemnitor:
(a)
Indemnitor has the full corporate, limited partnership, limited liability
company, joint venture or other power and authority, as applicable, to execute
and deliver this Agreement and to perform its obligations hereunder; the
execution, delivery and performance of this Agreement by Indemnitor has been
duly and validly authorized; and all requisite corporate, limited partnership,
limited liability company or joint venture action, as applicable, has been taken
by Indemnitor to make this Agreement valid and binding upon Indemnitor and
enforceable in accordance with its terms;
(b)
Indemnitor’s execution of, and compliance with, this Agreement is in the
ordinary course of business of Indemnitor and will not result in the breach of
any term or provision of the articles of organization or operating agreement,
charter or bylaws, limited partnership agreement or joint venture agreement, as
applicable, of Indemnitor or result in the breach of any term or provision of,
or conflict with or constitute a default under or result in the acceleration of
any obligation under, any agreement, indenture or loan or credit agreement or
other instrument to which Indemnitor or any of the Properties are subject, or
result in the violation of any law, rule, regulation, order, judgment or decree
to which Indemnitor or any of the Properties are subject;
(c) There
is no action, suit, proceeding or investigation pending or to the best of
Indemnitor’s knowledge threatened against Indemnitor which, either in any one
instance or in the aggregate, may result in any material adverse change in the
business, operations, financial condition, properties or assets of Indemnitor,
or in any material impairment of the right or ability of Indemnitor to carry on
its business substantially as now conducted, or in any material liability on the
part of Indemnitor, or which would draw into question the validity of this
Agreement or of any action taken or to be taken in connection with the
obligations of Indemnitor contemplated herein, or which would be likely to
impair materially the ability of Indemnitor to perform under the terms of this
Agreement;
(d) This
Agreement is, and the Loan Documents, including the Note, when executed and
delivered, will be, the legally valid and binding obligations of each
Indemnitor, as applicable, enforceable against the Indemnitor, as applicable, in
accordance with their respective terms, subject to bankruptcy, insolvency,
moratorium, reorganization and other similar laws affecting creditors’ rights
generally, no Indemnitor has any defense or offset to any of its obligations
under the Loan Documents, and no Indemnitor has any claim against Lender or any
Affiliate of Lender; and
(e)
Indemnitor
has no defense or offset to the enforcement of this Agreement.
18.
(a) No delay on Lender’s part in exercising any right, power or privilege under
this Agreement shall operate as a waiver of any such right, power or
privilege.
(b)
Lender shall, at all times, be free to independently establish to its
satisfaction and in its absolute discretion the existence or nonexistence of any
fact or facts the existence or nonexistence of which is a condition of this
Agreement.
19.
Each party hereto shall, within five (5) business days of receipt thereof, give
written notice to the other party hereto of (i) any notice or advice from
any governmental agency or any source whatsoever with respect to Hazardous
Materials or Asbestos on, from or affecting any of the Properties, and
(ii) any claim, suit or proceeding, whether administrative or judicial in
nature (“
Legal
Action
”),
brought against such party or instituted with respect to any of the Properties,
with respect to which Indemnitor may have liability under this Agreement. Such
notice shall comply with the provisions of Paragraph 20 hereof.
20.
Unless otherwise specifically provided herein, any notice or other communication
required or permitted to be given shall be in writing and addressed to the
respective party as set forth hereinabove. Notices shall be effective
(i) three (3) days after the date such notice is mailed, (ii) on
the next Business Day if sent by a nationally recognized overnight
courier
service, (iii) on the date of delivery by personal delivery and
(iv) on the date of
transmission
if sent by telefax during business hours on a Business Day (otherwise on the
next Business Day) (with receipt of confirmation).
Any
party may change the address at which it is to receive notices to another
address in the United States at which business is conducted (and not a post
office box or other similar receptacle), by giving notice of such change of
address in accordance with the foregoing. This provision shall not invalidate or
impose additional requirements for the delivery or effectiveness of any notice
(i) given in accordance with applicable statutes or rules of court, or (ii) by
service of process in accordance with applicable law. If there is any assignment
or transfer of Lender’s interest in the Loan, then the new Lender may give
notice to the parties in accordance with this Paragraph 20, specifying the
addresses at which the new Lender shall receive notice, and they shall be
entitled to notice at such address in accordance with this Paragraph
20.
21.
EACH INDEMNITOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK OR WITHIN THE
COUNTY AND STATE IN WHICH ANY OF THE PROPERTIES IS LOCATED AND IRREVOCABLY
AGREES THAT, SUBJECT TO LENDER’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS
AGREEMENT
OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH INDEMNITOR
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ANY OF THE PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE NOTE,
SUCH OTHER LOAN
DOCUMENTS
OR SUCH OBLIGATION. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER TO BRING
PROCEEDINGS AGAINST ANY INDEMNITOR IN THE COURTS OF ANY OTHER
JURISDICTION.
22.
The terms of this Agreement are for the sole and exclusive protection and use of
Lender. No party shall be a third-party beneficiary hereunder, and no provision
hereof shall operate or inure to the use and benefit of any such third
party.
23. Capitalized
terms used herein and not specifically defined herein shall have the respective
meanings ascribed to such terms in the Loan Agreement.
24.
This Agreement may be executed in several counterparts, each of which
counterparts shall be deemed an original instrument and all of which together
shall constitute a single Agreement. The failure of any party hereto to execute
this Agreement, or any counterpart hereof, shall not relieve the other
signatories from their obligations hereunder.
25.
This Agreement may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Lender, but only by an agreement in writing signed by the party against whom
enforcement of any modification, amendment, waiver, extension, change, discharge
or termination is sought.
26.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural as the identity of the person or
persons referred to may require. Without limiting the effect of specific
references in any provision of this Agreement, the terms “Borrower” and
“Indemnitor” shall be deemed to refer to Borrower or Indemnitor, as the case may
be, and each person or entity comprising Borrower or Indemnitor, as the case may
be, from time to time, as the sense of a particular provision may require, and
to include the heirs, executors, administrators, legal representatives,
successors and assigns of Borrower or Indemnitor, as the case may be, all of
whom shall be bound by the provisions of this Agreement. Each reference herein
to Lender shall be deemed to include its successors and assigns, to whose favor
the provisions of this Agreement shall also inure.
27.
If Indemnitor consists of more than one person or entity, the obligations and
liabilities of each such person or entity hereunder shall be joint and
several.
28.
Any one or more parties liable upon or in respect of this Agreement may be
released without affecting the liability of any party not so
released.
29.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies which Lender has under the Note, the Loan Agreement, the
Instrument, or the Other Security Documents or would otherwise have at law or in
equity.
30.
If any term, condition or covenant of this Agreement shall be held to be
invalid, illegal or unenforceable in any respect, this Agreement shall be
construed without such provision.
31.
This Agreement shall be governed and construed in accordance with the laws of
the State of New York and the applicable laws of the United States of America
without regard to conflicts of law provisions.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, this Agreement has been executed by Indemnitor and is effective
as of the day and year first above written.
|
BORROWER:
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|
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|
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SCOTSDALE MI
LLC
,
a Delaware
limited
liability
company
|
|
|
|
|
By:
|
LVP Michigan
Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
|
|
|
|
CARRIAGE PARK MI
LLC
, a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP Michigan
Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
|
|
|
|
MACOMB MANOR MI LLC
,
a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP Michigan
Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
|
|
|
|
CARRIAGE HILL MI
LLC
,
a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP Michigan
Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
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PRINCIPAL:
|
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LIGHTSTONE HOLDINGS LLC, a Delaware
limited liability company
|
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By:
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/s/ David
Lichtenstein
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LENDER
:
|
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/s/ CITIGROUP GLOBAL MARKETS
REALTY CORP
.,
a New York corporation
|
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EXHIBIT 10.17
EXCEPTIONS TO NON-RECOURSE
GUARANTY
This
EXCEPTIONS TO NON-RECOURSE GUARANTY (this “
Guaranty
”) is
entered into as of June 30, 2006, by LIGHTSTONE HOLDINGS, LLC, a Delaware
corporation, having an address at
326 Third
Street, Lakewood, New Jersey 08701
(“
Guarantor
”), for
the benefit of CITIGROUP GLOBAL MARKETS REALTY CORP., a New York corporation,
having an address at 388 Greenwich Street, 19th Floor, New York, New York 10013,
and/or any subsequent holder of the Note (“
Lender
”).
RECITALS
A.
SCOTSDALE
MI LLC (“
Scotsdale
”),
CARRIAGE PARK MI LLC (“
Carriage
Park”
),
MACOMB
MANOR MI LLC (“Macomb Manor”), and CARRIAGE HILL MI LLC
(“
Carriage
Hill”
),
each a
Delaware limited liability company, having its principal place of business c/o
Lightstone Holdings LLC, 326 Third Street, Lakewood, New Jersey 08701
(hereinafter collectively referred to as the “
Borrower
”;
references herein to the Borrower unless otherwise specifically stated, shall
also mean and refer to each and every one of Scotsdale, Carriage Park, Macomb
Manor and Carriage Hill, jointly and severally)
, has
requested that Lender make a loan to Borrower in the amount of $52,000,000.00
(the “
Loan
”). The
Loan will be evidenced by that certain Promissory Note, dated of the date of
this Guaranty, made by Borrower to Lender (the “
Note
”), and a
Loan and Security Agreement by and between Borrower and Lender (the
“
Loan
Agreement
”). The
Loan will be evidenced by a Promissory Note from Borrower to Lender dated as of
the date of this Guaranty (the “
Note
”) and a
Loan and Security Agreement by and between Borrower and Lender (the
“
Loan
Agreement
”). The
Note will be secured by, among other things, those certain Mortgages dated the
same date as the Note (collectively, the “
Instrument
”),
encumbering certain real properties and improvements described in each
Instrument (collectively, the “
Property
”). As
used herein, the term “
Loan
Documents
” shall
mean the Note, the Loan Agreement, the Instrument, and any other documents or
instruments given by Borrower or others and accepted by Lender for the purposes
of evidencing, securing, or guaranteeing the Loan. All capitalized terms not
defined herein shall have the respective meanings set forth in the Loan
Agreement.
B.
As a
condition to making the Loan to Borrower, Lender requires that Guarantor execute
this Guaranty.
C.
Guarantor
will derive substantial benefits from Lender’s making the Loan to
Borrower.
NOW,
THEREFORE, in order to induce Lender to make the Loan to Borrower, and in
consideration thereof, Guarantor agrees as follows:
1.
As used
herein, “
Indebtedness
” shall
mean all obligations evidenced by the Note and secured by the Instrument or the
other Loan Documents.
2.
Guarantor
hereby absolutely, unconditionally and irrevocably guarantees to Lender the full
and prompt payment when due, whether at maturity or earlier, by reason of
acceleration or otherwise, and at all times thereafter, and the full and prompt
performance when due, of all of the following:
(a)
All
amounts which are stated to be obligations of Guarantor under the terms of
Article XII of the Loan Agreement; and
(b)
All costs
and expenses, including reasonable fees and out of pocket expenses of attorneys
and expert witnesses, incurred by Lender in enforcing its rights under this
Guaranty.
For
purposes of determining Guarantor’s liability under this Guaranty, all payments
made by Borrower with respect to the Indebtedness and all amounts received by
Lender from the enforcement of its rights under the Instrument shall be applied
first to the portion of the Indebtedness for which neither Borrower nor
Guarantor has personal liability.
Guarantor
hereby promises to pay and perform, as and when due (whether by acceleration, at
maturity, or otherwise) and at all times thereafter, each and all of the items
and obligations which are stated to be guaranteed hereunder but which are
obligations for which Guarantor is primarily liable or are not obligations of
others. Guarantor hereby agrees that any such sums shall accrue interest at the
Default Rate until paid if not paid as and when due and that such sums, together
with any accrued interest thereon, shall become part of Guarantor’s obligations
hereunder.
3.
The
obligations of Guarantor under this Guaranty shall survive any foreclosure
proceeding, any foreclosure sale, any delivery of any deed in lieu of
foreclosure, any release of record of the Instrument and any repayment or
discharge of the Indebtedness and will not be reduced, discharged or released
because or by reason of any existing or future offset, claim or defense of
Borrower or any other party against Lender or against payment of the obligations
of Guarantor under this Guaranty.
4.
Guarantor’s
obligations under this Guaranty constitute an unconditional guaranty of payment
and not merely a guaranty of collection. This Guaranty may not be revoked by
Guarantor and shall continue to be effective after any attempted revocation by
Guarantor.
5.
The
obligations of Guarantor under this Guaranty shall be performed without demand
by Lender and shall be unconditional irrespective of the genuineness, validity,
regularity or enforceability of any of the Loan Documents, and without regard to
any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or a guarantor. Guarantor shall be liable even if Borrower
had no liability at the time of execution of the Loan Documents, or thereafter
ceases to be liable. Guarantor hereby agrees that Guarantor’s liability may be
larger in amount and more burdensome than that of Borrower. Guarantor hereby
waives the benefit of all principles or provisions of law, statutory or
otherwise, which are or might be in conflict with the terms of this Guaranty and
agrees that Guarantor’s obligations shall not be affected by any circumstances,
whether or not referred to in this Guaranty, which might otherwise constitute a
legal or equitable discharge of a surety or a guarantor. Guarantor hereby waives
the benefits of any right of discharge under any and all statutes or other laws
relating to guarantors or sureties and any other rights of sureties and
guarantors thereunder. Without limiting the generality of the foregoing,
Guarantor hereby waives, to the fullest extent permitted by law, diligence in
collecting the Indebtedness, presentment, demand for payment, protest, all
notices with respect to the Note, the Loan Agreement, this Guaranty, or any
other Loan Document which may be required by statute, rule of law or otherwise
to preserve Lender’s rights against Guarantor under this Guaranty, including,
but not limited to, notice of acceptance, notice of any amendment of the Loan
Documents, notice of the occurrence of any default, notice of intent to
accelerate, notice of acceleration, notice of dishonor, notice of foreclosure,
notice of protest, and notice of the incurring by Borrower of any obligation or
indebtedness. Guarantor also waives, to the fullest extent permitted by law, all
rights to require Lender to (a) proceed against Borrower or any other
guarantor of Borrower’s payment or performance with respect to the Indebtedness
(an “
Other
Guarantor
”),
(b) if Borrower or any Other Guarantor is a partnership, proceed against
any general partner of Borrower or the Other Guarantor, (c) proceed against
or exhaust any collateral held by Lender to secure the repayment of the
Indebtedness, (d) pursue any other remedy it may now or hereafter have
against Borrower (or, if Borrower is a partnership, any general partner of
Borrower) or (e) resort to any other means of obtaining payment of Guarantor’s
obligations under this Guaranty.
6.
Guarantor
understands that the exercise by Lender of certain rights and remedies contained
in the Loan Agreement and the Instrument (such as a nonjudicial foreclosure
sale) may affect or eliminate Guarantor’s right of subrogation against Borrower
and that Guarantor may therefore incur a partially or totally nonreimbursable
liability under this Guaranty. Nevertheless, Guarantor hereby authorizes and
empowers Lender to exercise, in its sole and absolute discretion, any right or
remedy, or any combination thereof, which may then be available, since it is the
intent and purpose of Guarantor that the obligations under this Guaranty shall
be absolute, independent and unconditional under any and all circumstances.
Guarantor expressly waives any defense (which defense, if Guarantor had not
given this waiver, Guarantor might otherwise have) to a judgment against
Guarantor by reason of a judicial or nonjudicial foreclosure. Without limiting
the generality of the foregoing, Guarantor hereby expressly waives any and all
benefits under any applicable law which, if Guarantor had not given this waiver,
(i) would otherwise limit Guarantor’s liability after a foreclosure sale to
the difference between the obligations of Guarantor under this Guaranty and the
fair market value of the property or interests sold at such nonjudicial
foreclosure sale, (ii) would otherwise limit Lender’s right to recover a
deficiency judgment after a foreclosure sale, and (iii) would otherwise
require Lender to exhaust all of its security before a personal judgment could
be obtained for a deficiency. Notwithstanding any foreclosure of the lien of the
Instrument, whether by the exercise of the power of sale contained in the
Instrument, by an action for judicial foreclosure or by Lender’s acceptance of a
deed in lieu of foreclosure, Guarantor shall remain bound under this Guaranty.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower’s obligations are secured by real property. This means, among other
things:
(a)
Lender
may collect from Guarantor without first foreclosing on any real or personal
property collateral pledged by Borrower or others; and
(b)
If Lender
forecloses on any real property collateral pledged by Borrower or others:
(i) the amount of the debt may be reduced only by the price for which that
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price; and (ii) Lender may collect from Guarantor even if
Lender, by foreclosing on the real property collateral, has destroyed any right
Guarantor may have to collect from Borrower.
This is
an unconditional and irrevocable waiver of any rights and defenses that
Guarantor may have because Borrower’s obligations are secured by real
property.
7.
Guarantor
also waives any right or defense based upon an election of remedies by Lender,
even though such election (
e.g.
,
nonjudicial foreclosure with respect to any collateral held by Lender to secure
repayment of the Indebtedness) destroys or otherwise impairs the subrogation
rights of Guarantor or the right of Guarantor (after payment of the obligations
guaranteed by Guarantor under this Guaranty) to proceed against Borrower for
reimbursement, or both.
8.
Guarantor
shall have no right to assert or exercise, or attempt to assert or exercise, and
hereby waives any right to assert or attempt to assert any claim for,
subrogation, reimbursement, indemnification, and contribution against Borrower
and against any general partner, member or other constituent of Borrower, and
against any other person or any collateral or security for the Indebtedness,
until the Indebtedness has been indefeasibly paid and satisfied in full, all
obligations owed to Lender under the Loan Documents have been fully performed,
and Lender has released, transferred or disposed of all of its right, title and
interest in such collateral or security, and there has expired the maximum
possible period thereafter during which any payment made by Borrower or others
to Lender with respect to the Indebtedness could be deemed a preference under
the United States Bankruptcy Code (the “
Code
”).
9.
It is the
intention of the parties that Guarantor shall not be deemed a “creditor” or
“creditors” (as defined in Section 101 of the Code) of Borrower, or any Other
Guarantor, by reason of the existence of this Guaranty, in the event that
Borrower or any Other Guarantor becomes a debtor in any proceeding under the
Code, and in connection herewith, Guarantor hereby waives any such right as a
“creditor” under the Code. After the Indebtedness has been satisfied in full,
this waiver shall be deemed terminated.
10.
At any
time or from time to time and any number of times, without notice to Guarantor
and without affecting the liability of Guarantor hereunder, (a) the time
for payment of the principal of or interest on the Indebtedness may be extended
or the Indebtedness may be renewed in whole or in part; (b) the time for
Borrower’s performance of or compliance with any covenant or agreement contained
in the Note, the Loan Agreement, the Instrument or any other Loan Document,
whether presently existing or hereinafter entered into, may be extended or such
performance or compliance may be waived; (c) the maturity of the
Indebtedness may be accelerated as provided in the Note, the Loan Agreement, the
Instrument, or any other Loan Document; (d) the Note, the Loan Agreement,
the Instrument, or any other Loan Document may be modified or amended by Lender
and Borrower in any respect, including, but not limited to, an increase in the
principal amount; and (e) any security or guaranty for the Indebtedness may
be modified, exchanged, surrendered or otherwise dealt with or additional
security may be pledged or mortgaged for the Indebtedness.
11.
If more
than one person executes this Guaranty, the obligations of those persons under
this Guaranty shall be joint and several. Lender, in its sole and absolute
discretion, may (a) bring suit against Guarantor, or any one or more of the
persons constituting Guarantor, and any Other Guarantor, jointly and severally,
or against any one or more of them; (b) compromise or settle with any one
or more of the persons constituting Guarantor for such consideration as Lender
may deem proper; (c) release one or more of the persons constituting
Guarantor, or any Other Guarantor, from liability; and (d) otherwise deal
with Guarantor and any Other Guarantor, or any one or more of them, in any
manner, and no such action shall impair the rights of Lender to collect from
Guarantor any amount guaranteed by Guarantor under this Guaranty. Nothing
contained in this paragraph shall in any way affect or impair the rights or
obligations of Guarantor with respect to any Other Guarantor.
12.
Any
indebtedness of Borrower held by any Guarantor now or in the future is and shall
be subordinated to the Indebtedness and any such indebtedness of Borrower shall
be collected, enforced and received by such Guarantor, as trustee for Lender,
but without reducing or affecting in any manner the liability of Guarantor under
the other provisions of this Guaranty.
13.
If any
payment by Borrower is held to constitute a preference under any applicable
bankruptcy, insolvency, or similar laws, or if for any other reason Lender is
required to refund any sums to Borrower, such refund shall not constitute a
release of any liability of Guarantor under this Guaranty. It is the intention
of Lender and Guarantor that Guarantor’s obligations under this Guaranty shall
not be discharged except by Guarantor’s performance of such obligations and then
only to the extent of such performance.
14.
Guarantor
shall from time to time, upon request by Lender, deliver to Lender such
financial statements as Lender may reasonably require.
15.
Guarantor
represents and warrants to Lender as follows:
(a)
Guarantor
is an affiliate of Borrower, is the owner of a direct or indirect interest in
Borrower, and has received, or will receive, direct or indirect benefit from the
making of this Guaranty.
(b)
Guarantor
is familiar with, and has independently reviewed books and records regarding,
the financial condition of Borrower and is familiar with the value of any and
all collateral intended to be created as security for the payment of the Note;
however, Guarantor is not relying on such financial condition or the collateral
as an inducement to enter into this Guaranty.
(c)
Neither
Lender nor any other party has made any representation, warranty or statement to
Guarantor in order to induce Guarantor to execute this Guaranty.
(d)
As of the
date hereof, and after giving effect to this Guaranty and the contingent
obligation evidenced hereby, Guarantor is, and will be, solvent, and has and
will have assets which, fairly valued, exceed its obligations, liabilities
(including contingent liabilities) and debts, and has and will have property and
assets sufficient to satisfy and repay its obligations and
liabilities.
(e)
All
representations and warranties made by Guarantor herein shall survive the
execution hereof.
(f)
Guarantor
has examined all of the Loan Documents.
(g)
Except as
otherwise disclosed to Lender, there are no proceedings pending or, so far as
Guarantor knows, threatened before any court or administrative agency which, if
decided adversely to Guarantor, would materially adversely affect the financial
condition of Guarantor or the authority of Guarantor to enter into, or the
validity or enforceability of, this Guaranty.
(h)
Guarantor
has filed all required federal, state and local tax returns and has paid all
taxes as shown on such returns as they have become due. No claims have been
assessed and are unpaid with respect to such taxes.
(i)
This
Guaranty has been duly authorized, executed and delivered by Guarantor and
constitutes the valid and binding obligation of Guarantor, and is enforceable
against Guarantor in accordance with its terms. No approval, consent, order or
authorization of any governmental authority and no designation, registration,
declaration or filing with any governmental authority is required in connection
with the execution and delivery of this Guaranty by Guarantor. Guarantor has no
defense or offset to the enforcement of this Guaranty. The execution and
delivery of this Guaranty will not violate or contravene in any way the articles
of incorporation or bylaws or partnership agreement, articles of organization or
operating agreement, as the case may be, of Guarantor or any indenture,
agreement or instrument to which Guarantor is a party or by which it or its
property may be bound, or be in conflict with, result in a breach of or
constitute a default under any such indenture, agreement or other instrument,
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the property or assets of Guarantor, except as
contemplated by the provisions of the Loan Documents, and no action or approval
with respect thereto by any third person is required.
16.
Lender
may assign its rights under this Guaranty in whole or in part and, upon any such
assignment, all the terms and provisions of this Guaranty shall inure to the
benefit of such assignee to the extent so assigned. The terms used to designate
any of the parties herein shall be deemed to include the heirs, legal
representatives, successors and assigns of such parties; and the term “Lender”
shall include, in addition to Lender, any lawful owner, holder or pledgee of the
Note.
17.
This
Guaranty and the other Loan Documents represent the final agreement between the
parties and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements. There are no unwritten oral agreements between the
parties. All prior or contemporaneous agreements, understandings,
representations, and statements, oral or written, are merged into this Guaranty
and the other Loan Documents. Guarantor acknowledges that it has received copies
of the Note, the Loan Agreement, the Instrument and all other Loan Documents.
Neither this Guaranty nor any of its provisions may be waived, modified,
amended, discharged, or terminated except by an agreement in writing signed by
the party against which the enforcement of the waiver, modification, amendment,
discharge, or termination is sought, and then only to the extent set forth in
that agreement.
18.
Lender
may, at any time, sell, transfer or assign the Note, the Loan Agreement, the
Instrument and the Loan Documents, or any part thereof, and any or all servicing
rights with respect thereto, or grant participations therein or issue mortgage
pass-through certificates or other securities evidencing a beneficial interest
in a rated or unrated public offering or private placement (the “
Securities
”). In
connection with any of the foregoing, promptly following request from Lender,
Guarantor shall furnish and certify as true and complete, such information
concerning Guarantor as Lender may reasonably request. Without limitation,
Guarantor agrees that it will be reasonable to request (and Guarantor shall
furnish) resumes, financial statements, tax returns, key principal
questionnaires, and credit reports. Guarantor authorizes Lender to forward the
same to any purchaser, transferee, assignee, servicer, participant, investor in
such Securities or any rating agency rating such Securities (singularly, an
“
Investor
,” and
collectively, the “
Investors
”) and
each prospective Investor.
19.
No
failure to exercise, and no delay in exercising, on the part of Lender, any
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right. The rights of Lender hereunder shall be in addition
to all other rights provided by law. No modification or waiver of any provision
of this Guaranty, nor consent to departure therefrom, shall be effective unless
in writing and no such consent or waiver shall extend beyond the particular case
and purpose involved. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other instances
without such notice or demand.
20.
Any
notice, demand, statement, request or consent made hereunder shall be in writing
and shall be deemed to be received by the addressee on the day such notice is
tendered to a nationally recognized overnight delivery service or on the third
day following the day such notice is deposited with the United States Postal
Service first class certified mail, return receipt requested, in either
instance, addressed to the address, as set forth below, of the party to whom
such notice is to be given, or to such other address as either party shall in
like manner designate in writing. The addresses of the parties hereto are as
follows:
Guarantor
:
Lightstone
Holdings LLC
326 Third
Street
Lakewood,
New Jersey 08701
Attention:
David Lichtenstein
With a
copy to:
Herrick,
Feinstein LLP
2 Park
Avenue
New York,
New York 10016
Attention:
Sheldon Chanales, Esq.
Lender
:
Citigroup
Global Markets Realty Corp.
388
Greenwich Street, 19th Floor
New York,
New York 10013
Attn:
Mortgage Loan Department
21.
Guarantor
agrees that this Guaranty and the obligations arising hereunder shall be
governed by and construed in accordance with the laws of the State of New York
(“
State of
Jurisdiction
”) and
any applicable laws of the United States of America. The state and federal
courts and authorities with jurisdiction in the State of Jurisdiction shall have
exclusive jurisdiction over all controversies which shall arise under or in
relation to this Guaranty. Guarantor irrevocably consents to service,
jurisdiction, and venue of such courts for any litigation and waives any other
venue to which it might be entitled by virtue of domicile, habitual residence or
otherwise.
22.
GUARANTOR AND LENDER EACH
(A) AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING
OUT OF THIS GUARANTY OR THE RELATIONSHIP BETWEEN THE PARTIES AS GUARANTOR AND
LENDER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL
BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW
OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY
EACH PARTY, KNOWINGLY AND VOLUNTARILY, WITH THE BENEFIT OF COMPETENT LEGAL
COUNSEL.
[SIGNATURE
PAGE FOLLOWS]
IN WITNESS WHEREOF
,
Guarantor has executed and delivered this Guaranty as of the date first written
above.
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GUARANTOR:
|
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|
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LIGHTSTONE
HOLDINGS LLC, a Delaware
limited
liability company
|
|
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By:
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/s/ David
Lichtenstein
|
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EXHIBIT 10.18
CONDITIONAL ASSIGNMENT OF MANAGEMENT
AGREEMENT
This
CONDITIONAL ASSIGNMENT OF MANAGEMENT AGREEMENT (this “
Agreement
”) is
made as of the 30th day of June, 2006, by
SCOTSDALE MI LLC
(“
Scotsdale
”),
CARRIAGE PARK MI LLC
(“
Carriage
Park”
),
MACOMB MANOR MI
LLC
(“Macomb
Manor”), and
CARRIAGE HILL MI LLC
(“
Carriage
Hill”
),
each a
Delaware limited liability company, having its principal place of business c/o
Lightstone Holdings LLC, 326 Third Street, Lakewood, New Jersey 08701
(hereinafter collectively referred to as the “
Borrower
”;
references herein to the Borrower unless otherwise specifically stated, shall
also mean and refer to each and every one of Scotsdale, Carriage Park, Macomb
Manor and Carriage Hill, jointly and severally)
in favor
of
CITIGROUP GLOBAL MARKETS REALTY
CORP.,
a New
York corporation
, its
transferees, successors and assigns, having an address at
388
Greenwich Street, 19
th
Floor,
New York, New York 10013
(“
Lender
”), and
is acknowledged and consented to by Beacon Property Management, LLC
(“
Agent
”).
RECITALS
A.
This
Agreement is being executed in connection with Lender’s making a mortgage loan
to Borrower in the original principal amount of Fifty-Two Million and No/100
Dollars ($52,000,000.00) (the “
Loan
”). The
Loan is being made pursuant to the terms of a Loan and Security Agreement (the
“
Loan
Agreement
”) of
even date herewith, executed by Lender and Borrower; is evidenced by a certain
Promissory Note (the “
Note
”) of
even date herewith, made by Borrower in favor of Lender; and is secured by,
among other things, those certain Mortgages (collectively, the “
Instrument
”), also
of even date herewith, executed by each Borrower in favor of Lender (the Loan
Agreement, the Note, the Instrument, this Agreement, and all other documents
executed in connection with the Loan are collectively referred to as the
“
Loan
Documents
”).
Capitalized terms used herein but not otherwise defined shall have the
respective meanings assigned to such terms in the Loan Agreement.
B.
The
proceeds of the Loan will be used for the financing of a multi-famil
y
portfolio
project
situated on the land described in each Instrument (the “
Property
”).
C.
Pursuant
to a certain
Management
Agreement
between
Borrower and Agent (the “
Management
Agreement
”) (a
true and correct copy of which Management Agreement is attached hereto as
Exhibit A
),
Borrower employed Agent exclusively to rent, lease, operate and manage the
Property.
D.
Lender
requires as a condition to the making of the Loan that Borrower assign the
Management Agreement as set forth below.
NOW,
THEREFORE, in consideration of the above and the mutual promises contained in
this Agreement, the receipt and sufficiency of which are acknowledged, the
parties hereto agree as follows:
1.
Assignment of Management
Agreement
.
As
additional collateral security for the Loan Agreement, Borrower hereby
conditionally transfers, sets over and assigns to Lender all of Borrower’s
right, title and interest in and to the Management Agreement, said transfer and
assignment to automatically become a present, unconditional assignment, at
Lender’s option, upon the occurrence of an Event of Default.
2.
Termination
.
At such
time as the Loan is paid in full and the Instrument is released of record, this
Agreement and all of Lender’s right, title and interest hereunder with respect
to the Management Agreement shall terminate.
3.
Borrower’s
Covenants
.
Borrower
hereby covenants with Lender that during the term of this Agreement: (a)
Borrower shall not transfer the responsibility for the management of the
Property from Agent to any other person or entity without the prior written
consent of Lender, which consent may be withheld by Lender in Lender’s sole
discretion; (b) Borrower shall not terminate or amend any of the terms or
provisions of the Management Agreement without the prior written consent of
Lender, which consent may be withheld by Lender in Lender’s sole discretion; and
(c) Borrower shall, in the manner provided for in this Agreement, give notice to
Lender of any notice or information that Borrower receives which indicates that
Agent is terminating the Management Agreement or that Agent is otherwise
discontinuing its management of the Property.
4.
Agreement by Borrower and
Agent
.
Borrower
and Agent hereby agree that in the event of an Event of Default, Lender shall
have the right to, at the option of Lender exercised by written notice to
Borrower and Agent: (a) require all rents, security deposits, issues, proceeds,
revenues, awards and profits of the Property collected by Agent, after payment
of all costs and expenses of operating the Property (including, without
limitation, operating expenses, real estate taxes, insurance premiums, repairs
and maintenance and the fees and commissions payable under the Management
Agreement), to be applied in accordance with Lender’s written directions to
Agent; and (b) exercise its rights under this Agreement and immediately
terminate the Management Agreement and require Agent to transfer its
responsibility for the management of the Property to a management company
selected by Lender in Lender’s sole and absolute discretion.
5.
Lender’s Right to Replace
Agent
.
In
addition to the foregoing, Lender shall have the right to require Borrower to
replace Agent with a Person chosen by Lender, upon the earliest to occur of any
one or more of the following events (each an
“
Agent Replacement
Event
”
): (i)
the occurrence and continuance of an Event of Default; (ii) thirty (30) days
after notice from Lender to Borrower that Agent has engaged in fraud, gross
negligence, malfeasance or willful misconduct arising from or in connection with
its performance under the Management Agreement, or Agent’s default under the
Management Agreement which is not cured within any applicable cure period
provided under the Management Agreement; (iii) a change in control of Agent, or
(iv) if Borrower’s Debt Service Coverage Ratio shall be less than the Minimum
DSCR Threshold. If an Agent Replacement Event occurs, then Borrower shall enter
a new management agreement with a property management company acceptable to
Lender.
6.
Subordination of Management
Fees and Management Agreement
.
Agent
agrees that: (a) any and all fees, commissions, compensation and other amounts
due and payable to the Agent pursuant to the Management Agreement (collectively,
“
Manager’s Fees
”) are
and shall at all times continue to be subject and subordinate in all respects to
the Loan, the Instrument and the liens and security interests of Lender created
thereunder, and (b) the Management Agreement and all of the terms, covenants and
provisions thereof and all rights, remedies and options of Agent thereunder are
and shall at all times continue to be subject and subordinate in all respects to
the Loan Documents and all terms, covenants and conditions set forth therein,
including, without limitation, all renewals, increases, modifications,
spreaders, consolidations, replacements and extensions thereof and to all sums
secured thereby and the liens and security interests of Lender created
thereunder.
7.
Prohibited Payment and
Receipt of Manager’s Fees
.
Borrower and Agent hereby agree that Agent shall not be entitled to receive any
Manager’s Fees for and during any period of time that an Event of Default exists
or any amount due and owing Lender under the Loan Agreement, the Note or any
other Loan Document is not paid when due. However, Agent shall not be obligated
to Lender to return or refund any Manager’s Fee to the extent that the same is
(i) received by Agent prior to the occurrence of such Event of Default, and (ii)
duly owing to Agent, and (iii) duly allocable to the time prior to such Event of
Default. Further, if any such Event of Default is cured and Lender accepts such
cure (and Lender shall have no obligation to accept any cure other than as
expressly provided in the Note and Instrument and under applicable law), then
Agent may receive and retain any Manager’s Fee payable to Agent that accrued
during the Event of Default, subject to the prior provisions of this
paragraph.
8.
Consent and Agreement by
Agent
.
Agent
hereby acknowledges and consents to this Agreement and agrees that Agent will
act in conformity with the provisions of this Agreement and Lender’s rights
hereunder or otherwise related to the Management Agreement. Agent further
covenants with Lender that during the term of this Agreement, Agent shall not
amend any of the terms or provisions of the Management Agreement without the
prior written consent of Lender, which consent may be withheld by Lender in
Lender’s sole discretion. In the event that the responsibility for the
management of the Property is transferred from Agent in accordance with the
provisions hereof, Agent shall, and hereby agrees to, fully cooperate in
transferring its responsibility to a new management company and effectuate such
transfer no later than thirty (30) days from the date the Management Agreement
is terminated. Further, Agent hereby agrees (a) not to contest or impede the
exercise by Lender of any right Lender has under or in connection with this
Agreement; and (b) that it shall, in the manner provided for in this Agreement,
give at least thirty (30) days prior written notice to Lender of Manager’s
intention to terminate the Management Agreement or otherwise discontinue its
management of the Property. In the event Agent gives notice of its intention to
terminate the Management Agreement, Lender shall have the right, but not the
obligation, to cure Borrower’s defaults thereunder, and Agent agrees to accept
such cure and not terminate the Management Agreement as a result of such
defaults. In the event that Lender elects to not terminate the Management
Agreement in the event it acquires title to the Property through foreclosure,
exercise of a power of sale, acceptance of a deed in lieu of foreclosure or
otherwise, Agent agrees to attorn to Lender and continue to operate the Property
pursuant to the Management Agreement provided that all Manager’s Fees due and
payable to Agent are paid.
9.
Lender’s
Agreement
.
Any sums
due to Borrower under the Management Agreement shall be distributed to Borrower
in accordance with the terms of the Loan Agreement.
10.
Notice
.
All
notices given under this Agreement shall be in writing, and sent to the other
party at its address set forth below or at such other address as such party may
designate by notice to the other party. Such notices shall be deemed given in
accordance with the criteria set forth in the Instrument.
To
Borrower
: At the
address set forth in the Loan Agreement.
To Lender
: At the
address set forth in the Loan Agreement.
To Agent
:
______________________________
______________________________
______________________________
Attn:
__________________________
Telephone
No.: __________________
Facsimile
No.: ___________________
Any party
may change the address at which it is to receive notices hereunder by giving
written notice of such new address in accordance with the notice criteria set
forth in the Instrument.
11.
Binding Nature of
Agreement
.
This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
12.
Counterparts
.
This
Agreement may be executed in any number of counterparts all of which taken
together shall constitute one and the same instrument.
13.
Governing
Law
.
This
Agreement shall be governed by the laws of the state in which the Property is
located and applicable federal law.
14.
Non-Recourse
.
This
Agreement is being executed in connection with the making of the Loan pursuant
to the terms of the Loan Agreement and the Note. Borrower’s liability under this
Agreement shall be limited to the same extent provided in Article XII of the
Loan Agreement.
[Signature
Page Follows]
IN
WITNESS WHEREOF, this Agreement has been executed by Borrower and Agent
effective as of the date and year first written above.
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BORROWER:
|
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SCOTSDALE MI
LLC
,
a Delaware
limited
liability
company
|
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By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
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its sole Managing Member
|
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By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
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Title:
|
President
|
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CARRIAGE PARK MI
LLC
, a
Delaware limited liability company
|
|
|
|
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By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
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its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
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Title:
|
President
|
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MACOMB MANOR MI LLC
,
a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
|
|
|
|
CARRIAGE HILL MI
LLC
,
a
Delaware limited liability company
|
|
|
|
|
By:
|
LVP
Michigan Multifamily Portfolio LLC, a Delaware limited liability company,
|
|
|
its sole Managing Member
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
|
David
Lichtenstein
|
|
Title:
|
President
|
EXHIBIT A
Management
Agreement
EXHIBIT
10.19
Loan No.:
502858289
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Oakview Plaza
|
PROMISSORY
NOTE
$27,500,000.00
as of
December 20, 2006
FOR VALUE
RECEIVED, the undersigned, LVP OAKVIEW STRIP CENTER
LLC, a
Delaware limited liability company (
Borrower
”)
, having
an address
c/o The
Lightstone Group, 326 Third Street, Lakewood, New Jersey 08701
,
jointly
and severally
promises
to pay to the order of WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association (together with its successors and assigns, “
Lender
”), at
the office of Lender at Commercial Real Estate Services, 8739 Research Drive URP
- 4, NC 1075, Charlotte, North Carolina 28262, or at such other place as Lender
may designate to Borrower in writing from time to time, the principal sum of
TWENTY-SEVEN MILLION FIVE HUNDRED THOUSAND AND
00/100
DOLLARS ($27,500,000.00)
,
together with interest on so much thereof as is from time to time outstanding
and unpaid, from the date of the advance of the principal evidenced hereby, at
the rate of five and forty-nine hundredths percent (5.49%) (the “
Note Rate
”),
together with all other amounts due hereunder or under the other Loan Documents
(as defined herein), in lawful money of the United States of America, which
shall at the time of payment be legal tender in payment of all debts and dues,
public and private.
ARTICLE I
TERMS AND
CONDITIONS
Section
1.1
Computation of
Interest
.
Interest shall be computed hereunder based on a 360-day year and based on the
actual number of days elapsed for any period in which interest is being
calculated, including, without limitation, the Interest Only Period (hereinafter
defined), as more particularly set forth on Schedule A attached hereto and
incorporated herein by reference. Interest shall accrue from the date on which
funds are advanced hereunder (regardless of the time of day) through and
including the day on which funds are credited pursuant to Section 1.2
hereof.
Section
1.2
Payment of Principal and
Interest
.
Payments in federal funds immediately available at the place designated for
payment received by Lender prior to 2:00 p.m. eastern time on a day on which
Lender is open for business at said place of payment shall be credited prior to
close of business, while other payments, at the option of Lender, may not be
credited until immediately available to Lender in federal funds at the place
designated for payment prior to 2:00 p.m. eastern time on the next day on which
Lender is open for business. A payment in interest only, based on the payments
set forth on Schedule A annexed hereto, shall be made beginning on February 11,
2007 (the "First Payment Date"), and continuing on the eleventh day of each and
every calendar month thereafter (each, an "Interest Only Payment Date") through
and including January 11, 2012 (each, an "Interest Only Payment") (such period
being referred to herein as the "Interest Only Period"). Commencing on February
11, 2012 and continuing thereafter on the eleventh day of each and every
calendar month thereafter through and including December 11, 2016 (each,
together with each Interest Only Payment Date is hereinafter collectively a
"Payment Date"), principal and interest shall be payable in equal consecutive
monthly installments of $155,969.48 each. On January 11, 2017 (the "Maturity
Date"), the entire outstanding principal balance hereof, together with all
accrued but unpaid interest thereon, shall be due and payable in
full.
Section
1.3
Application of
Payments
. So long
as no Event of Default (as hereinafter defined) exists hereunder or under any
other Loan Document (as hereinafter defined), each such monthly installment
shall be applied, first, to any amounts hereafter advanced by Lender hereunder
or under any other Loan Document, second, to any late fees and other amounts
payable to Lender, third, to the payment of accrued interest and last to
reduction of principal.
Section
1.4
Payment of “Short
Interest”
. If the
advance of the principal amount evidenced by this Note is made on a date other
than a Payment Date, Borrower shall pay to Lender contemporaneously with the
execution hereof interest at the Note Rate for a period from the date hereof
through and including the tenth (10
th
) day of
either (x) this month, in the event that the date hereof is on or prior to the
11th of the month, and (y) the immediately succeeding month, in the event that
the date hereof is after the 11
th
of the
month.
Section
1.5
Prepayment;
Defeasance
.
(a)
This Note
may not be prepaid, in whole or in part (except as otherwise specifically
provided herein), at any time prior to the Payment Date occurring two (2)
Payment Dates immediately prior to the Maturity Date (the “
Lockout Expiration
Date
”). In
the event that Borrower wishes to have the Property (as defined in the Security
Instrument) released from the lien of the Security Instrument (as hereinafter
defined) prior to the Lockout Expiration Date, Borrower’s sole option shall be a
Defeasance (as hereinafter defined) upon satisfaction of the terms and
conditions set forth in
Section
1.5(d)
hereof.
Notwithstanding anything contained in this Note or any of the other Loan
Documents to the contrary, this Note may be prepaid in whole but not in part
without premium or penalty on any Payment Date (subject to the proviso below)
occurring from and after the Lockout Expiration Date provided (i) written notice
of such prepayment is received by Lender not more than ninety (90) days and not
less than thirty (30) days prior to the date of such prepayment, and (ii) such
prepayment is accompanied by all interest accrued hereunder through the date of
such prepayment and all other sums due hereunder or under the other Loan
Documents; provided, however, that if such prepayment is received on a day that
is not a Payment Date, Borrower shall pay interest on the outstanding principal
balance hereof immediately preceding such prepayment at the Note Rate for a
period from the date of such payment through and including the tenth (10th) day
of either (x) the month in which the prepayment occurs if such payment is made
prior to the 11th day of such month, and (y) the immediately succeeding month in
which the prepayment occurs if such payment is made after the 11th day of such
month. If, upon any such permitted prepayment on any Payment Date occurring on
or after the Lockout Expiration Date, the aforesaid prior written notice has not
been timely received by Lender, there shall be due a prepayment fee equal to the
lesser of (i) thirty (30) days’ interest computed at the Note Rate on the
outstanding principal balance of this Note so prepaid and (ii) interest computed
at the Note Rate on the outstanding principal balance of this Note so prepaid
that would have been payable for the period from, and including, the date of
prepayment through the Maturity Date, as though such prepayment had not
occurred.
(b)
If, prior
to the Lockout Expiration Date, the indebtedness evidenced by this Note shall
have been declared due and payable by Lender pursuant to Article II hereof or
the provisions of any other Loan Document due to an Event of Default by
Borrower, then, in addition to the indebtedness evidenced by this Note being
immediately due and payable, there shall also then be immediately due and
payable a prepayment fee in an amount equal to the Yield Maintenance Premium (as
hereinafter defined) based on the entire indebtedness on the date of such
acceleration. In addition to the amounts described in the preceding sentence, in
the event of any such acceleration or tender of payment of such indebtedness
occurs or is made on or prior to the first (1st) anniversary of the date of this
Note, there shall also then be immediately due and payable an additional
prepayment fee of three percent (3%) of the principal balance of this Note. The
term “
Yield Maintenance
Premium
” shall
mean an amount equal to the greater of (A) two percent (2.0%) of the principal
amount being prepaid, and (B) the present value of a series of payments each
equal to the Payment Differential (as hereinafter defined) and payable on each
Payment Date over the remaining original term of this Note and on the Maturity
Date, discounted at the Reinvestment Yield (as hereinafter defined) for the
number of months remaining as of the date of such prepayment to each such
Payment Date and the Maturity Date. The term “
Payment
Differential
” shall
mean an amount equal to (i) the Note Rate less the Reinvestment Yield, divided
by (ii) twelve (12) and multiplied by (iii) the principal sum outstanding under
this Note after application of the constant monthly payment due under this Note
on the date of such prepayment, provided that the Payment Differential shall in
no event be less than zero. The term “
Reinvestment
Yield
” shall
mean an amount equal to the lesser of (i) the yield on the U.S. Treasury issue
(primary issue) with a maturity date closest to the Maturity Date, or (ii) the
yield on the U.S. Treasury issue (primary issue) with a term equal to the
remaining average life of the indebtedness evidenced by this Note, with each
such yield being based on the bid price for such issue as published in the Wall
Street Journal on the date that is fourteen (14) days prior to the date of such
prepayment (or, if such bid price is not published on that date, the next
preceding date on which such bid price is so published) and converted to a
monthly compounded nominal yield. In the event that any prepayment fee is due
hereunder, Lender shall deliver to Borrower a statement setting forth the amount
and determination of the prepayment fee, and, provided that Lender shall have in
good faith applied the formula described above, Borrower shall not have the
right to challenge the calculation or the method of calculation set forth in any
such statement in the absence of manifest error, which calculation may be made
by Lender on any day during the fifteen (15) day period preceding the date of
such prepayment. Lender shall not be obligated or required to have actually
reinvested the prepaid principal balance at the Reinvestment Yield or otherwise
as a condition to receiving the prepayment fee.
(c)
Partial
prepayments of this Note shall not be permitted, except for partial prepayments
resulting from Lender’s election to apply insurance or condemnation proceeds to
reduce the outstanding principal balance of this Note as provided in the
Security Instrument, in which event no prepayment fee or premium shall be due
unless, at the time of either Lender’s receipt of such proceeds or the
application of such proceeds to the outstanding principal balance of this Note,
an Event of Default exists, which Event of Default is unrelated to the
applicable casualty or condemnation, in which event the applicable prepayment
fee or premium shall be due and payable based upon the amount of the prepayment.
No notice of prepayment shall be required under the circumstances specified in
the preceding sentence. No principal amount repaid may be reborrowed. Any such
partial prepayments of principal shall be applied to the unpaid principal
balance evidenced hereby but such application shall not reduce the amount of the
fixed monthly installments required to be paid pursuant to Section 1.2 above.
Except as otherwise expressly provided in this Section, the prepayment fees
provided above shall be due, to the extent permitted by applicable law, under
any and all circumstances where all or any portion of this Note is paid prior to
the Maturity Date, whether such prepayment is voluntary or involuntary,
including, without limitation, if such prepayment results from Lender’s exercise
of its rights upon the occurrence of an Event of Default and acceleration of the
Maturity Date of this Note (irrespective of whether foreclosure proceedings have
been commenced), and shall be in addition to any other sums due hereunder or
under any of the other Loan Documents. No tender of a prepayment of this Note
with respect to which a prepayment fee is due shall be effective unless such
prepayment is accompanied by the applicable prepayment fee.
(d)
i)
On any
Payment Date on or after the earlier to occur of (x) three (3) years following
the first Payment Date hereunder, and (y) the day immediately following the date
which is two (2) years after the “startup day,” within the meaning of Section
860G(a) (9) of the Internal Revenue Code of 1986, as amended from time to time
or any successor statute (the “
Code
”), of a
“real estate mortgage investment conduit,” within the meaning of Section 860D of
the Code (a “
REMIC
Trust
”), that
holds this Note, and provided no Event of Default has occurred and is continuing
hereunder or under any of the other Loan Documents, at Borrower’s option, Lender
shall cause the release of the Property from the lien of the Security Instrument
and the other Loan Documents (a “
Defeasance
”) upon
the satisfaction of the following conditions:
(A)
Borrower
shall give not more than ninety (90) days’ or less than thirty (30) days’ prior
written notice to Lender specifying the date Borrower intends for the Defeasance
to be consummated (the “
Release
Date
”), which
date shall be a Payment Date.
(B)
All
accrued and unpaid interest and all other sums due under this Note and under the
other Loan Documents up to and including the Release Date shall be paid in full
on or prior to the Release Date.
(C)
Borrower
shall deliver to Lender on or prior to the Release Date:
(1)
a sum of
money in immediately available funds (the “
Defeasance
Deposit
”) which
shall be sufficient to enable Lender to purchase, through means and sources
customarily employed and available to Lender, or at the election of Borrower to
enable a third party defeasance company selected by Borrower and reasonably
acceptable to Lender to purchase on behalf of Lender, for the account of
Borrower, (x) direct, non-callable, fixed rate obligations of the United States
of America or (y) non-callable, fixed rate obligations, other than U.S. Treasury
Obligations, that are “government securities” within the meaning of Section
2(a)(16) of the Investment Company Act of 1940, as amended, that provide for
payments prior, but as close as possible, to all successive monthly Payment
Dates occurring after the Release Date and to the Lockout Expiration Date, with
each such payment being equal to or greater than the amount of the corresponding
installment of principal and/or interest required to be paid under this Note
(including, but not limited to, the scheduled outstanding principal balance of
the Loan due on the Maturity Date based upon payments of principal and interest
through the Lockout Expiration Date)
for the
balance
of the
term hereof (the “
Defeasance
Collateral
”), each
of which shall be duly endorsed by the holder thereof as directed by Lender or
accompanied by a written instrument of transfer in form and substance
satisfactory to Lender in its sole discretion (including, without limitation,
such instruments as may be required by the depository institution holding such
securities or the issuer thereof, as the case may be, to effectuate book-entry
transfers and pledges through the book-entry facilities of such institution) in
order to perfect upon the delivery of the Defeasance Security Agreement (as
hereinafter defined) the first priority security interest in the Defeasance
Collateral in favor of Lender in conformity with all applicable state and
federal laws governing granting of such security interests.
(2)
a pledge
and security agreement, in form and substance reasonably satisfactory to Lender,
creating a first priority security interest in favor of Lender in the Defeasance
Collateral (the “
Defeasance Security
Agreement
”);
(3)
a
certificate of Borrower certifying that all of the requirements set forth in
this subsection 1.5(d)(i) have been satisfied or waived;
(4)
one or
more opinions of counsel for Borrower in form and substance and delivered by
counsel which would be reasonably satisfactory to Lender stating, among other
things, that (i) Lender has a perfected first priority security interest in the
Defeasance Collateral and that the Defeasance Security Agreement is enforceable
against Borrower in accordance with its terms (subject to creditors rights and
bankruptcy), (ii) in the event of a bankruptcy proceeding or similar occurrence
with respect to Borrower, none of the Defeasance Collateral nor any proceeds
thereof will be property of Borrower’s estate under Section 541 of the U.S.
Bankruptcy Code, as amended, or any similar statute and the grant of security
interest therein to Lender shall not constitute an avoidable preference under
Section 547 of the U.S. Bankruptcy Code, as amended, or applicable state law,
(iii) the release of the lien of the Security Instrument and the pledge of
Defeasance Collateral will not directly or indirectly result in or cause any
REMIC Trust that then holds this Note to fail to maintain its status as a REMIC
Trust and (iv) the defeasance will not cause any REMIC Trust to be an
“investment company” under the Investment Company Act of 1940;
(5)
evidence
in writing from any applicable Rating Agency (as defined in the Security
Instrument) to the effect that the Defeasance will not result in a downgrading,
withdrawal or qualification of the respective ratings in effect immediately
prior to such Defeasance for any Securities (as hereinafter defined) issued in
connection with the securitization which are then outstanding;
provided
,
however
, no
evidence from a Rating Agency shall be required if this Note does not meet the
then-current review requirements of such Rating Agency.
(6)
a
certificate in form and scope acceptable to Lender in its reasonable discretion
from an independent accountant reasonably acceptable to Lender certifying that
the Defeasance Collateral will generate amounts sufficient to make all payments
of principal and interest due under this Note (including the scheduled
outstanding principal balance of the Loan due on the Maturity
Date);
(7)
Borrower
and any guarantor or indemnitor of Borrower’s obligations under the Loan
Documents for which Borrower has personal liability executes and delivers to
Lender such documents and agreements as Lender shall reasonably require to
evidence and effectuate the ratification of such personal liability and guaranty
or indemnity, respectively for any acts, omissions, liabilities or obligations
arising on or prior to the Release Date;
(8)
such
other certificates, documents or instruments as Lender may reasonably require;
and
(9)
payment
of all reasonable fees, costs, expenses and charges actually incurred by Lender
in connection with the Defeasance of the Property and the purchase of the
Defeasance Collateral, including, without limitation, all reasonable legal fees
and costs and expenses incurred by Lender or its agents in connection with
release of the Property, review of the proposed Defeasance Collateral and
preparation of the Defeasance Security Agreement and related documentation, any
revenue, documentary, stamp, intangible or other taxes, charges or fees due in
connection with transfer of the Note, assumption of the Note, or substitution of
collateral for the Property shall be paid on or before the Release Date. Without
limiting Borrower’s obligations with respect thereto, Lender shall be entitled
to deduct all such fees, costs, expenses and charges from the Defeasance Deposit
to the extent of any portion of the Defeasance Deposit which exceeds the amount
necessary to purchase the Defeasance Collateral.
(D)
In
connection with the Defeasance Deposit, unless Borrower shall make satisfactory
arrangements with a third party provider reasonably acceptable to Lender,
Borrower hereby authorizes and directs Lender using the means and sources
customarily employed and available to Lender to use the Defeasance Deposit to
purchase for the account of Borrower the Defeasance Collateral. Furthermore, the
Defeasance Collateral shall be arranged such that payments received from such
Defeasance Collateral shall be paid directly to Lender to be applied on account
of the indebtedness of this Note. Any part of the Defeasance Deposit in excess
of the amount necessary to purchase the Defeasance Collateral and to pay the
other and related costs Borrower is obligated to pay under this
Section
1.5
shall be
promptly refunded to Borrower.
(ii)
Upon
compliance with the requirements of subsection 1.5(d)(i), the entire Property,
shall be released from the lien of the Security Instrument and the other Loan
Documents, and the Defeasance Collateral shall constitute collateral which shall
secure this Note, and all other obligations under the Loan Documents. Lender
will, at Borrower’s expense, execute and deliver any agreements reasonably
requested by Borrower to release the lien of the Security Instrument from the
Property.
(iii)
Upon the
release of the Property in accordance with this
Section
1.5(d)
,
Borrower shall assign all its obligations and rights under this Note, together
with the pledged Defeasance Collateral, to a newly created successor entity
which complies with the terms of
Section
2.29
of the
Security Instrument designated
by
Lender in its sole discretion. Such successor entity shall execute an assumption
agreement in form and substance satisfactory to Lender in its sole discretion
pursuant to which it shall assume Borrower’s obligations under this Note and the
Defeasance Security Agreement. As conditions to such assignment and assumption,
Borrower shall (x) deliver to Lender an opinion of counsel in form and substance
satisfactory to a prudent lender and delivered by counsel satisfactory to a
prudent lender stating, among other things, that such assumption agreement is
enforceable against Borrower and such successor entity in accordance with its
terms and that this Note and the Defeasance Security Agreement as so assumed,
are enforceable against such successor entity in accordance with their
respective terms, and (y) pay all costs and expenses (including, but not limited
to, legal fees) incurred by Lender or its agents in connection with such
assignment and assumption (including, without limitation, the review of the
proposed transferee and the preparation of the assumption agreement and related
documentation). Upon an assumption of the Note in case of full defeasance,
Borrower and any guarantor shall be relieved of its obligations hereunder, under
the other Loan Documents other than as specified in
Section
1.5(d)(i)(C)(7)
above
and under the Defeasance Security Agreement (or other Defeasance
document).
Section
1.6
Security
. The
indebtedness evidenced by this Note and the obligations created hereby are
secured by, among other things, that certain deed of trust of even date herewith
(the “Security Instrument”). The Security Instrument, together with this Note
and all other documents to or of which Lender is a party or beneficiary now or
hereafter evidencing, securing, guarantying, modifying or otherwise relating to
the indebtedness evidenced hereby, are herein referred to collectively as the
“Loan Documents”. All terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Security Instrument. All of the terms and
provisions of the Loan Documents are incorporated herein by reference. Some of
the Loan Documents are to be filed for record on or about the date hereof in the
appropriate public records.
ARTICLE II
DEFAULT
Section
2.1
Events of
Default
. It is
hereby expressly agreed that should any default occur in the payment of
principal or interest as stipulated above and such payment is not made on the
date such payment is due, or should any other default occur under any other Loan
Document and not be cured within any applicable grace, cure or notice period (if
any), then an Event of Default (an “
Event of
Default
”) shall
exist hereunder, and in such event the indebtedness evidenced hereby, including
all sums advanced or accrued hereunder or under any other Loan Document, and all
unpaid interest accrued thereon, shall, at the option of Lender and without
notice to Borrower, at once become due and payable and may be collected
forthwith, whether or not there has been a prior demand for payment and
regardless of the stipulated date of maturity.
Section
2.2
Late
Charges
. In the
event that any payment (other than the final payment due on the Maturity Date)
is not received by Lender on the date when due (subject to any applicable grace
period), then, in addition to any default interest payments due hereunder,
Borrower shall also pay to Lender a late charge in an amount equal to five
percent (5%) of the amount of such overdue payment.
Section
2.3
Default Interest
Rate
. So long
as any Event of Default exists hereunder or under any other Loan Document,
regardless of whether or not there has been an acceleration of the indebtedness
evidenced hereby, and at all times after maturity of the indebtedness evidenced
hereby (whether by acceleration or otherwise), interest shall accrue on the
outstanding principal balance of this Note, from the date due until the date
credited, at a rate per annum equal to five percent (5%) in excess of the Note
Rate, or, if such increased rate of interest may not be collected under
applicable law, then at the maximum rate of interest, if any, which may be
collected from Borrower under applicable law (as applicable, the “
Default Interest
Rate
”), and
such default interest shall be immediately due and payable.
Section
2.4
Borrower’s
Agreements
.
Borrower acknowledges that it would be extremely difficult or impracticable to
determine Lender’s actual damages resulting from any late payment or default,
and such late charges and default interest are reasonable estimates of those
damages and do not constitute a penalty. The remedies of Lender in this Note or
in the Loan Documents, or at law or in equity, shall be cumulative and
concurrent, and to the extent permitted by applicable law may be pursued singly,
successively or together, in Lender’s discretion.
Section
2.5
Borrower to Pay
Costs
. In the
event that this Note, or any part hereof, is collected by or through an
attorney-at-law, Borrower agrees to pay all costs of collection, including, but
not limited to, reasonable attorneys’ fees.
Section
2.6
Exculpation
.
Notwithstanding anything to the contrary contained in this Note or the other
Loan Documents, the obligations of Borrower hereunder shall be non-recourse
except with respect to the Property and as otherwise provided in Section 18.32
of the Security Instrument, the terms of which are incorporated
herein.
ARTICLE III
GENERAL
CONDITIONS
Section
3.1
No Waiver;
Amendment
. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a partial or past due payment, or indulgences granted
from time to time shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Lender thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by any applicable
laws; and to the fullest extent permitted by law, Borrower hereby expressly
waives the benefit of any statute or rule of law or equity now provided, or
which may hereafter be provided, which would produce a result contrary to or in
conflict with the foregoing. No extension of the time for the payment of this
Note or any installment due hereunder made by agreement with any person now or
hereafter liable for the payment of this Note shall operate to release,
discharge, modify, change or affect the original liability of Borrower under
this Note, either in whole or in part, unless Lender agrees otherwise in
writing. This Note 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.
Section
3.2
Waivers
.
Presentment for payment, demand, protest and notice of demand, protest and
nonpayment and all other notices are hereby waived by Borrower. Borrower hereby
further waives and renounces, to the fullest extent permitted by law, all rights
to the benefits of any moratorium, reinstatement, marshaling, forbearance,
valuation, stay, extension, redemption, appraisement, exemption and homestead
now or hereafter provided by the Constitution and laws of the United States of
America and of each state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Note or the other Loan Documents.
Section
3.3
Limit of
Validity
. The
provisions of this Note and of all agreements between Borrower and Lender,
whether now existing or hereafter arising and whether written or oral,
including, but not limited to, the Loan Documents, are hereby expressly limited
so that in no contingency or event whatsoever, whether by reason of demand or
acceleration of the maturity of this Note or otherwise, shall the amount
contracted for, charged, taken, reserved, paid or agreed to be paid
(“
Interest
”) to
Lender for the use, forbearance or detention of the money loaned under this Note
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, performance or fulfillment of any provision hereof or
of any agreement between Borrower and Lender shall, at the time performance or
fulfillment of such provision shall be due, exceed the limit for Interest
prescribed by law or otherwise transcend the limit of validity prescribed by
applicable law, then, ipso facto, the obligation to be performed or fulfilled
shall be reduced to such limit, and if, from any circumstance whatsoever, Lender
shall ever receive anything of value deemed Interest by applicable law in excess
of the maximum lawful amount, an amount equal to any excessive Interest shall be
applied to the reduction of the principal balance owing under this Note in the
inverse order of its maturity (whether or not then due) or, at the option of
Lender, be paid over to Borrower, and not to the payment of Interest. All
Interest (including any amounts or payments judicially or otherwise under the
law deemed to be Interest) contracted for, charged, taken, reserved, paid or
agreed to be paid to Lender shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of this Note,
including any extensions and renewals hereof until payment in full of the
principal balance of this Note so that the Interest thereon for such full term
will not exceed at any time the maximum amount permitted by applicable law. To
the extent United States federal law permits a greater amount of interest than
is permitted under the law of the State in which the Property is located, Lender
will rely on United States federal law for the purpose of determining the
maximum amount permitted by applicable law. Additionally, to the extent
permitted by applicable law now or hereafter in effect, Lender may, at its
option and from time to time, implement any other method of computing the
maximum lawful rate under the law of the State in which the Property is located
or under other applicable law by giving notice, if required, to Borrower as
provided by applicable law now or hereafter in effect. This Section 3.3 will
control all agreements between Borrower and Lender.
Section
3.4
Use of
Funds
.
Borrower hereby warrants, represents and covenants that no funds disbursed
hereunder shall be used for personal, family or household purposes.
Section
3.5
Unconditional
Payment
. Subject
to Section 2.6 above, Borrower is and shall be obligated to pay principal,
interest and any and all other amounts which become payable hereunder or under
the other Loan Documents absolutely and unconditionally and without any
abatement, postponement, diminution or deduction and without any reduction for
counterclaim or setoff. In the event that at any time any payment received by
Lender hereunder shall be deemed by a court of competent jurisdiction to have
been a voidable preference or fraudulent conveyance under any bankruptcy,
insolvency or other debtor relief law, then the obligation to make such payment
shall survive any cancellation or satisfaction of this Note or return thereof to
Borrower and shall not be discharged or satisfied with any prior payment thereof
or cancellation of this Note, but shall remain a valid and binding obligation
enforceable in accordance with the terms and provisions hereof, and such payment
shall be immediately due and payable upon demand.
Section
3.6
Governing
Law
. This
Note shall be governed by and construed in accordance with the laws of the State
of Nebraska and the applicable laws of the United States of America. Borrower
hereby irrevocably submits to the jurisdiction of any court of competent
jurisdiction located in the State of Nebraska in connection with any proceeding
out of or relating to this Note.
Section
3.7
Waiver of Jury
Trial
.
BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY
AND VOLUNTARILY, AFTER CONSULTATION WITH COMPETENT COUNSEL, WAIVES, RELINQUISHES
AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THE DEBT EVIDENCED BY THIS
NOTE OR ANY CONDUCT, ACT OR OMISSION OF LENDER OR BORROWER, OR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR
ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, IN EACH OF
THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.
ARTICLE IV
MISCELLANEOUS
PROVISIONS
Section
4.1
Successors and Assigns;
Joint and Several; Interpretation
. The
terms and provisions hereof shall be binding upon and inure to the benefit of
Borrower and Lender and their respective heirs, executors, legal
representatives, successors, successors in title and assigns, whether by
voluntary action of the parties or by operation of law. As used herein, the
terms “Borrower” and “Lender” shall be deemed to include their respective heirs,
executors, legal representatives, successors, successors in title and assigns,
whether by voluntary action of the parties or by operation of law. If Borrower
consists of more than one person or entity, each shall be jointly and severally
liable to perform the obligations of Borrower under this Note. All personal
pronouns used herein, whether used in the masculine, feminine or neuter gender,
shall include all other genders; the singular shall include the plural and vice
versa. Titles of articles and sections are for convenience only and in no way
define, limit, amplify or describe the scope or intent of any provisions hereof.
Time is of the essence with respect to all provisions of this Note. This Note
and the other Loan Documents contain the entire agreements between the parties
hereto relating to the subject matter hereof and thereof and all prior
agreements relative hereto and thereto which are not contained herein or therein
are terminated.
Section
4.2
Taxpayer
Identification
.
Borrower’s Tax Identification Number is 20-5956155.
Section
4.3
State Specific
Provisions
. A
credit agreement must be in writing to be enforceable under Nebraska law. To
protect the Borrower and the Lender from any misunderstandings or
disappointments, any contract, promise, undertaking, or offer to forbear
repayment of money or to make any other financial accommodation in connection
with this loan of money or grant or extension of credit, or any amendment of,
cancellation of, waiver of, or substitution for any or all of the terms or
provisions of any instrument or document executed in connection with this loan
of money or grant or extension of credit, must be in writing to be
effective.
[THE
BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, Borrower has executed this Note under seal as of the date first
written above.
|
|
|
|
LVP
OAKVIEW STRIP CENTER LLC,
a
Delaware limited liability company
|
|
|
|
|
By:
|
/s/ David
Lichtenstein
|
|
Name:
David Lichtenstein
Title:
President
|
STATE OF NEBRASKA
|
)
|
|
) ss.
|
COUNTY OF
_____________
|
)
|
The
foregoing instrument was acknowledged before me this ______ day of December,
2006 by David Lichtenstein as President of LVP OAKVIEW STRIP CENTER LLC, a
Delaware limited liability company, on behalf of the limited liability
company.
ANNEX 1
TO $27,500,000.00
PROMISSORY
NOTE
BY
LVP
OAKVIEW STRIP CENTER
LLC
TO
WACHOVIA BANK, NATIONAL ASSOCIATION
Payment
Date
|
|
Scheduled
Payment
|
2/11/2007
|
|
127,996.80
|
3/11/2007
|
|
115,610.02
|
4/11/2007
|
|
127,996.80
|
5/11/2007
|
|
123,867.88
|
6/11/2007
|
|
127,996.80
|
7/11/2007
|
|
123,867.88
|
8/11/2007
|
|
127,996.80
|
9/11/2007
|
|
127,996.80
|
10/11/2007
|
|
123,867.88
|
11/11/2007
|
|
127,996.80
|
12/11/2007
|
|
123,867.88
|
1/11/2008
|
|
127,996.80
|
2/11/2008
|
|
127,996.80
|
3/11/2008
|
|
119,738.95
|
4/11/2008
|
|
127,996.80
|
5/11/2008
|
|
123,867.88
|
6/11/2008
|
|
127,996.80
|
7/11/2008
|
|
123,867.88
|
8/11/2008
|
|
127,996.80
|
9/11/2008
|
|
127,996.80
|
10/11/2008
|
|
123,867.88
|
11/11/2008
|
|
127,996.80
|
12/11/2008
|
|
123,867.88
|
1/11/2009
|
|
127,996.80
|
2/11/2009
|
|
127,996.80
|
3/11/2009
|
|
115,610.02
|
4/11/2009
|
|
127,996.80
|
5/11/2009
|
|
123,867.88
|
6/11/2009
|
|
127,996.80
|
7/11/2009
|
|
123,867.88
|
8/11/2009
|
|
127,996.80
|
9/11/2009
|
|
127,996.80
|
10/11/2009
|
|
123,867.88
|
11/11/2009
|
|
127,996.80
|
12/11/2009
|
|
123,867.88
|
1/11/2010
|
|
127,996.80
|
2/11/2010
|
|
127,996.80
|
3/11/2010
|
|
115,610.02
|
4/11/2010
|
|
127,996.80
|
5/11/2010
|
|
123,867.88
|
6/11/2010
|
|
127,996.80
|
7/11/2010
|
|
123,867.88
|
8/11/2010
|
|
127,996.80
|
9/11/2010
|
|
127,996.80
|
10/11/2010
|
|
123,867.88
|
11/11/2010
|
|
127,996.80
|
12/11/2010
|
|
123,867.88
|
1/11/2011
|
|
127,996.80
|
2/11/2011
|
|
127,996.80
|
3/11/2011
|
|
115,610.02
|
4/11/2011
|
|
127,996.80
|
5/11/2011
|
|
123,867.88
|
6/11/2011
|
|
127,996.80
|
7/11/2011
|
|
123,867.88
|
8/11/2011
|
|
127,996.80
|
9/11/2011
|
|
127,996.80
|
10/11/2011
|
|
123,867.88
|
11/11/2011
|
|
127,996.80
|
12/11/2011
|
|
123,867.88
|
1/11/2012
|
|
127,996.80
|
EXHIBIT
10.20
GUARANTY
THIS
GUARANTY (“
Guaranty
”) is
executed as of December 20, 2006, by LIGHTSTONE VALUE PLUS REAL ESTATE
INVESTMENT TRUST, INC., a Maryland corporation (“
Guarantor
”) for
the benefit of WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association, and its successors and assigns (“
Lender
”).
A.
LVP
OAKVIEW STRIP CENTER LLC, a Delaware limited liability company (the
“
Borrower
”) is
indebted to Lender with respect to a loan (“
Loan
”)
pursuant to that certain promissory note dated of even date herewith, payable to
the order of Lender in the original principal amount of TWENTY-SEVEN MILLION
FIVE HUNDRED THOUSAND AND
00/100
DOLLARS ($27,500,000.00)
(together with all renewals, modifications, increases and extensions thereof,
collectively, the “
Note
”), which
is secured by the liens and security interests created by that certain Deed of
Trust, Security Agreement, Assignment of Rents and Fixture Filing (the
“
Security
Instrument
”), from
the Borrower, to the trustee named therein, for the benefit of the Lender dated
of even date herewith and further evidenced, secured or governed by the other
Loan Documents (as defined in the Security Instrument); and
B.
Lender is
not willing to make the Loan, or otherwise extend credit, to Borrower unless
Guarantor unconditionally guarantees payment and performance to Lender of the
Guaranteed Obligations (as hereinafter defined); and
C.
Guarantor
is the owner of a direct or indirect interest in Borrower, and Guarantor will
directly benefit from Lender’s making the Loan to Borrower.
NOW,
THEREFORE, as an inducement to Lender to make the Loan to Borrower thereunder,
and to extend such additional credit as Lender may from time to time agree to
extend under the Loan Documents, and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
do hereby agree as follows:
ARTICLE I
NATURE AND SCOPE OF
GUARANTY
Section
1.1
G
UARANTY OF
O
BLIGATION
.
Guarantor hereby absolutely, irrevocably and unconditionally guarantees to
Lender (and its successors and assigns) the payment and performance of the
Guaranteed Obligations as and when the same shall be due and payable, whether
upon demand by Lender or by lapse of time, by acceleration of maturity or
otherwise. Guarantor hereby absolutely, irrevocably and unconditionally
covenants and agrees that Guarantor is liable for the Guaranteed Obligations as
a primary obligor, and that Guarantor shall fully perform each and every term
and provision hereof.
Section
1.2
D
EFINITION OF
G
UARANTEED
O
BLIGATIONS
. As used
herein, the term “
Guaranteed
Obligations
” shall
be deemed to include, and Guarantor shall be liable for, and shall indemnify,
defend and hold Lender harmless from and against, any and all Losses (as
hereinafter defined) incurred or suffered by Lender and/or any of its affiliates
and arising out of or in connection with the matters listed below:
(a)
fraud or
intentional misrepresentation or failure to disclose a material fact or any
untrue statement of a material fact or omission to state a material fact in any
the written materials and/or information provided to Lender or any of its
affiliates in all cases by or on behalf of Borrower or Guarantor or any of their
Affiliates in connection with the Security Instrument, the Note or the other
Loan Documents;
(b)
the
misappropriation by Borrower, Guarantor or any of their Affiliates of any tenant
security deposits or Rent received by Borrower (or received by its Partners) (i)
more than one (1) month in advance of the due date thereof (other than Rents
deemed to be "additional rents" under Leases) or (ii) after the occurrence of an
Event of Default and not either delivered to Lender (or Lender's agent) or
applied to ordinary and necessary expenses of owning and operating the Property;
(c)
the
misapplication or conversion by Borrower, Guarantor or any of their Affiliates
of Loss Proceeds to the extent actually paid by the insurer;
(d)
any arson
or physical waste to or of the Property or damage to the Property in each case
resulting from the intentional acts or intentional omissions of Borrower or any
Affiliate of Borrower;
(e)
Borrower’s
failure to comply with the provisions of
Sections 2.02(g), 16.01 or
16.02
,
inclusive, of the Security Instrument;
(f)
the
exercise of any right or remedy under any federal, state or local forfeiture
laws resulting in the loss or impairment of the lien of the Security Instrument,
or the priority thereof, against the Property;
(g)
any
claims, actions or proceedings initiated by Borrower (or any Affiliate of
Borrower) alleging that the relationship of Borrower and Lender is that of joint
venturers, partners, tenants in common, joint tenants or any relationship other
than that of debtor and creditor; or
(h)
Borrower's
failure to pay any valid taxes, assessments, construction or mechanic's liens or
other liens which could create liens on any portion of the Property superior to
the lien or security title of the Security Instrument or the other Loan
Documents, except, (1) with respect to any such taxes or assessments, to the
extent that funds have been deposited with Lender pursuant to the terms of the
Security Instrument specifically for the applicable taxes or assessments and not
applied by Lender to pay such taxes and (2) to the extent that there is
insufficient available cash flow at any time to enable Borrower to pay all
operating expenses (including taxes and assessments) then due and
payable
,
necessary property improvement expenditures and amounts due and payable under
the Loan Documents (as demonstrated to the reasonable satisfaction of Lender)
and Borrower applies all available cash flow to the payment of any one or more
of the foregoing items
.
In
addition, in the event (i) any proceeding, action, petition or filing under
the Bankruptcy Code, or any similar state or federal law now or hereafter in
effect relating to bankruptcy, reorganization or insolvency, or the arrangement
or adjustment of debts of Borrower shall be filed by, consented to or acquiesced
in by Borrower or Guarantor, or filed against Borrower by any Affiliate (as
defined in the Security Instrument) of either Borrower or Guarantor, or if
Borrower or Guarantor or any Affiliate of either of them shall institute any
proceeding for Borrower’s dissolution or liquidation, or Borrower shall make an
assignment for the benefit of creditors, (ii) of a Transfer in violation of the
provisions of Article IX of the Security Instrument, or (iii) Borrower or any
Affiliate contests or interferes with Lender’s enforcement of its rights and
remedies hereunder or under the Loan documents by asserting any defense (x) as
to the validity of the obligations under the Loan Documents or in any way
relating to the structure of the Company or the enforceability of Lender’s
rights and remedies under the Loan Documents, or (y) for the purpose of
delaying, hindering or impairing Lender’s rights and remedies under the Loan
Documents (provided that if any such Person obtains a non-appealable order
successfully asserting a Contest, Guarantor shall have no liability under this
clause (iii)), then the Guaranteed Obligations shall also include the unpaid
balance of the Debt.
For
purposes of this Guaranty, the term “
Losses
”
includes any and all claims, suits, liabilities (including, without limitation,
strict liabilities), actions, proceedings, obligations, debts, actual damages,
actual losses, actual costs, actual expenses, diminutions in value, fines,
penalties, charges, fees, expenses, judgments, awards, amounts paid in
settlement, punitive damages of whatever kind or nature (including but not
limited to reasonable attorneys’ fees and other costs of defense).
Section
1.3
N
ATURE OF
G
UARANTY
. This
Guaranty is an irrevocable, absolute, continuing unlimited guaranty of payment
and performance, is joint and several and is not a guaranty of collection. This
Guaranty shall continue to be effective with respect to any Guaranteed
Obligations arising or created after any attempted revocation by Guarantor and
after (if Guarantor is a natural Person) Guarantor’s death (in which event this
Guaranty shall be binding upon Guarantor’s estate and Guarantor’s legal
representatives and heirs). The obligations of Guarantor under this Guaranty
shall survive any foreclosure proceeding, any foreclosure sale and delivery of
any deed in lieu of foreclosure, and any release of record of the Security
Instrument. The fact that at any time or from time to time the Guaranteed
Obligations may be increased or reduced shall not release or discharge the
obligation of Guarantor to Lender with respect to the Guaranteed Obligations.
This Guaranty may be enforced by Lender and any subsequent holder of the Note
and shall not be discharged by the assignment or negotiation of all or part of
the Note.
Section
1.4
G
UARANTEED
O
BLIGATIONS
N
OT
R
EDUCED BY
O
FFSET
.
The
Guaranteed Obligations and the liabilities and obligations of Guarantor to
Lender hereunder shall not be reduced, discharged or released because or by
reason of any existing or future offset, claim or defense of Borrower, or any
other Person, against Lender or against payment of the Guaranteed Obligations,
whether such offset, claim or defense arises in connection with the Guaranteed
Obligations (or the transactions creating the Guaranteed Obligations) or
otherwise.
Section
1.5
P
AYMENT BY
G
UARANTOR
. If all
or any part of the Guaranteed Obligations shall not be punctually paid when due,
whether at maturity or earlier by acceleration or otherwise, Guarantor shall,
immediately upon demand by Lender, and without presentment, protest, notice of
protest, notice of non-payment, notice of intention to accelerate the maturity,
notice of acceleration of the maturity, or any other notice whatsoever, pay in
lawful money of the United States of America, the amount due on the Guaranteed
Obligations to Lender at Lender’s address as set forth herein. Such demand(s)
may be made at any time coincident with or after the time for payment of all or
part of the Guaranteed Obligations, and may be made from time to time with
respect to the same or different items of Guaranteed Obligations. Such demand
shall be deemed made, given and received in accordance with the notice
provisions hereof.
Section
1.6
N
O
D
UTY TO
P
URSUE
O
THERS
. It
shall not be necessary for Lender (and Guarantor hereby waives any rights which
Guarantor may have to require Lender), in order to enforce this Guaranty against
Guarantor, first to (i) institute suit or exhaust its remedies against Borrower
or others liable on the Loan or the Guaranteed Obligations or any other Person,
(ii) enforce Lender’s rights against any collateral which shall ever have been
given to secure the Loan, (iii) enforce Lender’s rights against any other
guarantors of the Guaranteed Obligations, (iv) join Borrower or any others
liable on the Guaranteed Obligations in any action seeking to enforce this
Guaranty, (v) exhaust any remedies available to Lender against any collateral
which shall ever have been given to secure the Loan, or (vi) resort to any other
means of obtaining payment of the Guaranteed Obligations. Lender shall not be
required to mitigate damages or take any other action to reduce, collect or
enforce the Guaranteed Obligations.
Section
1.7
W
AIVERS
.
Guarantor agrees to the provisions of the Loan Documents, and hereby waives
notice of (i) any loans or advances made by Lender to Borrower, (ii) acceptance
of this Guaranty, (iii) any amendment or extension of the Note or of any other
Loan Documents, (iv) the execution and delivery by Borrower and Lender of any
other loan or credit agreement or of Borrower’s execution and delivery of any
promissory notes or other documents arising under the Loan Documents or in
connection with the Property, (v) the occurrence of any breach by Borrower or
Event of Default, (vi) Lender’s transfer or disposition of the Guaranteed
Obligations, or any part thereof, (vii) sale or foreclosure (or posting or
advertising for sale or foreclosure) of any collateral for the Guaranteed
Obligations, (viii) protest, proof of non-payment or default by Borrower, or
(ix)
any
other action at any time taken or omitted by Lender, and, generally, all demands
and notices of every kind in connection with this Guaranty, the Loan Documents,
any documents or agreements evidencing, securing or relating to any of the
Guaranteed Obligations.
Section
1.8
P
AYMENT OF
E
XPENSES
.
In the
event that Guarantor should breach or fail to timely perform any provisions of
this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender
all costs and expenses (including court costs and reasonable attorneys’ fees)
incurred by Lender in the enforcement hereof or the preservation of Lender’s
rights hereunder. The covenant contained in this section shall survive the
payment and performance of the Guaranteed Obligations.
Section
1.9
E
FFECT OF
B
ANKRUPTCY
. In the
event that, pursuant to any insolvency, bankruptcy, reorganization, receivership
or other debtor relief law, or any judgment, order or decision thereunder,
Lender must rescind or restore any payment, or any part thereof, received by
Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any
prior release or discharge from the terms of this Guaranty given to Guarantor by
Lender shall be without effect, and this Guaranty shall remain in full force and
effect. It is the intention of Borrower and Guarantor that Guarantor’s
obligations hereunder shall not be discharged except by Guarantor’s performance
of such obligations and then only to the extent of such
performance.
Section
1.10
D
EFERRAL OF
R
IGHTS OF
S
UBROGATION
,
R
EIMBURSEMENT AND
C
ONTRIBUTION
.
(b)
Until
payment in full of the Debt (and including interest accruing on the Note after
the commencement of a proceeding by or against Borrower under the Bankruptcy
Code which interest the parties agree shall remain a claim that is prior and
superior to any claim of Guarantor notwithstanding any contrary practice, custom
or ruling in cases under the Bankruptcy Code), Guarantor agrees not to accept
any payment or satisfaction of any kind of indebtedness of Borrower to Guarantor
and hereby assigns such indebtedness to Lender, including the right to file
proof of claim and to vote thereon in connection with any such proceeding under
the Bankruptcy Code, including the right to vote on any plan of reorganization.
If any amount of the type more particularly described in the first sentence of
this Section 1.10(b) shall nevertheless be paid to Guarantor by Borrower prior
to payment in full of all sums owed to Lender under the Loan Documents (the
“
Obligations
”), such
amount shall be held in trust for the benefit of Lender and shall forthwith be
paid to Lender to be credited and applied to the Guaranteed Obligations, whether
matured or unmatured.
(c)
The
provisions of this Section 1.10 shall survive the termination of this Guaranty,
and any satisfaction and discharge of Borrower by virtue of any payment, court
order or any applicable law.
Section
1.11
I
NTENTIONALLY
O
MITTED
.
Section
1.12
“
B
ORROWER
”
. The
term “
Borrower
” as used
herein shall include any new or successor corporation, association, partnership
(general or limited), joint venture, limited liability company, trust or other
individual or organization formed as a result of any merger, reorganization,
sale, transfer, devise, gift or bequest of Borrower or any interest in
Borrower.
ARTICLE 2
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR’S OBLIGATIONS
Guarantor
hereby consents and agrees to each of the following, and agrees that Guarantor’s
obligations under this Guaranty shall not be released, diminished, impaired,
reduced or adversely affected by any of the following, and waives any common
law, equitable, statutory or other rights (including without limitation rights
to notice) which Guarantor might otherwise have as a result of or in connection
with any of the following:
Section
2.1
M
ODIFICATIONS
. Any
renewal, extension, increase, modification, alteration or rearrangement of all
or any part of the Guaranteed Obligations, Note, Loan Documents, or other
document, instrument, contract or understanding between Borrower and Lender, or
any other parties, pertaining to the Guaranteed Obligations or any failure of
Lender to notify Guarantor of any such action.
Section
2.2
A
DJUSTMENT
. Any
adjustment, indulgence, forbearance or compromise that might be granted or given
by Lender to Borrower or any Guarantor.
Section
2.3
C
ONDITION OF
B
ORROWER OR
G
UARANTOR
. The
insolvency, bankruptcy, arrangement, adjustment, composition, liquidation,
disability, dissolution or lack of power of Borrower, Guarantor or any other
Person at any time liable for the payment of all or part of the Guaranteed
Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or
transfer of any or all of the assets of Borrower or Guarantor, or any changes in
the shareholders, partners or members of Borrower or Guarantor; or any
reorganization of Borrower or Guarantor.
Section
2.4
I
NVALIDITY OF
G
UARANTEED
O
BLIGATIONS
. The
invalidity, illegality or unenforceability of all or any part of the Guaranteed
Obligations, or any document or agreement executed in connection with the
Guaranteed Obligations, for any reason whatsoever, including without limitation
the fact that (i) the Guaranteed Obligations, or any part thereof, exceed the
amount permitted by law, (ii) the act of creating the Guaranteed Obligations or
any part thereof, is ultra vires, (iii) the officers or representatives
executing the Note or the other Loan Documents or otherwise creating the
Guaranteed Obligations acted in excess of their authority, (iv) the Guaranteed
Obligations violate applicable usury laws, (v) Borrower has valid defenses,
claims or offsets (whether at law, in equity or by agreement) which render the
Guaranteed Obligations wholly or partially uncollectible from Borrower, (vi) the
creation, performance or repayment of the Guaranteed Obligations (or the
execution, delivery and performance of any document or instrument representing
part of the Guaranteed Obligations or executed in connection with the Guaranteed
Obligations, or given to secure the repayment of the Guaranteed Obligations) is
illegal, uncollectible or unenforceable, or (vii) the Note or any of the other
Loan Documents have been forged or otherwise are irregular or not genuine or
authentic, it being agreed that Guarantor shall remain liable hereon regardless
of whether Borrower or any other Person be found not liable on the Guaranteed
Obligations or any part thereof for any reason.
Section
2.5
R
ELEASE OF
O
BLIGORS
. Any
full or partial release of the liability of Borrower on the Guaranteed
Obligations, or any part thereof, or of any co-guarantors, or any other Person
or entity now or hereafter liable, whether directly or indirectly, jointly,
severally, or jointly and severally, to pay, perform, guarantee or assure the
payment of the Guaranteed Obligations, or any part thereof, it being recognized,
acknowledged and agreed by Guarantor that Guarantor may be required to pay the
Guaranteed Obligations in full without assistance or support of any other
Person, and Guarantor has not been induced to enter into this Guaranty on the
basis of a contemplation, belief, understanding or agreement that other parties
will be liable to pay or perform the Guaranteed Obligations, or that Lender will
look to other parties to pay or perform the Guaranteed Obligations.
Section
2.6
O
THER
C
OLLATERAL
. The
taking or accepting of any other security, collateral or guaranty, or other
assurance of payment, for all or any part of the Guaranteed
Obligations.
Section
2.7
R
ELEASE OF
C
OLLATERAL
. Any
release, surrender, exchange, subordination, deterioration, waste, loss or
impairment (including without limitation negligent, willful, unreasonable or
unjustifiable impairment) of any collateral, property or security, at any time
existing in connection with, or assuring or securing payment of, all or any part
of the Guaranteed Obligations.
Section
2.8
C
ARE AND
D
ILIGENCE
. The
failure of Lender or any other Person to exercise diligence or reasonable care
in the preservation, protection, enforcement, sale or other handling or
treatment of all or any part of such collateral, property or security, including
but not limited to any neglect, delay, omission, failure or refusal of Lender
(i) to take or prosecute any action for the collection of any of the Guaranteed
Obligations, (ii) to foreclose, or initiate any action to foreclose, or, once
commenced, prosecute to completion any action to foreclose upon any security
therefor, or (iii) to take or prosecute any action in connection with any
instrument or agreement evidencing or securing all or any part of the Guaranteed
Obligations.
Section
2.9
U
NENFORCEABILITY
. The
fact that any collateral, security, security interest or lien contemplated or
intended to be given, created or granted as security for the repayment of the
Guaranteed Obligations, or any part thereof, shall not be properly perfected or
created, or shall prove to be unenforceable or subordinate to any other security
interest or lien, it being recognized and agreed by Guarantor that Guarantor is
not entering into this Guaranty in reliance on, or in contemplation of the
benefits of, the validity, enforceability, collectibility or value of any of the
collateral for the Guaranteed Obligations.
Section
2.10
O
FFSET
. The
Note, the Guaranteed Obligations and the liabilities and obligations of
Guarantor to Lender hereunder, shall not be reduced, discharged or released
because of or by reason of any existing or future right of offset, claim or
defense of Borrower against Lender, or any other Person, or against payment of
the Guaranteed Obligations, whether such right of offset, claim or defense
arises in connection with the Guaranteed Obligations (or the transactions
creating the Guaranteed Obligations) or otherwise.
Section
2.11
M
ERGER
. The
reorganization, merger or consolidation of Borrower into or with any other
corporation or entity.
Section
2.12
P
REFERENCE
. Any
payment by Borrower to Lender is held to constitute a preference under
bankruptcy laws, or for any reason Lender is required to refund such payment or
pay such amount to Borrower or someone else.
Section
2.13
O
THER
A
CTIONS
T
AKEN OR
O
MITTED
. Any
other action taken or omitted to be taken with respect to the Loan Documents,
the Guaranteed Obligations, or the security and collateral therefor, whether or
not such action or omission prejudices Guarantor or increases the likelihood
that Guarantor will be required to pay the Guaranteed Obligations pursuant to
the terms hereof, it is the unambiguous and unequivocal intention of Guarantor
that Guarantor shall be obligated to pay the Guaranteed Obligations when due,
notwithstanding any occurrence, circumstance, event, action, or omission
whatsoever, whether or not contemplated, and whether or not otherwise or
particularly described herein, which obligation shall be deemed satisfied only
upon the full and final payment and satisfaction of the Guaranteed
Obligations.
ARTICLE 3
REPRESENTATIONS AND
WARRANTIES
To induce
Lender to enter into the Loan Documents and extend credit to Borrower, Guarantor
represents and warrants to Lender as follows:
Section
3.1
B
ENEFIT
.
Guarantor is an Affiliate of Borrower, is the owner of a direct or indirect
interest in Borrower, and has received, or will receive, direct or indirect
benefit from the making of this Guaranty with respect to the Guaranteed
Obligations.
Section
3.2
F
AMILIARITY
A
ND
R
ELIANCE
.
Guarantor is familiar with, and has independently reviewed books and records
regarding, the financial condition of Borrower and is familiar with the value of
any and all collateral intended to be created as security for the payment of the
Note or Guaranteed Obligations; provided, however, Guarantor is not relying on
such financial condition or the collateral as an inducement to enter into this
Guaranty.
Section
3.3
N
O
R
EPRESENTATION
B
Y
L
ENDER
. Neither
Lender nor any other Person has made any representation, warranty or statement
to Guarantor in order to induce Guarantor to execute this Guaranty.
Section
3.4
G
UARANTOR’S
F
INANCIAL
C
ONDITION
.
As of
the date hereof, and after giving effect to this Guaranty and the contingent
obligation evidenced hereby, Guarantor is, and will be, Solvent.
Section
3.5
L
EGALITY
. The
execution, delivery and performance by Guarantor of this Guaranty and the
consummation of the transactions contemplated hereunder do not, and will not,
contravene or conflict with any law, statute or regulation whatsoever to which
Guarantor is subject or constitute a default (or an event which with notice or
lapse of time or both would constitute a default) under, or result in the breach
of, any indenture, mortgage, deed of trust, charge, lien, or any contract,
agreement or other instrument to which Guarantor is a party or which may be
applicable to Guarantor. This Guaranty is a legal and binding obligation of
Guarantor and is enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors’ rights.
Section
3.6
S
URVIVAL
. All
representations and warranties made by Guarantor herein shall survive the
execution hereof.
Section
3.7
R
EVIEW O
F
D
OCUMENTS
.
Guarantor has had the opportunity to examine the Note and all of the Loan
Documents.
Section
3.8
L
ITIGATION
. Except
as otherwise disclosed to Lender, there are no proceedings pending or, so far as
Guarantor knows, threatened before any court or administrative agency which, if
decided adversely to Guarantor, would materially adversely affect the financial
condition of Guarantor or the authority of Guarantor to enter into, or the
validity or enforceability of, this Guaranty.
Section
3.9
T
AX
R
ETURNS
.
Guarantor
has filed all required federal, state and local tax returns and has paid all
taxes as shown on such returns as they have become due. No claims have been
assessed and are unpaid with respect to such taxes.
Section
3.10.
R
EPRESENTATIONS
A
ND
W
ARRANTY
.
Guarantor hereby represents, warrants and covenants that Guarantor's net worth
is, and at all times while this Agreement shall be in effect, shall be not less
than $10,000,000.00.
ARTICLE 4
SUBORDINATION OF CERTAIN
INDEBTEDNESS
Section
4.1
S
UBORDINATION
O
F
A
LL
G
UARANTOR
C
LAIMS
.
As used
herein, the term “
Guarantor
Claims
” shall
mean all debts and liabilities of Borrower to Guarantor, whether such debts and
liabilities now exist or are hereafter incurred or arise, or whether the
obligations of Borrower thereon are direct, contingent, primary, secondary,
several, joint and several, or otherwise, and irrespective of whether such debts
or liabilities be evidenced by note, contract, open account, or otherwise, and
irrespective of the Person or Persons in whose favor such debts or liabilities
may, at their inception, have been, or may hereafter be created, or the manner
in which they have been or may hereafter be acquired by Guarantor. The Guarantor
Claims shall include, without limitation, all rights and claims of Guarantor
against Borrower (arising as a result of subrogation or otherwise) as a result
of Guarantor’s payment of all or a portion of the Guaranteed Obligations to the
extent the provisions of
Section
1.10
hereof
are unenforceable. Upon the occurrence and during the continuance of a Default,
Guarantor shall not receive or collect, directly or indirectly, from Borrower or
any other Person any amount upon the Guarantor Claims.
Section
4.2
C
LAIMS I
N
B
ANKRUPTCY
.
In the
event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief,
or other insolvency proceedings involving Guarantor as debtor, Lender shall have
the right to prove its claim in any such proceeding so as to establish its
rights hereunder and receive directly from the receiver, trustee or other court
custodian dividends and payments which would otherwise be payable upon Guarantor
Claims. Guarantor hereby assigns such dividends and payments to Lender. Should
Lender receive, for application upon the Guaranteed Obligations, any such
dividend or payment which is otherwise payable to Guarantor, and which, as
between Borrower and Guarantor, shall constitute a credit upon the Guarantor
Claims, then upon payment to Lender in full of the Guaranteed Obligations,
Guarantor shall become subrogated to the rights of Lender to the extent that
such payments to Lender on the Guarantor Claims have contributed toward the
liquidation of the Guaranteed Obligations, and such subrogation shall be with
respect to that portion of the Guaranteed Obligations which would have been
unpaid if Lender had not received dividends or payments upon the Guarantor
Claims.
Section
4.3
P
AYMENTS
H
ELD I
N
T
RUST
.
In the
event that, notwithstanding anything to the contrary in this Guaranty, Guarantor
should receive any funds, payment, claim or distribution which is prohibited by
this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to
the amount of all funds, payments, claims or distributions so received, and
agrees that it shall have absolutely no dominion over the amount of such funds,
payments, claims or distributions so received except to pay them promptly to
Lender, and Guarantor covenants promptly to pay the same to Lender.
Section
4.4
L
IENS
S
UBORDINATE
.
Guarantor
agrees that any liens, security interests, judgment liens, charges or other
encumbrances upon Borrower’s assets securing payment of the Guarantor Claims
shall be and remain inferior and subordinate to any liens, security interests,
judgment liens, charges or other encumbrances upon Borrower’s assets securing
payment of the Guaranteed Obligations, regardless of whether such encumbrances
in favor of Guarantor or Lender presently exist or are hereafter created or
attach. Without the prior written consent of Lender, Guarantor shall not (i)
exercise or enforce any creditor’s right it may have against Borrower, or (ii)
foreclose, repossess, sequester or otherwise take steps or institute any action
or proceedings (judicial or otherwise, including without limitation the
commencement of, or joinder in, any liquidation, bankruptcy, rearrangement,
debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds
of trust, security interests, collateral rights, judgments or other encumbrances
on assets of Borrower held by Guarantor.
ARTICLE 5
MISCELLANEOUS
Section
5.2
N
OTICES
. All
notices, requests and other communications to any party hereunder or under the
Note shall be given in the manner set forth in Article XI of the Security
Instrument, and to each addressee at the address set forth below:
Guarantor
:
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|
c/o
The Lightstone Group
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326
Third Street
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Lakewood,
New Jersey 08701
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|
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Attention:
David Lichtenstein
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Facsimile
No.:
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|
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With
a copy to:
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Hirschler
Fleischer
|
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2100
E. Cary Street
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Richmond,
Virginia 23223
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|
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Attention:
David F. Belkowitz, Esq.
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Fax
No.: (804-644-0957
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Lender
:
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Wachovia
Bank, National Association
|
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Commercial
Real Estate Services
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8739
Research Drive URP - 4, NC 1075
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Charlotte,
North Carolina 28262
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|
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Facsimile
No.: (704) 374-6435
|
|
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With
a copy to:
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|
Winston
& Strawn LLP
|
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|
200
Park Avenue
|
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New
York, New York 10166
|
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Attn:
Corey A. Tessler, Esq.
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Facsimile
No.: (212) 294-4700
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or such
other address as Guarantor or Lender shall hereafter specify by not less than
ten (10) days prior written notice as provided herein; provided, however, that
notwithstanding any provision of this Section to the contrary, such notice of
change of address shall be deemed given only upon actual receipt thereof.
Rejection or other refusal to accept or the inability to deliver because of
changed addresses of which no notice was given as herein required shall be
deemed to be receipt of the notice, demand, statement, request or
consent.
Section
5.3
G
OVERNING
L
AW
;
J
URISDICTION
. This
Guaranty shall be governed by and construed in accordance with the laws of the
State of Nebraska and the applicable laws of the United States of America.
Guarantor hereby irrevocably submits to the jurisdiction of any court of
competent jurisdiction located in the State of Nebraska in connection with any
proceeding out of or relating to this Guaranty.
Section
5.4
I
NVALID
P
ROVISIONS
.
If any
provision of this Guaranty is held to be invalid, illegal or unenforceable in
any respect, this Guaranty shall be construed without such
provision.
Section
5.5
A
MENDMENTS
.
The
terms of this Guaranty, together with the terms of the other Loan Documents,
constitute the entire understanding and agreement of the parties hereto and
supersede all prior agreements, understandings and negotiations between
Guarantor and Lender with respect to the Guaranteed Obligations. This Guaranty,
and any provisions hereof, may not be modified, amended, waived, extended,
changed, discharged or terminated orally or by any act on the part of Guarantor
or Lender, but only by an agreement in writing signed by the party against whom
enforcement of any modification, amendment, waiver, extension, change, discharge
or termination is sought.
Section
5.6
P
ARTIES
B
OUND
;
A
SSIGNMENT
.
This
Guaranty shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns and legal representatives; provided,
however, that Guarantor may not, without the prior written consent of Lender,
assign any of its rights, powers, duties or obligations hereunder.
Section
5.7
H
EADINGS
;
C
ONSTRUCTION
O
F
D
OCUMENTS
;
D
EFINITIONS
.
The
headings and captions of various sections of this Guaranty are for convenience
of reference only and are not to be construed as defining or limiting, in any
way, the scope or intent of the provisions hereof. Guarantor acknowledges that
it was represented by competent counsel in connection with the negotiation and
drafting of this Guaranty and the other Loan Documents and that neither this
Guaranty nor the other Loan Documents shall be subject to the principle of
construing the meaning against the Person who drafted same. All capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Security Instrument.
Section
5.8
R
ECITALS
. The
recital and introductory paragraphs hereof are a part hereof, form a basis for
this Guaranty and shall be considered
prima
facie
evidence
of the facts and documents referred to therein.
Section
5.9
C
OUNTERPARTS
.
To
facilitate execution, this Guaranty may be executed in as many counterparts as
may be convenient or required. It shall not be necessary that the signature or
acknowledgment of, or on behalf of, each party, or that the signature of all
Persons required to bind any party, or the acknowledgment of such party, appear
on each counterpart. All counterparts shall collectively constitute a single
instrument. It shall not be necessary in making proof of this Guaranty to
produce or account for more than a single counterpart containing the respective
signatures of, or on behalf of, and the respective acknowledgments of, each of
the parties hereto. Any signature or acknowledgment page to any counterpart may
be detached from such counterpart without impairing the legal effect of the
signatures or acknowledgments thereon and thereafter attached to another
counterpart identical thereto except having attached to it additional signature
or acknowledgment pages.
Section
5.10
C
UMULATIVE
R
IGHTS
. The
rights of Lender under this Guaranty shall be separate, distinct and cumulative
and none shall be given effect to the exclusion of the others. No act of Lender
shall be construed as an election to proceed under any one provision herein to
the exclusion of any other provision. Lender shall not be limited exclusively to
the rights and remedies herein stated but shall be entitled, subject to the
terms of this Guaranty, to every right and remedy now or hereafter afforded by
law.
Section
5.11
W
AIVER
O
F
C
OUNTERCLAIM
A
ND
R
IGHT
T
O
T
RIAL
B
Y
J
URY
.
GUARANTOR HEREBY WAIVES THE RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A
COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY
LENDER OR ITS AGENTS, AND WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR IN ANY COUNTERCLAIM
GUARANTOR MAY BE PERMITTED TO ASSERT HEREUNDER OR WHICH MAY BE ASSERTED BY
LENDER OR ITS AGENTS AGAINST GUARANTOR, OR IN ANY MATTERS WHATSOEVER ARISING OUT
OF OR IN ANY WAY CONNECTED WITH THIS GUARANTY, THE DEBT OR THE GUARANTEED
OBLIGATIONS.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the day and
year first above written.
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GUARANTOR:
|
|
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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT
TRUST, INC., a Maryland corporation
|
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By:
|
David
Lichtenstein
|
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Name:
David Lichtenstein
Title:
President
|
STATE OF NEBRASKA
|
)
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)
ss.
|
COUNTY OF ___________________
|
)
|
The
foregoing instrument was acknowledged before me this ______ day of December,
2006 by _________________ as ____________________ of LIGHSTONE VALUE PLUS REAL
ESTATE INVESTMENT TRUST, INC., a Maryland corporation, on behalf of the
corporation.
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Signature
of Notary Public
|
EXHIBIT
A
(Legal
Description)
Attached
to and forming a part of file number: CRS22144
Parcel
1:
Lots 1,
2, 13 and 14, Oak View Plaza 3rd Platting, an Addition to the City of Omaha, as
surveyed, platted and recorded in Douglas County, Nebraska, EXCEPT that part of
said Lot 13 dedicated for street widening as filed within Book 1280 at Page 429
of the Miscellaneous Records of Douglas County, Nebraska.
Together
with Reciprocal Access, Parking and Utility rights as set forth in Declaration
of Protective Covenants recorded in Book 815 at Page 326 and Amendment to
Declaration of Protective Covenants recorded in Book 1019 at Page 142 and in
Declaration of Covenants, Easements and Restrictions recorded in Book 1030 at
Page 603 and First Amendment to Declaration of Covenants, Easements and
Restrictions recorded in Book 1049 at Page 336, and Second Amendment to
Declaration of Covenants recorded May 17, 2006 as Instrument
No.2005056364;
And also
together with rights of ingress and egress as set forth upon the Plat of Oak
View Plaza (3rd Platting), filed September 19,1996 in Book 2043 at Page 318 of
the Deed Records; And also together with Beneficial RIGHT-OF-WAY EASEMENT,
recorded June 25,1987 in Book 818 at Page 626 of the Miscellaneous
Records
And
together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded September 11,
1992 in Book 1030 at Page 645 of the Miscellaneous Records;
And also
Together with SANITARY, STORM SEWER AND UTILITY EASEMENT and recorded November
23, 1992 in Book 1043 at Page 701 of the Miscellaneous Records; And also
together with Permanent Building Encroachment Easement set forth by instrument
filed August 22, 2000 in Book 1348 at Page 702
all of
the Records of Douglas County, Nebraska; subject to all liens and encumbrances
affecting the same.
Parcel
2:
Lot 1,
Oak View Plaza (3rd Platting) Replat Three, an Addition to the City of Omaha, as
surveyed, platted and recorded in Douglas County, Nebraska.
Together
with Reciprocal Access, Parking and Utility rights as set forth In Declaration
of Protective Covenants recorded in Book 815 at Page 326 and Amendment to
Declaration of Protective Covenants recorded in Book 1019 at Page 142 and in
Declaration of Covenants, Easements and Restrictions recorded In Book 1030 at
Page 603 and First Amendment to Declaration of Covenants, Easements and
Restrictions recorded in Book 1049 at Page 336, and Second Amendment to
Declaration of Covenants recorded May 17, 2006 as Instrument
No.2005056364;
And
together with rights of ingress and egress as set forth upon the Plat of Oak
View Plaza (3rd Platting), filed September 19, 1996 in Book 2043 at Page 318 of
the Deed Records; and also together with Reciprocal Access, Parking and rights
of ingress/egress as set forth within the Reciprocal Easement Agreement recorded
September 19,1997 in Book 1222 at Page 699;
and also
together with Beneficial RIGHT-OF-WAY EASEMENT recorded June 25,1987 in Book 818
at Page 626 of the Miscellaneous Records;
and also
together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded September 11,
1992 in Book 1030 at Page 645 of the Miscellaneous Records; and also Together
with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded November 23, 1992 in
Book 1043 at Page 701 of the Miscellaneous Records;
and also
together with non-exclusive easement rights set forth within Deed of Easement
for Subsurface Construction Elements set forth within the instrument filed
September 14, 2004 as instrument number 2004122176 all of the Records of Douglas
County, Nebraska; subject to all liens and encumbrances affecting the
same.
Parcel
3:
Lot 1,
Oak View Plaza (3rd Platting) Replat Four, an Addition to the City of Omaha, as
surveyed, platted and recorded in Douglas County, Nebraska.
Together
with Reciprocal Access, Parking and Utility rights as set forth in Declaration
of Protective Covenants recorded in Book 815 at Page 326 and Amendment to
Declaration of Protective Covenants recorded in Book 1019 at Page 142 and in
Declaration of Covenants, Easements and Restrictions recorded in Book 1030 at
Page 603 and First Amendment to Declaration of Covenants, Easements and
Restrictions recorded in Book 1049 at Page 336,
and
Second Amendment to Declaration of Covenants recorded May 17, 2006 as Instrument
No.2005056364;
and also
together with rights of ingress and egress as set forth upon the Plat of Oak
View Plaza (3rd Platting), filed September 19,1996 in Book 2043 at Page 318 of
the Deed Records;
and also
together with Reciprocal Access, Parking and rights of ingress/egress as set
forth within the Reciprocal Easement Agreement recorded September 19, 1997 in
Book 1222 at Page 699;
and also
together with Beneficial RIGHT-OF-WAY EASEMENT, recorded June 25,1987 in Book
818 at Page 626 of the Miscellaneous Records;
and also
together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded September 11,
1992 in Book 1030 at rage 645 of the Miscellaneous Records;
and also
Together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded November 23,
1992 in Book 1043 at Page 701 of the Miscellaneous Records;
and also
together with non-exclusive easement rights set forth within Deed of Easement
for Subsurface Construction Elements set forth within the instrument filed May
17, 2005 as instrument number 2005056363, as further amended pursuant to the
Amended Deed of Easement for Subsurface Construction Elements filed July 1, 2005
as instrument number 2005076870, all of the Records of Douglas County, Nebraska;
subject to all liens and encumbrances affecting the same.
Assignment of
Leases and Rents and Security
Deposits
Prepared by and upon
recordation,
return to:
Winston & Strawn
LLP
200 Park Avenue
New York, New York
10166
Attn: Corey A. Tessler,
Esq.
Oakview Plaza
Loan No.:
50-2858289
ASSIGNMENT OF LEASES AND
RENTS AND SECURITY DEPOSITS
THIS
ASSIGNMENT OF LEASES AND RENTS AND SECURITY DEPOSITS (“
Assignment
”), dated
as of December 20, 2006, by the Person identified on the signature page hereof,
(“
Assignor
”),
having the address set forth on the signature page hereof, to WACHOVIA BANK,
NATIONAL ASSOCIATION (“
Assignee
”),
having an address at Commercial Real Estate Services, 8739 Research Drive URP -
4, NC 1075, Charlotte, North Carolina 28262.
RECITALS
Assignee
has made a loan to Assignor in the principal sum of TWENTY-SEVEN MILLION FIVE
HUNDRED THOUSAND AND
00/100
DOLLARS ($27,500,000.00)
,
inter alia
, for the
purpose of acquiring certain real property (the “
Property
”) and
the improvements thereon to be owned by and leased by Assignor to various
tenants. The real property identified on
Exhibit A
annexed
hereto and made a part hereof, owned by Assignor, constitutes a part of the
Property. The loan made to Assignor is evidenced by the Note which is to be
secured, among other things, by this Assignment.
NOW,
THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
Section
1.
Definitions
. All
capitalized undefined terms used herein shall have the respective meanings
assigned thereto in the Deed of Trust, Security Agreement, Assignment of Rents
and Fixture Filing of even date herewith (hereinafter referred to as the
“
Security
Instrument
”) made
by or between, as applicable, Assignor to or and, as applicable, Assignee
encumbering or, where applicable, conveying security title to, the real property
identified on Exhibit A hereto. Defined terms in this Assignment shall include
in the singular number the plural and in the plural number the
singular.
Section
2.
Assignment
. To
secure the prompt payment and performance of each obligation secured by the
Security Instrument, Assignor hereby grants, bargains, sells, assigns,
transfers, conveys and sets over to Assignee all of Assignor’s estate, right,
title, interest, claim and demand in, to and under the leases and other
agreements, whether written or oral, affecting the use, enjoyment or occupancy
of the Premises and/or the Improvements located thereon, whether now existing or
hereafter arising (including any extensions, modifications or amendments
thereto, collectively, the “
Leases
”),
including, without limitation,
(a)
all
claims, rights, powers, privileges, remedies, options and other benefits of
Assignor under the Leases including, without limitation, all cash or securities
now or hereafter deposited thereunder (including, without limitation, any bond
or other similar instrument obtained by Assignor and held in lieu of any such
deposits or to secure such deposits) (collectively, the “
Security
Deposits
”) to
secure performance by tenants of their obligations thereunder, whether such
Security Deposits are to be held until the expiration of the term of any Lease
or applied to one or more of the installments of rent coming due immediately
prior to the expiration of such term and all guarantees of any Leases or other
rental arrangements, and
(b)
any and
all earnings, revenues, rents, issues, profits, proceeds, avails and other
income of and from the Property including, without limitation, the Leases now
due or to become due or to which Assignor may now or shall hereafter become
entitled to claim or demand including, without limitation, the Security Deposits
as and when applied by Assignor towards the payment of rents and other payments
due pursuant to the Leases (collectively, the “
Rents
”),
together
with full power and authority, in the name of Assignor or otherwise, but without
any obligation to do so, and subject to the provisions of this Assignment
including, without limitation, Section 3, to demand, receive, enforce, collect
or receipt for any or all of the foregoing, to endorse or execute any checks or
other instruments or orders, to give receipts, releases and satisfaction, and to
sue, in the name of Assignor or Assignee, for all of the Rents, to subject and
subordinate at any time and from time to time, any Lease to the security title,
security interest and lien, as applicable, of the Security Instrument or any
other mortgage, deed of trust or deed to secure debt affecting the Property, to
file any claims and to take any action which Assignee may deem necessary or
advisable in connection therewith, and Assignor irrevocably appoints Assignee
its true and lawful attorney-in-fact, coupled with an interest, at the option of
Assignee at any time and from time to time to exercise any rights granted to
Assignee herein. No exercise by Assignee of any rights of Assignor hereunder or
under the other Loan Documents shall release Assignor from its obligations under
the Leases.
Section
3.
Certain Rights of
Assignee
. This
Assignment constitutes an absolute, present assignment and not merely an
assignment for additional security. All Rents shall be applied in accordance
with the provisions of Article V of the Security Instrument for the purposes
therein set forth including, without limitation, payments of interest and
principal and any other amounts due and payable under the Note, Security
Instrument or other Loan Documents. Notwithstanding the foregoing, so long as no
Event of Default has occurred and is continuing, Assignor shall have the right
to operate the Property, enter into and modify Leases and commence summary
proceedings against tenants under the Leases, all as more particularly set forth
in Article VII of the Security Instrument.
Without
limitation to any other provision hereof, upon the occurrence and during the
continuance of an Event of Default, Assignee may (but shall have no obligation
to so do), either in person, by agent or by a court-appointed receiver, at any
time without notice, regardless of the adequacy of Assignee’s security, perform
all acts necessary and appropriate for the operation and maintenance of the
Property as set forth in the Security Instrument, all on such terms as are
deemed best to protect the security of this Assignment. In the event Assignee
elects to seek the appointment of a receiver for the Property, or any part
thereof, upon the occurrence and during the continuance of an Event of Default,
Assignor hereby expressly consents to the appointment of such
receiver.
Subsequent
to the occurrence and during the continuance of any Event of Default all Rents
collected may be applied as Assignee shall determine in Assignee’s discretion,
including without limitation to the costs, if any, of taking possession and
control of and managing the Property, or any part thereof, and collecting such
amounts, including, but not limited to, reasonable attorneys’ fees, receiver’s
fees, premiums on receiver’s bonds, costs of repairs to the Property, or any
part thereof, premiums on insurance policies, taxes, assessments and other
charges on the Property, or any part thereof, and to the Debt in such order and
priority as Assignee shall determine. Assignee and its agents or employees or
the receiver shall have access to the books and records used in the operation
and maintenance of the Property at reasonable times and upon reasonable notice
to Assignor, and shall be liable to account only for those Rents actually
received. Neither Assignee nor its agents, employees, officers or directors
shall be liable to Assignor, any Person claiming under or through Assignor or
any Person having an interest in the Leases or any other part of the Property by
reason of Assignee’s rights or remedies hereunder or the exercise thereof other
than with respect to the willful misconduct or gross negligence of Assignee,
provided, however, that the foregoing provisions of this sentence shall not be
deemed to alter or amend the provisions of any indemnification of Assignee (or
its agents, employees, officers and directors) by Assignor hereunder or under
the other Loan Documents.
If the
Rents are not sufficient to meet the costs, if any, of taking possession and
control of and managing the Property, any funds expended by Assignee for such
purposes shall become a part of the Debt secured by this Assignment. Such
amounts shall be payable upon notice from Assignee to Assignor requesting
payment thereof and shall bear interest from the date of such notice at the
Default Rate until paid.
Section
4.
Representations and
Warranties of Assignor
. All of
the representations and warranties contained in Section 2.05(o) of the Security
Instrument are hereby incorporated by reference with the same force and effect
as if fully restated herein.
Section
5.
No Mortgagee in
Possession
. The
acceptance by Assignee of this Assignment, with all of the rights, powers,
privileges and authority so created, shall not, prior to entry upon and taking
of possession of the Property by Assignee, be deemed or construed to constitute
Assignee a mortgagee-in-possession nor thereafter or at any time or in any event
obligate Assignee to appear in or defend any action or proceeding relating to
the Leases, the Rents or any other part of the Property, or to take any action
hereunder, or to expend any money or incur any expenses or perform or discharge
any obligation, duty or liability under the Leases, or to assume any obligation
or responsibility for any Security Deposits or other deposits delivered to
Assignor by any obligor thereunder and not assigned and delivered to Assignee,
nor shall Assignee be liable in any way for any injury or damage to Person or
property sustained by any Person in or about the Premises; the collection of
said Rents and application as aforesaid and/or the entry upon and taking
possession of the Property or any part thereof by Assignee or a receiver shall
not cure or waive, modify or affect any Event of Default so as to invalidate any
act done pursuant to such Event of Default, and the enforcement of such right or
remedy by Assignee, once exercised, shall continue for so long as Assignee shall
elect, notwithstanding that the collection and application aforesaid of the
Rents may have cured for the time the original Event of Default. If Assignee
shall thereafter elect to discontinue the exercise of any such right or remedy,
the same or any other right or remedy hereunder may be reasserted at any time
and from time to time following any subsequent Event of Default, whether of the
same or a different nature.
Section
6.
Certain Agreements of
Assignor
.
Assignor hereby covenants and agrees as follows:
(a)
This
Assignment shall transfer to Assignee all of Assignor’s right, title and
interest in and to the Security Deposits, provided that Assignor shall have the
right to retain the Security Deposits so long as no Event of Default shall have
occurred and provided further, that Assignee shall have no obligation to any
such tenant with respect to the Security Deposits unless and until Assignee
comes into actual possession and control thereof;
(b)
Assignor
shall not terminate, grant concessions in connection with, modify or amend any
Lease without the prior written consent of Assignee except in accordance with
the terms of the Security Instrument;
(c)
Assignor
shall not collect or permit the prepayment of any Rent (other than Rents deemed
"additional rent" under Leases) more than one (1) month in advance of the date
on which it becomes due under the terms of any Lease (except that Assignor may
collect or permit collection of Security Deposits subject to and only in
accordance with the terms of the Security Instrument);
(d)
Except as
expressly permitted by the Security Instrument, Assignor shall not execute any
further pledge or assignment of any Rent or any interest therein or suffer or
permit any such assignment to occur by operation of law;
(e)
Assignor
shall faithfully perform and discharge all material obligations of the lessor
under the Leases substantially in accordance with the terms thereof, and shall
give prompt written notice to Assignee of any notice of Assignor’s default
received from a tenant and shall furnish Assignee with a complete copy of said
notice. Assignor shall appear in and defend any action or proceeding arising
under or in any manner connected with the Leases;
(f)
Assignor
shall not waive, excuse, condone, discount, set-off, compromise or in any manner
release or discharge any tenant under the Leases, of and from any material
obligations, covenants, conditions and agreements by said tenant to be kept,
observed and performed, including the obligation to pay Rents thereunder, except
as permitted by the Security Instrument;
(g)
Nothing
herein shall be construed to impose any liability or obligation on Assignee
under or with respect to the Leases. Neither this Assignment nor any action or
inaction on the part of Assignee shall, without the prior written consent of
Assignee, constitute an assumption on its part of any obligation under the
Leases; nor shall Assignee have any obligation to make any payment to be made by
Assignor under the Leases, or to present or file any claim, or to take any other
action to collect or enforce the payment of any amounts which have been assigned
to Assignee or to which it may be entitled hereunder at any time or times. No
action or inaction on the part of Assignee or its agents, employees, officers or
directors shall adversely affect or limit in any way the rights of Assignee
hereunder or under the Leases. Assignor shall indemnify and hold Assignee and
its agents, employees, officers or directors harmless from and against any and
all liabilities, losses and damages which Assignee or its agents, employees,
officers or directors may incur under the Leases or by reason of this Assignment
other than that resulting from Assignee’s gross negligence or willful
misconduct, and of and from any and all claims and demands whatsoever which may
be asserted against Assignee or its agents, employees, officers or directors by
reason of any alleged obligations to be performed or discharged by Assignee
under the Leases or this Assignment including, without limitation, any liability
under the covenant of quiet enjoyment contained in any of the Leases in the
event that any tenant shall have been joined as a party defendant in any action
to foreclose the Security Instrument and shall have been barred and foreclosed
thereby of all right, title and interest and equity of redemption in the
Property or any part thereof. Should Assignee or its agents, employees, officers
or directors incur any liability, loss or damage under the Leases or under or by
reason of this Assignment, except for liability, loss or damage resulting solely
from Assignee’s gross negligence or willful misconduct, Assignor shall
immediately upon demand reimburse Assignee, its agents, employees, officers or
directors for the amount thereof together with all costs and expenses and
reasonable attorneys’ fees incurred by Assignee or its agents, employees,
officers or directors. All of the foregoing sums shall bear interest from the
date so demanded until paid at the Default Rate. Any Rent collected by Assignee
or its agents may be applied by Assignee in its discretion in satisfaction of
any such liability, loss, damage, claim, demand, costs, expense or
fees;
(h)
Any Rents
which may be received by Assignor hereafter relating to all or any portion of
the term of any Lease from and after the date hereof shall be promptly delivered
to Assignee to be applied pursuant to Section 3 hereof.
Section
7.
Event of
Default
. The
occurrence of an Event of Default pursuant to the Security Instrument shall
constitute an event of default hereunder.
Section
8.
Additional Rights and
Remedies of Assignee
. In
addition to all other rights and remedies provided herein, under the Loan
Documents, or otherwise available at law (including but not limited to those
provided for in Neb. Rev. Stat. §52-1705, or comparable provision) or in equity,
if an Event of Default occurs and is continuing, Assignee shall, in its sole
discretion, have the following rights and remedies, all of which are
cumulative:
(a)
Assignee
shall have the right at any time or times thereafter, at its sole election,
without notice thereof to Assignor, to enforce the terms of the Leases, to sue
for or otherwise collect the Rents, whether in Assignor’s or Assignee’s name, to
enter upon, take possession and manage and control the Leases and any other part
of the Property, with or without notice, either in person, by agent or by
court-appointed receiver, and to otherwise do any act or incur any costs or
expense as Assignee shall deem proper to protect the security hereof, as fully
and to the same extent as Assignor could do in possession, and in such event to
apply the Rents so collected to the operation and management of the Property, or
any part thereof, but in such order as Assignee may deem proper, and including
payment of reasonable management, brokerage and attorneys’ fees, in the name of
Assignor, Assignee, a nominee of Assignee, or in any or all of the said
names;
(b)
Assignee
shall have the right at any time or times, at its sole election, without notice
thereof, except such notice as may be expressly provided in the Security
Instrument, if any, to Assignor, to declare all sums secured hereby immediately
due and payable and, at its option, exercise any and/or all of the rights and
remedies contained in the Note, the Security Instrument and the other Loan
Documents; and
(c)
Assignee
shall have the right to assign all or any portion of Assignee’s right, title and
interest under this Assignment in any of the Leases to any subsequent holder of
the Note or any participating interest therein or to any Person acquiring title
to the Leases or any other portion of the Property through foreclosure or
otherwise. Any subsequent assignee shall have all the rights and powers herein
provided to Assignee.
Section
9.
Additional
Security
.
Assignee may take or release other security for the payment of the Debt, may
release any party primarily or secondarily liable therefor and may apply any
other security held by it to the satisfaction of such indebtedness, without
prejudice to any of its rights under this Assignment. Assignor shall from time
to time upon request of Assignee, specifically assign to Assignee, as additional
security for the payment of the Debt, by an instrument in writing in such form
as may be reasonably approved by Assignee, all right, title and interest of
Assignor in and to any and all Leases now or hereafter on or affecting the
Premises, together with all security therefor and all Rents payable thereunder,
subject to the terms hereof. Assignor shall also deliver to Assignee any
notification, financing statement or other document reasonably required by
Assignee to perfect the assignment as to any such Lease.
Section
10.
Absolute Assignment;
Release
. The
assignment made hereby is an absolute and unconditional assignment of rights
only, and not a delegation of duties. The execution and delivery hereof shall
not in any way impair or diminish the obligations of Assignor under the
provisions of each and every Lease nor shall such execution and delivery cause
any of the obligations contained in the Leases to be imposed upon Assignee. The
assignment contained herein and all rights herein assigned to Assignee shall
cease and terminate as to all Leases and Rents upon the payment in full of the
Debt. In the event Assignee shall have in its possession any Rents or Security
Deposits after payment in full of the Debt, Assignee shall return or cause such
Rents and/or Security Deposits to be returned to Assignor in accordance with the
terms of the Security Instrument. In the event that the assignment contained
herein shall so terminate, Assignee shall, upon the written request of Assignor,
deliver to Assignor a termination of this Assignment which shall be in
recordable form, together with a notice to tenants of the Premises instructing
such tenants to make all future payments of Rent to Assignor or to such other
Person as Assignor may direct.
Section
11.
Effect on Rights Under Other
Documents
. Nothing
contained in this Assignment and no act done or omitted by Assignee pursuant to
the powers and rights granted it hereunder shall be deemed to be a waiver by
Assignee of its rights and remedies under the Loan Documents, and this
Assignment is made and accepted without prejudice to any of the rights and
remedies possessed by Assignee under the terms of the Loan Documents. The right
of Assignee to collect the Debt and to enforce any other security therefor held
by it may be exercised by Assignee either prior to, simultaneously with, or
subsequent to any action taken by it hereunder. This Assignment is intended to
be supplementary to and not in substitution for or in derogation of any
assignment of rents contained in the Security Instrument or in any other
document.
Section
12.
Further
Assurances
.
Assignor hereby agrees that it shall, whenever and as often as it shall be
reasonably requested to do so by Assignee, execute, acknowledge and deliver, or
cause to be executed, acknowledged, and delivered, in form and substance
reasonably acceptable to Assignee, any and all such further conveyances,
instruments, documents, approvals, consents, and memoranda of the other
documents and to do any and all other acts as may be reasonably necessary or
appropriate to effectuate the terms of this Assignment. This Assignment or a
memorandum hereof may be recorded by Assignee at any time.
Section
13.
No Waiver
. A
waiver by Assignee of any of its rights hereunder or under the Leases or of a
breach of any of the covenants and agreements contained herein to be performed
by Assignor shall not be construed as a waiver of such rights in any succeeding
instance or of any succeeding breach of the same or other covenants, agreements,
restrictions or conditions. No waiver by Assignee hereunder shall be effective
unless in writing.
Section
14.
Marshalling
.
Notwithstanding the existence of any other security interest in the Property or
any part thereof held by Assignee or by any other party, Assignee shall have the
right to determine the order in which any of the Leases or any other portion of
the Property shall be subjected to the remedies provided herein. Assignee shall
have the right to determine the order in which any or all portions of the Debt
are satisfied from the proceeds realized upon the exercise of the remedies
provided herein. Assignee and any Person who now or hereafter acquires a
security interest in any of the Leases or any other portion of the Property and
who has actual or constructive notice hereof hereby waives, to the extent
permitted by law, any and all right to require the marshalling of assets in
connection with the exercise of any of the remedies permitted by applicable
Legal Requirements or provided herein.
Section
15.
Notices
. All
notices, demands, requests, consents, approvals or communications required under
this Assignment shall be in writing and shall be deemed to have been properly
given if delivered in accordance with the provisions of the Security Instrument
at the addresses set forth in the Security Instrument. To the extent that any
tenant under any of the Leases shall request under Neb. Rev. Stat. §552-1706
reasonable proof of the Assignment, Assignor agrees that a photocopy of this
recorded Assignment shall constitute sufficient proof that an assignment has
been made.
Section
16.
Counterparts;
Construction
. This
Assignment may be executed in any number of counterparts and shall be deemed to
have become effective when and only when one or more of such counterparts shall
have been signed by or on behalf of each of the parties hereto, although it
shall not be necessary that any signed counterpart be signed by or on behalf of
each of the parties hereto, and all such counterparts shall be deemed to
constitute but one and the same instrument.
Section
17.
Governing Law;
Severability
. This
Assignment shall be governed by and construed under the laws of the state in
which the Property is situated, except to the extent that any of such laws may
now or hereafter be preempted by Federal Law, in which case such Federal Law
shall so govern and be controlling and enforced as if all such illegal, invalid
or unenforceable provisions had never been inserted herein.
Section
18.
Modification
. This
Assignment may not be modified or amended except by written agreement of the
parties.
Section
19.
Binding
Agreement
.
Assignee may, from time to time, without notice to Assignor, assign, transfer or
convey this Assignment and the other Loan Documents or all or any of its
interest hereunder or under all or any of the other Loan Documents and,
notwithstanding any such assignment, transfer or conveyance, this Assignment and
the other Loan Documents shall remain in full force and effect. This Assignment
shall be binding upon Assignor, its successors and assigns, and shall inure to
the benefit of Assignee and its successors and assigns.
Section
20.
TRIAL BY
JURY
.
ASSIGNOR HEREBY WAIVES THE RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A
COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY
ASSIGNEE OR ITS AGENTS AND WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING
INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY EITHER PARTY HERETO
AGAINST THE OTHER OR IN ANY COUNTERCLAIM ASSIGNOR MAY BE PERMITTED TO ASSERT
HEREUNDER OR WHICH MAY BE ASSERTED BY ASSIGNEE OR ITS AGENTS AGAINST ASSIGNOR OR
IN ANY MATTERS WHATSOEVER, ARISING OUT OF OR IN ANY WAY CONNECTED WITH ASSIGNOR,
THIS ASSIGNMENT, THE NOTE, THE SECURITY INSTRUMENT OR ANY OF THE OTHER LOAN
DOCUMENTS.
Section
21.
Bankruptcy
.
(a)
Upon or
at any time after the occurrence of and during the continuance of an Event of
Default, Assignee shall have the right to proceed in its own name or in the name
of Assignor in respect of any claim, suit, action or proceeding relating to the
rejection of any Lease, including, without limitation, the right to file and
prosecute, to the exclusion of Assignor, any proofs of claim, complaints,
motions, applications, notices and other documents, in any case in respect of
the lessee under such Lease under the Bankruptcy Code.
(b)
If there
shall be filed by or against Assignor a petition under the Bankruptcy Code, and
Assignor, as lessor under any Lease, shall determine to reject such Lease
pursuant to Section 365(a) of the Bankruptcy Code, then Assignor shall give
Assignee not less than ten (10) days’ prior notice of the date on which Assignor
shall apply to the bankruptcy court for authority to reject the Lease. Assignee
shall have the right, but not the obligation, to serve upon Assignor within such
ten-day period a notice stating that (i) Assignee demands that Assignor assume
and assign the Lease to Assignee pursuant to Section 365 of the Bankruptcy Code
and (ii) Assignee covenants to cure or provide adequate assurance of future
performance under the Lease. If Assignee serves upon Assignor the notice
described in the preceding sentence, Assignor shall not seek to reject the Lease
and shall comply with the demand provided for in clause (i) of the preceding
sentence within thirty (30) days after the notice shall have been given, subject
to the performance by Assignee of the covenant provided for in clause (ii) of
the preceding sentence.
* * * *
*
IN
WITNESS WHEREOF, Assignor has executed this Assignment on the day and year first
hereinabove set forth.
|
|
|
|
LVP
OAKVIEW STRIP CENTER LLC,
a
Delaware limited liability company
|
|
|
|
|
By:
|
David
Lichtenstein
|
|
Name:
David Lichtenstein
Title:
President
|
|
|
|
c/o
The Lightstone Group
326
Third Street
Lakewood,
New Jersey 08701
|
STATE OF NEBRASKA
|
)
|
|
) ss.
|
COUNTY OF _____________
|
)
|
The
foregoing instrument was acknowledged before me this ______ day of December,
2006 by David Lichtenstein as President of LVP OAKVIEW STRIP CENTER LLC, a
Delaware limited liability company, on behalf of the limited liability
company.
EXHIBIT
A
(Legal
Description)
Attached
to and forming a part of file number: CRS22144
Parcel
1:
Lots 1,
2, 13 and 14, Oak View Plaza 3rd Platting, an Addition to the City of Omaha, as
surveyed, platted and recorded in Douglas County, Nebraska, EXCEPT that part of
said Lot 13 dedicated for street widening as filed within Book 1280 at Page 429
of the Miscellaneous Records of Douglas County, Nebraska.
Together
with Reciprocal Access, Parking and Utility rights as set forth in Declaration
of Protective Covenants recorded in Book 815 at Page 326 and Amendment to
Declaration of Protective Covenants recorded in Book 1019 at Page 142 and in
Declaration of Covenants, Easements and Restrictions recorded in Book 1030 at
Page 603 and First Amendment to Declaration of Covenants, Easements and
Restrictions recorded in Book 1049 at Page 336, and Second Amendment to
Declaration of Covenants recorded May 17, 2006 as Instrument
No.2005056364;
And also
together with rights of ingress and egress as set forth upon the Plat of Oak
View Plaza (3rd Platting), filed September 19,1996 in Book 2043 at Page 318 of
the Deed Records; And also together with Beneficial RIGHT-OF-WAY EASEMENT,
recorded June 25,1987 in Book 818 at Page 626 of the Miscellaneous
Records
And
together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded September 11,
1992 in Book 1030 at Page 645 of the Miscellaneous Records;
And also
Together with SANITARY, STORM SEWER AND UTILITY EASEMENT and recorded November
23, 1992 in Book 1043 at Page 701 of the Miscellaneous Records; And also
together with Permanent Building Encroachment Easement set forth by instrument
filed August 22, 2000 in Book 1348 at Page 702
all of
the Records of Douglas County, Nebraska; subject to all liens and encumbrances
affecting the same.
Parcel
2:
Lot 1,
Oak View Plaza (3rd Platting) Replat Three, an Addition to the City of Omaha, as
surveyed, platted and recorded in Douglas County, Nebraska.
Together
with Reciprocal Access, Parking and Utility rights as set forth In Declaration
of Protective Covenants recorded in Book 815 at Page 326 and Amendment to
Declaration of Protective Covenants recorded in Book 1019 at Page 142 and in
Declaration of Covenants, Easements and Restrictions recorded In Book 1030 at
Page 603 and First Amendment to Declaration of Covenants, Easements and
Restrictions recorded in Book 1049 at Page 336, and Second Amendment to
Declaration of Covenants recorded May 17, 2006 as Instrument
No.2005056364;
And
together with rights of ingress and egress as set forth upon the Plat of Oak
View Plaza (3rd Platting), filed September 19, 1996 in Book 2043 at Page 318 of
the Deed Records; and also together with Reciprocal Access, Parking and rights
of ingress/egress as set forth within the Reciprocal Easement Agreement recorded
September 19,1997 in Book 1222 at Page 699;
and also
together with Beneficial RIGHT-OF-WAY EASEMENT recorded June 25,1987 in Book 818
at Page 626 of the Miscellaneous Records;
and also
together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded September 11,
1992 in Book 1030 at Page 645 of the Miscellaneous Records; and also Together
with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded November 23, 1992 in
Book 1043 at Page 701 of the Miscellaneous Records;
and also
together with non-exclusive easement rights set forth within Deed of Easement
for Subsurface Construction Elements set forth within the instrument filed
September 14, 2004 as instrument number 2004122176 all of the Records of Douglas
County, Nebraska; subject to all liens and encumbrances affecting the
same.
Parcel
3:
Lot 1,
Oak View Plaza (3rd Platting) Replat Four, an Addition to the City of Omaha, as
surveyed, platted and recorded in Douglas County, Nebraska.
Together
with Reciprocal Access, Parking and Utility rights as set forth in Declaration
of Protective Covenants recorded in Book 815 at Page 326 and Amendment to
Declaration of Protective Covenants recorded in Book 1019 at Page 142 and in
Declaration of Covenants, Easements and Restrictions recorded in Book 1030 at
Page 603 and First Amendment to Declaration of Covenants, Easements and
Restrictions recorded in Book 1049 at Page 336,
and
Second Amendment to Declaration of Covenants recorded May 17, 2006 as Instrument
No.2005056364;
and also
together with rights of ingress and egress as set forth upon the Plat of Oak
View Plaza (3rd Platting), filed September 19,1996 in Book 2043 at Page 318 of
the Deed Records;
and also
together with Reciprocal Access, Parking and rights of ingress/egress as set
forth within the Reciprocal Easement Agreement recorded September 19, 1997 in
Book 1222 at Page 699;
and also
together with Beneficial RIGHT-OF-WAY EASEMENT, recorded June 25,1987 in Book
818 at Page 626 of the Miscellaneous Records;
and also
together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded September 11,
1992 in Book 1030 at rage 645 of the Miscellaneous Records;
and also
Together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded November 23,
1992 in Book 1043 at Page 701 of the Miscellaneous Records;
and also
together with non-exclusive easement rights set forth within Deed of Easement
for Subsurface Construction Elements set forth within the instrument filed May
17, 2005 as instrument number 2005056363, as further amended pursuant to the
Amended Deed of Easement for Subsurface Construction Elements filed July 1, 2005
as instrument number 2005076870, all of the Records of Douglas County, Nebraska;
subject to all liens and encumbrances affecting the same.
EXHIBIT
10.22
DEED OF
TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND FIXTURE FILING
This
Instrument Prepared By and When Recorded and Return to:
Winston
& Strawn LLP
200 Park
Avenue
New York,
New York 10166
Attn:
Corey A. Tessler, Esq.
Oakview
Plaza
Loan No.
502858289
LVP OAKVIEW STRIP CENTER
LLC,
as Trustor
to
ROBERT M. GONDERINGER, a member
of
the Nebraska State Bar
Association,
as Trustee
For the benefit
of
WACHOVIA BANK, NATIONAL
ASSOCIATION,
as Beneficiary
County:
Douglas
State:
Nebraska
THIS DEED
OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND FIXTURE FILING (this
“
Security
Instrument
”) dated
as of December 20, 2006, by
LVP
OAKVIEW STRIP CENTER LLC, a Delaware limited liability company, as
trustor
(hereinafter, “
Borrower
”),
having its chief executive offices c/o The Lightstone Group, 326 Third Street,
Lakewood, New Jersey 08701,
”),
to Robert
M. Gonderinger, a member of the Nebraska State Bar Association, as Trustee
(“
Trustee
”), whose
address is 2120 South 72
nd
Street,
Suite 1200, Omaha, Nebraska 68124, for the benefit of
WACHOVIA
BANK, NATIONAL ASSOCIATION, a national banking association, as beneficiary
(“
Lender
”), whose
address is Commercial Real Estate Services, 8739 Research Drive URP - 4, NC
1075, Charlotte, North Carolina 28262.
WITNESSETH:
WHEREAS,
Lender has authorized a loan (hereinafter referred to as the “
Loan
”) to
Borrower in the maximum principal sum of TWENTY-SEVEN MILLION FIVE HUNDRED
THOUSAND AND
00/100
DOLLARS ($27,500,000.00)
(hereinafter referred to as the “
Loan
Amount
”), which
Loan is evidenced by that certain promissory note, dated the date hereof
(together with any supplements, amendments, modifications or extensions thereof,
hereinafter referred to as the “
Note
”) given
by Borrower, as maker, to Lender, as payee;
WHEREAS,
in consideration of the Loan, the Borrower has agreed to make payments in
amounts sufficient to pay and redeem, and provide for the payment and redemption
of the principal of, premium, if any, and interest on the Note when
due;
WHEREAS,
Borrower desires by this Security Instrument to provide for, among other things,
the issuance of the Note and for the deposit, deed and pledge by Borrower with,
and the creation of a security interest in favor of, Lender, as security for
Borrower’s obligations to Lender from time to time pursuant to the Note and the
other Loan Documents, but specifically excluding the Guaranty (as hereinafter
defined); and
WHEREAS,
Borrower and Lender intend these recitals to be a material part of this Security
Instrument.
WHEREAS,
all things necessary to make this Security Instrument the valid and legally
binding obligation of Borrower in accordance with its terms, for the uses and
purposes herein set forth, have been done and performed.
NOW
THEREFORE, to secure the payment of the principal of, prepayment premium (if
any) and interest on the Note and all other obligations, liabilities or sums due
or to become due under, or advanced in accordance herewith to protect the
security of, this Security Instrument, the Note or any other Loan Document,
including, without limitation, interest on said obligations, liabilities or sums
(said principal, premium, interest and other sums being hereinafter referred to
as the “
Debt
”)
(provided, however
upon
request of Borrower, Lender, at Lender's option, prior to full reconveyance of
the Property by Trustee to Borrower, may make future advances to Borrower. Such
future advances, with interest thereon, shall be secured by this Security
Instrument. At no time shall the principal amount of the indebtedness secured by
this Security Instrument, not including sums advanced to protect the security,
exceed the total sum of
$27,075,000.00.
Advances of disbursements made by Lender to protect the security, under the
terms hereof, while discretionary, shall not be deemed to be optional
advances),
and the
performance of all other covenants, obligations and liabilities of the Borrower
pursuant to the Loan Documents but specifically excluding the Guaranty, and any
and all other indebtedness now owing or which may hereafter be owing by Borrower
to Lender, now existing or hereafter coming into existence, however and whenever
incurred or evidenced, whether express or implied, direct or indirect, absolute
or contingent, or due or to become due, and all renewals, modifications,
consolidations, replacements and extensions thereof, Borrower has executed and
delivered this Security Instrument; and Borrower has irrevocably granted, and by
these presents and by the execution and delivery hereof does hereby irrevocably
grant, bargain, sell, alien, demise, release, convey, assign, transfer, deed,
hypothecate, pledge, set over, warrant, mortgage, forever in trust WITH POWER OF
SALE, all right, title and interest of Borrower in and to all of the following
property, rights, interests and estates, whether now owned or hereafter
acquired, together with the rights, privileges and appurtenances thereto
belonging:
(a)
the
plot(s), piece(s) or parcel(s) of real property described in
Exhibit A
attached
hereto and made a part hereof (individually and collectively, hereinafter
referred to as the “
Premises
”);
(b)
(i) all
buildings, foundations, structures, fixtures, additions, enlargements,
extensions, modifications, repairs, replacements and improvements of every kind
or nature now or hereafter located on the Premises (hereinafter collectively
referred to as the “
Improvements
”); and
(ii) to the extent permitted by law, the name or names, if any, as may now
or hereafter be used for each Improvement, and the goodwill associated
therewith;
(c)
all
easements, servitudes, rights-of-way, strips and gores of land, streets, ways,
alleys, passages, sewer rights, water, water courses, water rights and powers,
ditches, ditch rights, reservoirs and reservoir rights, air rights and
development rights, lateral support, drainage, gas, oil and mineral rights,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating or pertaining to the Premises or the Improvements and the
reversion and reversions, remainder and remainders, whether existing or
hereafter acquired, and all land lying in the bed of any street, road or avenue,
opened or proposed, in front of or adjoining the Premises to the center line
thereof and any and all sidewalks, drives, curbs, passageways, streets, spaces
and alleys adjacent to or used in connection with the Premises and/or
Improvements and all the estates, rights, titles, interests, property,
possession, claim and demand whatsoever, both in law and in equity, of Borrower
of, in and to the Premises and Improvements and every part and parcel thereof,
with the appurtenances thereto;
(d)
all
machinery, equipment, fittings, apparatus, appliances, furniture, furnishings,
tools, fixtures (including, but not limited to, all heating, air conditioning,
ventilating, waste disposal, sprinkler and fire and theft protection equipment,
plumbing, lighting, communications and elevator fixtures) and other property of
every kind and nature whatsoever owned by Borrower, or in which Borrower has or
shall have an interest, now or hereafter located upon, or in, and located on the
Premises or the Improvements, or appurtenant thereto, and all building
equipment, materials and supplies of any nature whatsoever owned by Borrower, or
in which Borrower has or shall have an interest, now or hereafter located upon,
or in the Premises or the Improvements or appurtenant thereto (hereinafter, all
of the foregoing items described in this paragraph (d), along with all
replacement and additional items installed as contemplated in Section 8.01(e),
are collectively called the “
Equipment
”), all
of which, and any replacements, modifications, alterations and additions
thereto, to the extent permitted by applicable law, shall be deemed to
constitute fixtures (herein, collectively, the “
Fixtures
”), and
are part of the real estate and security for the payment of the Debt and the
performance of Borrower’s obligations. To the extent any portion of the
Equipment is not real property or Fixtures under applicable law, it shall be
deemed to be personal property, and this Security Instrument shall constitute a
security agreement creating a security interest therein in favor of Lender under
the UCC;
(e)
all
awards or payments, including interest thereon, which may hereafter be made with
respect to the Premises, the Improvements, the Fixtures, or the Equipment,
whether from the exercise of the right of eminent domain (including but not
limited to any transfer made in lieu of or in anticipation of the exercise of
said right), or for a change of grade, or for any other injury to or decrease in
the value of the Premises, the Improvements or the Equipment or refunds with
respect to the payment of property taxes and assessments, and all other proceeds
of the conversion, voluntary or involuntary, of the Premises, Improvements,
Equipment, Fixtures or any other Property or part thereof into cash or
liquidated claims;
(f)
all
leases, tenancies, licenses and other agreements affecting the use, enjoyment or
occupancy of the Premises, the Improvements, the Fixtures, or the Equipment or
any portion thereof now or hereafter entered into, whether before or after the
filing by or against Borrower of any petition for relief under the Bankruptcy
Code and all reciprocal easement agreements, license agreements and other
agreements with Pad Owners (hereinafter collectively referred to as the
“
Leases
”),
together with all cash or security deposits, lease termination payments, advance
rentals and payments of similar nature and guarantees or other security held by,
or issued in favor of, Borrower in connection therewith to the extent of
Borrower’s right or interest therein and all remainders, reversions and other
rights and estates appurtenant thereto, and all base, fixed, percentage or
additional rents, and other rents, oil and gas or other mineral royalties, and
bonuses, issues, profits and rebates and refunds or other payments made by any
Governmental Authority from or relating to the Premises, the Improvements, the
Fixtures or the Equipment plus all rents, common area charges and other payments
now existing or hereafter arising, whether paid or accruing before or after the
filing by or against Borrower of any petition for relief under the Bankruptcy
Code (herein, collectively, the “
Rents
”) and
all proceeds from the sale or other disposition of the Leases and the right to
receive and apply the Rents to the payment of the Debt;
(g)
all
proceeds of and any unearned premiums on any insurance policies covering the
Premises, the Improvements, the Fixtures, the Rents or the Equipment, including,
without limitation, the right to receive and apply the proceeds of any
insurance, judgments, or settlements made in lieu thereof, for damage to the
Premises, the Improvements, the Fixtures or the Equipment and all refunds or
rebates of Impositions, and interest paid or payable with respect
thereto;
(h)
all
deposit accounts, securities accounts, funds or other accounts maintained or
deposited with Lender, or its assigns, in connection herewith, including,
without limitation, the Security Deposit Account (to the extent permitted by
law), the Central Account, the Basic Carrying Costs Sub-Account, the Basic
Carrying Costs Escrow Account, the Debt Service Payment Sub-Account, the
Recurring Replacement Reserve Sub-Account, the Recurring Replacement Reserve
Escrow Account, the Reletting Reserve Sub-Account, the Reletting Reserve Escrow
Account, the Operation and Maintenance Expense Sub-Account, the Operation and
Maintenance Expense Escrow Account, the Curtailment Reserve Escrow Account, the
Curtailment Reserve Sub-Account, and all monies and investments deposited or to
be deposited in such accounts;
(i)
all
accounts receivable, contract rights, franchises, interests, estate or other
claims, both at law and in equity, now existing or hereafter arising, and
relating to the Premises, the Improvements, the Fixtures or the Equipment, not
included in Rents;
(j)
all now
existing or hereafter arising claims against any Person with respect to any
damage to the Premises, the Improvements, the Fixtures or the Equipment,
including, without limitation, damage arising from any defect in or with respect
to the design or construction of the Improvements, the Fixtures or the Equipment
and any damage resulting therefrom;
(k)
all
deposits or other security or advance payments, including rental payments now or
hereafter made by or on behalf of Borrower to others, with respect to (i)
insurance policies, (ii) utility services, (iii) cleaning, maintenance, repair
or similar services, (iv) refuse removal or sewer service, (v) parking or
similar services or rights and (vi) rental of Equipment, if any, relating to or
otherwise used in the operation of the Premises, the Improvements, the Fixtures
or the Equipment;
(l)
all
intangible property now or hereafter relating to the Premises, the Improvements,
the Fixtures or the Equipment or its operation, including, without limitation,
software, letter of credit rights, trade names, trademarks (including, without
limitation, any licenses of or agreements to license trade names or trademarks
now or hereafter entered into by Borrower), logos, building names and
goodwill;
(m)
all now
existing or hereafter arising advertising material, guaranties, warranties,
building permits, other permits, licenses, plans and specifications, shop and
working drawings, soil tests, appraisals and other documents, materials and/or
personal property of any kind now or hereafter existing in or relating to the
Premises, the Improvements, the Fixtures, and the Equipment;
(n)
all now
existing or hereafter arising drawings, designs, plans and specifications
prepared by architects, engineers, interior designers, landscape designers and
any other consultants or professionals for the design, development,
construction, repair and/or improvement of the Property, as amended from time to
time;
(o)
the
right, in the name of and on behalf of Borrower, to appear in and defend any now
existing or hereafter arising action or proceeding brought with respect to the
Premises, the Improvements, the Fixtures or the Equipment as set forth herein
and to commence any action or proceeding to protect the interest of Lender in
the Premises, the Improvements, the Fixtures or the Equipment as set forth
herein;
(p)
all
agreements, grants of easements and/or rights-of-way, reciprocal easement
agreements, permits, declarations of covenants, conditions and restrictions,
disposition and development agreements, planned unit development agreements,
management or parking agreements, party wall agreements or other instruments
affecting the Property and all proceeds or income received with respect thereto;
and
(q)
all
proceeds, products, substitutions and accessions (including claims and demands
therefor) of each of the foregoing.
All of
the foregoing items (a) through (q), together with all of the right, title and
interest of Borrower therein, are collectively referred to as the “
Property
”.
TO HAVE
AND TO HOLD the above granted and described Property unto Trustee, in trust, for
the proper use and benefit of Lender and the successors and assigns of Lender
and/or Trustee, as applicable, in fee simple, forever.
PROVIDED,
ALWAYS, and these presents are upon this express condition, if Borrower shall
well and truly pay and discharge the Debt and perform and observe the terms,
covenants and conditions set forth in the Loan Documents,
Lender
shall request Trustee to reconvey the Property without warranty to the persons
legally entitled thereto at the expense of Borrower
.
AND
Borrower covenants with and warrants to Lender that:
ARTICLE
I:
DEFINITIONS
Section
1.01.
Certain
Definitions
.
For all
purposes of this Security Instrument, except as otherwise expressly provided or
unless the context clearly indicates a contrary intent:
(i)
the
capitalized terms defined in this Section have the meanings assigned to them in
this Section, and include the plural as well as the singular;
(ii)
all
accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with GAAP; and
(iii)
the words
“herein”, “hereof”, and “hereunder” and other words of similar import refer to
this Security Instrument as a whole and not to any particular Section or other
subdivision.
“
Adjusted Net Cash
Flow
” shall
mean on any determination date, the Pro-Forma Net Operating Income less (a) the
Recurring Replacement Monthly Installment for the Property multiplied by twelve
(12), (b) the Reletting Reserve Monthly Installment for the Property multiplied
by twelve (12), and (c) Net Capital Expenditures for the Property to be incurred
(as estimated by Lender, in its reasonable discretion) for the subsequent twelve
(12) month period. The Adjusted Net Cash Flow shall be calculated by Lender in
accordance with the terms of this Security Instrument.
“
Affiliate
” of any
specified Person shall mean any other Person directly or indirectly Controlling
or Controlled by or under direct or indirect common Control with such specified
Person.
“
Annual
Budget
” shall
mean an annual budget submitted by Borrower to Lender in accordance with the
terms of Section 2.09 hereof.
“
Appraisal
” shall
mean the appraisal of the Property and all supplemental reports or updates
thereto previously delivered to Lender in connection with the Loan.
“
Appraiser
” shall
mean the Person who prepared the Appraisal.
“
Approved Annual
Budget
” shall
mean each Annual Budget approved or deemed approved by Lender in accordance with
terms hereof.
“
Approved Manager
Standard
” shall
mean the standard of business operations, practices and procedures customarily
employed by entities which possess the Minimum Manager Credentials.
“
Architect
” shall
have the meaning set forth in Section 3.04(b)(i) hereof.
“
Assignment
” shall
mean the Assignment of Leases and Rents and Security Deposits of even date
herewith relating to the Property given by Borrower to Lender.
“
Bank
” shall
mean the bank, trust company, savings and loan association or savings bank
designated by Lender, in its sole and absolute discretion, in which the Central
Account shall be located.
“
Bankruptcy
Code
” shall
mean 11 U.S.C. §101 et seq., as amended from time to time.
“
Basic Carrying
Costs
” shall
mean the sum of the following costs associated with the Property: (a) Real
Estate Taxes and (b) insurance premiums.
“
Basic Carrying Costs Escrow
Account
” shall
mean the Escrow Account maintained pursuant to Section 5.06 hereof.
“
Basic Carrying Costs Monthly
Installment
” shall
mean Lender’s reasonable estimate of one-twelfth (1/12th) of the annual amount
for Basic Carrying Costs. “Basic Carrying Costs Monthly Installment” shall also
include, if required by Lender, a sum of money which, together with such monthly
installments, will be sufficient to make the payment of each such Basic Carrying
Cost at least thirty (30) days prior to the date initially due. Should such
Basic Carrying Costs not be ascertainable at the time any monthly deposit is
required to be made, the Basic Carrying Costs Monthly Installment shall be
determined by Lender in its reasonable discretion on the basis of the aggregate
Basic Carrying Costs for the prior Fiscal Year or month or the prior payment
period for such cost. As soon as the Basic Carrying Costs are fixed for the then
current Fiscal Year, month or period, the next ensuing Basic Carrying Costs
Monthly Installment shall be adjusted to reflect any deficiency or surplus in
prior monthly payments. If at any time during the term of the Loan Lender
determines that there will be insufficient funds in the Basic Carrying Costs
Escrow Account to make payments when they become due and payable, Lender shall
have the right to adjust the Basic Carrying Costs Monthly Installment such that
there will be sufficient funds to make such payments.
“
Basic Carrying Costs
Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
into which the Basic Carrying Costs Monthly Installments shall be
deposited.
“
Borrower
Account
” shall
mean an Eligible Account maintained in the name of Borrower.
"
Budget
" shall
have the meaning ascribed to such term in Section 5.07 hereof.
“
Business
Day
” shall
mean any day other than (a) a Saturday or Sunday, or (b) a day on which banking
and savings and loan institutions in the State of New York or the State of North
Carolina are authorized or obligated by law or executive order to be closed, or
at any time during which the Loan is an asset of a Securitization, the cities,
states and/or commonwealths used in the comparable definition of “Business Day”
in the Securitization documents.
“
Capital
Expenditures
” shall
mean for any period, the amount expended for items capitalized under GAAP
including expenditures for building improvements or major repairs, leasing
commissions and tenant improvements.
“
Cash
Expenses
” shall
mean for any period, the operating expenses for the Property as set forth in an
Approved Annual Budget to the extent that such expenses are actually incurred by
Borrower minus payments into the Basic Carrying Costs Sub-Account, the Debt
Service Payment Sub-Account, the Reletting Reserve Sub-Account and the Recurring
Replacement Reserve Sub-Account.
“
Central
Account
” shall
mean an Eligible Account, maintained at the Bank, in the name of Lender or its
successors or assigns (as secured party) as may be designated by
Lender.
“
Closing
Date
” shall
mean the date of the Note.
“
Code
” shall
mean the Internal Revenue Code of 1986, as amended and as it may be further
amended from time to time, any successor statutes thereto, and applicable U.S.
Department of Treasury regulations issued pursuant thereto.
“
Condemnation
Proceeds
” shall
mean all of the proceeds in respect of any Taking or purchase in lieu
thereof.
“
Contractual
Obligation
” shall
mean, as to any Person, any provision of any security issued by such Person or
of any agreement, instrument or undertaking to which such Person is a party or
by which it or any of the property owned by it is bound.
“
Control
” means,
when used with respect to any specific Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person whether through ownership of voting securities,
beneficial interests, by contract or otherwise. The definition is to be
construed to apply equally to variations of the word “Control” including
“Controlled,” “Controlling” or “Controlled by.”
“
CPI
” shall
mean “The Consumer Price Index (New Series) (Base Period 1982-84=100) (all items
for all urban consumers)” issued by the Bureau of Labor Statistics of the United
States Department of Labor (the “
Bureau
”). If
the CPI ceases to use the 1982-84 average equaling 100 as the basis of
calculation, or if a change is made in the term, components or number of items
contained in said index, or if the index is altered, modified, converted or
revised in any other way, then the index shall be adjusted to the figure that
would have been arrived at had the change in the manner of computing the index
in effect at the date of this Security Instrument not been altered. If at any
time during the term of this Security Instrument the CPI shall no longer be
published by the Bureau, then any comparable index issued by the Bureau or
similar agency of the United States issuing similar indices shall be used in
lieu of the CPI
.
“
Current
Month
” shall
mean the period from the eleventh (11
th
) day of
each month through and including the tenth (10
th
) day of
the following month.
"
Curtailment Reserve Escrow
Account
" shall
mean the Escrow Account maintained pursuant to Section 5.11 hereof into which
sums shall be deposited during an O&M Operative Period.
"
Curtailment Reserve
Sub-Account
" shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof.
“
Debt
” shall
mean the principal of, prepayment premium (if any) and interest on the Note and
all other obligations, liabilities or sums due or to become due under, or
advanced in accordance herewith to protect the security of, the Security
Instrument, the Note or any other Loan Document, including, without limitation,
interest on said obligations, liabilities or sums.
“
Debt Service
Coverage
” shall
mean the quotient obtained by dividing Adjusted Net Cash Flow for the Property
for the specified period by the sum of the aggregate payments of interest and
principal due for such specified period under the Note (determined as of the
date the calculation of Debt Service Coverage is required or requested
hereunder).
“
Debt Service Payment
Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which the Required Debt Service Payment shall be
deposited.
“
Default
” shall
mean any Event of Default or event which would constitute an Event of Default if
all requirements in connection therewith for the giving of notice, the lapse of
time, and the happening of any further condition, event or act, had been
satisfied.
"
Default
Collateral
" shall
have the meaning ascribed to such term in Section 18.32 hereof.
“
Default
Rate
” shall
mean the lesser of (a) the highest rate allowable at law and (b) five percent
(5%) above the interest rate set forth in the Note.
“
Default Rate
Interest
” shall
mean, to the extent the Default Rate becomes applicable, interest in excess of
the interest which would have accrued on (a) the Principal Amount and (b) any
accrued but unpaid interest, if the Default Rate was not
applicable.
“
Development
Laws
” shall
mean all applicable subdivision, zoning, environmental protection, wetlands
protection, or land use laws or ordinances, and any and all applicable rules and
regulations of any Governmental Authority promulgated thereunder or related
thereto.
“
Eligible
Account
” shall
mean a segregated account which is either (a) an account or accounts maintained
with a federal or state chartered depository institution or trust company the
long term unsecured debt obligations of which are rated by each of the Rating
Agencies (or, if not rated by Fitch, Inc. (“
Fitch
”),
otherwise acceptable to Fitch, as confirmed in writing that such account would
not, in and of itself, result in a downgrade, qualification or withdrawal of the
then current ratings assigned to any certificates issued in connection with a
Securitization) in its second highest rating category at all times (or, in the
case of the Basic Carrying Costs Escrow Account, the long term unsecured debt
obligations of which are rated at least “AA” (or its equivalent)) by each of the
Rating Agencies (or, if not rated by Fitch, otherwise acceptable to Fitch, as
confirmed in writing that such account would not, in and of itself, result in a
downgrade, qualification or withdrawal of the then current ratings assigned to
any certificates issued in connection with a Securitization) or, if the funds in
such account are to be held in such account for less than thirty (30) days, the
short term obligations of which are rated by each of the Rating Agencies (or, if
not rated by Fitch, otherwise acceptable to Fitch, as confirmed in writing that
such account would not, in and of itself, result in a downgrade, qualification
or withdrawal of the then current ratings assigned to any certificates issued in
connection with a Securitization) in its second highest rating category at all
times or (b) a segregated trust account or accounts maintained with a federal or
state chartered depository institution or trust company acting in its fiduciary
capacity which, in the case of a state chartered depository institution is
subject to regulations substantially similar to 12 C.F.R. § 9.10(b), having in
either case a combined capital and surplus of at least $100,000,000 and subject
to supervision or examination by federal and state authority, or otherwise
acceptable (as evidenced by a written confirmation from each Rating Agency that
such account would not, in and of itself, cause a downgrade, qualification or
withdrawal of the then current ratings assigned to any certificates issued in
connection with a Securitization) to each Rating Agency, which may be an account
maintained by Lender or its agents. Eligible Accounts may bear interest. The
title of each Eligible Account shall indicate that the funds held therein are
held in trust for the uses and purposes set forth herein.
“
Engineer
” shall
have the meaning set forth in Section 3.04(b)(i) hereof.
“
Engineering
Report
” shall
mean the engineering report for the Property and any supplements or updates
thereto, previously delivered to Lender in connection with the
Loan.
“
Environmental
Problem
” shall
mean any of the following:
(a)
the
presence of any Hazardous Material on, in, under, or above all or any portion of
the Property;
(b)
the
release or threatened release of any Hazardous Material from or onto the
Property;
(c)
the
violation or threatened violation of any Environmental Statute with respect to
the Property; or
(d)
the
failure to obtain or to abide by the terms or conditions of any permit or
approval required under any Environmental Statute with respect to the
Property.
A
condition described above shall be an Environmental Problem regardless of
whether or not any Governmental Authority has taken any action in connection
with the condition and regardless of whether that condition was in existence on
or before the date hereof.
“
Environmental
Report
” shall
mean the environmental audit report for the Property and any supplements or
updates thereto, previously delivered to Lender in connection with the
Loan.
“
Environmental
Statute
” shall
mean any federal, state or local statute, ordinance, rule or regulation, any
judicial or administrative order (whether or not on consent) or judgment
applicable to Borrower or the Property including, without limitation, any
judgment or settlement based on common law theories, and any provisions or
condition of any permit, license or other authorization binding on Borrower
relating to (a) the protection of the environment or the health of persons
(including employees) from actual or potential exposure (or effects of exposure)
to any actual or potential release, discharge, disposal or emission (whether
past or present) of any Hazardous Materials or (b) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
Hazardous Materials, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (“
CERCLA
”), as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
§9601
et
seq.
, the
Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42
U.S.C. §6901
et
seq.
, the
Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977,
33 U.S.C. §1251
et
seq.
, the
Toxic Substances Control Act of 1976, 15 U.S.C. §2601
et
seq.
, the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §1101
et
seq.
, the
Clean Air Act of 1966, as amended, 42 U.S.C. §7401
et
seq.
, the
National Environmental Policy Act of 1975, 42 U.S.C. §4321, the Rivers and
Harbors Act of 1899, 33 U.S.C. §401
et
seq.
, the
Endangered Species Act of 1973, as amended, 16 U.S.C. §1531
et
seq.
, the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §651
et
seq.
, and the
Safe Drinking Water Act of 1974, as amended, 42 U.S.C. §300(f)
et
seq.
, and all
rules, regulations and guidance documents promulgated or published
thereunder.
“
Equipment
” shall
have the meaning set forth in granting clause (d) of this Security
Instrument.
“
ERISA
” shall
mean the Employee Retirement Income Security Act of 1974, as amended from time
to time, and the regulations promulgated thereunder. Section references to ERISA
are to ERISA, as in effect at the date of this Security Instrument and, as of
the relevant date, any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
“
ERISA
Affiliate
” shall
mean any corporation or trade or business that is a member of any group of
organizations (a) described in Section 414(b) or (c) of the Code of which
Borrower or Guarantor is a member and (b) solely for purposes of potential
liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code
and the lien created under Section 302(f) of ERISA and Section 412(n) of the
Code, described in Section 414(m) or (o) of the Code of which Borrower or
Guarantor is a member.
“
Escrow
Account
” shall
mean each of the Basic Carrying Costs Escrow Account, the Recurring Replacement
Reserve Escrow Account, the Reletting Reserve Escrow Account, the Operation and
Maintenance Expense Escrow Account and the Curtailment Reserve Escrow Account,
each of which shall be an Eligible Account or book entry sub-account of an
Eligible Account.
“
Event of
Default
” shall
have the meaning set forth in Section 13.01 hereof.
“
Extraordinary
Expense
” shall
mean an extraordinary operating expense or capital expense not set forth in the
Approved Annual Budget or allotted for in the Recurring Replacement Reserve
Sub-Account or the Reletting Reserve Sub-Account.
“
Fiscal
Year
” shall
mean the twelve (12) month period commencing on January 1 and ending on December
31 during each year of the term of this Security Instrument, or such other
fiscal year of Borrower as Borrower may select from time to time with the prior
written consent of Lender.
“
Fixtures
” shall
have the meaning set forth in granting clause (d) of this Security
Instrument.
“
Force
Majeure
” shall
mean strikes, lockouts, labor disputes, acts of God, governmental restrictions,
regulations or controls, enemy or hostile governmental actions, terrorist acts,
civil commotion, insurrection, revolution, sabotage or fire or other casualty or
other events beyond the reasonable control of Borrower and/or its Affiliates,
but Borrower’s and/or its Affiliates’ lack of funds in and of itself shall not
be deemed a cause beyond the control of Borrower and/or its
Affiliates.
“
GAAP
” shall
mean generally accepted accounting principles in the United States of America,
as of the date of the applicable financial report, consistently
applied.
“
General
Partner
” shall
mean, if Borrower is a partnership, each general partner of Borrower and, if
Borrower is a limited liability company, each managing member of Borrower and in
each case, if applicable, each general partner or member of such general partner
or managing member.
“
Governmental
Authority
” shall
mean, with respect to any Person, any federal or State government or other
political subdivision thereof and any entity, including any regulatory or
administrative authority or court, exercising executive, legislative, judicial,
regulatory or administrative or quasi-administrative functions of or pertaining
to government, and any arbitration board or tribunal, in each case having
jurisdiction over such applicable Person or such Person’s property and any stock
exchange on which shares of capital stock of such Person are listed or admitted
for trading.
“
Guarantor
” shall
mean any Person guaranteeing, in whole or in part, the obligations of Borrower
under the Loan Documents.
“
Guaranty
” shall
mean that certain Indemnity and Guaranty executed and delivered by Lightstone
Value Plus Real Estate Investment Trust, Inc., dated as of the date
hereof.
“
Hazardous
Material
” shall
mean any flammable, explosive or radioactive materials, hazardous materials or
wastes, hazardous or toxic substances, pollutants, asbestos or any material
containing asbestos, molds, spores and fungus which may pose a risk to human
health or the environment or any other substance or material as defined in or
regulated by any Environmental Statutes.
“
Impositions
” shall
mean all taxes (including, without limitation, all real estate, ad valorem,
sales (including those imposed on lease rentals), use, single business, gross
receipts, value added, intangible, transaction, privilege or license or similar
taxes), assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior to the
date hereof and whether or not commenced or completed within the term of this
Security Instrument), ground rents, water, sewer or other rents and charges,
excises, levies, fees (including, without limitation, license, permit,
inspection, authorization and similar fees), and all other governmental charges,
in each case whether general or special, ordinary or extraordinary, or foreseen
or unforeseen, of every character in respect of the Property and/or any Rent
(including all interest and penalties thereon), which at any time prior to,
during or in respect of the term hereof may be assessed or imposed on or in
respect of or be a lien upon (a) Borrower (including, without limitation, all
franchise, single business or other taxes imposed on Borrower for the privilege
of doing business in the jurisdiction in which the Property or any other
collateral delivered or pledged to Lender in connection with the Loan is
located) or Lender, (b) the Property or any part thereof or any Rents therefrom
or any estate, right, title or interest therein, or (c) any occupancy,
operation, use or possession of, or sales from, or activity conducted on, or in
connection with the Property, or any part thereof, or the leasing or use of the
Property, or any part thereof, or the acquisition or financing of the
acquisition of the Property, or any part thereof, by Borrower.
“
Improvements
” shall
have the meaning set forth in granting clause (b) of this Security
Instrument.
“
Indemnified
Parties
” shall
have the meaning set forth in Section 12.01 hereof.
“
Independent
” shall
mean, when used with respect to any Person, a Person who (a) is in fact
independent, (b) does not have any direct financial interest or any material
indirect financial interest in Borrower, or in any Affiliate of Borrower or any
constituent partner, shareholder, member or beneficiary of Borrower, (c) is not
connected with Borrower or any Affiliate of Borrower or any constituent partner,
shareholder, member or beneficiary of Borrower as an officer, employee,
promoter, underwriter, trustee, partner, director or person performing similar
functions and (d) is not a member of the immediate family of a Person defined in
(b) or (c) above.
"
Independent
Director
" shall
have the meaning ascribed to such term in Section 2.02 hereof.
“
Initial Recurring Reserve
Deposit
” shall
equal the amount required to be deposited by Borrower into the Recurring
Replacement Reserve Escrow Account on the Closing Date as set forth on Exhibit
B.
“
Initial Reletting Reserve
Deposit
” shall
equal the amount set forth on Exhibit B attached hereto and made a part
hereof.
“
Insolvency
Opinion
” shall
have the meaning set forth in Section 2.02(g)(xix) hereof.
“
Institutional
Lender
” shall
mean any of the following Persons: (a) any bank, savings and loan
association, savings institution, trust company or national banking association,
acting for its own account or in a fiduciary capacity, (b) any charitable
foundation, (c) any insurance company or pension and/or annuity company,
(d) any fraternal benefit society, (e) any pension, retirement or
profit sharing trust or fund within the meaning of Title I of ERISA or for
which any bank, trust company, national banking association or investment
adviser registered under the Investment Advisers Act of 1940, as amended, is
acting as trustee or agent, (f) any investment company or business
development company, as defined in the Investment Company Act of 1940, as
amended, (g) any small business investment company licensed under the Small
Business Investment Act of 1958, as amended, (h) any broker or dealer
registered under the Securities Exchange Act of 1934, as amended, or any
investment adviser registered under the Investment Adviser Act of 1940, as
amended, (i) any government, any public employees’ pension or retirement
system, or any other government agency supervising the investment of public
funds, or (j) any other entity all of the equity owners of which are
Institutional Lenders; provided that each of said Persons shall have net assets
in excess of $1,000,000,000 and a net worth in excess of $500,000,000, be in the
business of making commercial mortgage loans, secured by properties of like
type, size and value as the Property and have a long term credit rating which is
not less than “BBB-” (or its equivalent) from the Rating Agency.
“
Insurance
Proceeds
” shall
mean all of the proceeds received under the insurance policies required to be
maintained by Borrower pursuant to Article III hereof.
“
Insurance
Requirements
” shall
mean all terms of any insurance policy required by this Security Instrument, all
requirements of the issuer of any such policy, and all regulations and then
current standards applicable to or affecting the Property or any use or
condition thereof, which may, at any time, be recommended by the Board of Fire
Underwriters, if any, having jurisdiction over the Property, or such other
Person exercising similar functions.
“
Interest
Rate
” shall
have the meaning set forth in the Note.
“
Late
Charge
” shall
have the meaning set forth in Section 13.09 hereof.
“
Leases
” shall
have the meaning set forth in granting clause (f) of this Security
Instrument.
“
Legal
Requirement
” shall
mean as to any Person, the certificate of incorporation, by-laws, certificate of
limited partnership, agreement of limited partnership or other organization or
governing documents of such Person, and any law, statute, order, code,
ordinance, judgment, decree, injunction, treaty, rule or regulation (including,
without limitation, Environmental Statutes, Development Laws and Use
Requirements) or determination of an arbitrator or a court or other Governmental
Authority and all covenants, agreements, restrictions and encumbrances contained
in any instruments, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
“
Lender
” shall
mean the Lender named herein and its successors or assigns.
“
Loan
” shall
have the meaning set forth in the Recitals hereto.
“
Loan
Amount
” shall
have the meaning set forth in the Recitals hereto.
“
Loan
Documents
” shall
mean this Security Instrument, the Note, the Guaranty, the Assignment, and any
and all other agreements, instruments, certificates or documents executed and
delivered by Borrower, Borrower or any Affiliate of Borrower in connection with
the Loan.
“
Loan Year
” shall
mean each 365 day period (or 366 day period if the month of February in a leap
year is included) commencing on the first day of the month following the Closing
Date (provided, however, that the first Loan Year shall also include the period
from the Closing Date to the end of the month in which the Closing Date occurs).
“
Loss
Proceeds
” shall
mean, collectively, all Insurance Proceeds and all Condemnation Proceeds.
“
Major Space
Lease
” shall
mean any Space Lease of a tenant or Affiliate of such tenant where such tenant
or such Affiliate leases, in the aggregate, five percent (5%) or more of 177,075
square feet.
“
Management
Agreement
” shall
have the meaning set forth in Section 7.02 hereof.
“
Manager
” shall
mean Borrower and any other Person, other than Borrower, which manages the
Property on behalf of Borrower.
“
Manager
Certification
” shall
have the meaning set forth in Section 2.09 hereof.
"Manager Control
Notice
" shall
have the meaning ascribed to such term in Section 7.02 hereof.
“
Material Adverse
Effect
” shall
mean any event or condition that has a material adverse effect on (a) the
Property, (b) the business, profits, management, operations or condition
(financial or otherwise) of Borrower, (c) the enforceability, validity,
perfection or priority of the lien or security interest of any Loan Document or
(d) the ability of Borrower to perform any material obligations under any Loan
Document.
“
Maturity
”, when
used with respect to the Note, shall mean the Maturity Date set forth in the
Note, as same may be extended in accordance with the Note, or such other date
pursuant to the Note on which the final payment of principal, and premium, if
any, on the Note becomes due and payable as therein or herein provided, whether
at Stated Maturity or by declaration of acceleration, or otherwise.
“
Maturity
Date
” shall
mean the Maturity Date set forth in the Note.
“
Minimum Manager
Credentials
” shall
mean (i) the employment of a senior executive who has the responsibility for
oversight of the Property and has at least seven (7) years’ experience in the
management of outlet shopping centers and (ii) the management of not less than
five (5) shopping center properties (excluding the Property) having an aggregate
leasable square footage of not less than the lesser of (a) one million leasable
square feet and (b) five (5) times the leasable square feet of the
Property.
“
Multiemployer
Plan
” shall
mean a multiemployer plan defined as such in Section 3(37) of ERISA to which
contributions have been, or were required to have been, made by Borrower,
Guarantor or any ERISA Affiliate and which is covered by Title IV of
ERISA.
“
Net Capital
Expenditures
” shall
mean for any period the amount by which Capital Expenditures during such period
exceeds reimbursements for such items during such period from any fund
established pursuant to the Loan Documents.
“
Net Operating
Income
” shall
mean in each Fiscal Year or portion thereof during the term hereof, Operating
Income less Operating Expenses.
“
Net
Proceeds
” shall
mean the excess of (a)(i) the purchase price (at foreclosure or otherwise)
actually received by Lender with respect to the Property as a result of the
exercise by Lender of its rights, powers, privileges and other remedies after
the occurrence of an Event of Default, or (ii) in the event that Lender (or
Lender’s nominee) is the purchaser at foreclosure by credit bid, then the amount
of such credit bid, in either case, over (b) all costs and expenses, including,
without limitation, all attorneys’ fees and disbursements and any brokerage
fees, if applicable, incurred by Lender in connection with the exercise of such
remedies, including the sale of such Property after a foreclosure against the
Property.
“
Note
” shall
have the meaning set forth in the Recitals hereto.
"
O&M Operative
Period
" shall
mean the period of time commencing upon the determination by Lender that the
Debt Service Coverage (tested quarterly except during the continuance of an
O&M Operative Period, in which event Debt Service Coverage shall be tested
monthly and shall be calculated based upon information contained in the reports
furnished to Lender pursuant to Section 2.09 hereof) is less than 1.05:1.0 for
the preceding fiscal quarter and terminating, in each case, on the Payment Date
next succeeding the date upon which Lender has determined that the Debt Service
Coverage has been 1.05:1 or greater for the immediately preceding two fiscal
quarters.
“
OFAC List
” means
the list of specially designated nationals and blocked persons subject to
financial sanctions that is maintained by the U.S. Treasury Department, Office
of Foreign Assets Control and accessible through the internet website
www.treas.gov/ofac/t11sdn.pdf
.
“
Officer’s
Certificate
” shall
mean a certificate delivered to Lender by Borrower which is signed on behalf of
Borrower by an authorized representative of Borrower which states that the items
set forth in such certificate are true, accurate and complete in all
respects.
“
Operating
Expenses
” shall
mean, in each Fiscal Year or portion thereof during the term hereof, all
expenses directly attributable to the operation, repair and/or maintenance of
the Property including, without limitation, (a) Impositions, (b) insurance
premiums, (c) management fees, whether or not actually paid, equal to the
greater of the actual management fees or expenses and four percent (4%) of
annual “base” or “fixed” Rent due under the Leases and (d) costs attributable to
the operation, repair and maintenance of the systems for heating, ventilating
and air conditioning the Improvements and actually paid for by Borrower.
Operating Expenses shall not include interest, principal and premium, if any,
due under the Note or otherwise in connection with the Debt, income taxes,
Capital Expenditures, any non-cash charge or expense such as depreciation,
amortization or any item of expense otherwise includable in Operating Expenses
which is paid directly by any tenant except real estate taxes paid directly to
any taxing authority by any tenant or contributions by Borrower to any reserve
funds required under the Loan Documents.
“
Operating
Income
” shall
mean, in each Fiscal Year or portion thereof during the term hereof, all revenue
derived by Borrower arising from the Property including, without limitation,
rental revenues (whether denominated as basic rent, additional rent, escalation
payments, electrical payments or otherwise) and other fees and charges payable
pursuant to Leases or otherwise in connection with the Property, and the
proceeds of business interruption, rent or other similar insurance. Operating
Income shall not include (a) Insurance Proceeds (other than proceeds of
rent, business interruption or other similar insurance allocable to the
applicable period) and Condemnation Proceeds (other than Condemnation Proceeds
arising from a temporary taking or the use and occupancy of all or part of the
applicable Property allocable to the applicable period), or interest accrued on
such Condemnation Proceeds, (b) proceeds of any financing, (c) proceeds of any
sale, exchange or transfer of the Property or any part thereof or interest
therein, (d) capital contributions or loans to Borrower or an Affiliate of
Borrower, (e) any item of income otherwise includable in Operating Income but
paid directly by any tenant to a Person other than Borrower except for real
estate taxes paid directly to any taxing authority by any tenant, (f) any other
extraordinary, non-recurring revenues, (g) Rent paid by or on behalf of any
lessee under a Space Lease which is the subject of any proceeding or action
relating to its bankruptcy, reorganization or other arrangement pursuant to the
Bankruptcy Code or any similar federal or state law or which has been
adjudicated a bankrupt or insolvent unless such Space Lease has been affirmed by
the trustee in such proceeding or action, (h) Rent paid by or on behalf of any
lessee under a Space Lease the demised premises of which are not occupied either
by such lessee or by a sublessee thereof, (i) Rent paid by or on behalf of any
lessee under a Space Lease in whole or partial consideration for the termination
of any Space Lease, (j) rent paid by or on behalf of lessees under
month-to-month Space Leases for lessees which have been in occupancy for less
than six (6) months, (k) rent paid by or on behalf of any lessee under a Space
Lease that is more than thirty (30) days in arrears in its obligations under
such Space Lease, (l) Rents paid by or on behalf of lessees who have given
notice that they will be vacating the premises demised under their respective
Space Leases more than thirty (30) days prior to the stated expiration date set
forth in such Space Leases, or (l) sales tax rebates from any Governmental
Authority.
“
Operation and Maintenance
Expense Escrow Account
” shall
mean the Escrow Account maintained pursuant to Section 5.09 hereof relating to
the payment of Operating Expenses (exclusive of Basic Carrying
Costs).
“
Operation and Maintenance
Expense Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which sums allocated for the payment of Cash Expenses, Net Capital
Expenditures and approved Extraordinary Expenses shall be
deposited.
“
Pad
Owners
” shall
mean any owner of any fee interest in property contiguous to or surrounded by
the Property who has entered into or is subject to a reciprocal easement
agreement or other agreement or agreements with Borrower either (a) in
connection with an existing or potential improvement on such property or (b)
relating to or affecting the Property.
“
Payment
Date
” shall
have the meaning set forth in the Note.
“
PBGC
” shall
mean the Pension Benefit Guaranty Corporation established under ERISA, or any
successor thereto.
“
Permitted
Encumbrances
” shall
have the meaning set forth in Section 2.05(a) hereof.
“
Person
” shall
mean any individual, corporation, limited liability company, partnership, joint
venture, estate, trust, unincorporated association, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the
foregoing.
“
Plan
” shall
mean an employee benefit or other plan established or maintained by Borrower,
Guarantor or any ERISA Affiliate during the five-year period ended prior to the
date of this Security Instrument or to which Borrower, Guarantor or any ERISA
Affiliate makes, is obligated to make or has, within the five year period ended
prior to the date of this Security Instrument, been required to make
contributions (whether or not covered by Title IV of ERISA or Section 302 of
ERISA or Section 401(a) or 412 of the Code), other than a Multiemployer
Plan.
“
Premises
” shall
have the meaning set forth in granting clause (a) of this Security
Instrument.
“
Principal
Amount
” shall
mean the Loan Amount as such amount may be reduced from time to time pursuant to
the terms of this Security Instrument, the Note or the other Loan
Documents.
“
Pro-Forma Net Operating
Income
” shall
mean Pro-Forma Operating Income less Pro-Forma Operating Expenses.
“
Pro-Forma Operating
Expenses
” shall
mean projected aggregate annualized Operating Expenses for the Property based on
a trailing twelve (12)-month period as reasonably adjusted by Lender to take
into account, among other things, anticipated increases or decreases in
Operating Expenses.
“
Pro-Forma Operating
Income
” shall
mean the lesser of (i) projected aggregate Operating Income for the Property for
the immediately subsequent 12-month period and (ii) actual aggregate Operating
Income for the Property for the immediately preceding 12-month period, as
increased by scheduled rent increases set forth in the Space Leases and rent
anticipated from tenants under Space Leases relating to any portion of the
Premises which was previously not occupied provided such tenants are then in
occupancy pursuant to Space Leases entered into in accordance with the terms of
this Security Instrument and have paid all rents due under the Space Lease
without abatement, suspension, deferment, diminution, reduction or other
allowances for at least one full calendar month, in each case as determined by
Lender based on the most recent rent roll and such other information as is
required to be delivered by Borrower pursuant to Section 2.09 hereof and as
reasonably adjusted by Lender to take into account, among other things, a
vacancy factor equal to the greater of (x) anticipated vacancies for the
succeeding 12-month period and (b) actual vacancies during the immediately
preceding 12-month period.
“
Prohibited
Person
” means
any Person identified on the OFAC List or any other Person with whom a U.S.
Person may not conduct business or transactions by prohibition of Federal law or
Executive Order of the President of the United States of America.
“
Property
” shall
have the meaning set forth in the granting clauses of this Security
Instrument.
“
Property
Agreements
” shall
mean all agreements, grants of easements and/or rights-of-way, reciprocal
easement agreements, permits, declarations of covenants, conditions and
restrictions, disposition and development agreements, planned unit development
agreements, management or parking agreements, party wall agreements or other
instruments affecting the Property, including, without limitation any agreements
with Pad Owners, but not including any brokerage agreements, management
agreements, service contracts, Space Leases or the Loan Documents.
“
Rating
Agency
” shall
mean Standard & Poor’s Ratings Services, Inc., a division of The McGraw-Hill
Company, Inc. (“
Standard &
Poor’s
”),
Fitch, Inc., and Moody’s Investors Service, Inc. (“
Moody’s
”),
collectively, and any successor to any of them; provided, however, that at any
time after a Securitization, “Rating Agency” shall mean those of the foregoing
rating agencies that from time to time rate the securities issued in connection
with such Securitization.
“
Real Estate
Taxes
” shall
mean all real estate taxes, assessments (including, without limitation, all
assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not commenced or completed
within the term of this Security Instrument), water, sewer or other rents and
charges, and all other governmental charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Property (including all interest and penalties
thereon), which at any time prior to, during or in respect of the term hereof
may be assessed or imposed on or in respect of or be a lien upon the Property or
any part thereof or any estate, right, title or interest therein.
“
Realty
” shall
have the meaning set forth in Section 2.05(b) hereof.
"Recourse
Distributions
" shall
have the meaning ascribed to such term in Section 18.32 hereof.
“
Recurring Replacement
Expenditures
” shall
mean expenditures related to capital repairs, replacements and improvements
performed at the Property from time to time.
“
Recurring Replacement
Monthly Installment
” shall
mean the amount per month as set forth on Exhibit B attached hereto and made a
part hereof.
“
Recurring Replacement
Reserve Escrow Account
” shall
mean the Escrow Account maintained pursuant to Section 5.08 hereof relating to
the payment of Recurring Replacement Expenditures.
“
Recurring Replacement
Reserve Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which the Recurring Replacement Monthly Installment shall be
deposited.
“
Reletting
Expenditures
” shall
mean reasonable and actual out-of-pocket expenditures payable to bona-fide third
parties incurred by Borrower relating to reletting of space at the Property and
in connection with any brokerage commissions due and payable, or any
improvements and replacements required to be made by Borrower (or reasonable and
actual out-of-pocket expenditures paid to tenants in connection with any
improvements and replacements made by tenants at the Property) under the terms
of any Lease to prepare the relevant space for occupancy by the tenant
thereunder.
“
Reletting Reserve Escrow
Account
” shall
mean the Escrow Account maintained pursuant to Section 5.07 hereof relating to
the payment of Reletting Expenditures.
“
Reletting Reserve Monthly
Installment
” shall
mean (a) the amount set forth on Exhibit B attached hereto and made a part
hereof plus (b) all sums received by Borrower in connection with any
cancellation, termination or surrender of any Lease, including, without
limitation, any surrender or cancellation fees, buy-out fees, or reimbursements
for tenant improvements and leasing commissions.
“
Reletting Reserve
Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which the Reletting Reserve Monthly Installment shall be
deposited.
“
Rents
” shall
have the meaning set forth in granting clause (f) of this Security
Instrument.
“
Rent
Account
” shall
mean an Eligible Account, maintained at the Bank, in the joint names of Borrower
and Lender or its successors or assigns (as secured party) as may be designated
by Lender.
“
Rent Roll
” shall
have the meaning set forth in Section 2.05 (o) hereof.
“
Required Debt Service
Coverage
” shall
mean a Debt Service Coverage of not less than 1.15:1.0.
“
Required Debt Service
Payment
” shall
mean, as of any Payment Date, the amount of interest and principal then due and
payable pursuant to the Note, together with any other sums due thereunder,
including, without limitation, any prepayments required to be made or for which
notice has been given under this Security Instrument, Default Rate Interest and
premium, if any, paid in accordance therewith.
“
Retention
Amount
” shall
have the meaning set forth in Section 3.04(b)(vii) hereof.
“
Securities
Act
” shall
mean the Securities Act of 1933, as the same shall be amended from time to
time.
“
Securitization
” shall
mean a public or private offering of securities by Lender or any of its
Affiliates or their respective successors and assigns which are collateralized,
in whole or in part, by this Security Instrument.
“
Security Deposit
Account
” shall
have the meaning set forth in Section 5.01 hereof.
“
Security
Instrument
” shall
mean this Security Instrument as originally executed or as it may hereafter from
time to time be supplemented, amended, modified or extended by one or more
indentures supplemental hereto.
"Servicer
" shall
have the meaning ascribed to such term in Section 5.04 hereof.
“
Single Purpose
Entity
” shall
mean a corporation, partnership, joint venture, limited liability company, trust
or unincorporated association, which is formed or organized solely for the
purpose of holding, directly, an ownership interest in the Property or a general
partner interest in a Person, does not engage in any business unrelated to the
Property, does not have any assets other than those related to its interest in
the Property or a general partner interest in such Person, or any indebtedness,
other than as permitted by this Security Instrument or the other Loan Documents,
has its own separate books and records and has its own accounts, in each case
which are separate and apart from the books and records and accounts of any
other Person, holds itself out as being a Person separate and apart from any
other Person and which otherwise satisfies the criteria of the Rating Agency, as
in effect on the Closing Date, for a special-purpose bankruptcy-remote entity.
“
SNDA
” shall
have the meaning set forth in Section 7.02 hereof.
“
Solvent
” shall
mean, as to any Person, that (a) the sum of the assets of such Person, at a fair
valuation, exceeds its liabilities, including contingent liabilities, (b) such
Person has sufficient capital with which to conduct its business as presently
conducted and as proposed to be conducted and (c) such Person has not incurred
debts, and does not intend to incur debts, beyond its ability to pay such debts
as they mature. For purposes of this definition, “
debt
” means
any liability on a claim, and “
claim
” means
(a) a right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured, or (b) a right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured. With respect to any such contingent liabilities, such liabilities
shall be computed in accordance with GAAP at the amount which, in light of all
the facts and circumstances existing at the time, represents the amount which
can reasonably be expected to become an actual or matured
liability.
“
Space
Leases
” shall
mean any Lease or sublease thereunder (including, without limitation, any Major
Space Lease) or any other agreement providing for the use and occupancy of a
portion of the Property as the same may be amended, renewed or
supplemented.
“
State
” shall
mean any of the states which are members of the United States of
America.
“
Stated
Maturity
”, when
used with respect to the Note or any installment of interest and/or principal
payment thereunder, shall mean the date specified in the Note as the fixed date
on which a payment of principal and/or interest is due and payable.
“
Sub-Accounts
” shall
have the meaning set forth in Section 5.02 hereof.
“
Substantial
Casualty
” shall
have the meaning set forth in Section 3.04(a)(iv) hereof.
“
Sweep
Period
” shall
mean the period of time during which either an Event of Default or an O&M
Operative Period shall have occurred and is continuing.
“
Taking
” shall
mean a condemnation or taking pursuant to the lawful exercise of the power of
eminent domain.
"Termination
Payment
" shall
have the meaning ascribed to such term in Section 5.07(b) hereof.
“
Transfer
” shall
mean the conveyance, assignment, sale, mortgaging, encumbrance, pledging,
hypothecation, granting of a security interest in, granting of options with
respect to, or other disposition of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration or of record) all or any portion of any legal or beneficial
interest (a) in all or any portion of the Property; (b) if Borrower or, if
Borrower is a partnership, any General Partner, is a corporation, in the stock
of Borrower or any General Partner; (c) if Borrower is a limited or general
partnership, joint venture, limited liability company, trust, nominee trust,
tenancy in common or other unincorporated form of business association or form
of ownership interest, in any Person having a legal or beneficial ownership in
Borrower, excluding any legal or beneficial interest in any constituent limited
partner, if Borrower is a limited partnership, or in any non-managing member, if
Borrower is a limited liability company, unless such interest would, or together
with all other direct or indirect interests in Borrower which were previously
transferred, aggregate 49% or more of the partnership or membership, as
applicable, interests in Borrower or would result in any Person who, as of the
Closing Date, did not own, directly or indirectly, 49% or more of the
partnership or membership, as applicable, interests in Borrower, owning,
directly or indirectly, 49% or more of the partnership or membership, as
applicable, interests in Borrower and excluding any legal or beneficial interest
in any General Partner unless such interest would, or together with all other
direct or indirect interest in the General Partner which were previously
transferred, aggregate 49% or more of the partnership or membership, as
applicable, interests in the General Partner (or result in a change in control
of the management of the General Partner from the individuals exercising such
control immediately prior to the conveyance or other disposition of such legal
or beneficial interest) and shall also include, without limitation to the
foregoing, the following: an installment sales agreement wherein Borrower agrees
to sell the Property or any part thereof or any interest therein for a price to
be paid in installments; an agreement by Borrower leasing all or substantially
all of the Property to one or more Persons pursuant to a single or related
transactions, or a sale, assignment or other transfer of, or the grant of a
security interest in, Borrower’s right, title and interest in and to any Leases
or any Rent; any instrument subjecting the Property to a condominium regime or
transferring ownership to a cooperative corporation; and the dissolution or
termination of Borrower or the merger or consolidation of Borrower with any
other Person.
“
Trustee
” shall
mean the Person or Persons identified in this Security Instrument as the Trustee
hereunder and its or their successors and assigns.
“
UCC
” shall
mean the Uniform Commercial Code as in effect from time to time in the State in
which the Property is located.
“
Unscheduled
Payments
” shall
mean (a) all Loss Proceeds that Borrower has elected or is required to apply to
the repayment of the Debt pursuant to this Security Instrument, the Note or any
other Loan Documents, (b) any funds representing a voluntary or involuntary
principal prepayment and (c) any Net Proceeds.
“
Use
Requirements
” shall
mean any and all building codes, permits, certificates of occupancy or
compliance, laws, regulations, or ordinances (including, without limitation,
health, pollution, fire protection, medical and day-care facilities, waste
product and sewage disposal regulations), restrictions of record, easements,
reciprocal easements, declarations or other agreements affecting the use of the
Property or any part thereof.
“
Welfare
Plan
” shall
mean an employee welfare benefit plan as defined in Section 3(1) of ERISA
established or maintained by Borrower, Guarantor or any ERISA Affiliate or that
covers any current or former employee of Borrower, Guarantor or any ERISA
Affiliate.
“
Work
” shall
have the meaning set forth in Section 3.04(a)(i) hereof.
ARTICLE II:
REPRESENTATIONS,
WARRANTIES
AND
COVENANTS OF
BORROWER
Section
2.01.
Payment of
Debt
.
Borrower will pay the Debt at the time and in the manner provided in the Note
and the other Loan Documents, all in lawful money of the United States of
America in immediately available funds.
Section
2.02.
Representations, Warranties
and Covenants of Borrower
.
Borrower represents, warrants and covenants to Lender:
(a)
Organization and
Authority
.
Borrower (i) is a limited liability company, general partnership, limited
partnership or corporation, as the case may be, duly organized, validly existing
and in good standing under the laws of the jurisdiction of its formation,
(ii) has all requisite power and authority and all necessary licenses and
permits to own and operate the Property and to carry on its business as now
conducted and as presently proposed to be conducted and (iii) is duly qualified,
authorized to do business and in good standing in the jurisdiction where the
Property is located and in each other jurisdiction where the conduct of its
business or the nature of its activities makes such qualification necessary. If
Borrower is a limited liability company, limited partnership or general
partnership, each general partner or managing member, as applicable, of Borrower
which is a corporation is duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation.
(b)
Power
.
Borrower and, if applicable, each General Partner has full power and authority
to execute, deliver and perform, as applicable, the Loan Documents to which it
is a party, to make the borrowings thereunder, to execute and deliver the Note
and to grant to Lender a first lien on and security interest in the Property,
subject only to the Permitted Encumbrances.
(c)
Authorization of
Borrowing
. The
execution, delivery and performance of the Loan Documents to which Borrower
and/or
Borrower
is a
party, the making of the borrowings thereunder, the execution and delivery of
the Note, the grant of the liens on the Property pursuant to the Loan Documents
to which Borrower and/or Borrower is a party and the consummation of the Loan
are within the powers of Borrower and/or Borrower and have been duly authorized
by Borrower and/or Borrower and, if applicable, the General Partners, by all
requisite action (and Borrower hereby represents that no approval or action of
any member, limited partner or shareholder, as applicable, of Borrower is
required to authorize any of the Loan Documents to which Borrower is a party
other than such approval or action that has already been granted or taken) and
will constitute the legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with their terms, except as enforcement may be
stayed or limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights generally and by general principles of equity
(whether considered in proceedings at law or in equity) and will not (i) violate
any provision of its partnership agreement or partnership certificate or
certificate of incorporation or by-laws, or operating agreement, or articles of
organization, as applicable, or, to its knowledge, any law, judgment, order,
rule or regulation of any court, arbitration panel or other Governmental
Authority, domestic or foreign, or other Person affecting or binding upon
Borrower or the Property, or (ii) violate any provision of any indenture,
agreement, mortgage, deed of trust, contract or other instrument to which
Borrower or, if applicable, any General Partner is a party or by which any of
their respective property, assets or revenues are bound, or be in conflict with,
result in an acceleration of any obligation or a breach of or constitute (with
notice or lapse of time or both) a default or require any payment or prepayment
under, any such indenture, agreement, mortgage, deed of trust, contract or other
instrument, or (iii) result in the creation or imposition of any lien, except
those in favor of Lender as provided in the Loan Documents to which it is a
party.
(d)
Consent
. Neither
Borrower nor, if applicable, any General Partner, is required to obtain any
consent, approval or authorization from, or to file any declaration or statement
with, any Governmental Authority or other agency in connection with or as a
condition to the execution, delivery or performance of this Security Instrument,
the Note or the other Loan Documents which has not been so obtained or
filed.
(e)
Intentionally
Deleted
.
(f)
Other
Agreements
.
Borrower is not a party to nor is otherwise bound by any agreements or
instruments which, individually or in the aggregate, are reasonably likely to
have a Material Adverse Effect. Neither Borrower nor, if applicable, any General
Partner, is in violation of its organizational documents or other restriction or
any agreement or instrument by which it is bound, or any judgment, decree, writ,
injunction, order or award of any arbitrator, court or Governmental Authority,
or any Legal Requirement, in each case, applicable to Borrower or the Property,
except for such violations that would not, individually or in the aggregate,
have a Material Adverse Effect.
(g)
Maintenance of
Existence
.
Borrower and, if applicable, General Partner at all times since their formation
have been duly formed and existing and shall preserve and keep in full force and
effect their existence as a Single Purpose Entity.
(ii)
Borrower
and, if applicable, General Partner, at all times since their organization have
complied, and will continue to comply, with the provisions of its certificate
and agreement of partnership or certificate of incorporation and by-laws or
articles of organization and operating agreement, as applicable, and the laws of
its jurisdiction of organization relating to partnerships, corporations or
limited liability companies, as applicable.
(iii)
Borrower
and, if applicable, General Partner have done or caused to be done and will do
all things necessary to observe organizational formalities and preserve their
existence and each Borrower and, if applicable, General Partner will not amend,
modify or otherwise change the certificate and agreement of partnership or
certificate of incorporation and by-laws or articles of organization and
operating agreement, as applicable, or other organizational documents of
Borrower and, if applicable, General Partner without the prior written consent
of Lender.
(iv)
Borrower
and, if applicable, General Partner, have at all times accurately maintained,
and will continue to accurately maintain, their respective financial statements,
accounting records and other partnership, company or corporate documents
separate from those of any other Person, and Borrower will file its own tax
returns or, if Borrower and/or, if applicable, General Partner is part of a
consolidated group for purposes of filing tax returns, Borrower and General
Partner, as applicable will be shown as separate members of such group. Borrower
and, if applicable, General Partner have not at any time since their formation
commingled, and will not commingle, their respective assets with those of any
other Person and will maintain their assets in such a manner such that it will
not be costly or difficult to segregate, ascertain or identify their individual
assets from those of any other Person. Borrower and, if applicable, General
Partner will not permit any Affiliate independent access to their bank accounts.
Borrower and, if applicable, General Partner have at all times since their
formation accurately maintained and utilized, and will continue to accurately
maintain and utilize, their own separate bank accounts, payroll and separate
books of account, stationery, invoices and checks.
(v)
Borrower
and, if applicable, General Partner, have at all times paid, and will continue
to pay, their own liabilities from their own separate assets and shall each
allocate and charge fairly and reasonably any overhead which Borrower and, if
applicable, General Partner, shares with any other Person, including, without
limitation, for office space and services performed by any employee of another
Person.
(vi)
Borrower
and, if applicable, General Partner, have at all times identified themselves,
and will continue to identify themselves, in all dealings with the public, under
their own names and as separate and distinct entities and shall correct any
known misunderstanding regarding their status as separate and distinct entities.
Borrower and, if applicable, General Partner, have not at any time identified
themselves, and will not identify themselves, as being a division of any other
Person.
(vii)
Borrower
and, if applicable, General Partner, have been at all times, and will continue
to use commercially reasonable efforts to be, adequately capitalized in light of
the nature of their respective businesses; provided, however, in no event shall
any direct or indirect member, partner or principal of Borrower be required to
make additional capital contributions to any Borrower.
(viii)
Borrower
and, if applicable, General Partner, (A) have not owned, do not own and will not
own any assets or property other than the Property and any incidental personal
property necessary for the ownership, management or operation of the Property,
(B) have not engaged and will not engage in any business other than the
ownership, management and operation of the Property, (C) have not incurred and
will not incur any debt, secured or unsecured, direct or contingent (including
guaranteeing any obligation), other than (X) the Loan, and (Y) unsecured trade
and operational debt which (1) is not evidenced by a note, (2) is incurred in
the ordinary course of the operation of the Property, (3) does not exceed in the
aggregate two percent (2%) of the Loan Amount for the Property and (4) which is,
unless being contested in accordance with the terms of this Security Instrument,
paid prior to the earlier to occur of the forty-fifth (45th) day after the date
incurred and the date when due, (D) have not and will not pledge their assets
for the benefit of any other Person, and (E) have not made and will not make any
loans or advances to any Person (including any Affiliate).
(ix)
Neither
Borrower nor, if applicable, any General Partner will change its name or
principal place of business without giving Lender at least thirty (30) days
prior written notice thereof.
(x)
Neither
Borrower nor, if applicable, any General Partner have, and neither of such
Persons will have, any subsidiaries.
(xi)
Borrower
will preserve and maintain its existence as a general partnership, limited
partnership or limited liability company, as applicable as of the Closing Date,
which is organized and existing under the laws of the State in which it is
organized as of the Closing Date and all material rights, privileges, tradenames
and franchises.
(xii)
Neither
Borrower, nor, if applicable, any General Partner, will merge or consolidate
with, or sell all or substantially all of its respective assets to any Person,
or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up
or dissolution). Neither any Borrower, nor, if applicable, any General Partner
will acquire any business or assets from, or capital stock or other ownership
interest of, or be a party to any acquisition of, any Person.
(xiii)
Borrower
and, if applicable, General Partner, have not at any time since their formation
assumed, guaranteed or held themselves out to be responsible for, and will not
assume, guarantee or hold themselves out to be responsible for the liabilities
or the decisions or actions respecting the daily business affairs of their
partners, shareholders or members or any predecessor company, corporation or
partnership, each as applicable, any Affiliates, or any other Persons. Borrower
has not at any time since its formation acquired, and will not acquire,
obligations or securities of its partners or shareholders, members or any
predecessor company, corporation or partnership, each as applicable, or any
Affiliates. Borrower and, if applicable, General Partner, have not at any time
since their formation made, and will not make, loans to its partners, members or
shareholders or any predecessor company, corporation or partnership, each as
applicable, or any Affiliates of any of such Persons. Borrower and, if
applicable, General Partner, have no known contingent liabilities nor do they
have any material financial liabilities under any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which such Person is a
party or by which it is otherwise bound other than under the Loan
Documents.
(xiv)
Borrower
has not at any time since its formation entered into and was not a party to,
and, will not enter into or be a party to, any transaction with its Affiliates,
members, partners or shareholders, as applicable, or any Affiliates thereof
except in the ordinary course of business of Borrower on terms which are no less
favorable to Borrower than would be obtained in a comparable arm’s length
transaction with an unrelated third party.
(xv)
If
Borrower is a limited partnership or a limited liability company, the General
Partner shall be a corporation or limited liability company whose sole asset is
its interest in Borrower and the General Partner will at all times comply, and
will cause Borrower to comply, with each of the representations, warranties, and
covenants contained in this Section 2.02(g) as if such representation, warranty
or covenant was made directly by such General Partner.
(xvi)
Borrower
shall at all times cause there to be at least two (2) duly appointed members of
the board of directors or board of managers or other governing board or body, as
applicable (an “
Independent
Director
”), of,
if Borrower is a corporation or single member limited liability company formed
in the State of Delaware, Borrower, and, if Borrower is a limited partnership or
multi-member limited liability company, of the General Partner, reasonably
satisfactory to Lender who shall not have been at the time of such individual’s
appointment, and may not be or have been at any time (A) a shareholder, officer,
director, attorney, counsel, partner, member or employee of Borrower or any of
the foregoing Persons or Affiliates thereof, (B) a customer or creditor of, or
supplier or service provider to, Borrower or any of its shareholders, partners,
members or their Affiliates, (C) a member of the immediate family of any Person
referred to in (A) or (B) above, D) a Person Controlling, Controlled by or under
common Control with any Person referred to in (A) through (C) above. A natural
person who otherwise satisfies the foregoing definition except for being the
Independent Director of a Single Purpose Entity Affiliated with Borrower or
General Partner shall not be disqualified from serving as an Independent
Director if such individual is at the time of initial appointment, or at any
time while serving as the Independent Director, an Independent Director of a
Single Purpose Entity Affiliated with Borrower or General Partner if such
individual is an independent director provided by a nationally-recognized
company that provides professional independent directors.
(xvii)
Borrower
and, if applicable, General Partner, shall not cause or permit the board of
directors or board of managers or other governing board or body, as applicable,
of each Borrower or, if applicable, General Partner, to take any action which,
under the terms of any certificate of incorporation, by-laws or articles of
organization with respect to any common stock, requires a unanimous vote of the
board of directors of Borrower, or, if applicable, the General Partner, unless
at the time of such action there shall be at least two members who are
Independent Directors.
(xviii)
Borrower
and, if applicable, General Partner shall pay the salaries of their own
employees and maintain a sufficient number of employees in light of their
contemplated business operations.
(xix)
Borrower
shall, and shall cause its Affiliates to, conduct its business so that the
assumptions made with respect to Borrower in that certain opinion letter
relating to substantive non-consolidation dated the date hereof (the
“
Insolvency
Opinion
”)
delivered in connection with the Loan shall be true and correct in all
respects.
Notwithstanding
anything to the contrary contained in this Section 2.02(g), provided Borrower is
a Delaware single member limited liability company which satisfies the single
purpose bankruptcy remote entity requirements of each Rating Agency for a single
member limited liability company, the foregoing provisions of this Section
2.02(g) shall not apply to the General Partner.
(h)
No
Defaults
. No
Default or Event of Default has occurred and is continuing or would occur as a
result of the consummation of the transactions contemplated by the Loan
Documents. To the best of Borrower’s knowledge, Borrower is not in default
beyond any applicable notice and/or grace periods in the payment or performance
of any of its Contractual Obligations in any respect.
(i)
Consents and
Approvals
.
Borrower and, if applicable, each General Partner, have obtained or made all
necessary (i) consents, approvals and authorizations, and registrations and
filings of or with all Governmental Authorities and (ii) consents,
approvals, waivers and notifications of partners, stockholders, creditors,
lessors and other nongovernmental Persons, in each case, which are required to
be obtained or made by Borrower or, if applicable, the General Partner, in
connection with the execution and delivery of, and the performance by Borrower
of its obligations under, the Loan Documents.
(j)
Investment Company Act
Status, etc
.
Borrower is not (i) an “investment company,” or a company “controlled” by an
“investment company,” as such terms are defined in the Investment Company Act of
1940, as amended, (ii) a “holding company” or a “subsidiary company” of a
“holding company” or an “affiliate” of either a “holding company” or a
“subsidiary company” within the meaning of the Public Utility Holding Company
Act of 1935, as amended, or (iii) subject to any other federal or state law or
regulation which purports to restrict or regulate its ability to borrow
money.
(k)
Compliance with
Law
. (i)
Except as previously disclosed to Lender in writing, Borrower has received no
notice of violation of any Legal Requirements and (ii) except for such
violations which would not, individually or in the aggregate, have a Material
Adverse Effect, Borrower is in compliance in all material respects with all
Legal Requirements to which it or the Property is subject, including, without
limitation, all Environmental Statutes, the Occupational Safety and Health Act
of 1970, the Americans with Disabilities Act and ERISA. No portion of the
Property has been or will be purchased, improved, fixtured, equipped or
furnished with proceeds of any illegal activity and to the best of Borrower’s
knowledge, no illegal activities are being conducted at or from the
Property.
(l)
Financial
Information
. To the
best of Borrower’s knowledge, all financial data that has been delivered by
Borrower to Lender (i) is true, complete and correct in all material respects,
(ii) accurately represents the financial condition and results of operations of
the Persons covered thereby as of the date on which the same shall have been
furnished in all material respects, and (iii) to the extent prepared by an
independent certified public accounting firm, has been prepared in accordance
with GAAP (or such other accounting basis as is reasonably acceptable to Lender)
throughout the periods covered thereby except as disclosed therein. As of the
date hereof, neither Borrower nor, if applicable, any General Partner, has any
contingent liability, liability for taxes or other unusual or forward commitment
not reflected in such financial statements delivered to Lender. Since the date
of the last financial statements delivered by Borrower to Lender except as
otherwise disclosed in such financial statements or notes thereto, there has
been no change in the assets, liabilities or financial position of Borrower nor,
if applicable, any General Partner, or in the results of operations of Borrower
which would have a Material Adverse Effect. Neither Borrower nor, if applicable,
any General Partner, has incurred any obligation or liability, contingent or
otherwise not reflected in such financial statements which would have a Material
Adverse Effect.
(m)
Transaction Brokerage
Fees
. Neither
Borrower nor Lender have dealt with any financial advisors, brokers,
underwriters, placement agents, agents or finders in connection with the
transactions contemplated by this Security Instrument.
BORROWER HEREBY AGREES TO INDEMNIFY
AND HOLD LENDER HARMLESS FOR, FROM AND AGAINST ANY AND ALL CLAIMS, LIABILITIES,
COSTS AND EXPENSES OF ANY KIND IN ANY WAY RELATING TO OR ARISING FROM (I) A
CLAIM BY ANY PERSON THAT SUCH PERSON ACTED ON BEHALF OF BORROWER IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED HEREIN OR (II) ANY BREACH OF THE FOREGOING
REPRESENTATION. THE PROVISIONS OF THIS SUBSECTION (M) SHALL SURVIVE THE
REPAYMENT OF THE DEBT.
(n)
Federal Reserve
Regulations
. No part
of the proceeds of the Loan will be used for the purpose of purchasing or
acquiring any “margin stock” within the meaning of Regulations T, U or X of the
Board of Governors of the Federal Reserve System or for any other purpose which
would be inconsistent with such Regulations T, U or X or any other Regulations
of such Board of Governors, or for any purposes prohibited by Legal Requirements
or by the terms and conditions of the Loan Documents.
(o)
Pending
Litigation
. Except
as previously disclosed in writing to Lender, there are no actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or the Property in any court or before any Governmental
Authority which if adversely determined either individually or collectively has
or is reasonably likely to have a Material Adverse Effect.
(p)
Solvency; No
Bankruptcy
.
Borrower and, if applicable, the General Partner, (i) is and has at all times
been Solvent and will remain Solvent immediately upon the consummation of the
transactions contemplated by the Loan Documents and (ii) is free from
bankruptcy, reorganization or arrangement proceedings or a general assignment
for the benefit of creditors and is not contemplating the filing of a petition
under any state or federal bankruptcy or insolvency laws or the liquidation of
all or a major portion of such Person’s assets or property and Borrower has no
knowledge of any Person contemplating the filing of any such petition against it
or, if applicable, the General Partner. None of the transactions contemplated
hereby will be or have been made with an intent to hinder, delay or defraud any
present or future creditors of Borrower and Borrower has received reasonably
equivalent value in exchange for its obligations under the Loan Documents.
Borrower’s assets do not, and immediately upon consummation of the transaction
contemplated in the Loan Documents will not, constitute unreasonably small
capital to carry out its business as presently conducted or as proposed to be
conducted. Borrower does not intend to, nor believe that it will, incur debts
and liabilities beyond its ability to pay such debts as they may
mature.
(q)
Use of
Proceeds
. The
proceeds of the Loan shall be applied by Borrower to,
inter
alia
, (i)
satisfy certain secured loans presently encumbering all or a part of the
Property and (ii) pay certain transaction costs incurred by Borrower in
connection with the Loan. No portion of the proceeds of the Loan will be used by
Borrower for family, personal, agricultural or household use.
(r)
Tax
Filings
.
Borrower and, if applicable, each General Partner, have filed all federal, state
and local tax returns required to be filed and have paid or made adequate
provision for the payment of all federal, state and local taxes, charges and
assessments payable by Borrower and, if applicable, each General Partner.
Borrower and, if applicable, each General Partner, believe that their respective
tax returns properly reflect the income and taxes of Borrower and said General
Partner, if any, for the periods covered thereby, subject only to reasonable
adjustments required by the Internal Revenue Service or other applicable tax
authority upon audit.
(s)
Not Foreign
Person
.
Borrower is not a “foreign person” within the meaning of §1445(f)(3) of the
Code.
(t)
ERISA
.
(i)
The
assets of Borrower and Guarantor are not and will not become treated as “plan
assets”, whether by operation of law or under regulations promulgated under
ERISA. Each Plan and Welfare Plan, and, to the knowledge of Borrower, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, its terms and the
applicable provisions of ERISA, the Code and any other applicable Legal
Requirement, and no event or condition has occurred and is continuing as to
which Borrower would be under an obligation to furnish a report to Lender under
clause (ii)(A) of this Section. Other than an application for a favorable
determination letter with respect to a Plan, there are no pending issues or
claims before the Internal Revenue Service, the United States Department of
Labor or any court of competent jurisdiction related to any Plan or Welfare Plan
under which Borrower, Guarantor or any ERISA Affiliate, directly or indirectly
(through an indemnification agreement or otherwise), could be subject to any
material risk of liability under Section 409 or 502(i) of ERISA or Section 4975
of the Code. No Welfare Plan provides or will provide benefits, including,
without limitation, death or medical benefits (whether or not insured) with
respect to any current or former employee of Borrower, Guarantor or any ERISA
Affiliate beyond his or her retirement or other termination of service other
than (A) coverage mandated by applicable law, (B) death or disability benefits
that have been fully provided for by fully paid up insurance or (C) severance
benefits.
(ii)
Borrower
will furnish to Lender as soon as possible, and in any event within ten (10)
days after Borrower knows or has reason to believe that any of the events or
conditions specified below with respect to any Plan, Welfare Plan or
Multiemployer Plan has occurred or exists, an Officer’s Certificate setting
forth details respecting such event or condition and the action, if any, that
Borrower or its ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to PBGC (or any
other relevant Governmental Authority)) by Borrower or an ERISA Affiliate with
respect to such event or condition, if such report or notice is required to be
filed with the PBGC or any other relevant Governmental Authority:
(A)
any
reportable event, as defined in Section 4043 of ERISA and the regulations issued
thereunder, with respect to a Plan, as to which PBGC has not by regulation
waived the requirement of Section 4043(a) of ERISA that it be notified within
thirty (30) days of the occurrence of such event (provided that a failure to
meet the minimum funding standard of Section 412 of the Code and of Section 302
of ERISA, including, without limitation, the failure to make on or before its
due date a required installment under Section 412(m) of the Code and of Section
302(e) of ERISA, shall be a reportable event regardless of the issuance of any
waivers in accordance with Section 412(d) of the Code), and any request for a
waiver under Section 412(d) of the Code for any Plan;
(B)
the
distribution under Section 4041 of ERISA of a notice of intent to terminate any
Plan or any action taken by Borrower or an ERISA Affiliate to terminate any
Plan;
(C)
the
institution by PBGC of proceedings under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or the
receipt by Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan
that such action has been taken by PBGC with respect to such Multiemployer
Plan;
(D)
the
complete or partial withdrawal from a Multiemployer Plan by Borrower or any
ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a result of a
purchaser default) or the receipt by Borrower or any ERISA Affiliate of notice
from a Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA;
(E)
the
institution of a proceeding by a fiduciary of any Multiemployer Plan against
Borrower or any ERISA Affiliate to enforce Section 515 of ERISA, which
proceeding is not dismissed within thirty (30) days;
(F)
the
adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the
Code or Section 307 of ERISA, would result in the loss of tax-exempt status of
the trust of which such Plan is a part if Borrower or an ERISA Affiliate fails
to timely provide security to the Plan in accordance with the provisions of said
Sections; or
(G)
the
imposition of a lien or a security interest in connection with a
Plan.
(iii)
Borrower
shall not knowingly engage in or permit any transaction in connection with which
Borrower, Guarantor or any ERISA Affiliate could be subject to either a civil
penalty or tax assessed pursuant to Section 502(i) or 502(l) of ERISA or Section
4975 of the Code, permit any Welfare Plan to provide benefits, including without
limitation, medical benefits (whether or not insured), with respect to any
current or former employee of Borrower, Guarantor or any ERISA Affiliate beyond
his or her retirement or other termination of service other than
(A) coverage mandated by applicable law, (B) death or disability benefits
that have been fully provided for by paid up insurance or otherwise or (C)
severance benefits, permit the assets of Borrower or Guarantor to become “plan
assets”, whether by operation of law or under regulations promulgated under
ERISA or adopt, amend (except as may be required by applicable law) or increase
the amount of any benefit or amount payable under, or permit any ERISA Affiliate
to adopt, amend (except as may be required by applicable law) or increase the
amount of any benefit or amount payable under, any employee benefit plan
(including, without limitation, any employee welfare benefit plan) or other
plan, policy or arrangement, except for normal increases in the ordinary course
of business consistent with past practice that, in the aggregate, do not result
in a material increase in benefits expense to Borrower, Guarantor or any ERISA
Affiliate.
(u)
Labor
Matters
. No
organized work stoppage or labor strike is pending or, to Borrower’s best
knowledge, threatened by employees or other laborers at the Property and neither
Borrower nor Manager (i) is involved in or, to the best of their knowledge,
threatened with any labor dispute, grievance or litigation relating to labor
matters involving any employees and other laborers at the Property, including,
without limitation, violation of any federal, state or local labor, safety or
employment laws (domestic or foreign) and/or charges of unfair labor practices
or discrimination complaints; (ii) has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act or the Railway Labor Act;
or (iii) is a party to, or bound by, any collective bargaining agreement or
union contract with respect to employees and other laborers at the Property and
no such agreement or contract is currently being negotiated by Borrower, Manager
or any of their Affiliates.
(v)
Borrower’s Legal
Status
.
Borrower’s exact legal name that is indicated on the signature page hereto,
organizational identification number and place of business or, if more than one,
its chief executive office, as well as Borrower’s mailing address, if different,
which were identified by Borrower to Lender and contained in this Security
Instrument, are true, accurate and complete. Borrower (i) will not change its
name, its place of business or, if more than one place of business, its chief
executive office, or its mailing address or organizational identification number
if it has one without giving Lender at least thirty (30) days prior written
notice of such change, (ii) if Borrower does not have an organizational
identification number and later obtains one, Borrower shall promptly notify
Lender of such organizational identification number and (iii) Borrower will not
change its type of organization, jurisdiction of organization or other legal
structure.
(w)
Compliance with
Anti-Terrorism, Embargo and Anti-Money Laundering Laws
. (i)
None of Borrower, General Partner, any Guarantor, or any Person who owns any
equity interest in or Controls Borrower, General Partner or any Guarantor
currently is identified on the OFAC List or otherwise qualifies as a Prohibited
Person, and Borrower has implemented procedures, approved by General Partner, to
ensure that no Person who now or hereafter owns an equity interest in Borrower
or General Partner is a Prohibited Person or Controlled by a Prohibited Person,
and (ii) none of Borrower, General Partner, or any Guarantor are in violation of
any Legal Requirements relating to anti-money laundering or anti-terrorism,
including, without limitation, Legal Requirements related to transacting
business with Prohibited Persons or the requirements of the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001, U.S. Public Law 107-56, and the related
regulations issued thereunder, including temporary regulations, all as amended
from time to time. No tenant at the Property currently is identified on the OFAC
List or otherwise qualifies as a Prohibited Person, and, to the best of
Borrower’s knowledge, no tenant at the Property is owned or Controlled by a
Prohibited Person. Borrower has implemented procedures to ensure that no tenant
at the Property is a Prohibited Person or owned or Controlled by a Prohibited
Person.
Section
2.03.
Further Acts,
etc
.
Borrower will, at the cost of Borrower, and without expense to Lender, do,
execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, mortgages, deeds of trust or deeds to secure debt, as applicable,
assignments, notices of assignments, transfers and assurances as Lender or
Trustee shall, from time to time, reasonably require for the better assuring,
conveying, assigning, transferring, and confirming unto Lender and Trustee the
property and rights hereby mortgaged, given, granted, bargained, sold,
alienated, enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated,
or which Borrower may be or may hereafter become bound to convey or assign to
Lender, or for carrying out or facilitating the performance of the terms of this
Security Instrument or for filing, registering or recording this Security
Instrument and, on demand, will execute and deliver and hereby authorizes Lender
to execute in the name of Borrower or without the signature of Borrower to the
extent Lender may lawfully do so, one or more financing statements, chattel
mortgages or comparable security instruments to evidence more effectively the
lien hereof upon the Property. Borrower grants to Lender an irrevocable power of
attorney coupled with an interest for the purpose of protecting, perfecting,
preserving and realizing upon the interests granted pursuant to this Security
Instrument and to effect the intent hereof, all as fully and effectually as
Borrower might or could do; and Borrower hereby ratifies all that Lender shall
lawfully do or cause to be done by virtue hereof; provided that Lender shall not
exercise such power of attorney unless and until Borrower fails to take the
required action within five (5) Business Days of demand unless the failure to so
exercise it could, in Lender’s reasonable judgment, result in a Material Adverse
Effect. Upon receipt of an affidavit of an officer of Lender as to the loss,
theft, destruction or mutilation of the Note or any other Loan Document which is
not of public record, and, in the case of any such mutilation, upon surrender
and cancellation of such Note or other applicable Loan Document, Borrower will
issue, in lieu thereof, a replacement Note or other applicable Loan Document,
dated the date of such lost, stolen, destroyed or mutilated Note or other Loan
Document in the same principal amount thereof and otherwise of like
tenor.
Section
2.04.
Recording of Security
Instrument, etc
.
Borrower forthwith upon the execution and delivery of this Security Instrument
and thereafter, at the request of Lender, from time to time, will cause this
Security Instrument, and any security instrument creating a lien or security
interest or evidencing the lien hereof upon the Property and each instrument of
further assurance to be filed, registered or recorded in such manner and in such
places as may be required by any present or future law in order to publish
notice of and fully perfect and protect the lien or security interest hereof
upon, and the interest of Lender in, the Property. Borrower will pay all filing,
registration or recording fees, and all expenses incident to the preparation,
execution and acknowledgment of this Security Instrument, any mortgage, deed of
trust or deed to secure debt, as applicable, supplemental hereto, any security
instrument with respect to the Property and any instrument of further assurance,
and all federal, state, county and municipal taxes, duties, imposts, assessments
and charges imposed on, or arising out of or in connection with the execution,
delivery and recording of this Security Instrument, any mortgage, deed of trust
or deed to secure debt, as applicable, supplemental hereto, any security
instrument with respect to the Property or any instrument of further assurance,
except where prohibited by law to do so, in which event Lender may declare the
Debt to be immediately due and payable. Borrower shall hold harmless and
indemnify Lender, and its successors and assigns, against any liability incurred
as a result of the imposition of any tax on the making and recording of this
Security Instrument.
Section
2.05.
Representations and
Warranties as to the Property
.
Borrower represents and warrants with respect to the Property as
follows:
(a)
Lien Priority and
Perfection
. This
Security Instrument is a valid and enforceable (and, upon recordation in the
Official Records, will be a perfected) first lien on the Property, free and
clear of all encumbrances, security interests, and liens having priority over
the lien and security interest of this Security Instrument, except for the items
set forth as exceptions to or subordinate matters in the title insurance policy
insuring the lien of this Security Instrument, none of which, individually or in
the aggregate, materially interfere with the benefits of the security intended
to be provided by this Security Instrument, materially affect the value or
insurability of the Property, impair the use or operation of the Property for
the use currently being made thereof or impair Borrower’s ability to pay its
obligations in a timely manner (such items being the “
Permitted
Encumbrances
”).
(b)
Title
.
Borrower has, subject only to the Permitted Encumbrances, good, insurable and
marketable fee simple title to the Premises, Improvements and Fixtures
(collectively, the “
Realty
”) and to
all easements and rights benefiting the Realty and has the right, power and
authority to mortgage, encumber, give, grant, bargain, sell, alien, enfeoff,
convey, confirm, pledge, assign, and hypothecate the Property. Subject to
Permitted Encumbrances, Borrower will preserve its interest in and title to the
Property and will forever warrant and defend the same to Lender against any and
all claims made by, through or under Borrower and will forever warrant and
defend the validity and priority of the lien and security interest created
herein against the claims of all Persons whomsoever claiming by, through or
under Borrower. The foregoing warranty of title shall survive the foreclosure of
this Security Instrument and shall inure to the benefit of and be enforceable by
Lender in the event Lender acquires title to the Property pursuant to any
foreclosure. In addition, there are no outstanding options or rights of first
refusal to purchase the Property or Borrower’s ownership
thereof.
(c)
Taxes and
Impositions
. Other
than those being contested in accordance herewith, all taxes and other
Impositions and governmental assessments due and owing and not delinquent in
respect of, and affecting, the Property have been paid. Other than those being
contested in accordance herewith, Borrower has paid all Impositions which
constitute special governmental assessments in full, except for those
assessments which are permitted by applicable Legal Requirements to be paid in
installments, in which case all installments which are due and payable have been
paid in full. There are no pending, or to Borrower’s best knowledge, proposed
special or other assessments for public improvements or otherwise affecting the
Property, nor are there any contemplated improvements to the Property that may
result in such special or other assessments.
(d)
Casualty; Flood
Zone
. Except
as set forth in the Engineering Report and Environmental Report, the Realty is
in good repair and free and clear of any damage, destruction or casualty
(whether or not covered by insurance) that would materially affect the value of
the Realty or the use for which the Realty was intended, there exists no
structural or other material defects or damages in or to the Property and
Borrower has not received any written notice from any insurance company or
bonding company of any material defect or inadequacies in the Property, or any
part thereof, which would materially and adversely affect the insurability of
the same or cause the imposition of extraordinary premiums or charges thereon or
of any termination or threatened termination of any policy of insurance or bond.
No portion of the Premises is located in an “area of special flood hazard,” as
that term is defined in the regulations of the Federal Insurance Administration,
Department of Housing and Urban Development, under the National Flood Insurance
Act of 1968, as amended (24 CFR § 1909.1) or Borrower has obtained the
flood insurance required by Section 3.01(a)(vi) hereof. The Premises either does
not lie in a 100 year flood plain that has been identified by the Secretary of
Housing and Urban Development or any other Governmental Authority or, if it
does, Borrower has obtained the flood insurance required by Section 3.01(a)(vi)
hereof.
(e)
Completion;
Encroachment
. All
Improvements necessary for the efficient use and operation of the Premises,
including, without limitation, all Improvements which were included for purposes
of determining the appraised value of the Property in the Appraisal, have been
completed and none of said Improvements lie outside the boundaries and building
restriction lines of the Premises. Except as set forth in the title insurance
policy insuring the lien of this Security Instrument, no improvements on
adjoining properties encroach upon the Premises.
(f)
Separate
Lot
. The
Premises are taxed separately without regard to any other real estate and
constitute a legally subdivided lot under all applicable Legal Requirements (or,
if not subdivided, no subdivision or platting of the Premises is required under
applicable Legal Requirements), and for all purposes may be mortgaged,
encumbered, conveyed or otherwise dealt with as an independent parcel. Except as
previously disclosed in writing to Lender, the Property does not benefit from
any tax abatement or exemption.
(g)
Use
. To the
best of Borrower’s knowledge, the existence of all Improvements, the present use
and operation thereof and the access of the Premises and the Improvements to all
of the utilities and other items referred to in paragraph (k) below are in
compliance in all material respects with all Leases affecting the Property and
all applicable Legal Requirements, including, without limitation, Environmental
Statutes, Development Laws and Use Requirements. Borrower has not received any
notice from any Governmental Authority alleging any uncured violation relating
to the Property of any applicable Legal Requirements.
(h)
Licenses and
Permits
.
Borrower currently holds and will continue to hold all certificates of
occupancy, licenses, registrations, permits, consents, franchises and approvals
of any Governmental Authority or any other Person which are material for the
lawful occupancy and operation of the Realty or which are material to the
ownership or operation of the Property or the conduct of Borrower’s business.
All such certificates of occupancy, licenses, registrations, permits, consents,
franchises and approvals are current and in full force and effect.
(i)
Environmental
Matters
.
Borrower has received and reviewed the Environmental Report and has no reason to
believe that the Environmental Report contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained therein or herein, in light of the circumstances under which such
statements were made, not misleading.
(j)
Property
Proceedings
. Other
than as previously disclosed in writing by Borrower to Lender, there are no
actions, suits or proceedings pending or, to Borrower’s knowledge, threatened in
any court or before any Governmental Authority or arbitration board or tribunal
(i) relating to (A) the zoning of the Premises or any part thereof,
(B) any certificates of occupancy, licenses, registrations, permits,
consents or approvals issued with respect to the Property or any part thereof,
(C) the condemnation of the Property or any part thereof, or (D) the
condemnation or relocation of any roadways abutting the Premises required for
access or the denial or limitation of access to the Premises or any part thereof
from any point of access to the Premises, (ii) asserting that (A) any
such zoning, certificates of occupancy, licenses, registrations, permits,
consents and/or approvals do not permit the operation of any material portion of
the Realty as presently being conducted, (B) any material improvements
located on the Property or any part thereof cannot be located thereon or
operated with their intended use or (C) the operation of the Property or
any part thereof is in violation in any material respect of any Environmental
Statutes, Development Laws or other Legal Requirements or Space Leases or
Property Agreements or (iii) which might (A) affect the validity or priority of
any Loan Document or (B) have a Material Adverse Effect.
(k)
Utilities
. The
Premises has rights of access to water, gas and/or electrical supply, storm and
sanitary sewerage facilities, other required public utilities (with respect to
each of the aforementioned items, by means of either a direct connection to the
source of such utilities or through connections available on publicly dedicated
roadways directly abutting the Premises or through permanent insurable easements
benefiting the Premises), fire and police protection, parking, and means of
direct access between the Premises and public highways over recognized curb cuts
(or such access to public highways is through private roadways which may be used
for ingress and egress pursuant to permanent insurable easements).
(l)
Construction
Lien
. The
Property is free and clear of any mechanics’ liens or liens in the nature
thereof, and no rights are outstanding that under law could give rise to any
such liens, any of which liens are or may be prior to, or equal with, the lien
of this Security Instrument, except those which are insured against by the title
insurance policy insuring the lien of this Security Instrument. No stop notices
have been served with respect to any work, labor or materials furnished to or
for the benefit of the Property or any portion thereof, and no disputes
currently exist with respect to any of such matters.
(m)
Title
Insurance
. Lender
has received a lenders’ commitment to issue a title insurance policy insuring
this Security Instrument as a first lien on the Realty subject only to Permitted
Encumbrances.
(n)
Insurance
. The
Property is insured in accordance with the requirements set forth in Article III
hereof.
(o)
Space
Leases
.
(i)
Borrower
has delivered a true, correct and complete schedule of all Space Leases as of
the date hereof, which accurately and completely sets forth in all material
respects, for each such Space Lease, the following (collectively, the “Rent
Roll”): the name and address of the tenant with the lease expiration date,
extension and renewal options; the base rent and percentage rent payable; all
additional rent and pass through obligations; and the security deposit held
thereunder and the location of such deposit
(ii)
Each
Space Lease constitutes the legal, valid and binding obligation of Borrower and,
to the knowledge of Borrower, is enforceable against the tenant thereof. Except
as set forth on the Rent Roll
or in any
estoppel certificate delivered to Lender
, no
default exists, or with the passing of time or the giving of notice would exist,
(A) under any Major Space Lease or (B) under any other Space Leases which would,
in the aggregate, have a Material Adverse Effect.
(iii)
Except as
disclosed to Lender and to Borrower's knowledge no tenant under any Space Lease
has, as of the date hereof, paid Rent more than thirty (30) days in advance, and
the Rents under such Space Leases have not been waived, released, or otherwise
discharged or compromised.
(iv)
Except as
set forth on the Rent Roll or previously disclosed in writing to Lender, all
material work to be performed by Borrower under the Space Leases has been
substantially performed, all contributions to be made by Borrower to the tenants
thereunder have been made except for any held-back amounts, and all other
conditions precedent to each such tenant’s obligations thereunder have been
satisfied.
(v)
Except as
previously disclosed to Lender in writing or in the Space Leases provided to
Lender, there are no options to terminate any Space Lease.
(vi)
Except as
previously disclosed in writing to Lender, each tenant under a Major Space Lease
has entered into occupancy of the demised premises to the extent required under
the terms of its Major Space Lease, and each such tenant is open and conducting
business with the public in the demised premises. Except as previously disclosed
in writing to Lender, to the best knowledge of Borrower, each tenant under a
Lease other than a Major Space Lease has entered into occupancy of its demised
premises under its Lease to the extent required under the terms of its Lease and
each such tenant is open and conducting business with the public in the demised
premises.
(vii)
Borrower
has delivered to Lender a true, correct and complete copies of all Space Leases
described in the Rent Roll.
(viii)
Each
Space Lease is in full force and effect and (except as disclosed on the Rent
Roll or in any estoppel certificate delivered to Lender) has not been assigned,
modified, supplemented or amended in any way.
(ix)
Except as
set forth on the Rent Roll, each tenant under each Space Lease is free from
bankruptcy, reorganization or arrangement proceedings or a general assignment
for the benefit of creditors.
(x)
No Space
Lease provides any party with the right to obtain a lien or encumbrance upon the
Property superior to the lien of this Security Instrument or to subject to the
Property to any mechanics lien.
(p)
Property
Agreements
.
(i)
Borrower
has delivered to Lender true, correct and complete copies of all Property
Agreements.
(ii)
No
Property Agreement provides any party with the right to obtain a lien or
encumbrance upon the Property superior to the lien of this Security
Instrument.
(iii)
To the
best of Borrower’s knowledge, no default exists or with the passing of time or
the giving of notice or both would exist under any Property Agreement which
would, individually or in the aggregate, have a Material Adverse
Effect.
(iv)
Borrower
has not received or given any written communication which alleges that a default
exists or, with the giving of notice or the lapse of time, or both, would exist
under the provisions of any Property Agreement.
(v)
No
condition exists whereby Borrower or any future owner of the Property may be
required to purchase any other parcel of land which is subject to any Property
Agreement or which gives any Person a right to purchase, or right of first
refusal with respect to, the Property.
(vi)
To the
best knowledge of Borrower, no offset or any right of offset exists respecting
continued contributions to be made by any party to any Property Agreement except
as expressly set forth therein. Except as previously disclosed to Lender in
writing, no material exclusions or restrictions on the utilization, leasing or
improvement of the Property (including non-compete agreements) exists in any
Property Agreement.
(vii)
All
“pre-opening” requirements contained in all Property Agreements (including, but
not limited to, all off-site and on-site construction requirements), if any,
have been fulfilled, and, to the best of Borrower’s knowledge, no condition now
exists whereby any party to any such Property Agreement could refuse to honor
its obligations thereunder.
(viii)
Except as
previously disclosed in writing to Lender, all work, if any, to be performed by
Borrower under each of the Property Agreements has been substantially performed,
all contributions to be made by Borrower to any party to such Property
Agreements have been made, and all other material conditions to such party’s
obligations thereunder have been satisfied.
(q)
Personal
Property
.
Borrower has delivered to Lender a true, correct and complete schedule of all
personal property, if any, owned by Borrower and located upon the Realty or used
in connection with the use or operation of the Realty and Borrower represents
that it has good and marketable title to all such personal property, free and
clear of any liens or security interests, except for liens and security
interests created under the Loan Documents, liens and security interests
otherwise disclosed to Lender in writing and disclosed in the title insurance
policy insuring the lien of this Security Instrument, and liens and security
interests which describe the equipment and other personal property owned by
tenants.
(r)
Leasing Brokerage and
Management Fees
. Except
as previously disclosed to Lender in writing, there are no brokerage fees or
commissions payable by Borrower with respect to the leasing of space at the
Property and there are no management fees payable by Borrower with respect to
the management of the Property.
(s)
Security
Deposits
. All
security deposits with respect to the Property on the date hereof have been
transferred to the Security Deposit Account on the date hereof, and Borrower is
in compliance with all Legal Requirements relating to such security deposits as
to which failure to comply might, individually or in the aggregate, have a
Material Adverse Effect.
(t)
Appraisal
.
Borrower has no knowledge that any of the facts or assumptions on which the
Appraisal was based are false or incomplete in any material respect and has no
information that would reasonably suggest that the fair market value determined
in the Appraisal does not reflect the actual fair market value of the
Property.
(u)
Representations
Generally
. No
representation, warranty or statement of fact made by or on behalf of Borrower
in this Security Instrument or in any certificate, document or schedule
furnished to Lender pursuant hereto, contains any untrue statement of a material
fact or omits to state any material fact necessary to make statements contained
therein or herein not misleading (which may be to Borrower’s best knowledge
where so provided herein). There are no facts presently known to Borrower which
have not been disclosed to Lender which would, individually or in the aggregate,
have a Material Adverse Effect nor as far as Borrower can foresee might,
individually or in the aggregate, have a Material Adverse Effect.
Section
2.06.
Removal of
Lien
.
(a)
Borrower shall, at its expense, maintain this Security Instrument as a first
lien on the Property and shall keep the Property free and clear of all liens and
encumbrances of any kind and nature other than the Permitted Encumbrances.
Borrower shall, within thirty (30) days following receipt of notice of the
filing thereof, promptly discharge of record, by bond or otherwise, any such
liens and, promptly upon request by Lender, shall deliver to Lender evidence
reasonably satisfactory to Lender of the discharge thereof.
(b)
Without
limitation to the provisions of Section 2.06(a) hereof, Borrower shall (i) pay,
from time to time when the same shall become due, all claims and demands of
mechanics, materialmen, laborers, and others which, if unpaid, might result in,
or permit the creation of, a lien on the Property or any part thereof, (ii)
cause to be removed of record (by payment or posting of bond or settlement or
otherwise) any mechanics’, materialmens’, laborers’ or other lien on the
Property, or any part thereof, or on the revenues, rents, issues, income or
profit arising therefrom, and (iii) in general, do or cause to be done, without
expense to Lender, everything reasonably necessary to preserve in full the lien
of this Security Instrument. If Borrower fails to comply with the requirements
of this Section 2.06(b), then, upon ten (10) Business Days’ prior notice to
Borrower, Lender may, but shall not be obligated to, pay any such lien, and
Borrower shall, within ten (10) Business Days after Lender’s demand therefor,
reimburse Lender for all sums so expended, together with interest thereon at the
Default Rate from the date advanced, all of which shall be deemed part of the
Debt. Nothing contained herein shall be deemed a consent or request of Lender,
express or implied, by inference or otherwise, to the performance of any
alteration, repair or other work by any contractor, subcontractor or laborer or
the furnishing of any materials by any materialmen in connection
therewith.
(c)
Notwithstanding
the foregoing, Borrower may contest any lien (other than a lien relating to
non-payment of Impositions, the contest of which shall be governed by Section
4.04 hereof) of the type set forth in subparagraph (b)(ii) of this Section 2.06
provided that, following prior notice to Lender (i) Borrower is contesting the
validity of such lien with due diligence and in good faith and by appropriate
proceedings, without cost or expense to Lender or any of its agents, employees,
officers, or directors, (ii) Borrower shall preclude the collection of, or other
realization upon, any contested amount from the Property or any revenues from or
interest in the Property, (iii) neither the Property nor any part thereof nor
interest therein, shall be in any danger of being sold, forfeited or lost by
reason of such contest by Borrower, (iv) such contest by Borrower shall not
affect the ownership, use or occupancy of the Property, (v) such contest by
Borrower shall not subject Lender, Trustee or Borrower to the risk of civil or
criminal liability (other than the civil liability of Borrower for the amount of
the lien in question), (vi) such lien is subordinate to the lien of this
Security Instrument, (vii) Borrower has not consented to such lien, (viii)
Borrower has given Lender prompt notice of the filing of such lien and, upon
request by Lender from time to time, notice of the status of such contest by
Borrower and/or confirmation of the continuing satisfaction of the conditions
set forth in this Section 2.06(c), (ix) Borrower shall promptly pay the
obligation secured by such lien upon a final determination of Borrower’s
liability therefor, and (x) Borrower shall deliver written notice of its intent
to contest such lien at least thirty (30) days before commencing such contest
and also shall deliver to Lender, if requested by Lender, cash, a bond or other
security acceptable to Lender equal to 125% of the contested amount pursuant to
collateral arrangements reasonably satisfactory to Lender.
Section
2.07.
Cost of Defending and
Upholding this Security Instrument Lien
. If any
action or proceeding is commenced to which Lender or Trustee is made a party
relating to the Loan Documents and/or the Property or Lender’s or Trustee’s
interest therein or in which it becomes necessary to defend or uphold the lien
of this Security Instrument or any other Loan Document, Borrower shall, on
demand, reimburse Lender and/or Trustee, as applicable, for all expenses
(including, without limitation, reasonable attorneys’ fees and disbursements)
incurred by Lender and/or Trustee, as applicable, in connection therewith, and
such sum, together with interest thereon at the Default Rate from and after such
demand until fully paid, shall constitute a part of the Debt.
Section
2.08.
Use of the
Property
.
Borrower will use, or cause to be used, the Property for such use as is
permitted pursuant to applicable Legal Requirements including, without
limitation, under the certificate of occupancy applicable to the Property, and
which is required by the Loan Documents. Borrower shall not suffer or permit the
Property or any portion thereof to be used by the public, any tenant, or any
Person not subject to a Lease, in a manner as is reasonably likely to impair
Borrower’s title to the Property, or in such manner as may give rise to a claim
or claims of adverse usage or adverse possession by the public, or of implied
dedication of the Property or any part thereof.
Section
2.09.
Financial
Reports
.
(a)
Borrower
will keep and maintain or will cause to be kept and maintained on a Fiscal Year
basis, in accordance with GAAP (or such other accounting basis reasonably
acceptable to Lender) consistently applied, proper and accurate books, tax
returns, records and accounts reflecting (i) all of the financial affairs
of Borrower and (ii) all items of income and expense in connection with the
operation of the Property or in connection with any services, equipment or
furnishings provided in connection with the operation thereof, whether such
income or expense may be realized by Borrower or by any other Person whatsoever,
excepting lessees unrelated to and unaffiliated with Borrower who have leased
from Borrower portions of the Premises for the purpose of occupying the same.
Lender shall have the right from time to time at all times during normal
business hours upon reasonable advance notice to examine such books, tax
returns, records and accounts at the office of Borrower or other Person
maintaining such books, tax returns, records and accounts and to make such
copies or extracts thereof as Lender shall desire. During the continuance of an
Event of Default, Borrower shall pay any costs and expenses incurred by Lender
to examine Borrower’s and Guarantor’s accounting records with respect to the
Property, as Lender shall determine to be necessary or appropriate in the
protection of Lender’s interest.
(b)
Borrower
will furnish Lender (i) annually, within one hundred twenty (120) days following
the end of each Fiscal Year of Borrower and (ii) on a quarterly basis, within
thirty (30) days following the end of each fiscal quarter of Borrower, with a
complete copy of Borrower’s financial statement consistently applied covering
(A) all of the financial affairs of Borrower and (B) the operation of the
Property for such Fiscal Year or fiscal quarters, as applicable, and containing
a statement of revenues and expenses, a statement of assets and liabilities and
a statement of Borrower’s equity. Each annual financial statement shall be
prepared by an Independent certified public accountant that is reasonably
acceptable to Lender in accordance with GAAP (or such other accounting basis
reasonably acceptable to Lender). Upon request made in connection with a
Securitization of the Loan or after the occurrence of an Event of Default, such
annual financial statements shall be audited by an Independent certified public
accountant that is reasonably acceptable to Lender in accordance with GAAP.
Together with the financial statements required to be furnished pursuant to this
Section 2.09(b), Borrower shall furnish to Lender (A) an Officer’s Certificate
certifying as of the date thereof (1) that the financial statements accurately
represent the results of operations and financial condition of Borrower and the
Property all in accordance with GAAP (or such other accounting basis reasonably
acceptable to Lender) consistently applied, and (2) whether, to the best of
such officer’s knowledge, there exists a Default under the Note or any other
Loan Document executed and delivered by Borrower, and if such event or
circumstance exists, the nature thereof, the period of time it has existed and
the action then being taken to remedy such event or circumstance and (B)
together with the financial statements delivered pursuant to Section 2.09(b)(ii)
above, a statement showing (1) Pro-Forma Net Operating Income at the end of the
most recent fiscal quarter (subject to verification by Lender in its reasonable
discretion) and (2) the calculation of Debt Service Coverage.
(c)
Borrower
will furnish Lender monthly, within twenty (20) days following the end of each
month, with (i) a true, complete and correct cash flow statement with respect to
the Property in the form attached hereto as Exhibit C and made a part hereof,
showing (A) all cash receipts of any kind whatsoever and all cash payments and
disbursements, (B) year-to-date summaries of such cash receipts, payments
and disbursements, and (C) during an O&M Operative Period, Pro Forma Net
Operating Income (subject to the verification by Lender) and a calculation of
Debt Service Coverage, (ii) a certification of Manager stating that such cash
flow statement is true, complete and correct and a list of all litigation and
proceedings affecting Borrower or the Property in which the amount involved is
$250,000 or more, if not covered by insurance (or $2,500,000 or more whether or
not covered by insurance), (iii) the sales per square foot for each lessee under
the Space Leases to the extent such information is required to be delivered by
such lessees and (iv) an occupancy report for the Property.
(d)
Borrower
will furnish Lender monthly, within twenty (20) days following the end of each
month, with a certification of Manager stating that all Operating Expenses with
respect to the Property which had accrued as of the last day of the month
preceding the delivery of the cash flow statement referred to in clause (c)
above have been fully paid or otherwise reserved for by Manager (any such
certification or any certification furnished by a Manager pursuant to clause (c)
above, a “
Manager
Certification
”).
(e)
Borrower
will furnish Lender annually, within twenty (20) days following the end of each
year and within twenty (20) days following receipt of such request therefor,
with a true, complete and correct rent roll for the Property, including a list
of which tenants are in default under their respective Leases, dated as of the
date of Lender’s request, identifying each tenant, the monthly rent and
additional rent, if any, payable by such tenant, the expiration date of such
tenant’s Lease, the security deposit, if any, held by Borrower under the Lease,
the space covered by the Lease, each tenant that has filed a bankruptcy,
insolvency, or reorganization proceeding since delivery of the last such rent
roll, the sales per square foot of each tenant, to the extent reported by
tenants under the terms of the Leases and the arrearages for such tenant, if
any, and such rent roll shall be accompanied by an Officer’s Certificate, dated
as of the date of the delivery of such rent roll, certifying that such rent roll
is true, correct and complete in all material respects as of its
date.
(f)
Borrower
shall furnish to Lender, within thirty (30) days after Lender’s request
therefor, with such further detailed information with respect to the operation
of the Property and the financial affairs of Borrower as may be reasonably
requested by Lender.
(g)
Borrower
shall cause Manager to furnish to Lender, within twenty (20) days following the
end of each month, a schedule of tenant security deposits showing any activity
in the Security Deposit Account for such month, together with a certification of
Manager as to the balance in such Security Deposit Account and that such tenant
security deposits are being held in accordance with all Legal
Requirements.
(h)
Borrower
will furnish Lender annually, within ninety (90) days after the end of each
Fiscal Year, with a report setting forth (i) the Net Operating Income for such
Fiscal Year, (ii) the average occupancy rate of the Property during such
Fiscal Year, and (iii) the capital repairs, replacements and improvements
performed at the Property during such Fiscal Year and the aggregate Recurring
Replacement Expenditures made in connection therewith.
(i)
Borrower
shall furnish to Lender annually, within thirty (30) days of filing its
respective tax return, a copy of such tax return and either a copy of the tax
return of Guarantor within such thirty (30) day period or within ninety (90)
days after the end of each Fiscal Year, a certificate from an Independent
certified public accountant indicating the net worth of the
Guarantor.
(j)
Borrower
shall submit to Lender for Lender’s written approval an Annual Budget not later
than sixty (60) days prior to the commencement of each Fiscal Year or, with
respect to the Fiscal Year in which the Closing Date occurs, within sixty (60)
days of the Closing Date, in form satisfactory to Lender setting forth in
reasonable detail budgeted monthly operating income and monthly operating
capital and other expenses for the Property. Each Annual Budget shall contain,
among other things, limitations on management fees, third party service fees,
and other expenses as Borrower may reasonably determine. Lender shall have the
right to approve such Annual Budget which approval shall not be unreasonably
withheld, and in the event that Lender objects to the proposed Annual Budget
submitted by Borrower, Lender shall advise Borrower of such objections within
ten (10) Business Days after receipt thereof (and deliver to Borrower a
reasonably detailed description of such objections) and Borrower shall, within
four (4) Business Days after receipt of notice of any such objections, revise
such Annual Budget and resubmit the same to Lender. Lender shall advise Borrower
of any objections to such revised Annual Budget within seven (7) Business Days
after receipt thereof (and deliver to Borrower a reasonably detailed description
of such objections) and Borrower shall revise the same in accordance with the
process described herein until Lender approves an Annual Budget, provided,
however, that if Lender shall not advise Borrower of its objections to any
proposed Annual Budget within the applicable time period set forth in this
Section, then such proposed Annual Budget shall be deemed approved by Lender.
Until such time that Lender approves a proposed Annual Budget, the most recently
Approved Annual Budget shall apply; provided that, such Approved Annual Budget
shall be adjusted to reflect actual increases in Basic Carrying Costs and
utilities expenses. In the event that Borrower must incur an Extraordinary
Expense, then Borrower shall promptly deliver to Lender a reasonably detailed
explanation of such proposed Extraordinary Expense for Lender’s approval, which
approval may be granted or denied in Lender’s reasonable discretion; provided,
however, so long as no O&M Operative Period is then in existence, no
approval from Lender shall be required if (i) a single Extraordinary Expense is
equal to or less than five percent (5%) of the amount set forth in the Approved
Annual Budget for expenses related to such Extraordinary Expense, or (ii) if no
sum was budgeted for such expense in the Approved Annual Budget, the
Extraordinary Expense is less than or equal to five percent (5%) of the Approved
Annual Budget, provided that all Extraordinary Expenses in any Fiscal Year do
not exceed five percent (5%) of the Approved Annual Budget.
(k)
In the
event that Borrower fails to deliver any of the financial statements, reports or
other information required to be delivered to Lender pursuant to this Section
2.09 on or prior to their due dates, if any such failure shall continue for
fifteen (15) days following notice thereof from Lender, without waiving any
default arising out of such failure, Borrower shall pay to Lender on each
Payment Date for each month or portion thereof that any such financial
statement, report or other information remains undelivered, an administrative
fee in the amount of Two Thousand Five Hundred Dollars ($2,500) and (ii) if
Borrower has not delivered any such reports within five (5) Business Days of
Lender’s giving an additional notice to Borrower requesting the missing
financial statement, report or other information, an O&M Operative Period
shall be deemed to have commenced. Borrower agrees that such administrative fee
(i) is a fair and reasonable fee necessary to compensate Lender for its
additional administrative costs and increased costs relating to Borrower’s
failure to deliver the aforementioned statements, reports or other items as and
when required hereunder and (ii) is not a penalty.
Section
2.10.
Litigation
.
Borrower will give prompt written notice to Lender of any litigation or
governmental proceedings pending or threatened (in writing) against Borrower
which might have a Material Adverse Effect.
Section
2.11.
Updates of
Representations
.
Borrower shall deliver to Lender within ten (10) Business Days of the request of
Lender an Officer’s Certificate updating all of the representations and
warranties contained in this Security Instrument and the other Loan Documents
and certifying that all of the representations and warranties contained in this
Security Instrument and the other Loan Documents, as updated pursuant to such
Officer’s Certificate, are true, accurate and complete as of the date of such
Officer’s Certificate or shall set forth the exceptions to representations
and/or warranties in reasonable detail, as applicable, and, upon Lender’s
request for further information with respect to such exceptions, shall provide
Lender such additional information as Lender may reasonably request.
Notwithstanding the foregoing, provided that no Event of Default has occurred
and is continuing, Borrower shall not be required to deliver the foregoing
Officer’s Certificate more than two (2) times in any Loan Year.
ARTICLE
III:
INSURANCE
AND CASUALTY RESTORATION
Section
3.01.
Insurance
Coverage
.
Borrower shall, at its expense, maintain the following insurance coverages with
respect to the Property during the term of this Security
Instrument:
(a)
(i)
Insurance
against loss or damage by fire, casualty and other hazards included in an
“all-risk” coverage endorsement or its equivalent, with such endorsements as
Lender may from time to time reasonably require and which are customarily
required by Institutional Lenders of similar properties similarly situated,
including, without limitation, if the Property constitutes a legal
non-conforming use, an ordinance of law coverage endorsement which contains
“Demolition Cost”, “Loss Due to Operation of Law” and “Increased Cost of
Construction” coverages, covering the Property in an amount not less than the
greater of (A) 100% of the insurable replacement value of the Property
(exclusive of the Premises and footings and foundations) and (B) such other
amount as is necessary to prevent any reduction in such policy by reason of and
to prevent Borrower, Lender or any other insured thereunder from being deemed to
be a co-insurer. Not less frequently than once every three (3) years, Borrower,
at its option, shall either (A) have the Appraisal updated or obtain a new
appraisal of the Property, (B) have a valuation of the Property made by or for
its insurance carrier conducted by an appraiser experienced in valuing
properties of similar type to that of the Property which are in the geographical
area in which the Property is located or (C) provide such other evidence as
will, in Lender’s sole judgment, enable Lender to determine whether there shall
have been an increase in the insurable value of the Property and Borrower shall
deliver such updated Appraisal, new appraisal, insurance valuation or other
evidence acceptable to Lender, as the case may be, and, if such updated
Appraisal, new appraisal, insurance valuation, or other evidence acceptable to
Lender reflects an increase in the insurable value of the Property, the amount
of insurance required hereunder shall be increased accordingly and Borrower
shall deliver evidence satisfactory to Lender that such policy has been so
increased.
(ii)
Commercial
general liability insurance against claims for personal and bodily injury and/or
death to one or more persons or property damage, occurring on, in or about the
Property (including the adjoining streets, sidewalks and passageways therein) in
such amounts as Lender may from time to time reasonably require (but in no event
shall Lender’s requirements be increased more frequently than once during each
twelve (12) month period) and which are customarily required by Institutional
Lenders for similar properties similarly situated, but not less than $1,000,000
per occurrence and $2,000,000 general aggregate on a per location basis and, in
addition thereto, not less than $25,000,000 excess and/or umbrella liability
insurance shall be maintained for any and all claims.
(iii)
Business
interruption, rent loss or other similar insurance (A) with loss payable to
Lender, (B) covering all risks required to be covered by the insurance provided
for in Section 3.01(a)(i) hereof and (C) in an amount not less than 90% of the
projected fixed or base rent plus percentage rent for the succeeding eighteen
(18) month period based on an occupancy rate of 100%. Such insurance coverage
shall provide a six (6) month extended period of indemnity. The amount of such
insurance shall be determined upon the execution of this Security Instrument,
and not more frequently than once each calendar year thereafter based on
Borrower’s reasonable estimate of projected fixed or base rent plus percentage
rent, from the Property for the next succeeding eighteen (18) months. In the
event the Property shall be damaged or destroyed, Borrower shall and hereby does
assign to Lender all payment of claims under the policies of such insurance, and
all amounts payable thereunder, and all net amounts, shall be collected by
Lender under such policies and shall be applied in accordance with this Security
Instrument; provided, however, that nothing herein contained shall be deemed to
relieve Borrower of its obligations to timely pay all amounts due under the Loan
Documents.
(iv)
Intentionally
Deleted.
(v)
Insurance
against loss or damages from (A) leakage of sprinkler systems and (B) explosion
of steam boilers, air conditioning equipment, pressure vessels or similar
apparatus now or hereafter installed at the Property, in such amounts as Lender
may from time to time reasonably require and which are then customarily required
by Institutional Lenders of similar properties similarly situated.
(vi)
Flood
insurance in an amount equal to the full insurable value of the Property or the
maximum amount available, whichever is less, if the Improvements are located in
an area designated by the Secretary of Housing and Urban Development as being
“an area of special flood hazard” under the National Flood Insurance Program
(
i.e.
, having
a one percent or greater chance of flooding), and if flood insurance is
available under the National Flood Insurance Act.
(vii)
Worker’s
compensation insurance or other similar insurance which may be required by
Governmental Authorities or Legal Requirements.
(viii)
Intentionally
Deleted.
(ix)
Insurance
against damage resulting from acts of terrorism, or an insurance policy without
an exclusion for damages resulting from terrorism, on terms consistent with the
commercial property insurance policy required under subsections (i), (ii) and
(iii) above.
(x)
Such
other insurance as may from time to time be required by Lender and which is then
customarily required by Institutional Lenders for similar properties similarly
situated, against other insurable hazards, including, but not limited to,
malicious mischief, vandalism, mold, spores or fungus, sinkhole and mine
subsidence, acts of terrorism, windstorm and/or earthquake, due regard to be
given to the size and type of the Premises, Improvements, Fixtures and Equipment
and their location, construction and use. Additionally, Borrower shall carry
such insurance coverage as Lender may from time to time require if the failure
to carry such insurance may result in a downgrade, qualification or withdrawal
of any class of securities issued in connection with a Securitization or, if the
Loan is not yet part of a Securitization, would result in an increase in the
subordination levels of any class of securities anticipated to be issued in
connection with a proposed Securitization.
(b)
Borrower
shall cause any Manager of the Property to maintain fidelity insurance in an
amount equal to $5,000,000 or such lesser amount as Lender shall
approve.
Section
3.02.
Policy
Terms
.
(a)
All
insurance required by this Article III shall be in the form (other than with
respect to Sections 3.01(a)(vi) and (vii) above when insurance in those two
sub-sections is placed with a governmental agency or instrumentality on such
agency’s forms) and amount and with deductibles as, from time to time, shall be
reasonably acceptable to Lender, under valid and enforceable policies issued by
financially responsible insurers authorized to do business in the State where
the Property is located, with a general policyholder’s service rating of not
less than A- and a financial rating of not less than X as rated in the most
currently available Best’s Insurance Reports (or the equivalent, if such rating
system shall hereafter be altered or replaced) and shall have a claims paying
ability rating and/or financial strength rating, as applicable, of not less than
“AA” (or its equivalent), or such lower claims paying ability rating and/or
financial strength rating, as applicable, as Lender shall, in its sole and
absolute discretion, consent to, from a Rating Agency (one of which after a
Securitization in which Standard & Poor’s rates any securities issued in
connection with such Securitization, shall be Standard & Poor’s). Originals
or certified copies of all insurance policies shall be delivered to and held by
Lender. All such policies (except policies for worker’s compensation) shall name
Lender, its successors and/or assigns as an additional named insured, shall
provide for loss payable to Lender, its successors and/or assigns and shall
contain (or have attached): (i) standard “non-contributory mortgagee”
endorsement or its equivalent relating,
inter
alia
, to
recovery by Lender notwithstanding the negligent or willful acts or omissions of
Borrower; (ii) a waiver of subrogation endorsement as to Lender; (iii) an
endorsement indicating that neither Lender nor Borrower shall be or be deemed to
be a co-insurer with respect to any casualty risk insured by such policies and
shall provide for a deductible per loss of an amount not more than the lesser of
(x) that which is customarily maintained by owners of similar properties
similarly situated and (y) five percent (5%) of the Adjusted Net Cash Flow, and
(iv) a provision that such policies shall not be canceled, terminated, denied
renewal or amended, including, without limitation, any amendment reducing the
scope or limits of coverage, without at least thirty (30) days’ prior written
notice to Lender in each instance. Not less than thirty (30) days prior to the
expiration dates of the insurance policies obtained pursuant to this Security
Instrument, originals or certified copies of renewals of such policies (or
certificates evidencing such renewals) bearing notations evidencing the payment
of premiums or accompanied by other reasonable evidence of such payment (which
premiums shall not be paid by Borrower through or by any financing arrangement
which would entitle an insurer to terminate a policy) shall be delivered by
Borrower to Lender. Borrower shall not carry separate insurance, concurrent in
kind or form or contributing in the event of loss, with any insurance required
under this Article III.
(b)
If
Borrower fails to maintain and deliver to Lender the original policies or
certificates of insurance required by this Security Instrument, or if there are
insufficient funds in the Basic Carrying Costs Escrow Account to pay the
premiums for same, Lender may, at its option, procure such insurance, and
Borrower shall pay, or as the case may be, reimburse Lender for, all premiums
thereon promptly, upon demand by Lender, with interest thereon at the Default
Rate from the date paid by Lender to the date of repayment and such sum shall
constitute a part of the Debt.
(c)
Borrower
shall notify Lender of the renewal premium of each insurance policy and Lender
shall be entitled to pay such amount on behalf of Borrower from the Basic
Carrying Costs Escrow Account. With respect to insurance policies which require
periodic payments (i.e., monthly or quarterly) of premiums, Lender shall be
entitled to pay such amounts fifteen (15) days (or such lesser number of days as
Lender shall determine) prior to the respective due dates of such
installments.
(d)
The
insurance required by this Security Instrument may, at the option of Borrower,
be effected by blanket and/or umbrella policies issued to Borrower covering the
Property provided that, in each case, the policies otherwise comply with the
provisions of this Security Instrument and allocate to the Property, from time
to time (but in no event less than once a year), the coverage specified by this
Security Instrument, without possibility of reduction or coinsurance by reason
of, or damage to, any other property (real or personal) named therein. If the
insurance required by this Security Instrument shall be effected by any such
blanket or umbrella policies, Borrower shall furnish to Lender (i) original
policies or certified copies thereof, or an original certificate of insurance
together with reasonable access to the original of such policy to review such
policy’s coverage of the Property, with schedules attached thereto showing the
amount of the insurance provided under such policies applicable to the Property
and (ii) an Officer’s Certificate setting forth (A) the number of properties
covered by such policy, (B) the location by city (if available, otherwise,
county) and state of the properties, (C) the average square footage of the
properties, (D) a brief description of the typical construction type included in
the blanket policy and (E) such other information as Lender may reasonably
request.
Section
3.03.
Assignment of
Policies
.
(a)
Borrower
hereby assigns to Lender the proceeds of all insurance (other than worker’s
compensation and liability insurance) obtained pursuant to this Security
Instrument, all of which proceeds shall be payable to Lender as collateral and
further security for the payment of the Debt and the performance of the
Borrowers’ obligations hereunder and under the other Loan Documents, and
Borrower hereby authorizes and directs the issuer of any such insurance to make
payment of such proceeds directly to Lender. Except as otherwise expressly
provided in Section 3.04 or elsewhere in this Article III, Lender shall have the
option, in its discretion, and without regard to the adequacy of its security,
to apply all or any part of the proceeds it may receive pursuant to this Article
in such manner as Lender may elect to any one or more of the following: (i) the
payment of the Debt, whether or not then due, in any proportion or priority as
Lender, in its discretion, may elect, (ii) the repair or restoration of the
Property, (iii) the cure of any Event of Default or (iv) the reimbursement of
the costs and expenses of Lender incurred pursuant to the terms hereof in
connection with the recovery of the Insurance Proceeds. Nothing herein contained
shall be deemed to excuse Borrower from repairing or maintaining the Property as
provided in this Security Instrument or restoring all damage or destruction to
the Property, regardless of the sufficiency of the Insurance Proceeds, and the
application or release by Lender of any Insurance Proceeds shall not cure or
waive any Default or notice of Default.
(b)
In the
event of the foreclosure of this Security Instrument or any other transfer of
title or assignment of all or any part of the Property in extinguishment, in
whole or in part, of the Debt, all right, title and interest of Borrower in and
to all policies of insurance required by this Security Instrument shall inure to
the benefit of the successor in interest to Borrower or the purchaser of the
Property to the extent that such policies are assignable or transferable. If,
prior to the receipt by Lender of any proceeds, the Property or any portion
thereof shall have been sold on foreclosure of this Security Instrument or by
deed in lieu thereof or otherwise, or any claim under such insurance policy
arising during the term of this Security Instrument is not paid until after the
extinguishment of the Debt, and Lender shall not have received the entire amount
of the Debt outstanding at the time of such extinguishment, whether or not a
deficiency judgment on this Security Instrument shall have been sought or
recovered or denied, then, the proceeds of any such insurance to the extent of
the amount of the Debt not so received, shall be paid to and be the property of
Lender, together with interest thereon at the Default Rate, and the reasonable
attorney’s fees, costs and disbursements incurred by Lender in connection with
the collection of the proceeds which shall be paid to Lender and Borrower hereby
assigns, transfers and sets over to Lender all of Borrower’s right, title and
interest in and to such proceeds. Notwithstanding any provisions of this
Security Instrument to the contrary, Lender shall not be deemed to be a trustee
or other fiduciary with respect to its receipt of any such proceeds, which may
be commingled with any other monies of Lender; provided, however, that Lender
shall use such proceeds for the purposes and in the manner permitted by this
Security Instrument. Any proceeds deposited with Lender shall be held by Lender
in an interest-bearing account, but Lender makes no representation or warranty
as to the rate or amount of interest, if any, which may accrue on such deposit
and shall have no liability in connection therewith. Interest accrued, if any,
on the proceeds shall be deemed to constitute a part of the proceeds for
purposes of this Security Instrument. The provisions of this Section 3.03(b)
shall survive the termination of this Security Instrument by foreclosure, deed
in lieu thereof or otherwise as a consequence of the exercise of the rights and
remedies of Lender hereunder after a Default.
Section
3.04.
Casualty
Restoration
.
(a)
(i)
In the
event of any damage to or destruction of the Property, Borrower shall give
prompt written notice to Lender (which notice shall set forth Borrower’s good
faith estimate of the cost of repairing or restoring such damage or destruction,
or if Borrower cannot reasonably estimate the anticipated cost of restoration,
Borrower shall nonetheless give Lender prompt notice of the occurrence of such
damage or destruction, and will diligently proceed to obtain estimates to enable
Borrower to quantify the anticipated cost and time required for such
restoration, whereupon Borrower shall promptly notify Lender of such good faith
estimate) and, provided that restoration does not violate any Legal
Requirements, Borrower shall promptly commence and diligently prosecute to
completion the repair, restoration or rebuilding of the Property so damaged or
destroyed to a condition such that the Property shall be at least equal in value
to that immediately prior to the damage to the extent practicable, in full
compliance with all Legal Requirements and the provisions of all Leases, and in
accordance with Section 3.04(b) below. Such repair, restoration or rebuilding of
the Property are sometimes hereinafter collectively referred to as the
“
Work
”.
(ii)
Notwithstanding
the foregoing provisions of this Section 3.04, upon the occurrence of any damage
to or destruction of the Property, provided that such damage or destruction is
not a Substantial Casualty, if in Lender’s reasonable judgment the cost of
repair of or restoration to the Property required as a result of any damage or
destruction is less than $1,000,000 in the aggregate and the Work can be
completed in less than one hundred eighty (180) days (but in no event beyond the
date which is six (6) months prior to the Maturity Date), then Lender, shall
permit Borrower to apply for and receive the Insurance Proceeds directly from
the insurer (and Lender shall advise the insurer to pay over such Insurance
Proceeds directly to Borrower), to the extent required to pay for any such Work,
with any excess thereof to be retained by Borrower.
(iii)
Subject
to Section 3.04(a)(iv), Lender shall apply any Insurance Proceeds which it may
receive towards the Work in accordance with Section 3.04(b) and the other
applicable sections of this Article III.
(iv)
If (A) an
Event of Default shall have occurred and is continuing, (B) Lender is not
reasonably satisfied that the Debt Service Coverage, after substantial
completion of the Work, will be at least equal to the Required Debt Service
Coverage, (C) more than thirty percent (30%) of the reasonably estimated fair
market value of the Property is damaged or destroyed, (D) Lender is not
reasonably satisfied that the Work can be completed six (6) months prior to
Maturity or (E) Lender is not reasonably satisfied that Leases covering at least
75% of the rentable square footage for the applicable Property (immediately
prior to such damage or destruction) will not be terminated due to the casualty
during and following the restoration, or (F) Lender is not reasonably satisfied
that the Work can be completed within twelve (12) months of the damage to or
destruction of the Property (each, a “
Substantial
Casualty
”),
Lender shall have the option, in its sole discretion to apply any Insurance
Proceeds it may receive pursuant to this Security Instrument (less any
reasonable cost to Lender of recovering and paying out such proceeds incurred
pursuant to the terms hereof and not otherwise reimbursed to Lender, including,
without limitation, reasonable attorneys’ fees and expenses) to the payment of
the Debt, without any prepayment fee or charge of any kind, or to allow such
proceeds to be used for the Work pursuant to the terms and subject to the
conditions of Section 3.04(b) hereof and the other applicable sections of this
Article III.
(v)
In the
event that Lender elects or is obligated hereunder to allow Insurance Proceeds
to be used for the Work, any excess proceeds remaining after completion of such
Work shall be applied to the payment of the Debt without any prepayment fee or
charge of any kind.
(b)
If any
Condemnation Proceeds in accordance with Section 6.01(a), or any Insurance
Proceeds in accordance with Section 3.04(a), are to be applied to the repair,
restoration or rebuilding of the Property, then such proceeds shall be deposited
into a segregated interest-bearing bank account at the Bank, which shall be an
Eligible Account, held by Lender and shall be paid out from time to time to
Borrower as the Work progresses (less any reasonable cost to Lender of
recovering and paying out such proceeds, including, without limitation,
reasonable attorneys’ fees and costs allocable to inspecting the Work and the
plans and specifications therefor), subject to Section 5.13 hereof and to all of
the following conditions:
(i)
An
Independent architect or engineer selected by Borrower and reasonably acceptable
to Lender (an “
Architect
” or
“
Engineer
”) or a
Person otherwise reasonably acceptable to Lender, shall have delivered to Lender
a certificate estimating the cost of completing the Work, and, if the amount set
forth therein is more than the sum of the amount of Insurance Proceeds then
being held by Lender in connection with a casualty and amounts agreed to be paid
as part of a final settlement under the insurance policy upon or before
completion of the Work, Borrower shall have delivered to Lender (A) cash
collateral in an amount equal to such excess, or (B) an unconditional,
irrevocable, clean sight draft letter of credit, in form, substance and issued
by a bank reasonably acceptable to Lender, in the amount of such excess and
draws on such letter of credit shall be made by Lender to make payments pursuant
to this Article III following exhaustion of the Insurance Proceeds therefor or
(C) a completion bond in form, substance and issued by a surety company
reasonably acceptable to Lender.
(ii)
If the
cost of the Work is reasonably estimated by an Architect or Engineer in a
certification reasonably acceptable to Lender to be equal to or exceed five
percent (5%) of the Loan Amount for the Property, such Work shall be performed
under the supervision of an Architect or Engineer, it being understood that the
plans and specifications with respect thereto shall provide for Work so that,
upon completion thereof, the Property shall be at least equal in replacement
value and general utility to the Property prior to the damage or
destruction.
(iii)
Each
request for payment shall be made on not less than ten (10) days’ prior notice
to Lender and shall be accompanied by a certificate of an Architect or Engineer,
or, if the Work is not required to be supervised by an Architect or Engineer, by
an Officer’s Certificate stating (A) that payment is for Work completed or
materials delivered in compliance with the plans and specifications, if required
under clause (ii) above, (B) that the sum requested is required to reimburse
Borrower for payments by Borrower to date, or is due to the contractors,
subcontractors, materialmen, laborers, engineers, architects or other Persons
rendering services or materials for the Work (giving a brief description of such
services and materials), and that when added to all sums previously paid out by
Lender does not exceed the value of the Work done to the date of such
certificate, (C) if the sum requested is to cover payment relating to repair and
restoration of personal property required or relating to the Property, that
title to the personal property items covered by the request for payment is
vested in Borrower (unless Borrower is lessee of such personal property), and
(D) that the Insurance Proceeds and other amounts deposited by Borrower held by
Lender after such payment is equal to or more than the estimated remaining cost
to complete such Work; provided, however, that if such certificate is given by
an Architect or Engineer, such Architect or Engineer shall certify as to clause
(A) above, and such Officer’s Certificate shall certify as to the remaining
clauses above, and provided, further, that Lender shall not be obligated to
disburse such funds if Lender determines, in Lender’s reasonable discretion,
that Borrower shall not be in compliance with this Section 3.04(b).
Additionally, each request for payment shall contain a statement signed by
Borrower stating that the requested payment is for Work satisfactorily done to
date or for materials for the Work.
(iv)
Each
request for payment shall be accompanied by waivers of lien, in customary form
and substance, covering that part of the Work for which payment or reimbursement
is being requested and, if required by Lender, a search prepared by a title
company or licensed abstractor, or by other evidence satisfactory to Lender that
there has not been filed with respect to the Property any mechanic’s or other
lien or instrument for retention of title relating to any part of the Work not
discharged of record. Additionally, as to any personal property covered by the
request for payment, Lender shall be furnished with evidence of having incurred
a payment obligation therefor and such further evidence reasonably satisfactory
to assure Lender that UCC filings therefor provide a valid first lien on the
personal property.
(v)
Lender
shall have the right to inspect the Work at all reasonable times upon reasonable
prior notice and may condition any disbursement of Insurance Proceeds upon
satisfactory compliance by Borrower with the provisions hereof. Neither the
approval by Lender of any required plans and specifications for the Work nor the
inspection by Lender of the Work shall make Lender responsible for the
preparation of such plans and specifications, or the compliance of such plans
and specifications of the Work, with any applicable law, regulation, ordinance,
covenant or agreement.
(vi)
Insurance
Proceeds shall not be disbursed more frequently than once every thirty (30)
days.
(vii)
Until
such time as the Work has been substantially completed, Lender shall not be
obligated to disburse up to ten percent (10%) of the cost of the Work (the
“
Retention
Amount
”) to
Borrower. Upon substantial completion of the Work, Borrower shall send notice
thereof to Lender and, subject to the conditions of Section 3.04(b)(i)-(iv),
Lender shall disburse one-half of the Retention Amount to Borrower; provided,
however, that the remaining one-half of the Retention Amount shall be disbursed
to Borrower when Lender shall have received copies of any and all final
certificates of occupancy or other certificates, licenses and permits required
for the ownership, occupancy and operation of the Property in accordance with
all Legal Requirements. Borrower hereby covenants to diligently seek to obtain
any such certificates, licenses and permits. Notwithstanding the foregoing,
Lender will release the portion of the Retention Amount being held with respect
to any contractor, subcontractor or materialman engaged in the Work as of the
date upon which the Architect or Engineer certifies to Lender that the
contractor, subcontractor or materialman has satisfactorily completed all work
and has supplied all materials in accordance with the provisions of the
contractor’s, subcontractor’s or materialman’s contract, provided, (A) the
contractor, subcontractor or materialman delivers the lien waivers and evidence
of payment in full of all sums due to the contractor, subcontractor or
materialman as may be reasonably requested by Lender or by the title company
issuing the Lender’s title policy and (B) if required by Lender, the release of
any such portion of the Retention Amount shall be approved by the surety
company, if any, which has issued a payment or performance bond with respect to
the contractor, subcontractor or materialman.
(viii)
Upon
failure on the part of Borrower promptly to commence the Work as provided for
herein or to proceed diligently and continuously to completion of the Work,
subject to Force Majeure, not to exceed sixty (60) days, which failure shall
continue after notice for thirty (30) days, Lender may apply any Insurance
Proceeds or Condemnation Proceeds it then or thereafter holds to the payment of
the Debt in accordance with the provisions of the Note; provided, however, that
Lender shall be entitled to apply at any time all or any portion of the
Insurance Proceeds or Condemnation Proceeds it then holds to the extent
necessary to cure any Event of Default.
(c)
If
Borrower (i) within ninety (90) days after the occurrence of any damage to the
Property or any portion thereof (or such shorter period as may be required under
any Major Space Lease) shall fail to submit to Lender for approval plans and
specifications for the Work (approved by the Architect and by all Governmental
Authorities whose approval is required), (ii) after any such plans and
specifications are approved by all Governmental Authorities, the Architect and
Lender, shall fail to promptly commence such Work as provided for herein or
(iii) shall fail to diligently prosecute such Work to completion, then, in
addition to all other rights available hereunder, at law or in equity, Lender,
or any receiver of the Property or any portion thereof, upon five (5) days’
prior notice to Borrower (except in the event of emergency in which case no
notice shall be required), may (but shall have no obligation to) perform or
cause to be performed such Work, and may take such other steps as it reasonably
deems advisable. Borrower hereby waives, for Borrower, any claim, other than for
gross negligence or willful misconduct, against Lender and any receiver arising
out of any act or omission of Lender or such receiver pursuant hereto, and
Lender may apply all or any portion of the Insurance Proceeds (without the need
to fulfill any other requirements of this Section 3.04) to reimburse Lender and
such receiver, for all reasonable costs not reimbursed to Lender or such
receiver upon demand together with interest thereon at the Default Rate from the
date such amounts are advanced until the same are paid to Lender or the
receiver.
(d)
Subject
to Section 3.04(a)(ii) above, Borrower hereby irrevocably appoints Lender as its
attorney-in-fact, coupled with an interest, to collect and receive any Insurance
Proceeds paid with respect to any portion of the Property or the insurance
policies required to be maintained hereunder, and to endorse any checks, drafts
or other instruments representing any Insurance Proceeds whether payable by
reason of loss thereunder or otherwise.
Section
3.05.
Compliance with Insurance
Requirements
.
Borrower promptly shall comply with, and shall cause the Property to comply
with, all Insurance Requirements, even if such compliance requires structural
changes or improvements or would result in interference with the use or
enjoyment of the Property or any portion thereof provided Borrower shall have a
right to contest in good faith and with diligence such Insurance Requirements
provided (a) no Event of Default shall be continuing during such contest and
such contest shall not subject the Property or any portion thereof to any lien
or affect the priority of the lien of this Security Instrument, (b) failure to
comply with such Insurance Requirements will not subject Lender or any of its
agents, employees, officers or directors to any civil or criminal liability, (c)
such contest will not cause any reduction in insurance coverage, (d) such
contest shall not affect the ownership, use or occupancy of the Property, (e)
the Property or any part thereof or any interest therein shall not be in any
danger of being sold, forfeited or lost by reason of such contest by Borrower,
(f) Borrower has given Lender prompt notice of such contest and, upon request by
Lender from time to time, notice of the status of such contest by Borrower
and/or information of the continuing satisfaction of the conditions set forth in
clauses (a) through (e) of this Section 3.05, (g) upon a final determination of
such contest, Borrower shall promptly comply with the requirements thereof, and
(h) prior to and during such contest, Borrower shall furnish to Lender security
satisfactory to Lender, in its reasonable discretion, against loss or injury by
reason of such contest or the non-compliance with such Insurance Requirement
(and if such security is cash, Lender shall deposit the same in an
interest-bearing account and interest accrued thereon, if any, shall be deemed
to constitute a part of such security for purposes of this Security Instrument,
but Lender (i) makes no representation or warranty as to the rate or amount of
interest, if any, which may accrue thereon and shall have no liability in
connection therewith and (ii) shall not be deemed to be a trustee or fiduciary
with respect to its receipt of any such security and any such security may be
commingled with other monies of Lender). Upon completion of any contest, Lender
shall return the security , if any, deposited with Lender pursuant to clause (h)
of this Section 3.05. If Borrower shall use the Property or any portion thereof
in any manner which could permit the insurer to cancel any insurance required to
be provided hereunder, Borrower immediately shall obtain a substitute policy
which shall satisfy the requirements of this Security Instrument and which shall
be effective on or prior to the date on which any such other insurance policy
shall be canceled. Borrower shall not by any action or omission invalidate any
insurance policy required to be carried hereunder unless such policy is replaced
as aforesaid, or materially increase the premiums on any such policy above the
normal premium charged for such policy. Borrower shall cooperate with Lender in
obtaining for Lender the benefits of any Insurance Proceeds lawfully or
equitably payable to Lender in connection with the transaction contemplated
hereby.
Section
3.06.
Event of Default During
Restoration
.
Notwithstanding anything to the contrary contained in this Security Instrument
including, without limitation, the provisions of this Article III, if, at the
time of any casualty affecting the Property or any part thereof, or at any time
during any Work, or at any time that Lender is holding or is entitled to receive
any Insurance Proceeds pursuant to this Security Instrument, a Default exists
and is continuing (whether or not it constitutes an Event of Default), Lender
shall then have no obligation to make such proceeds available for Work and
Lender shall have the right and option, to be exercised in its sole and absolute
discretion and election, with respect to the Insurance Proceeds, either to
retain and apply such proceeds in reimbursement for the actual costs, fees and
expenses incurred by Lender in accordance with the terms hereof in connection
with the adjustment of the loss and any balance toward payment of the Debt in
such priority and proportions as Lender, in its sole discretion, shall deem
proper, or towards the Work, upon such terms and conditions as Lender shall
determine, or to cure such Default, or to any one or more of the foregoing as
Lender, in its sole and absolute discretion, may determine. If Lender shall
receive and retain such Insurance Proceeds, the lien of this Security Instrument
shall be reduced only by the amount thereof received, after reimbursement to
Lender of expenses of collection, and actually applied by Lender in reduction of
the principal sum payable under the Note in accordance with the
Note.
Section
3.07.
Application of Proceeds to
Debt Reduction
.
(
a) No
damage to the Property, or any part thereof, by fire or other casualty
whatsoever, whether such damage be partial or total, shall relieve Borrower from
its liability to pay in full the Debt and to perform its obligations under this
Security Instrument and the other Loan Documents.
(b)
If any
Insurance Proceeds are applied to reduce the Debt, Lender shall apply the same
in accordance with the provisions of the Note.
ARTICLE
IV:
IMPOSITIONS
Section
4.01.
Payment of Impositions,
Utilities and Taxes, etc
.
(a)
Borrower
shall pay or cause to be paid all Impositions prior to the date upon which any
fine, penalty, interest or cost for nonpayment is imposed, and furnish to
Lender, upon request, receipted bills of the appropriate taxing authority or
other documentation reasonably satisfactory to Lender evidencing the payment
thereof. If Borrower shall fail to pay any Imposition in accordance with this
Section and is not contesting or causing a contesting of such Imposition in
accordance with Section 4.04 hereof, or if there are insufficient funds in the
Basic Carrying Costs Escrow Account to pay any Imposition, Lender shall have the
right, but shall not be obligated, to pay that Imposition, and Borrower shall
repay to Lender, on demand, any amount paid by Lender, with interest thereon at
the Default Rate from the date of the advance thereof to the date of repayment,
and such amount shall constitute a portion of the Debt secured by this Security
Instrument.
(b)
Borrower
shall, prior to the date upon which any fine, penalty, interest or cost for the
nonpayment is imposed, pay or cause to be paid all charges for electricity,
power, gas, water and other services and utilities in connection with the
Property, and shall, upon request, deliver to Lender receipts or other
documentation reasonably satisfactory to Lender evidencing payment thereof. If
Borrower shall fail to pay any amount required to be paid by Borrower pursuant
to this Section 4.01 and is not contesting such charges in accordance with
Section 4.04 hereof, Lender shall have the right, but shall not be obligated, to
pay that amount, and Borrower will repay to Lender, on demand, any amount paid
by Lender with interest thereon at the Default Rate from the date of the advance
thereof to the date of repayment, and such amount shall constitute a portion of
the Debt secured by this Security Instrument.
(c)
Borrower
shall pay all taxes, charges, filing, registration and recording fees, excises
and levies imposed upon Lender by reason of or in connection with its ownership
of any Loan Document or any other instrument related thereto, or resulting from
the execution, delivery and recording of, or the lien created by, or the
obligation evidenced by, any of them, other than income, franchise and other
similar taxes imposed on Lender and shall pay all corporate stamp taxes, if any,
and other taxes, required to be paid on the Loan Documents. If Borrower shall
fail to make any such payment within ten (10) days after written notice thereof
from Lender, Lender shall have the right, but shall not be obligated, to pay the
amount due, and Borrower shall reimburse Lender therefor, on demand, with
interest thereon at the Default Rate from the date of the advance thereof to the
date of repayment, and such amount shall constitute a portion of the Debt
secured by this Security Instrument.
Section
4.02.
Deduction from
Value
. In the
event of the passage after the date of this Security Instrument of any Legal
Requirement deducting from the value of the Property for the purpose of
taxation, any lien thereon or changing in any way the Legal Requirements now in
force for the taxation of this Security Instrument and/or the Debt for federal,
state or local purposes, or the manner of the operation of any such taxes so as
to adversely affect the interest of Lender, or impose any tax or other charge on
any Loan Document, then Borrower will pay such tax, with interest and penalties
thereon, if any, within the statutory period; provided, however, such tax
payments shall not include such taxes incurred more than ninety (90) days prior
to the date Borrower receives Lender’s notice of payment. In the event the
payment of such tax or interest and penalties by Borrower would be unlawful, or
taxable to Lender or unenforceable or provide the basis for a defense of usury,
then in any such event, Lender shall have the option, by written notice of not
less than ninety (90) days, to declare the Debt immediately due and payable,
with no prepayment fee or charge of any kind.
Section
4.03.
No Joint
Assessment
.
Borrower shall not consent to or initiate the joint assessment of the Premises
or the Improvements (a) with any other real property constituting a separate tax
lot and Borrower represents and covenants that the Premises and the Improvements
are and shall remain a separate tax lot or (b) with any portion of the Property
which may be deemed to constitute personal property, or any other procedure
whereby the lien of any taxes which may be levied against such personal property
shall be assessed or levied or charged to the Property as a single
lien.
Section
4.04.
Right to
Contest
.
Borrower shall have the right, after prior notice to Lender, at its sole
expense, to contest by appropriate legal proceedings diligently conducted in
good faith, without cost or expense to Lender or any of its agents, employees,
officers or directors, the validity, amount or application of any Imposition or
any charge described in Section 4.01(b), provided that (a) no Default or Event
of Default shall exist during such proceedings and such contest shall not
(unless Borrower shall comply with clause (d) of this Section 4.04) subject the
Property or any portion thereof to any lien or affect the priority of the lien
of this Security Instrument, (b) failure to pay such Imposition or charge will
not subject Lender, Trustee or any of their agents, employees, officers or
directors to any civil or criminal liability, (c) the contest suspends
enforcement of the Imposition or charge (unless Borrower first pays the
Imposition or charge), (d) prior to and during such contest, Borrower shall
furnish to Lender security satisfactory to Lender, in its reasonable discretion,
against loss or injury by reason of such contest or the non-payment of such
Imposition or charge (and if such security is cash, Lender may deposit the same
in an interest-bearing account and interest accrued thereon, if any, shall be
deemed to constitute a part of such security for purposes of this Security
Instrument, but Lender (i) makes no representation or warranty as to the rate or
amount of interest, if any, which may accrue thereon and shall have no liability
in connection therewith and (ii) shall not be deemed to be a trustee or
fiduciary with respect to its receipt of any such security and any such security
may be commingled with other monies of Lender), (e) such contest shall not
affect the ownership, use or occupancy of the Property, (f) the Property or any
part thereof or any interest therein shall not be in any danger of being sold,
forfeited or lost by reason of such contest by Borrower, (g) Borrower has given
Lender notice of the commencement of such contest and upon request by Lender,
from time to time, notice of the status of such contest by Borrower and/or
confirmation of the continuing satisfaction of clauses (a) through (f) of this
Section 4.04, and (h) upon a final determination of such contest, Borrower shall
promptly comply with the requirements thereof. Upon completion of any contest,
Borrower shall immediately pay the amount due, if any, and deliver to Lender
proof of the completion of the contest and payment of the amount due, if any,
following which Lender shall return the security, if any, deposited with Lender
pursuant to clause (d) of this Section 4.04. Borrower shall not pay any
Imposition in installments unless permitted by applicable Legal Requirements,
and shall, upon the request of Lender, deliver copies of all notices and bills
relating to any Imposition or other charge covered by this Article IV to
Lender.
Section
4.05.
No Credits on Account of the
Debt
.
Borrower will not claim or demand or be entitled to any credit or credits on
account of the Debt for any part of the Impositions assessed against the
Property or any part thereof and no deduction shall otherwise be made or claimed
from the taxable value of the Property, or any part thereof, by reason of this
Security Instrument or the Debt. In the event such claim, credit or deduction
shall be required by Legal Requirements, Lender shall have the option, by
written notice of not less than forty-five (45) days, to declare the Debt
immediately due and payable, and Borrower hereby agrees to pay such amounts not
later than forty-five (45) days after such notice.
Section
4.06.
Documentary
Stamps
. If, at
any time, the United States of America, any State or Commonwealth thereof or any
subdivision of any such State shall require revenue or other stamps to be
affixed to the Note, this Security Instrument or any other Loan Document, or
impose any other tax or charges on the same, Borrower will pay the same, with
interest and penalties thereon, if any.
ARTICLE
V:
CENTRAL
CASH MANAGEMENT
Section
5.01.
Cash Flow
.
Borrower hereby acknowledges and agrees that (i) the Rents (which for the
purposes of this Section 5.01 shall not include security deposits from tenants
under Leases held by Borrower and not applied towards Rent) derived from the
Property and (ii) Loss Proceeds (other than Loss Proceeds that Lender has
elected to apply to reduce the Debt in accordance with the terms of Article III
hereof) shall be utilized (a) to fund the Basic Carrying Costs Sub-Account, (b)
to pay all amounts to become due and payable under the Note by funding the Debt
Service Payment Sub-Account, (c) to fund the Recurring Replacement Reserve
Sub-Account, (d) to fund the Reletting Reserve Sub-Account, (e) to fund the
Operation and Maintenance Expense Sub-Account and (e) to fund the Curtailment
Reserve Sub-Account, all to the extent provided for herein. Borrower shall
collect all security deposits from tenants under valid Leases, which shall be
held by Borrower, in accordance with applicable law and in a segregated demand
deposit bank account at such commercial or savings bank or banks as may be
reasonably satisfactory to Lender (the “
Security Deposit
Account
”).
Borrower shall notify Lender of any security deposits held as letters of credit
and, upon Lender’s request, such letters of credit shall be promptly delivered
to Lender. Borrower shall have no right to withdraw funds from the Security
Deposit Account;
provided
that,
prior to the occurrence of an Event of Default, Borrower may withdraw funds from
the Security Deposit Account to refund or apply security deposits as required by
the Leases or by applicable Legal Requirements. During the continuance of an
Event of Default, all withdrawals from the Security Deposit Account must be
approved by Lender. Borrower has established a Rent Account at Wachovia Bank,
National Association (together with its successors and assigns, the "Rent
Account Bank").
Borrower
shall deposit (or cause the Manager to deposit) all Rent relating to tenants
under Space Leases to be deposited into the Rent Account at the bank in which
the Rent Account is located. Absent the then existence of a Sweep Period, the
Rent Account Bank shall transfer on a daily basis funds received into the Rent
Account to Borrower's operating account located at the Rent Account Bank (the
"Operating Account"). Borrower
shall
not change the Rent Account or the Operating Account or the depository
institution holding the Rent Account or the Operating Account without obtaining
the prior written consent of Lender. Borrower hereby agrees that if the bank,
bank location or account number of the Rent Account or Operating Account is
changed prior to a Sweep Period, Borrower shall, within five (5) Business Days
after such change, execute a replacement Rent Account Agreement to cover the new
bank, bank location and/or account, which replacement Rent Account Agreement
shall be in a form acceptable to Lender. Upon the occurrence and during the
continuance of a Sweep Period, all funds in the Rent Account shall be
transferred on a daily basis by the Rent Account Bank through ACH or by Federal
wire to the Central Account prior to 2:00 p.m. (New York City Time) on each
Business Day. Borrower hereby acknowledges that Lender may deliver a notice to
Rent Account Bank that a Sweep Period has occurred and that all funds be
transferred on a daily basis from the Rent Account to the Central Account.
Alternatively,
at the election of the Lender, upon the occurrence and continuance of a Sweep
Period, Borrower shall cause all Rent relating to tenants under Space Leases
which is due and payable to Borrower to be paid through ACH, a check drawn on
account in a bank located in the continental United States, or by Federal wire
directly to the Central Account or the Rent Account, as determined by Lender.
Following the occurrence and continuance of an Event of Default, at the election
of Lender, Borrower shall, give each tenant under any Lease an irrevocable
direction in the form of Exhibit E attached hereto and made a part hereof to
deliver all rent payments made by tenants and other payments constituting Rent
directly to the Central Account or to the Rent Account, as determined by Lender,
or at the option of Lender, Lender shall deliver such letters to each tenant and
Borrower shall cooperate with Lender in effectuating the foregoing
.
Notwithstanding the foregoing, if any Rent is received by Borrower or Manager,
then (a) such amounts shall be held in trust for the benefit, and as the
property, of Lender, (b) such amounts shall not be commingled with any other
funds or property of Borrower or Manager and (c) Borrower or Manager shall
deposit such amounts in the Rent Account within two (2) Business Days of
receipt, or after the occurrence of a Sweep Period and at the election of
Lender, into the Central Account within two (2) Business Days of receipt. Lender
may elect to change the financial institution in which the Central Account or
the Rent Account shall be maintained;
however
, Lender
shall give Borrower and the bank in which the Rent Account is located not fewer
than ten (10) Business Days’ prior notice of such change. Neither Borrower nor
Manager shall change the bank in which the Rent Account is located or the Rent
Account without the prior written consent of Lender. All fees and charges of the
bank in which the Rent Account and the Central Account is located shall be paid
by Borrower.
Section
5.02.
Establishment of
Accounts
. Lender
has established the Escrow Accounts and the Central Account in the name of
Lender as secured party and Borrower has established the Central Account in the
joint names of Lender, as secured party, and Borrower. The Central Account, the
Rent Account and the Escrow Accounts shall be under the sole dominion and
control of Lender and funds held therein shall not constitute trust funds.
Borrower hereby irrevocably directs and authorizes Lender to withdraw funds from
the Central Account, the Rent Account and the Escrow Accounts, all in accordance
with the terms and conditions of this Security Instrument. Borrower shall have
no right of withdrawal in respect of the Central Account, the Rent Account or
the Escrow Accounts. Each transfer of funds to be made hereunder shall be made
only to the extent that funds are on deposit in the Central Account, the Rent
Account or the affected Sub-Account or Escrow Account, and Lender shall have no
responsibility to make additional funds available in the event that funds on
deposit are insufficient. The Central Account shall contain the Basic Carrying
Costs Sub-Account, the Debt Service Payment Sub-Account, the Recurring
Replacement Reserve Sub-Account, the Reletting Reserve Sub-Account, the
Operation and Maintenance Expense Sub-Account and the Curtailment Reserve
Sub-Account, each of which accounts shall be Eligible Accounts or book entry
sub-accounts of an Eligible Account (each a “
Sub-Account
” and
collectively, the “
Sub-Accounts
”) to
which certain funds shall be allocated and from which disbursements shall be
made pursuant to the terms of this Security Instrument.
Section
5.03.
Permitted
Investments
. All
sums deposited into the Curtailment Reserve Escrow Account, Recurring
Replacement Reserve Sub-Account, the Reletting Reserve Sub-Account and the
Operation and Maintenance Expense Escrow Account shall be held in an interest
bearing account but Borrower acknowledges that Lender makes no representation or
warranty as to the rate of return. Lender shall not have any liability for any
loss in investments of funds in the Curtailment Reserve Escrow Account,
Recurring Replacement Reserve Sub-Account and the Operation and Maintenance
Expense Escrow Account and no such loss shall affect Borrower’s obligation to
fund, or liability for funding, the Central Account and each Sub-Account and
Escrow Account, as the case may be. Borrower agrees that Lender shall include
all such earnings on the Curtailment Reserve Escrow Account, Recurring
Replacement Reserve Sub-Account, the Reletting Reserve Escrow Account and the
Operation and Maintenance Expense Escrow Account as income of Borrower (and, if
Borrower is a partnership, limited liability company or other pass-through
entity, the partners, members or beneficiaries of Borrower, as the case may be)
for federal and applicable state and local tax purposes. All interest paid or
other earnings on funds deposited into the Recurring Replacement Reserve
Sub-Account, the Reletting Reserve Escrow Account and the Operation and
Maintenance Expense Escrow Account made hereunder shall be deposited into the
Central Account and shall be allocated to the Curtailment Reserve Escrow
Account, Recurring Replacement Reserve Sub-Account, the Reletting Reserve Escrow
Account and the Operation and Maintenance Expense Escrow Account. Borrower shall
pay all costs, fees and expenses incurred in connection with the establishment
and maintenance of, or the disbursement from the Curtailment Reserve Escrow
Account, the Recurring Replacement Reserve Sub-Account, the Reletting Reserve
Escrow Account and the Operation and Maintenance Expense Escrow Account, which
sums shall be due and payable by Borrower upon demand and may be deducted by
Lender from amounts on deposit in the Central Account or the Escrow
Accounts.
Section
5.04.
Servicing
Fees
. At the
option of Lender, the Loan may be serviced by a servicer (the “
Servicer
”)
selected by Lender and Lender may delegate all or any portion of its
responsibilities under this Security Instrument to the Servicer. Provided that
no Default has occurred and is continuing, Borrower shall have no obligation to
reimburse Lender for servicing fees incurred in connection with the ordinary,
routine servicing of the Loan; provided, however, that Borrower shall reimburse
Lender for (a) any and all costs and expenses incurred after the occurrence of a
Default and (b) as otherwise provided for in this Security Instrument.
Additionally, Borrower shall pay all reasonable servicing fees of Servicer, if
any, not to exceed $500.00 per month, charged in connection with any
disbursement of funds from the Escrow Accounts pursuant to the Servicer’s then
standard conditions and rates.
Section
5.05.
Monthly Funding of
Sub-Accounts and Escrow Accounts
. (a) On
or before each Payment Date during the term of the Loan, commencing on the first
(1st) Payment Date occurring after the month in which the Loan is initially
funded, Borrower shall pay or cause to be paid to Lender, the Basic Carrying
Costs Monthly Installment, the Required Debt Service Payment, the Recurring
Replacement Monthly Installment, the Reletting Reserve Monthly Installment and
any other sums due and payable under the Loan Documents. Commencing on the first
(1st) Payment Date occurring after the month in which a Sweep Period begins and
during the continuance of such Sweep Period, Borrower shall pay, or cause to be
paid to the Central Account, the Basic Carrying Costs Monthly Installment, the
Required Debt Service Payment, the Recurring Replacement Reserve Monthly
Installment, and all sums required to be deposited in the Operation and
Maintenance Expense Sub-Account and the Curtailment Reserve Sub-Account, if any,
pursuant to this Section 5.05(a) and all funds transferred or deposited into the
Central Account shall be allocated among the Sub-Accounts as follows and in the
following priority:
(i)
first, to
the Basic Carrying Costs Sub-Account, until an amount equal to the Basic
Carrying Costs Monthly Installment for such Current Month has been allocated to
the Basic Carrying Costs Sub-Account;
(ii)
second,
to the Debt Service Payment Sub-Account, until an amount equal to the Required
Debt Service Payment for the Payment Date occurring in such Current Month has
been allocated to the Debt Service Payment Sub-Account;
(iii)
third, to
the Recurring Replacement Reserve Sub-Account, until an amount equal to the
Recurring Replacement Monthly Installment for such Current Month has been
allocated to the Recurring Replacement Reserve Sub-Account;
(iv)
fourth,
to the Reletting Reserve Sub-Account, until an amount equal to the Reletting
Reserve Monthly Installment for such Current Month has been allocated to the
Reletting Reserve Sub-Account
(v)
fifth,
but only during an O&M Operative Period, to the Operation and Maintenance
Expense Sub-Account in an amount equal to the Cash Expenses, other than
management fees payable to Affiliates of Borrower, for such Current Month
pursuant to the related Approved Annual Budget;
(vi)
sixth,
but only during an O&M Operative Period, to the Operation and Maintenance
Expense Sub-Account in an amount equal to the amount, if any, of the Net Capital
Expenditures for such Current Month pursuant to the related Approved Annual
Budget;
(vii)
seventh,
but only during an O&M Operative Period, to the Operation and Maintenance
Expense Sub-Account in an amount equal to the amount, if any, of the
Extraordinary Expenses approved by Lender for such Current Month;
(viii)
eighth,
but only during an O&M Operative Period, the balance, if any, to the
Curtailment Reserve Sub-Account.
Provided
that (I) no Event of Default has occurred and is continuing and (II) Lender has
received the Manager Certification referred to in Section 2.09(d) hereof for the
most recent period for which the same is due, Lender agrees that in each Current
Month any amounts deposited into or remaining in the Central Account after the
Sub-Accounts have been funded in accordance with of this Section 5.05(a) with
respect to the Current Month and any periods prior thereto, shall be disbursed
by Lender to Borrower on the Payment Date and, to the extent that funds are
available for such purpose, on the fifteenth and twenty-fifth day of each
Current Month or, if such days are not Business Days, on the next succeeding
Business Day in accordance with Borrower’s irrevocable written instruction
delivered to Lender on the Closing Date. During the existence of an Event of
Default, no funds held in the Central Account shall be distributed to Borrower
and Lender shall have the right to apply all or any portion of the funds held in
the Central Account or any Sub-Account or any Escrow Account to the Debt in
Lender’s sole discretion.
(b)
On each
Payment Date, (i) sums held in the Basic Carrying Costs Sub-Account shall be
transferred to the Basic Carrying Costs Escrow Account, (ii) sums held in the
Debt Service Payment Sub-Account, together with any amounts deposited into the
Central Account that are either (x) Loss Proceeds that Lender has elected to
apply to reduce the Debt in accordance with the terms of Article III hereof or
(y) excess Loss Proceeds remaining after the completion of any restoration
required hereunder, shall be transferred to Lender to be applied towards the
Required Debt Service Payment, (iii) sums held in the Recurring Replacement
Reserve Sub-Account shall be transferred to the Recurring Replacement Reserve
Escrow Account, (iv) sums held in the Reletting Reserve Sub-Account shall be
transferred to the Reletting Reserve Escrow Account, (v) sums held in the
Operation and Maintenance Expense Sub-Account shall be transferred to the
Operation and Maintenance Expense Escrow Account; and (vi) sums held in the
Curtailment Reserve Sub-Account shall be transferred to the Curtailment Reserve
Escrow Account.
Section
5.06.
Payment of Basic Carrying
Costs
.
Borrower hereby agrees to pay all Basic Carrying Costs (without regard to the
amount of money in the Basic Carrying Costs Sub-Account or the Basic Carrying
Costs Escrow Account). At least ten (10) Business Days prior to the due date of
any Basic Carrying Costs, and not more frequently than once each month, Borrower
may notify Lender in writing and request that Lender pay such Basic Carrying
Costs on behalf of Borrower on or prior to the due date thereof, and, provided
that no Event of Default has occurred and that there are sufficient funds
available in the Basic Carrying Costs Escrow Account, Lender shall make such
payments out of the Basic Carrying Costs Escrow Account before same shall be
delinquent. Together with each such request, Borrower shall furnish Lender with
bills and all other documents necessary, as reasonably determined by Lender, for
the payment of the Basic Carrying Costs which are the subject of such request.
Borrower’s obligation to pay (or cause Lender to pay) Basic Carrying Costs
pursuant to this Security Instrument shall include, to the extent permitted by
applicable law, Impositions resulting from future changes in law which impose
upon Lender an obligation to pay any property taxes or other Impositions or
which otherwise adversely affect Lender’s interests as provided for in this
Security Instrument.
Provided
that no Event of Default shall have occurred, all funds deposited into the Basic
Carrying Costs Escrow Account shall be held by Lender pursuant to the provisions
of this Security Instrument and shall be applied in payment of Basic Carrying
Costs in accordance with the terms hereof. Should an Event of Default occur, the
sums on deposit in the Basic Carrying Costs Sub-Account and the Basic Carrying
Costs Escrow Account may be applied by Lender in payment of any Basic Carrying
Costs or may be applied to the payment of the Debt or any other charges
affecting all or any portion of the Property as Lender in its sole discretion
may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.07.
Reletting Reserve Escrow
Account
. (a)
Borrower hereby agrees to pay all Reletting Expenditures (without regard to the
amount of money then available in the Reletting Reserve Sub-Account or the
Reletting Reserve Escrow Account). Upon the execution of any Space Lease with
respect to which Borrower is obligated to undertake or pay for any Reletting
Expenditures, Borrower shall submit to Lender (i) an itemized line item budget
(a “
Budget
”)
reasonably acceptable to Lender outlining all of the Reletting Expenditures,
(ii) a copy of the signed Lease for which said Reletting Expenditures relate, in
each case which has an expiration date at least three (3) years after the
commencement thereof and which is otherwise in compliance with the provisions of
this Security Instrument, (iii) a copy of the plans and specifications, if any,
for the proposed Reletting Expenditures and (iv) an Officer’s Certificate with
respect to the items referred to in clauses (i) through (iii) and setting forth
an anticipated completion date for the Reletting Expenditures. Thereafter,
provided that no Event of Default has occurred and is continuing and that Lender
has received a written request from Borrower for payment or reimbursement of any
costs incurred in connection with any Reletting Expenditures, together with (i)
unconditional lien waivers (subject only to payment), (ii) a statement from an
Architect or Engineer, indicating that such portion of the Reletting
Expenditures for which payment or reimbursement is sought has been substantially
completed in compliance with all Legal Requirements, (iii) unless Borrower
requests disbursement by means of check payable jointly to Borrower and the
applicable vendor, copies of bills for such Reletting Expenditures marked “paid
in full” (or such other documentation reasonably satisfactory to Lender to
establish the payment of the Reletting Expenditures) for the portion due and for
which payment or reimbursement is sought, (iv) upon final completion of such
Reletting Expenditures, tenant estoppel certificates from the tenant leasing
space in the Premises for whom the Reletting Expenditures are being made which
indicate, among other things, that the tenant under such Space Lease has been in
occupancy and open for business for at least one full calendar month and paid
all rents due under the Space Lease without abatement, suspension, deferment,
diminution, reduction or other allowances for at least one full calendar month,
and (v) such other documentation as may be reasonably requested by Lender to
establish that the Reletting Expenditures or portion thereof which are the
subject of such request have been completed, all of which are reasonably
acceptable in form and substance to Lender, Lender shall disburse to Borrower,
to the extent of funds remaining in the Reletting Reserve Escrow Account, any
actual expenses incurred in connection with such Reletting Expenditures which
were set forth in the approved Budget provided that Borrower may make a request
for disbursement of sums from the Reletting Reserve Escrow Account no more than
once during any month and any request (other than the final request) shall be in
a minimum amount of $5,000. With respect to any Reletting Expenditures which
relate to brokerage commissions, upon the receipt of (i) copies of bills for
such Reletting Expenditures marked “paid in full”, (ii) tenant estoppel
certificates from the tenant leasing space in the Premises for which Lease the
brokerage commissions are due which indicate, among other things, that the
tenant under such Space Lease has been in occupancy and open for business for at
least one full calendar month and paid all rents due under the Space Lease
without abatement, suspension, deferment, diminution, reduction or other
allowances for at least one full calendar month and (iii) a copy of the signed
Lease for which said Reletting Expenditures relate, in each case which has an
expiration date at least three (3) years, all of which are reasonably acceptable
to Lender, Lender shall disburse to Borrower any actual expenses incurred in
connection with such Reletting Expenditures out of the Reletting Reserve Escrow
Account. Lender shall not be required to make any disbursements out of the
Reletting Reserve Escrow Account if an Event of Default shall have occurred and
is continuing, if more than one such request is made in any month or if
sufficient funds are not available in the Reletting Reserve Escrow
Account
.
(b)
In
addition, Borrower shall pay to Lender for deposit with Lender all funds
received by Borrower in excess of $50,000 in connection with any cancellation,
termination or surrender of any Lease, including, but not limited to, any
surrender or cancellation fees, buyout fees, or reimbursements for tenant
improvements and leasing commissions ("
Termination
Payments
");
provided, as long as no Event of Default exists, when the applicable space is
re-leased pursuant to a Space Lease entered into in accordance with the terms of
this Security Instrument, any such Termination Payments on deposit with Lender
and remaining after payment of all tenant improvements and leasing commissions
in connection with such new Space Lease pursuant to 5.07(a) above shall be paid
to Borrower upon the occupancy and the payment of rents due under the new Space
Lease for at least one full calendar month.
(c)
Provided
that no Event of Default shall have occurred, all funds deposited into the
Reletting Reserve Escrow Account relating to Reletting Expenditures shall be
held by Lender pursuant to the provisions of this Security Instrument and shall
be applied in payment of Reletting Expenditures. Should an Event of Default
occur, the sums on deposit in the Reletting Reserve Sub-Account and the
Reletting Reserve Escrow Account may be applied by Lender in payment of any
Reletting Expenditures or may be applied to the payment of the Debt or any other
charges affecting all or any portion of the Property, as Lender, in its sole
discretion, may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
(d)
In the
event that Borrower holds any letters of credit as security for obligations
under Leases, within thirty (30) days (or if any letters of credit may expire
within such thirty (30) day period, prior to the expiration of such letter of
credit) of the occurrence of a monetary event of default or a material
non-monetary event of default under the related Lease, Borrower shall present
for draw and use all commercially reasonable efforts to draw the full amount
which it is entitled to draw under such letter of credit; provided, however,
Borrower shall not be obliged to draw on such letter of credit if (i) Borrower
has submitted to Lender a plan of action to resolve any event of default which
gave rise to Borrower’s right to draw on the applicable letter of credit and
Lender shall, in its reasonable discretion, have consented to such plan or
Borrower is precluded from making a draw on the applicable letter of credit by
applicable law, and (ii) the term of such letter of credit will not expire prior
to the implementation of such submitted plan. Borrower shall deliver to Lender
all security deposits which are applied against sums due to Borrower under
Leases (including, without limitation, all sums drawn on letters of credits held
as security for obligations of tenants under Leases) and Rent paid by or on
behalf of any lessee under a Space Lease in whole or partial consideration for
the termination, cancellation or surrender of any Space Lease including, without
limitation, surrender or cancellation fees, buy-out fees or reimbursements for
tenant improvements or leasing commissions, within five (5) Business Days of
receipt thereof and all such sums shall be held in the Reletting Reserve Escrow
Account and shall be disbursed therefrom as set forth above.
Section
5.08.
Recurring Replacement
Reserve Escrow Account
.
Borrower hereby agrees to pay all Recurring Replacement Expenditures with
respect to the Property (without regard to the amount of money then available in
the Recurring Replacement Reserve Sub-Account or the Recurring Replacement
Reserve Escrow Account). Provided that Lender has received written notice from
Borrower at least five (5) Business Days prior to the due date of any payment
relating to Recurring Replacement Expenditures and not more frequently than once
each month, and further provided that no Event of Default has occurred and is
continuing, that there are sufficient funds available in the Recurring
Replacement Reserve Escrow Account and that Borrower shall have theretofore
furnished Lender with lien waivers, copies of bills, invoices and other
reasonable documentation as may be required by Lender to establish that the
Recurring Replacement Expenditures which are the subject of such request
represent amounts due for completed or partially completed capital work and
improvements performed at the Property, Lender shall make such payments out of
the Recurring Replacement Reserve Escrow Account.
Provided
that no Event of Default shall have occurred, all funds deposited into the
Recurring Replacement Reserve Escrow Account shall be held by Lender pursuant to
the provisions of this Security Instrument and shall be applied in payment of
Recurring Replacement Expenditures. Should an Event of Default occur, the sums
on deposit in the Recurring Replacement Reserve Sub-Account and the Recurring
Replacement Reserve Escrow Account may be applied by Lender in payment of any
Recurring Replacement Expenditures or may be applied to the payment of the Debt
or any other charges affecting all or any portion of the Property as Lender in
its sole discretion may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.09.
Operation and Maintenance
Expense Escrow Account
.
Borrower hereby agrees to pay all Operating Expenses with respect to the
Property (without regard to the amount of money then available in the Operation
and Maintenance Expense Sub-Account or the Operation and Maintenance Expense
Escrow Account). All funds allocated to the Operation and Maintenance Expense
Escrow Account shall be held by Lender pursuant to the provisions of this
Security Instrument. Any sums held in the Operation and Maintenance Expense
Escrow Account shall be disbursed to Borrower within five (5) Business Days of
receipt by Lender from Borrower of (a) a written request for such disbursement
which shall indicate the Operating Expenses (exclusive of Basic Carrying Costs
and any management fees payable to Borrower or to Affiliates of Borrower) for
which the requested disbursement is to pay and (b) an Officer’s Certificate
stating that no Operating Expenses with respect to the Property are more than
sixty (60) days past due;
provided
,
however
, in the
event that Borrower legitimately disputes any invoice for an Operating Expense,
and (i) no Event of Default has occurred and is continuing hereunder, (ii)
Borrower shall have set aside adequate reserves for the payment of such disputed
sums together with all interest and late fees thereon, (iii) Borrower has
complied with all the requirements of this Security Instrument relating thereto,
and (iv) the contesting of such sums shall not constitute a default under any
other instrument, agreement, or document to which Borrower is a party, then
Borrower may, after certifying to Lender as to items (i) through (iv) hereof,
contest such invoice. Together with each such request, Borrower shall furnish
Lender with bills and all other documents necessary for the payment of the
Operating Expenses which are the subject of such request. Borrower may request a
disbursement from the Operation and Maintenance Expense Escrow Account no more
than one (1) time per calendar month. Should an Event of Default occur and be
continuing, the sums on deposit in the Operation and Maintenance Expense
Sub-Account or the Operation and Maintenance Expense Escrow Account may be
applied by Lender in payment of any Operating Expenses for the Property or may
be applied to the payment of the Debt or any other charges affecting all or any
portion of the Property as Lender, in its sole discretion, may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.10.
Intentionally
Deleted
Section
5.11.
Curtailment Reserve Escrow
Account
. Funds
deposited into the Curtailment Reserve Escrow Account during an O&M
Operative Period shall be held by Lender in the Curtailment Reserve Escrow
Account as additional security for the Loan until the Loan has been paid in
full. Notwithstanding anything herein to the contrary, provided that no Event of
Default and no O&M Operative Period has occurred and is continuing, Lender
shall, upon written request from Borrower, disburse all sums contained in the
Curtailment Reserve Escrow Account to Borrower. Should an Event of Default
occur, the sums on deposit in the Curtailment Reserve Sub-Account and the
Curtailment Reserve Escrow Account may be applied by Lender to the payment of
the Debt or other charges affecting all or any portion of the Property, as
Lender, in its sole discretion, may determine; provided, however, that no such
application shall be deemed to have been made by operation of law or otherwise
until actually made by Lender as herein provided. Lender shall calculate the
Debt Service Coverage as of the end of each fiscal quarter. Such calculation
shall be completed within ten (10) Business Days of Lender’s receipt of the
quarterly financial statements required under Section 2.09(b) with respect to
such fiscal quarter.
Section
5.12.
Intentionally
Omitted
.
Section
5.13.
Loss
Proceeds
. In the
event of a casualty to the Property, unless Lender elects or is required
pursuant to Article III hereof to make all of the Insurance Proceeds available
to Borrower for restoration, Lender and Borrower shall cause all such Insurance
Proceeds to be paid by the insurer directly to the Central Account, whereupon
Lender shall, after deducting Lender’s reasonable costs of recovering and paying
out such Insurance Proceeds, including without limitation, reasonable attorneys’
fees, apply the same to reduce the Debt in accordance with the terms of the
Note;
provided
,
however
, that if
Lender elects, or is deemed to have elected, or is required to make the
Insurance Proceeds available for restoration, all Insurance Proceeds in respect
of rent loss, business interruption or similar coverage shall be maintained in
the Central Account, to be applied by Lender in the manner as Rent received with
respect to the operation of the Property;
provided
,
further
,
however
, that in
the event that the Insurance Proceeds with respect to rent loss, business
interruption or similar insurance policy are paid in a lump sum in advance,
Lender shall hold such Insurance Proceeds in a segregated interest-bearing
escrow account, which shall be an Eligible Account, shall estimate, in Lender’s
reasonable discretion, the number of months required for Borrower to restore the
damage caused by the casualty, shall divide the aggregate rent loss, business
interruption or similar Insurance Proceeds by such number of months, and shall
disburse from such bank account into the Central Account each month during the
performance of such restoration such monthly installment of said Insurance
Proceeds. In the event that Insurance Proceeds are to be applied toward
restoration, Lender shall hold such funds in a segregated bank account at the
Bank, which shall be an Eligible Account, and shall disburse same in accordance
with the provisions of Section 3.04 hereof. Unless Lender elects, or is required
pursuant to Section 6.01 hereof to make all of the Condemnation Proceeds
available to Borrower for restoration, Lender and Borrower shall cause all such
Condemnation Proceeds to be paid to the Central Account, whereupon Lender shall,
after deducting Lender’s reasonable costs of recovering and paying out such
Condemnation Proceeds, including without limitation, reasonable attorneys’ fees,
apply same to reduce the Debt in accordance with the terms of the Note;
provided
,
however
, that
any Condemnation Proceeds received in connection with a temporary Taking shall
be maintained in the Central Account, to be applied by Lender in the same manner
as Rent received with respect to the operation of the Property;
provided
,
further
,
however
, that in
the event that the Condemnation Proceeds of any temporary Taking are paid in a
lump sum in advance, Lender shall hold such Condemnation Proceeds in a
segregated interest-bearing bank account, which shall be an Eligible Account,
shall estimate, in Lender’s reasonable discretion, the number of months that the
Property shall be affected by such temporary Taking, shall divide the aggregate
Condemnation Proceeds in connection with such temporary Taking by such number of
months, and shall disburse from such bank account into the Central Account each
month during the pendency of such temporary Taking such monthly installment of
said Condemnation Proceeds. In the event that Condemnation Proceeds are to be
applied toward restoration, Lender shall hold such funds in a segregated bank
account at the Bank, which shall be an Eligible Account, and shall disburse same
in accordance with the provisions of Section 3.04 hereof. If any Loss Proceeds
are received by Borrower, such Loss Proceeds shall be received in trust for
Lender, shall be segregated from other funds of Borrower, and shall be forthwith
paid into the Central Account, or paid to Lender to hold in a segregated bank
account at the Bank, in each case to be applied or disbursed in accordance with
the foregoing. Any Loss Proceeds made available to Borrower for restoration in
accordance herewith, to the extent not used by Borrower in connection with, or
to the extent they exceed the cost of, such restoration, shall be paid to
Borrower promptly following the completion of the Work.
ARTICLE
VI:
CONDEMNATION
Section
6.01.
Condemnation
.
(a
)
Borrower
shall notify Lender promptly of the commencement or threat of any Taking of the
Property or any portion thereof. Lender is hereby irrevocably appointed as
Borrower’s attorney-in-fact, coupled with an interest, with exclusive power to
collect, receive and retain the proceeds of any such Taking and to make any
compromise or settlement in connection with such proceedings (subject to
Borrower’s reasonable approval, except after the occurrence of an Event of
Default, in which event Borrower’s approval shall not be required), subject to
the provisions of this Security Instrument; provided, however, that Borrower may
participate in any such proceedings and shall be authorized and entitled to
compromise or settle any such proceeding with respect to Condemnation Proceeds
in an amount less than five percent (5%) of the Loan Amount. Borrower shall
execute and deliver to Lender any and all instruments reasonably required in
connection with any such proceeding promptly after request therefor by Lender.
Except as set forth above, Borrower shall not adjust, compromise, settle or
enter into any agreement with respect to such proceedings without the prior
consent of Lender. All Condemnation Proceeds are hereby assigned to and shall be
paid to Lender. With respect to Condemnation Proceeds in an amount in excess of
five percent (5%) of the Loan Amount, Borrower hereby authorizes Lender to
compromise, settle, collect and receive such Condemnation Proceeds, and to give
proper receipts and acquittance therefor. Subject to the provisions of this
Article VI, Lender may apply such Condemnation Proceeds (less any cost to Lender
of recovering and paying out such proceeds, including, without limitation,
reasonable attorneys’ fees and disbursements and costs allocable to inspecting
any repair, restoration or rebuilding work and the plans and specifications
therefor) toward the payment of the Debt or to allow such proceeds to be used
for the Work.
(b)
“
Substantial
Taking
” shall
mean (i) a Taking of such portion of the Property that would, in Lender’s
reasonable discretion, leave remaining a balance of the Property which would not
under then current economic conditions, applicable Development Laws and other
applicable Legal Requirements, permit the restoration of the Property so as to
constitute a complete, rentable facility of the same type as existed prior to
the Taking, having adequate ingress and egress to the Property, the Leases of
which covering 75% of the square footage of the Property immediately prior to
such Taking will not be terminated due to the Taking during and following the
restoration of such Property and being capable of producing a projected Net
Operating Income (as reasonably determined by Lender) yielding a projected Debt
Service Coverage therefrom for the next two (2) years of not less than the
Required Debt Service Coverage or (ii) a Taking which occurs less than two (2)
years prior to the Maturity Date or (iii) a Taking which Lender is not
reasonably satisfied could be repaired within twelve (12) months and at least
six (6) months prior to the Maturity Date or (iv) a Taking of fifteen percent
(15%) or more of the Property.
(c)
In the
case of a Substantial Taking, Condemnation Proceeds shall be payable to Lender
in reduction of the Debt but without any prepayment fee or charge of any kind
and, if Borrower elects to apply any Condemnation Proceeds it may receive
pursuant to this Security Instrument to the payment of the Debt, Borrower may
prepay the balance of the Debt without any prepayment fee or charge of any
kind.
(d)
In the
event of a Taking which is less than a Substantial Taking, Borrower at its sole
cost and expense (whether or not the award shall have been received or shall be
sufficient for restoration) shall proceed diligently to restore, or cause the
restoration of, the remaining Improvements not so taken, to maintain a complete,
rentable, self-contained fully operational facility of the same sort as existed
prior to the Taking in as good a condition as is reasonably possible. In the
event of such a Taking, Lender shall receive the Condemnation Proceeds and shall
pay over the same:
(i)
first,
provided no Default shall have occurred and be continuing, to Borrower to the
extent of any portion of the award as may be necessary to pay the reasonable
cost of restoration of the Improvements remaining, and
(ii)
second,
to Lender, in reduction of the Debt without any prepayment premium or charge of
any kind.
If one or
more Takings in the aggregate create a Substantial Taking, then, in such event,
the sections of this Article VI above applicable to Substantial Takings shall
apply.
(e)
In the
event Lender is obligated to or elects to make Condemnation Proceeds available
for the restoration or rebuilding of the Property, such proceeds shall be
disbursed in the manner and subject to the conditions set forth in Section
3.04(b) hereof. If, in accordance with this Article VI, any Condemnation
Proceeds are used to reduce the Debt, they shall be applied in accordance with
the provisions of the Note and, with no prepayment fee or charge of any kind.
Borrower shall promptly execute and deliver all instruments requested by Lender
for the purpose of confirming the assignment of the Condemnation Proceeds to
Lender. Application of all or any part of the Condemnation Proceeds to the Debt
shall be made in accordance with the provisions of Sections 3.06 and 3.07
hereof. No application of the Condemnation Proceeds to the reduction of the Debt
shall have the effect of releasing the lien of this Security Instrument until
the remainder of the Debt has been paid in full. In the case of any Taking,
Lender, to the extent that Lender has not been reimbursed by Borrower, shall be
entitled, as a first priority out of any Condemnation Proceeds, to reimbursement
for all costs, fees and expenses reasonably incurred in the determination and
collection of any Condemnation Proceeds. All Condemnation Proceeds deposited
with Lender pursuant to this Section, until expended or applied as provided
herein, shall be held in accordance with Section 3.04(b) hereof and shall
constitute additional security for the payment of the Debt and the payment and
performance of Borrower’s obligations, but Lender shall not be deemed a trustee
or other fiduciary with respect to its receipt of such Condemnation Proceeds or
any part thereof. All awards so deposited with Lender shall be held by Lender in
an Eligible Account, but Lender makes no representation or warranty as to the
rate or amount of interest, if any, which may accrue on any such deposit and
shall have no liability in connection therewith. For purposes hereof, any
reference to the award shall be deemed to include interest, if any, which has
accrued thereon.
ARTICLE
VII:
LEASES
AND RENTS
Section
7.01.
Assignment
.
b)
Borrower
does hereby bargain, sell, assign and set over unto Lender, all of Borrower’s
interest in the Leases and Rents. The assignment of Leases and Rents in this
Section 7.01 is an absolute, unconditional and present assignment from Borrower
to Lender and not an assignment for security and the existence or exercise of
Borrower’s license (revocable by Lender only during the continuance of an Event
of Default) to collect Rent shall not operate to subordinate this assignment to
any subsequent assignment. The exercise by Lender of any of its rights or
remedies pursuant to this Section 7.01 shall not be deemed to make Lender a
mortgagee-in-possession. In addition to the provisions of this Article VII,
Borrower shall comply with all terms, provisions and conditions of the
Assignment.
(b)
So long
as there shall exist and be continuing no Event of Default, Borrower shall have
a revocable license to take all actions with respect to all Leases and Rents,
present and future, including the right to collect and use the Rents, subject to
the terms of this Security Instrument and the Assignment.
(c)
In a
separate instrument Borrower shall, as requested from time to time by Lender,
assign to Lender or its nominee by specific or general assignment, any and all
Leases, such assignments to be in form and content reasonably acceptable to
Lender, but subject to the provisions of Section 7.01(b) hereof. Borrower agrees
to deliver to Lender, within thirty (30) days after Lender’s request, a true and
complete copy of every Lease and, within ten (10) Business Days after Lender’s
request, a complete list of the Leases, certified by Borrower to be true,
accurate and complete and stating the demised premises, the names of the
lessees, the Rent payable under the Leases, the date to which such Rents have
been paid, the material terms of the Leases, including, without limitation, the
dates of occupancy, the dates of expiration, any Rent concessions, work
obligations or other inducements granted to the lessees thereunder, and any
renewal options.
(d)
The
rights of Lender contained in this Article VII, the Assignment or any other
assignment of any Lease shall not result in any obligation or liability of
Lender to Borrower or any lessee under a Lease or any party claiming through any
such lessee or constitute an assumption by Lender of any such liability or
obligation.
(e)
At any
time during the continuance of an Event of Default, the license granted
hereinabove may be revoked by Lender, and Lender or a receiver appointed in
accordance with this Security Instrument may enter upon the Property, and
collect, retain and apply the Rents toward payment of the Debt in such priority
and proportions as Lender in its sole discretion shall deem proper.
(f)
In
addition to the rights which Lender may have herein, upon the occurrence and
during the continuance of any Event of Default, Lender, at its option, may
require Borrower to pay monthly in advance to Lender, or any receiver appointed
to collect the Rents, the fair and reasonable rental value for the use and
occupation of such part of the Property as may be used and occupied by Borrower
and may require Borrower to vacate and surrender possession of the Property to
Lender or to such receiver and, in default thereof, Borrower may be evicted by
summary proceedings or otherwise.
Section
7.02.
Management of
Property
.
(a)
Borrower
shall manage the Property or cause the Property to be managed in a manner which
is consistent with the Approved Manager Standard. The Manager (other than
Borrower) shall at all times meet the Minimum Manager Credentials. All Space
Leases shall provide for rental rates comparable to then existing local market
rates and terms and conditions which constitute good and prudent business
practice and are consistent with prevailing market terms and conditions, and
shall be arm’s length transactions. All Space Leases shall be on a form
previously approved by Lender with such commercially reasonable changes as are
consistent with the standards of other similarly situated owners when compared
with terms and conditions of leases in similarly situated shopping centers in
similar context at the time in question, taking into account,
inter
alia
, the
type, creditworthiness and bargaining power of the prospective tenant and the
location and size of the space covered by the proposed Lease, and shall provide
that they are subordinate to this Security Instrument and that the lessees
thereunder attorn to Lender. Borrower shall deliver copies of all Leases,
amendments, modifications and renewals thereof to Lender. All proposed Space
Leases for the Property shall be subject to the prior written approval of
Lender, not to be unreasonably withheld or delayed, provided, however that
Borrower may enter into new Space Leases with unrelated third parties without
obtaining the prior consent of Lender provided that: (i) the leases conform with
the requirements of this Section 7.02; (ii) the space to be leased pursuant to
such proposed Lease, together with any other space which is leased to the
proposed tenant or an Affiliate thereof, does not exceed 7,500 square feet; and
(iii) the term of the proposed lease does not exceed five (5) years and,
inclusive of all extensions and renewals, does not exceed ten (10) years.
Lender’s consent to any Lease shall be deemed given, if the first correspondence
from Borrower to Lender requesting such approval is in an envelope marked
“PRIORITY” and contains a bold-faced, conspicuous legend at the top of the first
page thereof stating that “IF YOU FAIL TO RESPOND TO OR TO EXPRESSLY DENY THIS
REQUEST FOR APPROVAL IN WRITING WITHIN TEN (10) BUSINESS DAYS, YOUR APPROVAL MAY
BE DEEMED GIVEN”, and is accompanied by the information and documents required
above and any other information reasonably requested by Lender in writing prior
to the expiration of such ten (10) Business Day period in order to adequately
review the same has been delivered and, if Lender fails to respond or to
expressly deny such request for approval in writing within the ten (10) Business
Day period a second notice is delivered to Lender from Borrower in an envelope
marked “PRIORITY” requesting approval containing a bold-faced, conspicuous
legend at the top of the first page thereof stating that “IF YOU FAIL TO RESPOND
TO OR EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5)
BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN” and Lender fails to respond
or to expressly deny each request for approval within the five (5) Business Day
period.
(b)
Borrower
(i) shall observe and perform all of its material obligations under the Leases
pursuant to applicable Legal Requirements and shall not do or permit to be done
anything to impair the value of the Leases as security for the Debt; (ii) shall
promptly send copies to Lender of all notices of default which Borrower shall
receive under the Leases; (iii) shall, consistent with the Approved Manager
Standard, enforce all of the terms, covenants and conditions contained in the
Leases to be observed or performed; (iv) shall not collect any of the Rents
under the Leases more than one (1) month in advance (except that Borrower may
collect in advance (A) such security deposits as are permitted pursuant to
applicable Legal Requirements and are commercially reasonable in the prevailing
market and (B) all rent deemed “additional rent” under the Leases); (v) shall
not execute any other assignment of lessor’s interest in the Leases or the Rents
except as otherwise expressly permitted pursuant to this Security Instrument;
(vi) shall not cancel or terminate any of the Space Leases or accept a surrender
thereof in any manner inconsistent with the Approved Manager Standard; (vii)
shall not convey, transfer or suffer or permit a conveyance or transfer of all
or any part of the Premises or the Improvements or of any interest therein so as
to effect a merger of the estates and rights of, or a termination or diminution
of the obligations of, lessees thereunder; (viii) shall not alter, modify
or change the terms of any guaranty of any Major Space Lease or cancel or
terminate any such guaranty in any manner inconsistent with the Approved Manager
Standard; (ix) shall, in accordance with the Approved Manager Standard, make all
reasonable efforts to seek lessees for space as it becomes vacant and enter into
Leases in accordance with the terms hereof; (x) shall not materially modify,
alter or amend any Major Space Lease or Property Agreement without Lender’s
consent, which consent will not be unreasonably withheld or delayed; (xi) shall
notify Lender promptly if any Pad Owner shall cease business operations or of
the occurrence of any event of which it becomes aware affecting a Pad Owner or
its property which might have any material effect on the Property; and (xii)
shall, without limitation to any other provision hereof, execute and deliver at
the reasonable request of Lender all such further assurances, confirmations and
assignments in connection with the Property as are required herein and as Lender
shall from time to time reasonably require.
(c)
All
security deposits of lessees, whether held in cash or any other form, shall be
treated by Borrower as trust funds, shall not be commingled with any other funds
of Borrower and, if cash, shall be deposited by Borrower in the Security Deposit
Account. Any bond or other instrument which Borrower is permitted to hold in
lieu of cash security deposits under applicable Legal Requirements shall be
maintained in full force and effect unless replaced by cash deposits as
hereinabove described shall, if permitted pursuant to Legal Requirements, at
Lender’s option, name Lender as payee or mortgagee thereunder or be fully
assignable to Lender and shall, in all respects, comply with applicable Legal
Requirements and otherwise be reasonably satisfactory to Lender. Borrower shall,
upon request, provide Lender with evidence reasonably satisfactory to Lender of
Borrower’s compliance with the foregoing. During the continuance of any Event of
Default, Borrower shall, upon Lender’s request, if permitted by applicable Legal
Requirements, turn over the security deposits (and any interest thereon) to
Lender to be held by Lender in accordance with the terms of the Leases and all
Legal Requirements.
(d)
Lender
shall, upon request of Borrower, enter into a subordination, nondisturbance and
attornment agreement (“
SNDA
”) with
respect to each proposed tenant entering into a Lease in compliance with the
requirements of this Security Instrument provided that such Lease is (i) with a
tenant occupying at least 7,500 square feet of the Premises or is with an
existing tenant pursuant to a Lease dated prior to the Closing Date which
provides that the tenant thereunder is entitled to an SNDA or with any tenant
which is renting space on a national basis which leases at least 2,000 square
feet of the Premises, (ii) with a tenant reasonably approved by Lender in
writing prior to Borrower’s execution of any such Lease and (iii) on the
standard form of Lease previously approved in writing by Lender with such
commercially reasonable changes as are consistent with the Approved Manager
Standard. Any SNDA executed by Lender shall be in Lender’s then standard form
with such changes as Lender shall agree to and provide that in the event Lender
or any purchaser at foreclosure shall succeed to Borrower’s interest in the
Property, the Leases of such tenants will remain in full force and effect and be
binding upon Lender or such purchaser and such tenant as though each were
original parties thereto
(e)
Borrower
covenants and agrees with Lender that (i) the Property will be managed at all
times by Borrower in accordance with Borrower’s organizational documents or by a
Manager pursuant to a management agreement approved by Lender (the “
Management
Agreement
”), (ii)
after Borrower has knowledge of a fifty percent (50%) or more change in control
of the ownership of Manager, Borrower will promptly give Lender notice thereof
(a “
Manager Control
Notice
”) and
(iii) the Management Agreement (or in the case Borrower is acting as Manager,
Borrower’s right to manage the Property) may be terminated by Lender at any time
for cause (including, but not limited to, Manager’s gross negligence,
misappropriation of funds, willful misconduct or fraud) or at any time following
(A) the occurrence of an Event of Default, or (B) the receipt of a Manager
Control Notice, or (C) the date upon which the Debt Service Coverage is 1.05:1.0
or less. In the event of any such termination, a substitute managing agent shall
be appointed by Borrower, subject to Lender’s prior written approval, which may
be given or withheld in Lender’s sole discretion and which may be conditioned
on, inter alia, a letter from each Rating Agency confirming that any rating
issued by the Rating Agency in connection with a Securitization will not, as a
result of the proposed change of Manager, be downgraded from the then current
ratings thereof, qualified or withdrawn. Borrower may from time to time appoint
a successor manager to manage the Property with Lender’s prior written consent
which consent shall not be unreasonably withheld or delayed, provided that any
such successor manager shall be a reputable management company which meets the
Minimum Manager Credentials and each Rating Agency shall have confirmed in
writing that any rating issued by the Rating Agency in connection with a
Securitization will not, as a result of the proposed change of Manager, be
downgraded from the then current ratings thereof, qualified or withdrawn.
Borrower further covenants and agrees that Borrower shall require Manager (or
any successor managers) to maintain at all times during the term of the Loan
worker’s compensation insurance as required by Governmental
Authorities.
ARTICLE
VIII:
MAINTENANCE
AND REPAIR
Section
8.01.
Maintenance
and Repair of the Property; Alterations; Replacement of Equipment. Borrower
hereby covenants and agrees:
(a)
Borrower
shall not (i) desert or abandon the Property, (ii) change the use of the
Property or cause or permit the use or occupancy of any part of the Property to
be discontinued if such discontinuance or use change would violate any zoning or
other law, ordinance or regulation; (iii) consent to or seek any lowering of the
zoning classification, or greater zoning restriction affecting the Property; or
(iv) take any steps whatsoever to convert the Property, or any portion thereof,
to a condominium or cooperative form of ownership.
(b)
Borrower
shall, at its expense, (i) take good care of the Property including grounds
generally, and utility systems and sidewalks, roads, alleys, and curbs therein,
and shall keep the same in good, safe and insurable condition and in compliance
with all applicable Legal Requirements, (ii) promptly make or cause to be made
all repairs to the Property, above grade and below grade, interior and exterior,
structural and nonstructural, ordinary and extraordinary, unforeseen and
foreseen, and maintain the Property in a manner appropriate for the facility and
(iii) not commit or suffer to be committed any waste of the Property or do or
suffer to be done anything which will increase the risk of fire or other hazard
to the Property or impair the value thereof. Borrower shall keep the sidewalks,
vaults, gutters and curbs comprising, or adjacent to, the Property, clean and
free from dirt, snow, ice, rubbish and obstructions. All repairs made by
Borrower shall be made with first-class materials, in a good and workmanlike
manner, shall be equal or better in quality and class to the original work and
shall comply with all applicable Legal Requirements and Insurance Requirements.
To the extent any of the above obligations are obligations of tenants under
Space Leases or Pad Owners or other Persons under Property Agreements, Borrower
may fulfill its obligations hereunder by causing such tenants, Pad Owners or
other Persons, as the case may be, to perform their obligations thereunder. As
used herein, the terms “repair” and “repairs” shall be deemed to include all
necessary replacements.
(c)
Borrower
shall, except in connection with tenant improvement work under Space Leases
entered into in accordance with the terms of this Security Instrument, not
demolish, remove, construct, or, except as otherwise expressly provided herein,
restore, or alter the Property or any portion thereof which could diminish the
value of the Property nor consent to or permit any such demolition, removal,
construction, restoration, addition or alteration which would diminish the value
of the Property without Lender’s prior written consent in each instance, which
consent shall not be unreasonably withheld or delayed.
(d)
Borrower
represents and warrants to Lender that (i) there are no fixtures, machinery,
apparatus, tools, equipment or articles of personal property attached or
appurtenant to, or located on the Property, except for the Equipment and
equipment leased by Borrower for the management, operation or maintenance of the
Property in accordance with the Loan Documents; (ii) the Equipment and the
leased equipment constitute all of the fixtures, machinery, apparatus, tools,
equipment and articles of personal property necessary to the proper operation
and maintenance of the Property; and (iii) all of the Equipment is free and
clear of all liens, except for the lien of this Security Instrument and the
Permitted Encumbrances. All right, title and interest of Borrower in and to all
extensions, improvements, betterments, renewals and appurtenances to the
Property hereafter acquired by, or released to, Borrower or constructed,
assembled or placed by Borrower in the Property, and all changes and
substitutions of the security constituted thereby, shall be and, in each such
case, without any further mortgage, encumbrance, conveyance, assignment or other
act by Lender or Borrower, shall become subject to the lien and security
interest of this Security Instrument as fully and completely, and with the same
effect, as though now owned by Borrower and specifically described in this
Security Instrument, but at any and all times Borrower shall execute and deliver
to Lender any documents Lender may reasonably deem necessary or appropriate for
the purpose of specifically subjecting the same to the lien and security
interest of this Security Instrument.
(e)
Notwithstanding
the provisions of this Security Instrument to the contrary, Borrower shall have
the right, at any time and from time to time, to remove and dispose of Equipment
which may have become obsolete or unfit for use or which is no longer useful in
the management, operation or maintenance of the Property. Borrower shall
promptly replace any such Equipment so disposed of or removed with other
Equipment of equal value and utility, free of any security interest or superior
title, liens or claims; except that, if replacement of the Equipment so removed
or disposed of is not necessary or desirable for the proper management,
operation or maintenance of the Property, Borrower shall not be required to
replace the same. All such replacements or additional equipment shall be deemed
to constitute “Equipment” and shall be covered by the security interest herein
granted.
ARTICLE
IX:
TRANSFER
OR ENCUMBRANCE OF THE PROPERTY
Section
9.01.
Other
Encumbrances
.
Borrower shall not further encumber or permit the further encumbrance in any
manner (whether by grant of a pledge, security interest or otherwise) of the
Property or any part thereof or interest therein, including, without limitation,
of the Rents therefrom. In addition, Borrower shall not further encumber and
shall not permit the further encumbrance in any manner (whether by grant of a
pledge, security interest or otherwise) of Borrower or any direct or indirect
interest in Borrower except as expressly permitted pursuant to this Security
Instrument.
Section
9.02.
No
Transfer
.
(
a)
Borrower
acknowledges that Lender has examined and relied on the expertise of Borrower
and, if applicable, each General Partner, in owning and operating properties
such as the Property in agreeing to make the Loan and will continue to rely on
Borrower’s ownership of the Property as a means of maintaining the value of the
Property as security for repayment of the Debt and Borrower acknowledges that
Lender has a valid interest in maintaining the value of the Property. Borrower
shall not Transfer, nor permit any Transfer, without the prior written consent
of Lender, which consent Lender may withhold in its sole and absolute discretion
other than pursuant to Space Leases as provided herein. Lender shall not be
required to demonstrate any actual impairment of its security or any increased
risk of default hereunder in order to declare the Debt immediately due and
payable upon a Transfer without Lender’s consent. This provision shall apply to
every Transfer regardless of whether voluntary or not, or whether or not Lender
has consented to any previous Transfer.
(b)
Notwithstanding
any provision of this Security Instrument to the contrary, no person or entity
may, after the date hereof, become an owner of a direct or indirect interest in
any entity comprising Borrower, which interest exceeds forty-nine percent (49%),
without Lender’s written consent in each instance and receipt by Lender of
(x) written confirmation that any rating issued by such Rating Agency in
connection with the Securitization will not, as a result of the proposed
Transfer, be downgraded from the then current ratings thereof, qualified or
withdrawn, and (y) a substantive non-consolidation opinion in form and
substance acceptable to Lender.
Section
9.03.
Due on
Sale
. Lender
may declare the Debt immediately due and payable upon any Transfer or further
encumbrance without Lender’s consent without regard to whether any impairment of
its security or any increased risk of default hereunder can be demonstrated.
This provision shall apply to every Transfer or further encumbrance of the
Property or any part thereof or interest in the Property or in Borrower
regardless of whether voluntary or not, or whether or not Lender has consented
to any previous Transfer or further encumbrance of the Property or interest in
Borrower.
Section
9.04.
Permitted
Transfer
.
Notwithstanding the foregoing provisions of this Article IX, the sale,
conveyance or transfer of the Property in its entirety, (hereinafter,
“
Sale
”) shall
be permitted hereunder provided that each of the following terms and conditions
are satisfied:
(a)
no Event
of Default is then continuing hereunder or under any of the other Loan Documents
and no O&M Operative Period shall have commenced and be
continuing;
(b)
Lender
shall have consented to the Sale, provided, however, in the event that such sale
is being made to a nationally recognized operator of retail outlet shopping
centers, Lender's consent shall not be unreasonably withheld and, if the
proposed Sale is to occur at any time after a Securitization, each Rating Agency
shall have delivered written confirmation that any rating issued by such Rating
Agency in connection with the Securitization will not, as a result of the
proposed Sale, be downgraded from the then current ratings thereof, qualified or
withdrawn; provided, however, that no request for consent to the Sale will be
entertained by Lender if the proposed Sale is to occur within sixty (60) days of
any contemplated sale of the Loan by Lender, whether in connection with a
Securitization or otherwise;
(c)
Borrower
gives Lender written notice of the terms of the proposed Sale not less than
forty-five (45) days before the date on which such Sale is scheduled to close
and, concurrently therewith, gives Lender (i) all such information concerning
the proposed transferee of the Property (hereinafter, “
Buyer
”) as
Lender would require in evaluating an initial extension of credit to a borrower
and Lender determines, in its reasonable discretion that the Buyer is acceptable
to Lender in all respects and (ii) a non-refundable application fee equal to
$5,000;
(d)
Borrower
pays Lender, concurrently with the closing of such Sale, a non-refundable
assumption fee in an amount equal to one percent (1.0%) of the then outstanding
Loan Amount together with all reasonable out-of-pocket costs and expenses,
including, without limitation, reasonable attorneys’ fees, incurred by Lender in
connection with the Sale;
(e)
Buyer
assumes all of the obligations under the Loan Documents and, prior to or
concurrently with the closing of such Sale, Buyer executes, without any cost or
expense to Lender, such documents and agreements as Lender shall reasonably
require to evidence and effectuate said assumption and delivers such legal
opinions as Lender may require;
(f)
Borrower
and Buyer execute, without any cost or expense to Lender, new financing
statements or financing statement amendments and any additional documents
reasonably requested by Lender;
(g)
Borrower
delivers to Lender, without any cost or expense to Lender, such endorsements to
Lender’s title insurance policy, hazard insurance policy endorsements or
certificates and other similar materials as Lender may deem necessary at the
time of the Sale, all in form and substance reasonably satisfactory to Lender,
including, without limitation, an endorsement or endorsements to Lender’s title
insurance policy insuring the lien of this Security Instrument, extending the
effective date of such policy to the date of execution and delivery (or, if
later, of recording) of the assumption agreement referenced above in
subparagraph (e) of this Section, with no additional exceptions added to such
policy, and insuring that fee simple title to the Property is vested in
Buyer;
(h)
Borrower
executes and delivers to Lender, without any cost or expense to Lender, a
release of Lender, its officers, directors, employees and agents, from all
claims and liability relating to the transactions evidenced by the Loan
Documents, through and including the date of the closing of the Sale, which
agreement shall be in form and substance reasonably satisfactory to Lender and
shall be binding upon Buyer;
(i)
subject
to the provisions of Section 18.32 hereof, such Sale is not construed so as to
relieve Borrower of any personal liability under the Note or any of the other
Loan Documents for any acts or events occurring or obligations arising prior to
or simultaneously with the closing of such Sale, and Borrower executes, without
any cost or expense to Lender, such documents and agreements as Lender shall
reasonably require to evidence and effectuate the ratification of said personal
liability; provided that, upon the closing of such Sale, if Borrower and Buyer
have satisfied each of the terms of this Section 9.04, as reasonably determined
by Lender, Lender shall release Borrower from all obligations arising after the
closing of such Sale. Additionally, if a replacement guarantor acceptable to
Lender in its reasonable discretion executes a guaranty identical in substance
to the Indemnity and Guaranty, Lender shall release the existing Guarantor from
any liabilities under the Indemnity and Guaranty arising after the closing of
such Sale;
(j)
such Sale
is not construed so as to relieve any Guarantor of its obligations under any
guaranty or indemnity agreement executed in connection with the Loan and each
such Guarantor executes, without any cost or expense to Lender, such documents
and agreements as Lender shall reasonably require to evidence and effectuate the
ratification of each such guaranty agreement, provided that if Buyer or a party
associated with Buyer approved by Lender in its sole discretion assumes the
obligations of the current Guarantor under its guaranty and Buyer or such party
associated with Buyer, as applicable, executes, without any cost or expense to
Lender, a new guaranty in similar form and substance to the existing guaranty
and otherwise satisfactory to Lender, then Lender shall release the current
Guarantor from all obligations arising under its guaranty after the closing of
such Sale; and
(k)
Buyer is
a Single Purpose Entity and Lender receives a non-consolidation opinion relating
to Buyer from Buyer’s counsel, which opinion is in form and substance acceptable
to Lender.
ARTICLE
X:
CERTIFICATES
Section
10.01.
Estoppel
Certificates
.
a)
After
request by Lender, Borrower, within fifteen (15) days and at its expense, will
furnish Lender with a statement, duly acknowledged and certified, setting forth
(i) the amount of the original principal amount of the Note, and the unpaid
principal amount of the Note, (ii) the rate of interest of the Note, (iii) the
date payments of interest and/or principal were last paid, (iv) any offsets or
defenses to the payment of the Debt, and if any are alleged, the nature thereof,
(v) that the Note and this Security Instrument have not been modified or if
modified, giving particulars of such modification and (vi) to the best of
Borrower’s knowledge, that there has occurred and is then continuing no Default
or if such Default exists, the nature thereof, the period of time it has
existed, and the action being taken to remedy such Default.
(b)
Within
fifteen (15) days after written request by Borrower, Lender shall furnish to
Borrower a written statement confirming the amount of the Debt, the maturity
date of the Note and the date to which interest has been paid.
(c)
Borrower
shall use all commercially reasonable efforts to obtain estoppel certificates
from tenants in form and substance reasonably acceptable to Lender or in form
and substance as provided in the applicable Leases, but, provided no Event of
Default has occurred and is continuing, in no event shall Borrower be required
to deliver estoppel certificates more than twice during any Loan
Year.
ARTICLE
XI:
NOTICES
Section
11.01.
Notices
. Any
notice, demand, statement, request or consent made hereunder shall be in writing
and delivered personally or sent to the party to whom the notice, demand or
request is being made by Federal Express or other nationally recognized
overnight delivery service, as follows and shall be deemed given when delivered
personally or one (1) Business Day after being deposited with Federal Express or
such other nationally recognized delivery service:
If to
Lender:
To
Lender, at the address first written above,
|
with
a copy to:
|
Winston
& Strawn LLP
|
|
|
Attention:
Corey A. Tessler, Esq.
|
|
If
to Borrower:
|
To
Borrower
,
at the address first written above,
|
|
with
a copy to:
|
Hirschler
Fleischer
|
|
|
Attention:, David F. Belkowitz,
Esq.
|
|
If
to Trustee:
|
To
Trustee at the address first written
above
|
or such
other address as either Borrower, Trustee or Lender shall hereafter specify by
not less than ten (10) days prior written notice as provided herein; provided,
however, that notwithstanding any provision of this Article to the contrary,
such notice of change of address shall be deemed given only upon actual receipt
thereof. Rejection or other refusal to accept or the inability to deliver
because of changed addresses of which no notice was given as herein required
shall be deemed to be receipt of the notice, demand, statement, request or
consent.
ARTICLE
XII:
INDEMNIFICATION
Section
12.01.
Indemnification Covering
Property
. In
addition, and without limitation, to any other provision of this Security
Instrument or any other Loan Document, Borrower shall protect, indemnify and
save harmless Lender, Trustee and their successors and assigns, and each of
their agents, employees, officers, directors, stockholders, partners and members
(collectively, “
Indemnified
Parties
”) for,
from and against any claims, demands, penalties, fines, actual liabilities,
settlements, actual damages, actual costs and expenses of whatever kind or
nature, known or unknown, contingent or otherwise, whether incurred or imposed
within or outside the judicial process, including, without limitation,
reasonable attorneys’ fees and disbursements imposed upon or incurred by or
asserted against any of the Indemnified Parties by reason of (a) ownership of
this Security Instrument, the Assignment, the Property or any part thereof or
any interest therein or receipt of any Rents; (b) any accident, injury to or
death of any person or loss of or damage to property occurring in, on or about
the Property or any part thereof or on the adjoining sidewalks, curbs, parking
areas, streets or ways; (c) any use, nonuse or condition in, on or about, or
possession, alteration, repair, operation, maintenance or management of, the
Property or any part thereof or on the adjoining sidewalks, curbs, parking
areas, streets or ways; (d) any failure on the part of Borrower to perform or
comply with any of the terms of this Security Instrument or the Assignment; (e)
performance of any labor or services or the furnishing of any materials or other
property in respect of the Property or any part thereof; (f) any claim by
brokers, finders or similar Persons claiming to be entitled to a commission in
connection with any Lease or other transaction involving the Property or any
part thereof; (g) any Imposition including, without limitation, any Imposition
attributable to the execution, delivery, filing, or recording of any Loan
Document, Lease or memorandum thereof; (h) any lien, security interest, or claim
arising on or against the Property or any part thereof under any Legal
Requirement or any liability asserted against any of the Indemnified Parties
with respect thereto; (i) any claim arising out of or in any way relating to any
tax or other imposition on the making and/or recording of this Security
Instrument, the Note or any of the other Loan Documents unless otherwise set
forth herein; (j) a Default under Sections 2.02(f) or 2.02(g) hereof, (k) the
failure of any Person to file timely with the Internal Revenue Service an
accurate Form 1099-B, Statement for Recipients of Proceeds from Real Estate,
Broker and Barter Exchange Transactions, which may be required in connection
with the Loan, or to supply a copy thereof in a timely fashion to the recipient
of the proceeds of the Loan; or (l) the claims of any lessee or any Person
acting through or under any lessee or otherwise arising under or as a
consequence of any Lease prior to the time Lender may have taken possession of
the Property. Notwithstanding the foregoing provisions of this Section 12.01 to
the contrary, Borrower shall have no obligation to indemnify the Indemnified
Parties pursuant to this Section 12.01 for liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses relative to the
foregoing which result from Lender’s, and its successors’ or assigns’, willful
misconduct or gross negligence. Any amounts payable to Lender by reason of the
application of this Section 12.01 shall constitute a part of the Debt secured by
this Security Instrument and the other Loan Documents and shall become
immediately due and payable and shall bear interest at the Default Rate from the
date the liability, obligation, claim, cost or expense is sustained by Lender,
as applicable, until paid. The provisions of this Section 12.01 shall survive
the termination of this Security Instrument whether by repayment of the Debt,
foreclosure or delivery of a deed in lieu thereof, assignment or otherwise. In
case any action, suit or proceeding is brought against any of the Indemnified
Parties by reason of any occurrence of the type set forth in (a) through (l)
above, Borrower shall, at Borrower’s expense, resist and defend such action,
suit or proceeding or will cause the same to be resisted and defended by counsel
at Borrower’s expense for the insurer of the liability or by counsel designated
by Borrower (unless reasonably disapproved by Lender promptly after Lender has
been notified of such counsel);
provided
,
however
, that
nothing herein shall compromise the right of Lender (or any other Indemnified
Party) to appoint its own counsel at Borrower’s expense for its defense with
respect to any action which, in the reasonable opinion of Lender or such other
Indemnified Party, as applicable, presents a conflict or potential conflict
between Lender or such other Indemnified Party that would make such separate
representation advisable. Any Indemnified Party will give Borrower prompt notice
after such Indemnified Party obtains actual knowledge of any potential claim by
such Indemnified Party for indemnification hereunder. The Indemnified Parties
shall not settle or compromise any action, proceeding or claim as to which it is
indemnified hereunder without notice to, and provided that no Event of Default
has occurred and is continuing, consultation with, Borrower.
ARTICLE
XIII:
DEFAULTS
Section
13.01.
Events of
Default
. The
Debt shall become immediately due at the option of Lender upon any one or more
of the following events (“
Event of
Default
”):
(a)
if the
final payment or prepayment premium, if any, due under the Note shall not be
paid on Maturity;
(b)
if any
monthly payment of interest and/or principal due under the Note (other than the
sums described in (a) above) shall not be fully paid on the date upon which the
same is due and payable thereunder;
(c)
if
payment of any sum (other than the sums described in (a) above or (b) above)
required to be paid pursuant to the Note, this Security Instrument or any other
Loan Document shall not be paid within seven (7) Business Days after Lender
delivers written notice to Borrower that same is due and payable thereunder or
hereunder;
(d)
if
Borrower, Guarantor or, if Borrower or Guarantor is a partnership, any general
partner of Borrower or Guarantor, or, if Borrower or Guarantor is a limited
liability company, any member of Borrower or Guarantor, shall institute or cause
to be instituted any proceeding for the termination or dissolution of Borrower,
Guarantor or any such general partner or member;
(e)
if the
insurance policies required hereunder are not kept in full force and effect, or
if the insurance policies are not assigned and delivered to Lender as herein
provided;
(f)
if
Borrower or Guarantor attempts to assign its rights under this Security
Instrument or any other Loan Document or any interest herein or therein, or if
any Transfer occurs other than in accordance with the provisions
hereof;
(g)
if any
representation or warranty of Borrower or Guarantor made herein or in any other
Loan Document or in any certificate, report, financial statement or other
instrument or agreement furnished to Lender shall prove false or misleading in
any material respect as of the date the representation or warranty was
made;
(h)
if
Borrower, Guarantor or any general partner of Borrower or Guarantor shall make
an assignment for the benefit of creditors or shall admit in writing its
inability to pay its debts generally as they become due;
(i)
if a
receiver, liquidator or trustee of Borrower, Guarantor or any general partner of
Borrower or Guarantor shall be appointed or if Borrower, Guarantor or their
respective general partners shall be adjudicated a bankrupt or insolvent, or if
any petition for bankruptcy, reorganization or arrangement pursuant to federal
bankruptcy law, or any similar federal or state law, shall be filed by or
against, consented to by, or acquiesced in by, Borrower, Guarantor or their
respective general partners or if any proceeding for the dissolution or
liquidation of Borrower, Guarantor or their respective general partners shall be
instituted; however, if such appointment, adjudication, petition or proceeding
was involuntary and not consented to by Borrower, Guarantor or their respective
general partners, as applicable, upon the same not being discharged, stayed or
dismissed within sixty (60) days or if Borrower, Guarantor or their respective
general partners shall generally not be paying its debts as they become
due;
(j)
if
Borrower shall be in default beyond any notice or grace period, if any, under
any other mortgage or deed of trust or deed to secure debt or security agreement
covering any part of the Property without regard to its priority relative to
this Security Instrument; provided, however, this provision shall not be deemed
a waiver of the provisions of Article IX prohibiting further encumbrances
affecting the Property or any other provision of this Security
Instrument;
(k)
if the
Property becomes subject (i) to any lien or security interest which is superior
to the lien of this Security Instrument, other than a lien for real estate taxes
and assessments not due and payable, or (ii) to any mechanic’s, materialman’s or
other lien which is or is asserted to be superior to the lien of this Security
Instrument, and such lien shall remain undischarged (by payment, bonding, or
otherwise) for ten (10) days unless contested in accordance with the terms
hereof;
(l)
if
Borrower discontinues the operation of the Property or any part thereof for
reasons other than repair or restoration arising from a casualty or condemnation
for ten (10) days or more;
(m)
except as
permitted in this Security Instrument, any material alteration, demolition or
removal by, on behalf or with the consent of Borrower of any of the Improvements
without the prior consent of Lender;
(n)
if
Borrower consummates a transaction which would cause this Security Instrument or
Lender’s rights under this Security Instrument, the Note or any other Loan
Document to constitute a non-exempt prohibited transaction under ERISA or result
in a violation of a state statute regulating government plans subjecting Lender
to liability for a violation of ERISA or a state statute;
(o)
if
Borrower breaches any provision of Article IX or Section 2.02(g) of this
Security Instrument; or
(p)
if a
default shall occur under any of the other terms, covenants or conditions of the
Note, this Security Instrument or any other Loan Document, other than as set
forth in (a) through (p) above, for ten (10) days after notice from Lender in
the case of any default which can be cured by the payment of a sum of money, or
for thirty (30) days after notice from Lender in the case of any other default
or an additional ninety (90) days if Borrower is diligently and continuously
effectuating a cure of a curable non-monetary default, other than as set forth
in (a) through (p) above.
Section
13.02.
Remedies
.
(
a)
Upon the
occurrence and during the continuance of any Event of Default, Lender may, in
addition to any other rights or remedies available to it hereunder or under any
other Loan Document, at law or in equity, take such action, without notice or
demand, as it reasonably deems advisable to protect and enforce its rights
against Borrower and in and to any Property including, but not limited to, the
following actions, each of which may be pursued singly, concurrently or
otherwise, at such time and in such order as Lender may determine, in its sole
discretion, without impairing or otherwise affecting any other rights and
remedies of Lender hereunder, at law or in equity: (i) declare all or any
portion of the unpaid Debt to be immediately due and payable; provided, however,
that upon the occurrence of any of the events specified in Section 13.01(i), the
entire Debt will be immediately due and payable without notice or demand or any
other declaration of the amounts due and payable; or (ii) bring, or instruct
Trustee to bring, an action to foreclose this Security Instrument and without
applying for a receiver for the Rents, but subject to the rights of the tenants
under the Leases, enter into or upon the Property or any part thereof, either
personally or by its agents, nominees or attorneys, and dispossess Borrower and
its agents and servants therefrom, and thereupon Lender may (A) use, operate,
manage, control, insure, maintain, repair, restore and otherwise deal with all
and every part of the Property and conduct the business thereat, (B) make
alterations, additions, renewals, replacements and improvements to or on the
Property or any part thereof, (C) exercise all rights and powers of Borrower
with respect to the Property or any part thereof, whether in the name of
Borrower or otherwise, including, without limitation, the right to make, cancel,
enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect
and receive all earnings, revenues, rents, issues, profits and other income of
the Property and every part thereof, and (D) apply the receipts from the
Property or any part thereof to the payment of the Debt, after deducting
therefrom all expenses (including, without limitation, reasonable attorneys’
fees and disbursements) reasonably incurred in connection with the aforesaid
operations and all amounts necessary to pay the Impositions, insurance and other
charges in connection with the Property or any part thereof, as well as just and
reasonable compensation for the services of Lender’s third-party agents; or
(iii) have an appraisal or other valuation of the Property or any part thereof
performed by an Appraiser (and Borrower covenants and agrees it shall cooperate
in causing any such valuation or appraisal to be performed) and any cost or
expense incurred by Lender in connection therewith shall constitute a portion of
the Debt and be secured by this Security Instrument and shall be immediately due
and payable to Lender with interest, at the Default Rate, until the date of
receipt by Lender; or (iv), sell, or instruct Trustee to sell, the Property
pursuant to the Nebraska Trust Deeds Act in effect from time to time or as
otherwise permitted by law, or institute, or instruct Trustee to institute,
proceedings for the complete foreclosure of this Security Instrument, or take
such other action as may be allowed pursuant to Legal Requirements, at law or in
equity, for the enforcement of this Security Instrument in which case the
Property or any part thereof may be sold for cash or credit in one or more
parcels; or (v) with or without entry, and to the extent permitted and pursuant
to the procedures provided by applicable Legal Requirements, institute
proceedings for the partial foreclosure of this Security Instrument, or take
such other action as may be allowed pursuant to Legal Requirements, at law or in
equity, for the enforcement of this Security Instrument for the portion of the
Debt then due and payable, subject to the lien of this Security Instrument
continuing unimpaired and without loss of priority so as to secure the balance
of the Debt not then due; or (vi) sell, or instruct Trustee to sell, the
Property or any part thereof and any or all estate, claim, demand, right, title
and interest of Borrower therein and rights of redemption thereof, pursuant to
power of sale or otherwise, at one or more sales, in whole or in parcels, in any
order or manner, at such time and place, upon such terms and after such notice
thereof as may be required or permitted by the Nebraska Trust Deeds Act in
effect from time to time or as otherwise permitted by law, at the discretion of
Lender, and in the event of a sale, by power of sale, foreclosure or otherwise,
of less than all of the Property, this Security Instrument shall continue as a
lien on the remaining portion of the Property; or (vii) institute an action,
suit or proceeding in equity for the specific performance of any covenant,
condition or agreement contained in the Loan Documents, or any of them; or
(viii) recover judgment on the Note or any guaranty either before, during or
after (or in lieu of) any proceedings for the enforcement of this Security
Instrument; or (ix) apply as a matter of strict right, or direct Trustee to
apply,
ex
parte
, for the
appointment of a custodian, trustee, receiver, keeper, liquidator or conservator
of the Property or any part thereof, irrespective of the adequacy of the
security for the Debt and without regard to the solvency of Borrower or of any
Person liable for the payment of the Debt, to which appointment Borrower does
hereby consent and such receiver or other official shall have all rights and
powers permitted by applicable law and such other rights and powers as the court
making such appointment may confer, but the appointment of such receiver or
other official shall not impair or in any manner prejudice the rights of Lender
to receive the Rent with respect to any of the Property pursuant to this
Security Instrument or the Assignment; or (x) require, at Lender’s option,
Borrower to pay monthly in advance to Lender, or any receiver appointed to
collect the Rents, the fair and reasonable rental value for the use and
occupation of any portion of the Property occupied by Borrower and may require
Borrower to vacate and surrender possession to Lender of the Property or to such
receiver and Borrower may be evicted by summary proceedings or otherwise; or
(xi) without notice to Borrower (A) apply all or any portion of the cash
collateral in any Sub-Account and Escrow Account, including any interest and/or
earnings therein, to carry out the obligations of Borrower under this Security
Instrument and the other Loan Documents, to protect and preserve the Property
and for any other purpose permitted under this Security Instrument and the other
Loan Documents and/or (B) have all or any portion of such cash collateral
immediately paid to Lender to be applied against the Debt in the order and
priority set forth in the Note; or (xii) pursue any or all such other rights or
remedies as Lender may have under the Nebraska Trust Deeds Act in effect from
time to time or as otherwise permitted by applicable law or in equity; provided,
however, that the provisions of this Section 13.02(a) shall not be construed to
extend or modify any of the notice requirements or grace periods provided for
hereunder or under any of the other Loan Documents. Borrower hereby waives, to
the fullest extent permitted by Legal Requirements, any defense Borrower might
otherwise raise or have by the failure to make any tenants parties defendant to
a foreclosure proceeding and to foreclose their rights in any proceeding
instituted by Lender.
(b)
Any time
after an Event of Default Lender (or the Trustee, at the request of Lender),
shall have the power, to the extent permitted by the Nebraska Trust Deeds Act in
effect from time to time or other applicable law, to sell the Property or any
part thereof at public auction, in such manner, at such time and place, upon
such terms and conditions, and upon such public notice as Lender may deem best
for the interest of Lender, or as may be required or permitted by the Nebraska
Trust Deeds Act or other applicable law, consisting of advertisement (if
required by law) in a newspaper of general circulation in the jurisdiction and
for such period as applicable law may require and at such other times and under
the power of sale herein granted or by such other methods, if any, as may be
required or permitted by law to convey the Property or portions thereof in one
or more sales in fee simple by Trustee’s deed to and at the cost of the
purchaser, who shall not be liable to see to the application of the purchase
money. The proceeds or avails of any sale made under or by virtue of this
Section 13.02, together with any other sums which then may be held by Lender (or
the Trustee) under this Security Instrument, whether under the provisions of
this Section 13.02 or otherwise, shall, to the extent permitted by applicable
law, be applied as follows:
First: To
the payment of the third-party costs and expenses reasonably incurred in
connection with any such sale and to advances, fees and expenses, including,
without limitation, Trustee's fees actually incurred title service guaranty
fees, reasonable fees and expenses of Lender’s and Trustee’s legal counsel as
applicable, and of any judicial proceedings wherein the same may be made, and of
all expenses, liabilities and advances reasonably made or incurred by Lender
under this Security Instrument, together with interest as provided herein on all
such advances made by Lender, and all Impositions, except any Impositions or
other charges subject to which the Property shall have been sold;
Second:
To the payment of the whole amount then due, owing and unpaid under the Note for
principal and interest thereon, with interest on such unpaid principal at the
Default Rate from the date of the occurrence of the earliest Event of Default
that formed a basis for such sale until the same is paid;
Third: To
the payment of any other portion of the Debt required to be paid by Borrower
pursuant to any provision of this Security Instrument, the Note, or any of the
other Loan Documents; and
Fourth:
To the payment of junior trust deeds, mortgages, or other lienholders; and
Fifth:
The surplus, if any, to Borrower or such other Persons as may be legally
entitled thereto, unless otherwise required by Legal Requirements.
Lender
(or the Trustee, as applicable) and any receiver or custodian of the Property or
any part thereof shall be liable to account for only those rents, issues,
proceeds and profits actually received by it.
(c)
Trustee
may adjourn from time to time any sale by it to be made under or by virtue of
this in accordance with the Nebraska Trust Deeds Act or other applicable law,
except as otherwise provided by any applicable provision of the Nebraska Trust
Deeds Act or other Legal Requirements, Trustee, without further notice or
publication, may make such sale at the time and place to which the same shall be
so adjourned.
(d)
Upon the
completion of any sale or sales made by Lender (or the Trustee) under or by
virtue of this Section 13.02, Lender or Trustee, as applicable, or any officer
of any court empowered to do so, shall execute and deliver to the accepted
purchaser or purchasers a good and sufficient instrument, or good and sufficient
instruments, granting, conveying, assigning and transferring all estate, right,
title and interest in and to the property and rights sold. Lender (or Trustee,
as applicable) is hereby irrevocably appointed the true and lawful
attorney-in-fact of Borrower (coupled with an interest), in its name and stead,
to make all necessary conveyances, assignments, transfers and deliveries of the
property and rights so sold pursuant to this Section 13.02 and for that purpose
Lender (or the Trustee) may execute all necessary instruments of conveyance,
assignment, transfer and delivery, and may substitute one or more Persons with
like power, Borrower hereby ratifying and confirming all that its said
attorney-in-fact or such substitute or substitutes shall lawfully do by virtue
hereof. Nevertheless, Borrower, if so requested by Lender, shall ratify and
confirm any such sale or sales by executing and delivering to Lender, or to such
purchaser or purchasers all such instruments as may be advisable, in the sole
judgment of Lender, for such purpose, and as may be designated in such request.
Any such sale or sales made under or by virtue of this Section 13.02, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or a judgment or decree of foreclosure and sale, shall operate to
divest all the estate, right, title, interest, claim and demand whatsoever,
whether at law or in equity, of Borrower in and to the property and rights so
sold, and shall, to the fullest extent permitted under Legal Requirements, be a
perpetual bar, both at law and in equity against Borrower and against any and
all Persons claiming or who may claim the same, or any part thereof, from,
through or under Borrower.
(e)
In the
event of any sale made under or by virtue of this Section 13.02 (whether made
under the power of sale herein granted or under or by virtue of judicial
proceedings or a judgment or decree of foreclosure and sale), the entire Debt
immediately thereupon shall, anything in the Loan Documents to the contrary
notwithstanding, become due and payable.
(f)
Upon any
sale made under or by virtue of this Section 13.02 (whether made under the power
of sale herein granted or under or by virtue of judicial proceedings or a
judgment or decree of foreclosure and sale), Lender may bid for and acquire the
Property or any part thereof and in lieu of paying cash therefor may make
settlement for the purchase price by crediting upon the Debt the net sales price
after deducting therefrom the expenses of the sale and the costs of the
action.
(g)
No
recovery of any judgment by Lender and no levy of an execution under any
judgment upon the Property or any part thereof or upon any other property of
Borrower shall release the lien of this Security Instrument upon the Property or
any part thereof, or any liens, rights, powers or remedies of Lender hereunder,
but such liens, rights, powers and remedies of Lender shall continue unimpaired
until all amounts due under the Note, this Security Instrument and the other
Loan Documents are paid in full.
(h)
Upon the
exercise by Lender (or the Trustee at the request of Lender) of any power,
right, privilege, or remedy pursuant to this Security Instrument which requires
any consent, approval, registration, qualification, or authorization of any
Governmental Authority, Borrower agrees to execute and deliver, or will cause
the execution and delivery of, all applications, certificates, instruments,
assignments and other documents and papers that Lender or any purchaser of the
Property may be required to obtain for such governmental consent, approval,
registration, qualification, or authorization and Lender is hereby irrevocably
appointed the true and lawful attorney-in-fact of Borrower (coupled with an
interest), in its name and stead, to execute all such applications,
certificates, instruments, assignments and other documents and
papers.
Section
13.03.
Payment of Debt After
Default
. Except
as otherwise required by the Nebraska Trust Deeds Act or other applicable law,
if, following the occurrence of any Event of Default, Borrower shall tender
payment of an amount sufficient to satisfy the Debt in whole or in part at any
time prior to a foreclosure sale or trustee's sale of the Property, and if at
the time of such tender prepayment of the principal balance of the Note is not
permitted by the Note or this Security Instrument, Borrower shall, in addition
to the entire Debt, also pay to Lender all amounts due Lender under Section
1.5(b) of the Note. If at the time of such tender, prepayment of the principal
balance of the Note is permitted, such tender by Borrower shall be deemed to be
a voluntary prepayment of the principal balance of the Note and Borrower shall,
in addition to the entire Debt, also pay to Lender the applicable prepayment
consideration specified in the Note and this Security Instrument.
Section
13.04.
Possession of the
Property
. Upon
the occurrence of any Event of Default hereunder and the acceleration of the
Debt or any portion thereof, Borrower, if an occupant of the Property or any
part thereof, upon demand of Lender, shall immediately surrender possession of
the Property (or the portion thereof so occupied) to Lender, and if Borrower is
permitted to remain in possession, the possession shall be as a month-to-month
tenant of Lender and, on demand, Borrower shall pay to Lender monthly, in
advance, a reasonable rental for the space so occupied and in default thereof
Borrower may be dispossessed. The covenants herein contained may be enforced by
a receiver of the Property or any part thereof. Nothing in this Section 13.04
shall be deemed to be a waiver of the provisions of this Security Instrument
making the Transfer of the Property or any part thereof without Lender’s prior
written consent an Event of Default.
Section
13.05.
Interest After
Default
. If any
amount due under the Note, this Security Instrument or any of the other Loan
Documents is not paid within any applicable notice and grace period after same
is due, whether such date is the stated due date, any accelerated due date or
any other date or at any other time specified under any of the terms hereof or
thereof, then, in such event, Borrower shall pay interest on the amount not so
paid from and after the date on which such amount first becomes due at the
Default Rate; and such interest shall be due and payable at such rate until the
earlier of the cure of all Events of Default or the payment of the entire amount
due to Lender, whether or not any action shall have been taken or proceeding
commenced to recover the same or to foreclose this Security Instrument. All
unpaid and accrued interest shall be secured by this Security Instrument as part
of the Debt. Nothing in this Section 13.05 or in any other provision of this
Security Instrument shall constitute an extension of the time for payment of the
Debt.
Section
13.06.
Borrower’s Actions After
Default
. After
the happening of any Event of Default and immediately upon the commencement of
any action, suit or other legal proceedings by Lender to obtain judgment for the
Debt, or of any other nature in aid of the enforcement of the Loan Documents,
Borrower will (a) after receipt of notice of the institution of any such action,
waive the issuance and service of process and enter its voluntary appearance in
such action, suit or proceeding, and (b) if required by Lender, consent to the
appointment of a receiver or receivers of the Property or any part thereof and
of all the earnings, revenues, rents, issues, profits and income
thereof.
Section
13.07.
Control by Lender After
Default
.
Notwithstanding the appointment of any custodian, receiver, liquidator or
trustee of Borrower, or of any of its property, or of the Property or any part
thereof, to the extent permitted by Legal Requirements, Lender shall be entitled
to obtain possession and control of all property now and hereafter covered by
this Security Instrument and the Assignment following the occurrence of an Event
of Default in accordance with the terms hereof.
Section
13.08.
Right to Cure
Defaults
.
(
a)
Upon the
occurrence of any Event of Default, Lender or its agents may, but without any
obligation to do so and without notice to or demand on Borrower and without
releasing Borrower from any obligation hereunder, make or do the same in such
manner and to such extent as Lender may deem necessary to protect the security
hereof. Lender and its agents are authorized to enter upon the Property or any
part thereof for such purposes, or appear in, defend, or bring any action or
proceedings to protect Lender’s interest in the Property or any part thereof or
to foreclose this Security Instrument or collect the Debt, and the cost and
expense thereof (including reasonable attorneys’ fees to the extent permitted by
law), with interest as provided in this Section 13.08, shall constitute a
portion of the Debt and shall be immediately due and payable to Lender upon
demand. All such costs and expenses incurred by Lender or its agents in
remedying such Event of Default or in appearing in, defending, or bringing any
such action or proceeding shall bear interest at the Default Rate, for the
period from the date so demanded to the date of payment to Lender. All such
costs and expenses incurred by Lender or its agents together with interest
thereon calculated at the above rate shall be deemed to constitute a portion of
the Debt and be secured by this Security Instrument.
(b)
If Lender
makes any payment or advance that Lender is authorized by this Security
Instrument to make in the place and stead of Borrower (i) relating to the
Impositions or tax liens asserted against the Property, Lender may do so
according to any bill, statement or estimate procured from the appropriate
public office without inquiry into the accuracy of the bill, statement or
estimate or into the validity of any of the Impositions or the tax liens or
claims thereof; (ii) relating to any apparent or threatened adverse title, lien,
claim of lien, encumbrance, claim or charge, Lender will be the sole judge of
the legality or validity of same; or (iii) relating to any other purpose
authorized by this Security Instrument but not enumerated in this Section 13.08,
Lender may do so whenever, in its judgment and discretion, the payment or
advance seems necessary or desirable to protect the Property and the full
security interest intended to be created by this Security Instrument. In
connection with any payment or advance made pursuant to this Section 13.08,
Lender has the option and is authorized, but in no event shall be obligated, to
obtain a continuation report of title prepared by a title insurance company. The
payments and the advances made by Lender pursuant to this Section 13.08 and the
cost and expenses of said title report will be due and payable by Borrower on
demand, together with interest at the Default Rate, and will be secured by this
Security Instrument.
Section
13.09.
Late Payment
Charge
. If any
portion of the Debt is not paid in full on or before the day on which it is due
and payable hereunder Borrower shall pay to Lender an amount equal to five
percent (5%) of such unpaid portion of the Debt (“
Late
Charge
”) to
defray the expense incurred by Lender in handling and processing such delinquent
payment, and such amount shall constitute a part of the Debt; provided, that no
late charge shall be due and payable if Borrower fails to repay the Loan
evidenced hereby upon the Maturity Date (whether by acceleration or
otherwise).
Section
13.10.
Recovery of Sums Required to
Be Paid
. Lender
shall have the right from time to time to take action to recover any sum or sums
which constitute a part of the Debt as the same become due and payable hereunder
(after the expiration of any grace period or the giving of any notice herein
provided, if any), without regard to whether or not the balance of the Debt
shall be due, and without prejudice to the right of Lender thereafter to bring
an action of foreclosure, or any other action, for a default or defaults by
Borrower existing at the time such earlier action was commenced.
Section
13.11.
Marshalling and Other
Matters
.
Borrower hereby waives, to the fullest extent permitted by law, the benefit of
all appraisement, valuation, stay, extension, reinstatement, redemption (both
equitable and statutory) and homestead laws now or hereafter in force and all
rights of marshalling in the event of any sale hereunder of the Property or any
part thereof or any interest therein. Further, Borrower hereby expressly waives
any and all rights of redemption from sale under any order or decree of
foreclosure of this Security Instrument on behalf of Borrower, whether equitable
or statutory and on behalf of each and every Person acquiring any interest in or
title to the Property or any part thereof subsequent to the date of this
Security Instrument and on behalf of all Persons to the fullest extent permitted
by applicable law.
Section
13.12.
Tax Reduction
Proceedings
. After
an Event of Default, Borrower shall be deemed to have appointed Lender as its
attorney-in-fact to seek a reduction or reductions in the assessed valuation of
the Property for real property tax purposes or for any other purpose and to
prosecute any action or proceeding in connection therewith. This power, being
coupled with an interest, shall be irrevocable for so long as any part of the
Debt remains unpaid and any Event of Default shall be continuing.
Section
13.13.
General Provisions Regarding
Remedies
.
(a)
Right to Terminate
Proceedings
. Lender
or Trustee may terminate or rescind any proceeding or other action brought in
connection with its exercise of the remedies provided in Section 13.02 at any
time before the conclusion thereof, as determined in Lender’s sole discretion
and without prejudice to Lender or Trustee.
(b)
No Waiver or
Release
. The
failure of Lender or Trustee to exercise any right, remedy or option provided in
the Loan Documents shall not be deemed a waiver of such right, remedy or option
or of any covenant or obligation contained in the Loan Documents. No acceptance
by Lender of any payment after the occurrence of an Event of Default and no
payment by Lender of any payment or obligation for which Borrower is liable
hereunder shall be deemed to waive or cure any Event of Default except as
otherwise required by the Nebraska Trust Deeds Act or other applicable law. No
sale of all or any portion of the Property, no forbearance on the part of
Lender, and no extension of time for the payment of the whole or any portion of
the Debt or any other indulgence given by Lender to Borrower or any other
Person, shall operate to release or in any manner affect the interest of Lender
in the Property or the liability of Borrower to pay the Debt. No waiver by
Lender shall be effective unless it is in writing and then only to the extent
specifically stated.
(c)
No Impairment; No
Releases
. The
interests and rights of Lender under the Loan Documents shall not be impaired by
any indulgence, including (i) any renewal, extension or modification which
Lender may grant with respect to any of the Debt; (ii) any surrender,
compromise, release, renewal, extension, exchange or substitution which Lender
may grant with respect to the Property or any portion thereof; or (iii) any
release or indulgence granted to any maker, endorser, guarantor or surety of any
of the Debt.
(d)
Effect on
Judgment
. No
recovery of any judgment by Lender and no levy of an execution under any
judgment upon the Property or any portion thereof shall affect in any rights,
powers or remedies of Lender hereunder or thereunder. Such lien, rights, powers
and remedies of Lender shall continue unimpaired as before.
ARTICLE
XIV:
COMPLIANCE
WITH REQUIREMENTS
Section
14.01.
Compliance with Legal
Requirements
.
(a)
Borrower
shall promptly comply with all present and future Legal Requirements, foreseen
and unforeseen, ordinary and extraordinary, whether requiring structural or
nonstructural repairs or alterations including, without limitation, all zoning,
subdivision, building, safety and environmental protection, land use and
development Legal Requirements, all Legal Requirements which may be applicable
to the curbs adjoining the Property or to the use or manner of use thereof, and
all rent control, rent stabilization and all other similar Legal Requirements
relating to rents charged and/or collected in connection with the Leases.
Borrower represents and warrants that the Property to the best of Borrower’s
knowledge is in compliance in all material respects with all Legal Requirements
as of the date hereof, no notes or notices of violations of any Legal
Requirements have been entered or received by Borrower and there is no basis for
the entering of such notes or notices.
(b)
Borrower
shall have the right to contest by appropriate legal proceedings diligently
conducted in good faith, without cost or expense to Lender, the validity or
application of any Legal Requirement and to suspend compliance therewith if
permitted under applicable Legal Requirements, provided (i) failure to comply
therewith may not subject Lender to any civil or criminal liability, (ii) prior
to and during such contest, Borrower shall furnish to Lender security reasonably
satisfactory to Lender, in its discretion, against loss or injury by reason of
such contest or non-compliance with such Legal Requirement, (iii) no Default or
Event of Default shall exist during such proceedings and such contest shall not
otherwise violate any of the provisions of any of the Loan Documents, (iv) such
contest shall not (unless Borrower shall comply with the provisions of clause
(ii) of this Section 14.01(b)) subject the Property to any lien or encumbrance
the enforcement of which is not suspended or otherwise affect the priority of
the lien of this Security Instrument; (v) such contest shall not affect the
ownership, use or occupancy of the Property; (vi) the Property or any part
thereof or any interest therein shall not be in any danger of being sold,
forfeited or lost by reason of such contest by Borrower; (vii) Borrower shall
give Lender prompt notice of the commencement of such proceedings and, upon
request by Lender, notice of the status of such proceedings and/or confirmation
of the continuing satisfaction of the conditions set forth in clauses (i) - (vi)
of this Section 14.01(b); and (viii) upon a final determination of such
proceeding, Borrower shall take all steps necessary to comply with any
requirements arising therefrom.
(c)
Borrower
shall at all times comply with all applicable Legal Requirements with respect to
the construction, use and maintenance of any vaults adjacent to the Property. If
by reason of the failure to pay taxes, assessments, charges, permit fees,
franchise taxes or levies of any kind or nature, the continued use of the vaults
adjacent to Property or any part thereof is discontinued, Borrower nevertheless
shall, with respect to any vaults which may be necessary for the continued use
of the Property, take such steps (including the making of any payment) to ensure
the continued use of vaults or replacements.
Section
14.02.
Compliance with Recorded
Documents; No Future Grants
.
Borrower shall promptly perform and observe or cause to be performed and
observed, all of the terms, covenants and conditions of all Property Agreements
and all things necessary to preserve intact and unimpaired any and all
appurtenances or other interests or rights affecting the Property.
ARTICLE
XV:
PREPAYMENT
Section
15.01.
Prepayment
.
Except as
set forth in Section 1.5 of the Note, no prepayment of the Debt may be made in
whole or in part.
ARTICLE
XVI:
ENVIRONMENTAL
COMPLIANCE
Section
16.01.
Covenants, Representations
and Warranties
.
(
a)
Borrower
has not, at any time, and, to Borrower’s best knowledge, except as set forth in
the Environmental Report, no other Person has at any time, handled, buried,
stored, retained, refined, transported, processed, manufactured, generated,
produced, spilled, allowed to seep, leak, escape or leach, or pumped, poured,
emitted, emptied, discharged, injected, dumped, transferred or otherwise
disposed of or dealt with Hazardous Materials on, to or from the Premises or any
other real property owned and/or occupied by Borrower (other than in compliance
with all Legal Requirements), and Borrower does not intend to and shall not use
the Property or any part thereof or any such other real property for the purpose
of handling, burying, storing, retaining, refining, transporting, processing,
manufacturing, generating, producing, spilling, seeping, leaking, escaping,
leaching, pumping, pouring, emitting, emptying, discharging, injecting, dumping,
transferring or otherwise disposing of or dealing with Hazardous Materials,
except for use and storage for use of heating oil, cleaning fluids, pesticides
and other substances customarily used in the operation of properties that are
being used for the same purposes as the Property is presently being used,
provided such use and/or storage for use is in compliance with the requirements
hereof and the other Loan Documents and does not give rise to liability under
applicable Legal Requirements or Environmental Statutes or be the basis for a
lien against the Property or any part thereof. In addition, without limitation
to the foregoing provisions, Borrower represents and warrants that, to the best
of its knowledge, except as previously disclosed in writing to Lender or in the
Environmental Report or Engineering Report, there is no asbestos in, on, over,
or under all or any portion of the fire-proofing or any other portion of the
Property.
(b)
Borrower
knows of no seepage, leak, escape, leach, discharge, injection, release,
emission, spill, pumping, pouring, emptying or dumping of Hazardous Materials
into waters on, under or adjacent to the Property or any part thereof or any
other real property owned and/or occupied by Borrower, or onto lands from which
such Hazardous Materials might seep, flow or drain into such waters, except as
disclosed in the Environmental Report.
(c)
Borrower
shall not permit any Hazardous Materials to be handled, buried, stored,
retained, refined, transported, processed, manufactured, generated, produced,
spilled, allowed to seep, leak, escape or leach, or to be pumped, poured,
emitted, emptied, discharged, injected, dumped, transferred or otherwise
disposed of or dealt with on, under, to or from the Property or any portion
thereof at any time, except for use and storage for use of heating oil, ordinary
cleaning fluids, pesticides and other substances customarily used in the
operation of properties that are being used for the same purposes as the
Property is presently being used, provided such use and/or storage for use is in
compliance with the requirements hereof and the other Loan Documents and does
not give rise to liability under applicable Legal Requirements or be the basis
for a lien against the Property or any part thereof.
(d)
Borrower
represents and warrants that no actions, suits, or proceedings have been
commenced, or are pending, or to the best knowledge of Borrower, are threatened
with respect to any Legal Requirement governing the use, manufacture, storage,
treatment, transportation, or processing of Hazardous Materials with respect to
the Property or any part thereof. Borrower has received no notice of, and,
except as disclosed in the Environmental Report, after due inquiry, has no
knowledge of any fact, condition, occurrence or circumstance which with notice
or passage of time or both would give rise to a claim under or pursuant to any
Environmental Statute pertaining to Hazardous Materials on, in, under or
originating from the Property or any part thereof or any other real property
owned or occupied by Borrower or arising out of the conduct of Borrower,
including, without limitation, pursuant to any Environmental
Statute.
(e)
Borrower
has not waived any Person’s liability with regard to Hazardous Materials in, on,
under or around the Property, nor has Borrower retained or assumed,
contractually or by operation of law, any other Person’s liability relative to
Hazardous Materials or any claim, action or proceeding relating
thereto.
(f)
In the
event that there shall be filed a lien against the Property or any part thereof
pursuant to any Environmental Statute pertaining to Hazardous Materials,
Borrower shall, within sixty (60) days or, in the event that the applicable
Governmental Authority has commenced steps to cause the Premises or any part
thereof to be sold pursuant to the lien, within fifteen (15) days, from the date
that Borrower receives notice of such lien, either (i) pay the claim and remove
the lien from the Property, or (ii) furnish (A) a bond satisfactory to Lender in
the amount of the claim out of which the lien arises, (B) a cash deposit in the
amount of the claim out of which the lien arises, or (C) other security
reasonably satisfactory to Lender in an amount sufficient to discharge the claim
out of which the lien arises.
(g)
Borrower
represents and warrants that (i) except as disclosed in the Environmental
Report, Borrower has no knowledge of any violation of any Environmental Statute
or any Environmental Problem in connection with the Property, nor has Borrower
been requested or required by any Governmental Authority to perform any remedial
activity or other responsive action in connection with any Environmental Problem
and (ii) neither the Property nor any other property owned by Borrower is
included or, to Borrower’s best knowledge, proposed for inclusion on the
National Priorities List issued pursuant to CERCLA by the United States
Environmental Protection Agency (the “
EPA
”) or on
the inventory of other potential “Problem” sites issued by the EPA and has not
otherwise been identified by the EPA as a potential CERCLA site or included or,
to Borrower’s knowledge, after due inquiry and investigation, proposed for
inclusion on any list or inventory issued pursuant to any other Environmental
Statute, if any, or issued by any other Governmental Authority. Borrower
covenants that Borrower will comply with all Environmental Statutes affecting or
imposed upon Borrower or the Property.
(h)
Borrower
covenants that it shall promptly notify Lender of the presence and/or release of
any Hazardous Materials and of any request for information or any inspection of
the Property or any part thereof by any Governmental Authority with respect to
any Hazardous Materials and provide Lender with copies of such request and any
response to any such request or inspection. Borrower covenants that it shall, in
compliance with applicable Legal Requirements, conduct and complete all
investigations, studies, sampling and testing (and promptly shall provide Lender
with copies of any such studies and the results of any such test) and all
remedial, removal and other actions necessary to clean up and remove all
Hazardous Materials in, on, over, under, from or affecting the Property or any
part thereof in accordance with all such Legal Requirements applicable to the
Property or any part thereof to the satisfaction of Lender.
(i)
Following
the occurrence of an Event of Default that is continuing hereunder, and without
regard to whether Lender shall have taken possession of the Property or a
receiver has been requested or appointed or any other right or remedy of Lender
has or may be exercised hereunder or under any other Loan Document, Lender shall
have the right (but no obligation) to conduct such investigations, studies,
sampling and/or testing of the Property or any part thereof as Lender may, in
its discretion, determine to conduct, relative to Hazardous Materials. All costs
and expenses incurred in connection therewith including, without limitation,
consultants’ fees and disbursements and laboratory fees, shall constitute a part
of the Debt and shall, upon demand by Lender, be immediately due and payable and
shall bear interest at the Default Rate from the date so demanded by Lender
until reimbursed. Borrower shall, at its sole cost and expense, fully and
expeditiously cooperate in all such investigations, studies, samplings and/or
testings including, without limitation, providing all relevant information and
making knowledgeable people available for interviews.
(j)
Borrower
represents and warrants that, except as disclosed in the Environmental Report,
all paint and painted surfaces existing within the interior or on the exterior
of the Improvements are not flaking, peeling, cracking, blistering, or chipping,
and do not contain lead or are maintained in a condition that prevents exposure
of young children to lead-based paint, as of the date hereof, and that the
current inspections, operation, and maintenance program at the Property with
respect to lead-based paint is consistent with FNMA guidelines and sufficient to
ensure that all painted surfaces within the Property shall be maintained in a
condition that prevents exposure of tenants to lead-based paint. To Borrower’s
knowledge, there have been no claims for adverse health effects from exposure on
the Property to lead-based paint or requests for the investigation, assessment
or removal of lead-based paint at the Property.
(k)
Borrower
represents and warrants that except in accordance with all applicable
Environmental Statutes and as disclosed in the Environmental Report, (i) no
underground treatment or storage tanks or pumps or water, gas, or oil wells are
or have been located about the Property, (ii) no PCBs or transformers,
capacitors, ballasts or other equipment that contain dielectric fluid containing
PCBs are located about the Property, (iii) no insulating material
containing urea formaldehyde is located about the Property and (iv) no
asbestos-containing material
is
located about the Property.
Section
16.02.
Environmental
Indemnification
.
Borrower shall defend, indemnify and hold harmless the Indemnified Parties for,
from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, known or
unknown, contingent or otherwise, whether incurred or imposed within or outside
the judicial process, including, without limitation, reasonable attorneys’ and
consultants’ fees and disbursements and investigations and laboratory fees
arising out of, or in any way related to any Environmental Problem, including
without limitation:
(a)
the
presence, disposal, escape, seepage, leakage, spillage, discharge, emission,
release or threat of release of any Hazardous Materials in, on, over, under,
from or affecting the Property or any part thereof whether or not disclosed by
the Environmental Report;
(b)
any
personal injury (including wrongful death, disease or other health condition
related to or caused by, in whole or in part, any Hazardous Materials) or
property damage (real or personal) arising out of or related to any Hazardous
Materials in, on, over, under, from or affecting the Property or any part
thereof whether or not disclosed by the Environmental Report;
(c)
any
action, suit or proceeding brought or threatened, settlement reached, or order
of any Governmental Authority relating to such Hazardous Material whether or not
disclosed by the Environmental Report; and/or
(d)
any
violation of the provisions, covenants, representations or warranties of Section
16.01 hereof or of any Legal Requirement which is based on or in any way related
to any Hazardous Materials in, on, over, under, from or affecting the Property
or any part thereof including, without limitation, the cost of any work
performed and materials furnished in order to comply therewith whether or not
disclosed by the Environmental Report.
Notwithstanding
the foregoing provisions of this Section 16.02 to the contrary, Borrower shall
have no obligation to indemnify Lender for liabilities, claims, damages,
penalties, causes of action, costs and expenses relative to the foregoing which
result directly from Lender’s willful misconduct or gross negligence. Any
amounts payable to Lender by reason of the application of this Section 16.02
shall be secured by this Security Instrument and shall, upon demand by Lender,
become immediately due and payable and shall bear interest at the Default Rate
from the date so demanded by Lender until paid.
This
indemnification shall survive the termination of this Security Instrument
whether by repayment of the Debt, foreclosure or deed in lieu thereof,
assignment, or otherwise. The indemnity provided for in this Section 16.02 shall
not be included in any exculpation of Borrower or its principals from personal
liability provided for in this Security Instrument or in any of the other Loan
Documents. Nothing in this Section 16.02 shall be deemed to deprive Lender of
any rights or remedies otherwise available to Lender, including, without
limitation, those rights and remedies provided elsewhere in this Security
Instrument or the other Loan Documents. The foregoing indemnity shall
specifically not include any such costs relating to Hazardous Materials which
are initially placed on, in or under any of the Properties after foreclosure or
other taking of title of such Properties by Lender or its successors or
assigns.
ARTICLE
XVII:
ASSIGNMENTS
Section
17.01.
Participations and
Assignments
. Lender
shall have the right to assign this Security Instrument and/or any of the Loan
Documents, and to transfer, assign or sell participations and subparticipations
(including blind or undisclosed participations and subparticipations) in the
Loan Documents and the obligations hereunder to any Person; provided, however,
that no such participation shall increase, decrease or otherwise affect either
Borrower’s or Lender’s obligations under this Security Instrument or the other
Loan Documents or increase the Debt.
ARTICLE
XVIII:
MISCELLANEOUS
Section
18.01.
Right of
Entry
. Lender
and its agents shall have the right to enter and inspect the Property or any
part thereof at all reasonable times, and, except in the event of an emergency,
upon reasonable notice and to inspect Borrower’s books and records and to make
abstracts and reproductions thereof.
Section
18.02.
Cumulative
Rights
. The
rights of Lender under this Security Instrument shall be separate, distinct and
cumulative and none shall be given effect to the exclusion of the others. No act
of Lender shall be construed as an election to proceed under any one provision
herein to the exclusion of any other provision. Lender shall not be limited
exclusively to the rights and remedies herein stated but shall be entitled,
subject to the terms of this Security Instrument, to every right and remedy now
or hereafter afforded by law, including but not limited to those rights and
remedies provided by the Nebraska Trust Deeds Act in effect from time to
time.
Section
18.03.
Liability
. If
Borrower consists of more than one Person, the obligations and liabilities of
each such Person hereunder shall be joint and several.
Section
18.04.
Exhibits
Incorporated
. The
information set forth on the cover hereof, and the Exhibits annexed hereto, are
hereby incorporated herein as a part of this Security Instrument with the same
effect as if set forth in the body hereof.
Section
18.05.
Severable
Provisions
. If any
term, covenant or condition of the Loan Documents including, without limitation,
the Note or this Security Instrument, is held to be invalid, illegal or
unenforceable in any respect, such Loan Document shall be construed without such
provision.
Section
18.06.
Duplicate
Originals
. This
Security Instrument may be executed in any number of duplicate originals and
each such duplicate original shall be deemed to constitute but one and the same
instrument.
Section
18.07.
No Oral
Change
. The
terms of this Security Instrument, together with the terms of the Note and the
other Loan Documents, constitute the entire understanding and agreement of the
parties hereto and supersede all prior agreements, understandings and
negotiations between Borrower and Lender with respect to the Loan. This Security
Instrument, and any provisions hereof, may not be modified, amended, waived,
extended, changed, discharged or terminated orally or by any act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
Section
18.08.
Waiver of Counterclaim,
Etc
.
BORROWER HEREBY WAIVES THE RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A
COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY
LENDER OR ITS AGENTS, AND WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR IN ANY COUNTERCLAIM BORROWER
MAY BE PERMITTED TO ASSERT HEREUNDER OR WHICH MAY BE ASSERTED BY LENDER OR ITS
AGENTS, AGAINST BORROWER, OR IN ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THIS SECURITY INSTRUMENT OR THE DEBT.
Section
18.09.
Headings; Construction of
Documents; etc
. The
table of contents, headings and captions of various paragraphs of this Security
Instrument are for convenience of reference only and are not to be construed as
defining or limiting, in any way, the scope or intent of the provisions hereof.
Borrower acknowledges that it was represented by competent counsel in connection
with the negotiation and drafting of this Security Instrument and the other Loan
Documents and that neither this Security Instrument nor the other Loan Documents
shall be subject to the principle of construing the meaning against the Person
who drafted same.
Section
18.10.
Sole Discretion of
Lender
.
Whenever Lender exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to Lender, the decision of Lender to
approve or disapprove or to decide that arrangements or terms are satisfactory
or not satisfactory shall be in the sole discretion of Lender and shall be final
and conclusive, except as may be otherwise specifically provided
herein.
Section
18.11.
Waiver of
Notice
. Except
as otherwise provided herein or as required by applicable law, Borrower shall
not be entitled to any notices of any nature whatsoever from Lender except with
respect to matters for which this Security Instrument specifically and expressly
provides for the giving of notice by Lender to Borrower and except with respect
to matters for which Borrower is not, pursuant to applicable Legal Requirements,
permitted to waive the giving of notice.
Section
18.12.
Covenants Run with the
Land
. All of
the grants, covenants, terms, provisions and conditions herein shall run with
the Premises, shall be binding upon Borrower and shall inure to the benefit of
Lender, subsequent holders of this Security Instrument and their successors and
assigns. Without limitation to any provision hereof, the term “Borrower” shall
include and refer to the borrower named herein, any subsequent owner of the
Property, and its respective heirs, executors, legal representatives, successors
and assigns. The representations, warranties and agreements contained in this
Security Instrument and the other Loan Documents are intended solely for the
benefit of the parties hereto, shall confer no rights hereunder, whether legal
or equitable, in any other Person and no other Person shall be entitled to rely
thereon.
Section
18.13.
Applicable
Law
.
THIS
SECURITY INSTRUMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEBRASKA APPLICABLE
TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE
UNITED STATES OF AMERICA.
Section
18.14.
Security
Agreement
.
(a)
(i)
This
Security Instrument is both a real property mortgage, deed to secure debt or
deed of trust, as applicable, and a “security agreement” within the meaning of
the UCC. The Property includes both real and personal property and all other
rights and interests, whether tangible or intangible in nature, of Borrower in
the Property, and Borrower hereby grants to Lender a security interest in all
portions of the Property constituting personal property or fixtures under the
UCC. This Security Instrument is filed as a fixture filing and covers goods
which are or are to become fixtures on the Property. Borrower by executing and
delivering this Security Instrument has granted to Lender, as security for the
Debt, a security interest in the Property to the full extent that the Property
may be subject to the UCC (said portion of the Property so subject to the UCC
being called in this Section 18.14 the “
Collateral
”). If an
Event of Default shall occur, Lender, in addition to any other rights and
remedies which it may have, shall have and may exercise immediately and without
demand, any and all rights and remedies granted to a secured party upon default
under the UCC, including, without limiting the generality of the foregoing, the
right to take possession of the Collateral or any part thereof, and to take such
other measures as Lender may deem necessary for the care, protection and
preservation of the Collateral. Upon request or demand of Lender following an
Event of Default, Borrower shall, at its expense, assemble the Collateral and
make it available to Lender at a convenient place acceptable to Lender. Borrower
shall pay to Lender on demand any and all expenses, including reasonable legal
expenses and attorneys’ fees, incurred or paid by Lender in protecting its
interest in the Collateral and in enforcing its rights hereunder with respect to
the Collateral. Any disposition pursuant to the UCC of so much of the Collateral
as may constitute personal property shall be considered commercially reasonable
if made pursuant to a public sale which is advertised at least twice in a
newspaper in which sheriff’s sales are advertised in the county where the
Premises is located. Any notice of sale, disposition or other intended action by
Lender with respect to the Collateral given to Borrower in accordance with the
provisions hereof at least ten (10) days prior to such action, shall constitute
reasonable notice to Borrower. The proceeds of any disposition of the
Collateral, or any part thereof, may be applied by Lender to the payment of the
Debt in such priority and proportions as Lender in its discretion shall deem
proper. It is not necessary that the Collateral be present at any disposition
thereof. Lender shall have no obligation to clean-up or otherwise prepare the
Collateral for disposition.
(ii)
The
mention in a financing statement filed in the records normally pertaining to
personal property of any portion of the Property shall not derogate from or
impair in any manner the intention of this Security Instrument. Lender hereby
declares that all items of Collateral are part of the real property encumbered
hereby to the fullest extent permitted by law, regardless of whether any such
item is physically attached to the Improvements or whether serial numbers are
used for the better identification of certain items. Specifically, the mention
in any such financing statement of any items included in the Property shall not
be construed to alter, impair or impugn any rights of Lender as determined by
this Security Instrument or the priority of Lender’s lien upon and security
interest in the Property in the event that notice of Lender’s priority of
interest as to any portion of the Property is required to be filed in accordance
with the UCC to be effective against or take priority over the interest of any
particular class of persons, including the federal government or any subdivision
or instrumentality thereof. No portion of the Collateral constitutes or is the
proceeds of “Farm Products”, as defined in the UCC.
(iii)
If
Borrower is at any time a beneficiary under a letter of credit now or hereafter
issued in favor of Borrower, Borrower shall promptly notify Lender thereof and,
at the request and option of Lender, Borrower shall, pursuant to an agreement in
form and substance satisfactory to Lender, either (A) arrange for the issuer and
any confirmer of such letter of credit to consent to an assignment to Lender of
the proceeds of any drawing under the letter of credit or (B) arrange for Lender
to become the transferee beneficiary of the letter of credit, with Lender
agreeing, in each case, that the proceeds of any drawing under the letter to
credit are to be applied as provided in this Security Instrument.
(iv)
Borrower
and Lender acknowledge that for the purposes of Article 9 of the UCC, the law of
the State of New York shall be the law of the jurisdiction of the bank in which
the Central Account is located.
(v)
Lender
may comply with any applicable Legal Requirements in connection with the
disposition of the Collateral, and Lender’s compliance therewith will not be
considered to adversely affect the commercial reasonableness of any sale of the
Collateral.
(vi)
Lender
may sell the Collateral without giving any warranties as to the Collateral.
Lender may specifically disclaim any warranties of title, possession, quiet
enjoyment or the like. This procedure will not be considered to adversely affect
the commercial reasonableness of any sale of the Collateral.
(vii)
If Lender
sells any of the Collateral upon credit, Borrower will be credited only with
payments actually made by the purchaser, received by Lender and applied to the
indebtedness of Borrower. In the event the purchaser of the Collateral fails to
fully pay for the Collateral, Lender may resell the Collateral and Borrower will
be credited with the proceeds of such sale.
(b)
Borrower
hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an
interest, to file with the appropriate public office on its behalf any financing
or other statements signed only by Lender, as secured party, or, to the extent
permitted under the UCC, unsigned, in connection with the Collateral covered by
this Security Instrument.
Section
18.15.
Actions and
Proceedings
. Lender
has the right to appear in and defend any action or proceeding brought with
respect to the Property in its own name or, if required by Legal Requirements
or, if in Lender’s reasonable judgment, it is necessary, in the name and on
behalf of Borrower, which Lender believes will adversely affect the Property or
this Security Instrument and to bring any action or proceedings, in its name or
in the name and on behalf of Borrower, which Lender, in its reasonable
discretion, decides should be brought to protect its interest in the
Property.
Section
18.16.
Usury
Laws
. This
Security Instrument and the Note are subject to the express condition, and it is
the expressed intent of the parties, that at no time shall Borrower be obligated
or required to pay interest on the principal balance due under the Note at a
rate which could subject the holder of the Note to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by law to contract or agree to pay. If by the terms of
this Security Instrument or the Note, Borrower is at any time required or
obligated to pay interest on the principal balance due under the Note at a rate
in excess of such maximum rate, such rate of interest shall be deemed to be
immediately reduced to such maximum rate and the interest payable shall be
computed at such maximum rate and all prior interest payments in excess of such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance of the Note. No application to the principal
balance of the Note pursuant to this Section 18.16 shall give rise to any
requirement to pay any prepayment fee or charge of any kind due hereunder, if
any.
Section
18.17.
Remedies of
Borrower
. In the
event that a claim or adjudication is made that Lender has acted unreasonably or
unreasonably delayed acting in any case where by law or under the Note, this
Security Instrument or the Loan Documents, it has an obligation to act
reasonably or promptly, Lender shall not be liable for any monetary damages, and
Borrower’s remedies shall be limited to injunctive relief or declaratory
judgment.
Section
18.18.
Offsets, Counterclaims and
Defenses
. Any
assignee of this Security Instrument, the Assignment and the Note shall take the
same free and clear of all offsets, counterclaims or defenses which are
unrelated to the Note, the Assignment or this Security Instrument which Borrower
may otherwise have against any assignor of this Security Instrument, the
Assignment and the Note and no such unrelated counterclaim or defense shall be
interposed or asserted by Borrower in any action or proceeding brought by any
such assignee upon this Security Instrument, the Assignment or the Note and any
such right to interpose or assert any such unrelated offset, counterclaim or
defense in any such action or proceeding is hereby expressly waived by
Borrower.
Section
18.19.
No Merger
. If
Borrower’s and Lender’s estates become the same including, without limitation,
upon the delivery of a deed by Borrower in lieu of a foreclosure sale, or upon a
purchase of the Property by Lender in a foreclosure sale, this Security
Instrument and the lien created hereby shall not be destroyed or terminated by
the application of the doctrine of merger and in such event Lender shall
continue to have and enjoy all of the rights and privileges of Lender as to the
separate estates; and, as a consequence thereof, upon the foreclosure of the
lien created by this Security Instrument, any Leases or subleases then existing
and created by Borrower shall not be destroyed or terminated by application of
the law of merger or as a result of such foreclosure unless Lender or any
purchaser at any such foreclosure sale shall so elect. No act by or on behalf of
Lender or any such purchaser shall constitute a termination of any Lease or
sublease unless Lender or such purchaser shall give written notice thereof to
such lessee or sublessee.
Section
18.20.
Restoration of
Rights
. In case
Lender shall have proceeded to enforce any right under this Security Instrument
by foreclosure sale, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined
adversely, then, in every such case, Borrower and Lender shall be restored to
their former positions and rights hereunder with respect to the Property subject
to the lien hereof.
Section
18.21.
Waiver of Statute of
Limitations
. The
pleadings of any statute of limitations as a defense to any and all obligations
secured by this Security Instrument are hereby waived to the full extent
permitted by Legal Requirements.
Section
18.22.
Advances
. This
Security Instrument shall cover any and all advances made pursuant to the Loan
Documents, rearrangements and renewals of the Debt and all extensions in the
time of payment thereof, even though such advances, extensions or renewals be
evidenced by new promissory notes or other instruments hereafter executed and
irrespective of whether filed or recorded. Likewise, the execution of this
Security Instrument shall not impair or affect any other security which may be
given to secure the payment of the Debt, and all such additional security shall
be considered as cumulative. The taking of additional security, execution of
partial releases of the security, or any extension of time of payment of the
Debt shall not diminish the force, effect or lien of this Security Instrument
and shall not affect or impair the liability of Borrower and shall not affect or
impair the liability of any maker, surety, or endorser for the payment of the
Debt.
Section
18.23.
Application of Default Rate
Not a Waiver
.
Application of the Default Rate shall not be deemed to constitute a waiver of
any Default or Event of Default or any rights or remedies of Lender under this
Security Instrument, any other Loan Document or applicable Legal Requirements,
or a consent to any extension of time for the payment or performance of any
obligation with respect to which the Default Rate may be invoked.
Section
18.24.
Intervening
Lien
. To the
fullest extent permitted by law, any agreement hereafter made pursuant to this
Security Instrument shall be superior to the rights of the holder of any
intervening lien or security interest.
Section
18.25.
No Joint Venture or
Partnership
.
Borrower and Lender intend that the relationship created hereunder be solely
that of Borrower and mortgagee or grantor and beneficiary or borrower and
lender, as the case may be. Nothing herein is intended to create a joint
venture, partnership, tenancy-in-common, or joint tenancy relationship between
Borrower and Lender nor to grant Lender any interest in the Property other than
that of mortgagee, beneficiary or lender.
Section
18.26.
Time of the
Essence
. Time
shall be of the essence in the performance of all obligations of Borrower
hereunder.
Section
18.27.
Borrower’s Obligations
Absolute
.
Borrower acknowledges that Lender and/or certain Affiliates of Lender are
engaged in the business of financing, owning, operating, leasing, managing, and
brokering real estate and in other business ventures which may be viewed as
adverse to or competitive with the business, prospect, profits, operations or
condition (financial or otherwise) of Borrower. Except as set forth to the
contrary in the Loan Documents, all sums payable by Borrower hereunder shall be
paid without notice or demand, counterclaim, set-off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Borrower hereunder shall in no way be released,
discharged, or otherwise affected (except as expressly provided herein) by
reason of: (a) any damage to or destruction of or any Taking of the
Property
; (b) any
restriction or prevention of or interference with any use of the Property or any
portion thereof; (c) any title defect or encumbrance or any eviction from the
Premises or any portion thereof by title paramount or otherwise; (d) any
bankruptcy proceeding relating to Borrower, any General Partner, or any
guarantor or indemnitor, or any action taken with respect to this Security
Instrument or any other Loan Document by any trustee or receiver of Borrower or
any such General Partner, guarantor or indemnitor, or by any court, in any such
proceeding; (e) any claim which Borrower has or might have against Lender; (f)
any default or failure on the part of Lender to perform or comply with any of
the terms hereof or of any other agreement with Borrower; or (g) any other
occurrence whatsoever, whether similar or dissimilar to the foregoing, whether
or not Borrower shall have notice or knowledge of any of the
foregoing.
Section
18.28.
Publicity
. All
promotional news releases, publicity or advertising by Manager, Borrower or
their respective Affiliates through any media intended to reach the general
public shall not refer to the Loan Documents or the financing evidenced by the
Loan Documents, or to Lender or to any of its Affiliates without the prior
written approval of Lender or such Affiliate, as applicable, in each instance,
such approval not to be unreasonably withheld or delayed. Lender shall be
authorized to provide information relating to the Property, the Loan and matters
relating thereto to rating agencies, underwriters, potential securities
investors, auditors, regulatory authorities and to any Persons which may be
entitled to such information by operation of law.
Section
18.29.
Securitization
Opinions
. In the
event the Loan is included as an asset of a Securitization by Lender or any of
its Affiliates, Borrower shall, within fifteen (15) Business Days after Lender’s
written request therefor, at Lender’s sole cost and expense, deliver opinions in
form and substance and delivered by counsel reasonably acceptable to Lender and
each Rating Agency, as may be reasonably required by Lender and/or each Rating
Agency in connection with such securitization. Borrower’s failure to deliver the
opinions required hereby within such ten (10) Business Day period shall
constitute an “Event of Default” hereunder.
Section
18.30.
Intentionally
Deleted
.
Section
18.31.
Securitization
Financials
.
Borrower covenants and agrees that, upon Lender’s written request therefor in
connection with a Securitization, Borrower shall, at Lender’s sole cost and
expense, promptly deliver audited financial statements and related documentation
prepared by an Independent certified public accountant that satisfy securities
laws and requirements for use in a public registration statement (which may
include up to three (3) years of historical audited financial
statements).
Section
18.32.
Exculpation
.
Notwithstanding anything herein or in any other Loan Document to the contrary,
except as otherwise set forth in this Section 18.32 to the contrary, Lender
shall not enforce the liability and obligation of Borrower or (a) if Borrower is
a partnership, its constituent partners or any of their respective partners, (b)
if Borrower is a trust, its beneficiaries or any of their respective Partners
(as hereinafter defined), (c) if Borrower is a corporation, any of its
shareholders, directors, principals, officers or employees, or (d) if Borrower
is a limited liability company, any of its members, managers, officers or
directors (the Persons described in the foregoing clauses (a) - (d), as the case
may be, are hereinafter referred to as the “
Partners
”) to
perform and observe the obligations contained in this Security Instrument or any
of the other Loan Documents by any action or proceeding wherein a money judgment
shall be sought against Borrower or the Partners, except that Lender may bring a
foreclosure action, action for specific performance, or other appropriate action
or proceeding (including, without limitation, an action to obtain a deficiency
judgment) solely for the purpose of enabling Lender to realize upon (i)
Borrower’s interest in the Property, (ii) the Rent to the extent received by
Borrower (or received by its Partners) after the occurrence of an Event of
Default and not either delivered to Lender (or Lender’s agent) or applied to
ordinary and necessary expenses of owning and operating the Property (the
“
Recourse
Distributions
”) and
(iii) any other collateral given to Lender under the Loan Documents (the
collateral described in the foregoing clauses (i) - (iii) is hereinafter
referred to as the “
Default
Collateral
”);
provided
,
however
, that
any judgment in any such action or proceeding shall be enforceable against
Borrower or the Partners, as the case may be, only to the extent of any such
Default Collateral. The provisions of this Section shall not, however, (a)
impair the validity of the Debt evidenced by the Note or in any way affect or
impair the lien of this Security Instrument or any of the other Loan Documents
or the right of Lender to foreclose this Security Instrument following the
occurrence of an Event of Default; (b) impair the right of Lender to name
Borrower as a party defendant in any action or suit for judicial foreclosure and
sale under this Security Instrument; (c) affect the validity or enforceability
of the Note, this Security Instrument, or any of the other Loan Documents, or
impair the right of Lender to seek a personal judgment against the Guarantor;
(d) impair the right of Lender to obtain the appointment of a receiver; (e)
impair the enforcement of the Assignment; (f) impair the right of Lender to
bring suit for a monetary judgment against Borrower with respect to any losses
resulting from fraud, material misrepresentation, or failure to disclose a
material fact, any untrue statement of a material fact or omission to state a
material fact in the written materials and/or information provided to Lender or
any of its affiliates by or on behalf of Borrower, Guarantor or any of their
Affiliates in connection with this Security Instrument, the Note or the other
Loan Documents, and the foregoing provisions shall not modify, diminish or
discharge the liability of Borrower, Guarantor or any of their Affiliates with
respect to same; (g) impair the right of Lender to bring suit for a monetary
judgment against Borrower to obtain the Recourse Distributions received by
Borrower including, without limitation, the right to bring suit for a monetary
judgment to proceed against Guarantor to the extent of Guarantor’s liability
under any guaranty delivered by Guarantor and the foregoing provisions shall not
modify, diminish or discharge the liability of Borrower or Guarantor with
respect to same; (h) impair the right of Lender to bring suit for a monetary
judgment against Borrower with respect to any losses resulting from Borrower’s
misappropriation of tenant security deposits or Rent (other than rent deemed
“additional rent” under the Leases) collected more than one (1) month in
advance, and the foregoing provisions shall not modify, diminish or discharge
the liability of Borrower with respect to same; (i) impair the right of Lender
to obtain Loss Proceeds due to Lender pursuant to this Security Instrument to
the extent actually paid by the insurer; (j) impair the right of Lender to
enforce the provisions of Sections 2.02(g), 16.01 or 16.02, inclusive of this
Security Instrument, even after repayment in full by Borrower of the Debt or to
bring suit for a monetary judgment against Borrower with respect to any losses
resulting from any obligation set forth in said Sections; (k) prevent or in any
way hinder Lender from exercising, or constitute a defense, or counterclaim, or
other basis for relief in respect of the exercise of, any other remedy against
any or all of the collateral securing the Note as provided in the Loan
Documents; (l) impair the right of Lender to bring suit for a monetary judgment
against Borrower with respect to any losses resulting from any misappropriation
or conversion of Loss Proceeds, and the foregoing provisions shall not modify,
diminish or discharge the liability of Borrower with respect to same; (m) impair
the right of Lender to sue for, seek or demand a deficiency judgment against
Borrower solely for the purpose of foreclosing the Property or any part thereof,
or realizing upon the Default Collateral;
provided
,
however
, that
any such deficiency judgment referred to in this clause (m) shall be enforceable
against Borrower and Guarantor only to the extent of any of the Default
Collateral; (n) impair the ability of Lender to bring suit for a monetary
judgment against Borrower with respect to any losses resulting from arson or
physical waste to or of the Property or damage to the Property in each case
resulting from the intentional acts or intentional omissions of Borrower,
Guarantor or any of their Affiliates; (o) impair the right of Lender to bring a
suit for a monetary judgment against Borrower in the event of the exercise of
any right or remedy under any federal, state or local forfeiture laws resulting
in the loss of the lien of this Security Instrument, or the priority thereof,
against the Property; (p) be deemed a waiver of any right which Lender may have
under Sections 506(a), 506(b), 1111(b) or any other provision of the Bankruptcy
Code to file a claim for the full amount of the Debt or to require that all
collateral shall continue to secure all of the Debt; (q) impair the right of
Lender to bring suit for monetary judgment against Borrower with respect to any
losses resulting from any claims, actions or proceedings initiated by Borrower
(or any Affiliate of Borrower) alleging that the relationship of Borrower and
Lender is that of joint venturers, partners, tenants in common, joint tenants or
any relationship other than that of debtor and creditor; (r) impair the right of
Lender to bring suit for a monetary judgment with respect to any losses
resulting from a Transfer in violation of the provisions of Article IX hereof;
(s) impair the right of Lender to bring suit against Borrower for Borrower’s
failure to pay any valid taxes, assessments, mechanic’s liens, materialmen’s
liens or other liens which could create liens on any portion of the Property
superior to the lien or security title of this Security Instrument or the other
Loan Documents, except, (1) with respect to any such taxes or assessments, to
the extent that funds have been deposited with Lender pursuant to the terms of
this Security Instrument specifically for the applicable taxes or assessments
and not applied by Lender to pay such taxes and assessments, and (2) to the
extent that there is insufficient available cash flow at any time to enable
Borrower to pay all operating expenses (including taxes and assessments) then
due and payable
,
necessary property improvement expenditures and amounts due and payable under
the Loan Documents (as demonstrated to the reasonable satisfaction of Lender)
and Borrower applies all available cash flow to the payment of any one or more
of the foregoing item or (t)
impair
the right of Lender to bring a suit for a monetary judgment against Borrower in
that any recordation taxes are due in connection with the recording of this
Security Instrument or any penalty payable in connection therewith. The
provisions of this Section 18.32 shall be inapplicable to Borrower if (a) any
proceeding, action, petition or filing under the Bankruptcy Code, or any similar
state or federal law now or hereafter in effect relating to bankruptcy,
reorganization or insolvency, or the arrangement or adjustment of debts, shall
be filed by, consented to or acquiesced in by or with respect to Borrower, or if
Borrower shall institute any proceeding for its dissolution or liquidation, or
shall make an assignment for the benefit of creditors or (b) Borrower or any
Affiliate contests or interferes with Lender’s enforcement of its rights and
remedies hereunder or under the Loan Documents by asserting any defense (x) as
to the validity of the obligations under the Loan Documents or in any way
relating to the structure of the Borrower or the enforceability of Lender’s
rights and remedies under the Loan Documents, or (y) for the purpose of
delaying, hindering or impairing Lender’s rights and remedies under the Loan
Documents (collectively, a “
Contest
”)
(provided that if any such Person obtains a non-appealable order successfully
asserting a Contest, Borrower shall have no liability under this clause (b)), in
which event Lender shall have recourse against all of the assets of Borrower
including, without limitation, any right, title and interest of Borrower in and
to the Property.
Section
18.33.
Intentionally
Deleted
Section
18.34.
Intentionally
Deleted
Section
18.35.
Intentionally
Deleted.
Section
18.36.
Cooperation
. (a)
Borrower covenants and agrees that in the event the Loan is to be included as an
asset of a Securitization, Borrower shall (a) gather any information reasonably
required by the Rating Agencies in connection with such a Securitization, (b) at
Lender’s request, meet with representatives of the Rating Agency to discuss the
business and operations of the Property, and (c) cooperate with the reasonable
requests of each Rating Agency and Lender in connection with all of the
foregoing as well as in connection with all other matters and the preparation of
any offering documents with respect thereof, including, without limitation,
entering into any amendments or modifications to this Security Instrument or to
any other Loan Document which may be requested by Lender to conform to Rating
Agency or market standards for a Securitization provided that no such
modification shall modify (a) the interest rate payable under the Note, (b) the
stated maturity of the Note, (c) the amortization of principal under the Note,
(d) Section 18.32 hereof, (e) any other material economic term of the Loan or
(f) any provision, the effect of which would materially increase Borrower’s
obligations or materially decrease Borrower’s rights under the Loan Documents.
Borrower acknowledges that the information provided by Borrower to Lender may be
incorporated into the offering documents for a Securitization. Lender and each
Rating Agency shall be entitled to rely on the information supplied by, or on
behalf of, Borrower and Borrower indemnifies and holds harmless the Indemnified
Parties, their Affiliates and each Person who controls such Persons within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as same may be amended from time to time, for, from and
against any claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature, known or unknown,
contingent or otherwise, whether incurred or imposed within or outside the
judicial process, including, without limitation, reasonable attorneys’ fees and
disbursements (including, without limitation, reasonable attorney’s fees and
expenses, whether incurred within or outside the judicial process) that arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in such information or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated in such information or necessary in order to make the statements in such
information, or in light of the circumstances under which they were made, not
misleading.
(b)
Further,
Borrower shall cooperate at no cost to Borrower or Guarantor, with Lender and
its affiliates in connection with any such sale of the Loan by mortgage backed
pass through certificates, participations, securities or pari passu notes
evidencing whole or component interests therein through one of more public or
private offerings, including, but not limited to:
(i)
separating
the Loan into two or more separate notes (or components that correspond to one
or more tranches of the certificates/securities created in a Securitization) or
participation interests. Such notes or components or participation interests may
be assigned different interest rates, so long as the weighted average of such
interest rates equals the interest rate on the Note. Additionally, Lender may
split the Loan into a senior/subordinated participation structure;
(ii)
obtaining
ratings from two or more Rating Agencies;
(iii)
making or
causing to be made reasonable changes or modifications to the loan
documentation, organizational documentation, opinion letters and other
documentation;
(iv)
reviewing
prepared offering materials relating to the Property, Borrower, Guarantor and
the Loan;
(v)
delivering
updated information on the Borrower, Guarantor and the Property;
(vi)
participating
in investor or Rating Agency meetings if requested by Lender;
(vii)
permitting
adjustment of Lender’s security interest to permit a senior/subordinate or other
structure to enhance a Securitization, participation interest or a distribution
of the Loan; and
(viii)
restructuring
of the Loan and/or a reduction of the Loan Amount with the imposition of a
mezzanine loan in the corresponding amount to be reduced, which mezzanine loan
shall be secured by a pledge of ownership interests in the Borrower or the
members of Borrower. Such notes or components may be assigned different interest
rates, so long as the weighted average of such interest rates equals the
interest rate on the Note.
Section
18.37.
Regulation
A/B
.
(
a)
If
requested by Lender, Borrower shall furnish, or shall cause the applicable
tenant to furnish, to Lender financial data and/or financial statements in
accordance with Regulation AB (as defined herein) for any tenant of any Property
if, in connection with a securitization, Lender expects there to be, with
respect to such tenant or group of affiliated tenants, a concentration within
all of the mortgage loans included or expected to be included, as applicable, in
such securitization such that such tenant or group of affiliated tenants would
constitute a Significant Obligor (as defined herein); provided, however, that in
the event the related lease does not require the related tenant to provide the
foregoing information, Borrower shall use commercially reasonable efforts to
cause the applicable tenant to furnish such information.
(b)
If, at
the time one or more Disclosure Documents are being prepared for a
securitization, Lender expects that Borrower alone or Borrower and one or more
affiliates of Borrower collectively, or the Property alone or the Property and
any other parcel(s) of real property, together with improvements thereon and
personal property related thereto, that is “related”, within the meaning of the
definition of Significant Obligor, to the Property (a “Related Property”)
collectively, will be a Significant Obligor, Borrower shall furnish to Lender
upon request (i) the selected financial data or, if applicable, net operating
income, required under Item 1112(b)(1) of Regulation AB and meeting the
requirements thereof, if Lender expects that the principal amount of the Loan,
together with any loans made to an affiliate of Borrower or secured by a Related
Property that is included in a securitization with the Loan (a “Related Loan”),
as of the cut-off date for such securitization may, or if the principal amount
of the Loan together with any Related Loans as of the cut-off date for such
securitization and at any time during which the Loan and any Related Loans are
included in a securitization does, equal or exceed ten percent (10%) (but less
than twenty percent (20%)) of the aggregate principal amount of all mortgage
loans included or expected to be included, as applicable, in the securitization
or (ii) the financial statements required under Item 1112(b)(2) of Regulation AB
and meeting the requirements thereof, if Lender expects that the principal
amount of the Loan together with any Related Loans as of the cut-off date for
such securitization may, or if the principal amount of the Loan together with
any Related Loans as of the cut-off date for such securitization and at any time
during which the Loan and any Related Loans are included in a securitization
does, equal or exceed twenty percent (20%) of the aggregate principal amount of
all mortgage loans included or expected to be included, as applicable, in the
securitization. Such financial data or financial statements shall be furnished
to Lender (A) within ten (10) Business Days after notice from Lender in
connection with the preparation of Disclosure Documents for the securitization,
(B) not later than thirty (30) days after the end of each fiscal quarter of
Borrower and (C) not later than seventy-five (75) days after the end of each
fiscal year of Borrower; provided, however, that Borrower shall not be obligated
to furnish financial data or financial statements pursuant to clauses (B) or (C)
of this sentence with respect to any period for which a filing pursuant to the
Securities Exchange Act of 1934 in connection with or relating to the
securitization (an “Exchange Act Filing”) is not required. As used herein,
“Regulation AB” shall mean Regulation AB under the Securities Act of 1933 and
the Securities Exchange Act of 1934 (as amended). As used herein, “Disclosure
Document” shall mean a prospectus, prospectus supplement, private placement
memorandum, or similar offering memorandum or offering circular, in each case in
preliminary or final form, used to offer securities in connection with a
securitization. As used herein, “Significant Obligor” shall have the meaning set
forth in Item 1101(k) of Regulation AB.
Section
18.38.
Borrower
hereby requests that a copy of any notice of default and notice of sale made or
executed by Trustee pursuant to the provisions hereof be sent to Borrower at its
mailing address set forth hereinabove.
ARTICLE
XIX:
CONCERNING
THE TRUSTEE.
Section
19.01.
Certain
Rights
.
With the
approval of Lender, Trustee shall have the right to take any and all of the
following actions: (i) to select, employ and consult with counsel (who may be,
but need not be, counsel for Lender) upon any matters arising hereunder,
including the preparation, execution and interpretation of the Loan Documents,
and shall be fully protected in relying as to legal matters on the advice of
counsel, (ii) to execute any of the trusts and powers hereof and to perform any
duty hereunder either directly or through his or her agents or attorneys, (iii)
to select and employ, in and about the execution of his or her duties hereunder,
suitable accountants, engineers and other experts, agents and attorneys-in-fact,
either corporate or individual, not regularly in the employ of Trustee (and
Trustee shall not be answerable for any act, default, negligence, or misconduct
of any such accountant, engineer or other expert, agent or attorney-in-fact, if
selected with reasonable care, or for any error of judgment or act done by
Trustee in good faith, or be otherwise responsible or accountable under any
circumstances whatsoever, except for Trustee’s gross negligence or bad faith),
and (iv) any and all other lawful action that Lender may instruct Trustee to
take to protect or enforce Lender’s rights hereunder. Trustee shall not be
personally liable in case of entry by Trustee, or anyone entering by virtue of
the powers herein granted to Trustee, upon the Property for debts contracted for
or liability or damages incurred in the management or operation of the Property.
Trustee shall have the right to rely on any instrument, document, or signature
authorizing or supporting any action taken or proposed to be taken by Trustee
hereunder, believed by Trustee in good faith to be genuine. Trustee shall be
entitled to reimbursement for expenses incurred by Trustee in the performance of
Trustee’s duties hereunder and to reasonable compensation for such of Trustee’s
services hereunder as shall be rendered. Borrower will, from time to time, pay
the compensation due to Trustee hereunder and reimburse Trustee for, and save
and hold Trustee harmless against, any and all liability and expenses which may
be incurred by Trustee in the performance of Trustee’s duties.
Section
19.02.
Retention of
Money
.
All
moneys received by Trustee shall, until used or applied as herein provided, be
held in trust for the purposes for which they were received, and shall be
segregated from any other moneys of Trustee.
Section
19.03.
Successor
Trustees
.
Trustee
may resign by the giving of notice of such resignation in writing to Lender. If
Trustee shall die, resign or become disqualified from acting in the execution of
this trust, or if, for any reason, Lender, in Lender's sole discretion and with
or without cause, shall prefer to appoint in accordance with the Nebraska Trust
Deeds Act a substitute trustee or successive substitute trustees to act instead
of the aforenamed Trustee, Lender shall have full power to appoint a substitute
trustee in succession who shall succeed to all the estates, rights, powers and
duties of the aforenamed Trustee. Such appointment may be executed by any
authorized agent of Lender, and if such Lender be a corporation and such
appointment be executed on its behalf by any officer of such corporation, such
appointment shall be conclusively presumed to be executed with authority and
shall be valid and sufficient without proof of any action by the board of
directors or any superior officer of the corporation. Borrower hereby ratifies
and confirms any and all acts which the aforenamed Trustee, or his or her
successor or successors in this trust, shall do lawfully by virtue hereof.
Section
19.04.
Perfection of
Appointment
.
Should
any deed, conveyance, or instrument of any nature be required from Borrower by
any Trustee or substitute Trustee to more fully and certainly vest in and
confirm to Trustee or substitute Trustee such estates, rights, powers, and
duties, then, upon request by Trustee or substitute trustee, any and all such
deeds, conveyances and instruments shall be made, executed, acknowledged, and
delivered and shall be caused to be recorded and/or filed by Borrower.
Section
19.05.
Succession
Instruments
.
Any
substitute trustee appointed pursuant to any of the provisions hereof shall,
without any further act, deed or conveyance, become vested with all the estates,
properties, rights, powers, and trusts of its, his or her predecessor in the
rights hereunder with like effect as if originally named as Trustee herein; but
nevertheless, upon the written request of Lender or of the substitute trustee,
the Trustee ceasing to act shall execute and deliver any instrument transferring
to such substitute trustee, upon the trusts herein expressed, all the estates,
properties, rights, powers, and trusts of the Trustee so ceasing to act, and
shall duly assign, transfer and deliver any of the property and moneys held by
such Trustee to the substitute trustee so appointed in such Trustee’s
place.
Section
19.06.
No Representation by Trustee
or Lender
.
By
accepting or approving anything required to be observed, performed, or fulfilled
or to be given to Trustee or Lender pursuant to the Loan Documents, including,
without limitation, any officer’s certificate, balance sheet, statement of
profit and loss or other financial statement, survey, appraisal or insurance
policy, neither Trustee nor Lender shall be deemed to have warranted, consented
to, or affirmed the sufficiency, legality, effectiveness or legal effect of the
same, or of any term, provision, or condition thereof, and such acceptance or
approval thereof shall not be or constitute any warranty or affirmation with
respect thereto by Trustee or Lender.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, Borrower has executed under Seal this Security Instrument on
the day and year first hereinabove set forth.
|
|
|
|
LVP
OAKVIEW STRIP CENTER LLC,
a
Delaware limited liability company
|
|
|
|
|
By:
|
David
Lichtenstein
|
|
Name:
David Lichtenstein
Title:
President
|
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STATE OF NEBRASKA
|
)
|
|
) ss.
|
COUNTY OF _______________
|
)
|
The
foregoing instrument was acknowledged before me this ______ day of December,
2006 by David Lichtenstein as President of LVP OAKVIEW STRIP CENTER LLC, a
Delaware limited liability company, on behalf of the limited liability
company.
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|
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Signature
of Notary Public
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EXHIBIT
A
(Legal
Description)
Attached
to and forming a part of file number: CRS22144
Parcel
1:
Lots 1,
2, 13 and 14, Oak View Plaza 3rd Platting, an Addition to the City of Omaha, as
surveyed, platted and recorded in Douglas County, Nebraska, EXCEPT that part of
said Lot 13 dedicated for street widening as filed within Book 1280 at Page 429
of the Miscellaneous Records of Douglas County, Nebraska.
Together
with Reciprocal Access, Parking and Utility rights as set forth in Declaration
of Protective Covenants recorded in Book 815 at Page 326 and Amendment to
Declaration of Protective Covenants recorded in Book 1019 at Page 142 and in
Declaration of Covenants, Easements and Restrictions recorded in Book 1030 at
Page 603 and First Amendment to Declaration of Covenants, Easements and
Restrictions recorded in Book 1049 at Page 336, and Second Amendment to
Declaration of Covenants recorded May 17, 2006 as Instrument
No.2005056364;
And also
together with rights of ingress and egress as set forth upon the Plat of Oak
View Plaza (3rd Platting), filed September 19,1996 in Book 2043 at Page 318 of
the Deed Records; And also together with Beneficial RIGHT-OF-WAY EASEMENT,
recorded June 25,1987 in Book 818 at Page 626 of the Miscellaneous
Records
And
together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded September 11,
1992 in Book 1030 at Page 645 of the Miscellaneous Records;
And also
Together with SANITARY, STORM SEWER AND UTILITY EASEMENT and recorded November
23, 1992 in Book 1043 at Page 701 of the Miscellaneous Records; And also
together with Permanent Building Encroachment Easement set forth by instrument
filed August 22, 2000 in Book 1348 at Page 702
all of
the Records of Douglas County, Nebraska; subject to all liens and encumbrances
affecting the same.
Parcel
2:
Lot 1,
Oak View Plaza (3rd Platting) Replat Three, an Addition to the City of Omaha, as
surveyed, platted and recorded in Douglas County, Nebraska.
Together
with Reciprocal Access, Parking and Utility rights as set forth In Declaration
of Protective Covenants recorded in Book 815 at Page 326 and Amendment to
Declaration of Protective Covenants recorded in Book 1019 at Page 142 and in
Declaration of Covenants, Easements and Restrictions recorded In Book 1030 at
Page 603 and First Amendment to Declaration of Covenants, Easements and
Restrictions recorded in Book 1049 at Page 336, and Second Amendment to
Declaration of Covenants recorded May 17, 2006 as Instrument
No.2005056364;
And
together with rights of ingress and egress as set forth upon the Plat of Oak
View Plaza (3rd Platting), filed September 19, 1996 in Book 2043 at Page 318 of
the Deed Records; and also together with Reciprocal Access, Parking and rights
of ingress/egress as set forth within the Reciprocal Easement Agreement recorded
September 19,1997 in Book 1222 at Page 699;
and also
together with Beneficial RIGHT-OF-WAY EASEMENT recorded June 25,1987 in Book 818
at Page 626 of the Miscellaneous Records;
and also
together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded September 11,
1992 in Book 1030 at Page 645 of the Miscellaneous Records; and also Together
with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded November 23, 1992 in
Book 1043 at Page 701 of the Miscellaneous Records;
and also
together with non-exclusive easement rights set forth within Deed of Easement
for Subsurface Construction Elements set forth within the instrument filed
September 14, 2004 as instrument number 2004122176 all of the Records of Douglas
County, Nebraska; subject to all liens and encumbrances affecting the
same.
Parcel
3:
Lot 1,
Oak View Plaza (3rd Platting) Replat Four, an Addition to the City of Omaha, as
surveyed, platted and recorded in Douglas County, Nebraska.
Together
with Reciprocal Access, Parking and Utility rights as set forth in Declaration
of Protective Covenants recorded in Book 815 at Page 326 and Amendment to
Declaration of Protective Covenants recorded in Book 1019 at Page 142 and in
Declaration of Covenants, Easements and Restrictions recorded in Book 1030 at
Page 603 and First Amendment to Declaration of Covenants, Easements and
Restrictions recorded in Book 1049 at Page 336,
and
Second Amendment to Declaration of Covenants recorded May 17, 2006 as Instrument
No.2005056364;
and also
together with rights of ingress and egress as set forth upon the Plat of Oak
View Plaza (3rd Platting), filed September 19,1996 in Book 2043 at Page 318 of
the Deed Records;
and also
together with Reciprocal Access, Parking and rights of ingress/egress as set
forth within the Reciprocal Easement Agreement recorded September 19, 1997 in
Book 1222 at Page 699;
and also
together with Beneficial RIGHT-OF-WAY EASEMENT, recorded June 25,1987 in Book
818 at Page 626 of the Miscellaneous Records;
and also
together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded September 11,
1992 in Book 1030 at rage 645 of the Miscellaneous Records;
and also
Together with SANITARY, STORM SEWER AND UTILITY EASEMENT recorded November 23,
1992 in Book 1043 at Page 701 of the Miscellaneous Records;
and also
together with non-exclusive easement rights set forth within Deed of Easement
for Subsurface Construction Elements set forth within the instrument filed May
17, 2005 as instrument number 2005056363, as further amended pursuant to the
Amended Deed of Easement for Subsurface Construction Elements filed July 1, 2005
as instrument number 2005076870, all of the Records of Douglas County, Nebraska;
subject to all liens and encumbrances affecting the same.
EXHIBIT
B
SUMMARY OF
RESERVES
Reserve
Items
|
|
Initial
Deposit Amount
|
|
Monthly
Installment Amount
|
Basic
Carrying Costs
·
Taxes
·
Insurance
Premiums
|
|
·
Taxes
-- $134,974.56
·
Insurance
Premium
-
$33,054.20
|
|
·
Taxes
-- $33,743.64
·
Insurance
Premiums - $3,305.42
|
|
|
|
|
|
Initial
Engineering/Environmental Deposits
·
Immediate
Repairs
·
Environmental
Remediation
|
|
·
N/A
|
|
N/A
|
|
|
|
|
|
Recurring
Monthly Replacement Reserve Deposit
|
|
N/A
|
|
$1,475.63
|
|
|
|
|
|
Recurring
Monthly Reletting Reserve Deposit
|
|
N/A
|
|
$7,378.13
|
EXHIBIT
C
CASH FLOW
STATEMENT
|
|
|
Property:____________________________
|
|
|
|
Location:____________________________
|
Cash
Flow Statement for Month of:____________
|
|
|
Year:
|
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Current
Month
|
|
Year
to
Date
|
|
|
|
|
|
REVENUE
Net
Rental Revenue
Other
Revenue
|
|
________
|
|
________
|
Effective
Gross Income
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
Common
Area Maintenance
Payroll
Administration
Leasing
Service
Clean
& Decorate
Utilities
Repairs
& Maintenance
Taxes
Insurance
Management
Fees
Other
Total
Operating Expenses
Net
Operating Income
|
|
________
________
|
|
________
________
|
|
|
|
|
|
RECURRING
EXPENSES
To
Include Expenses for: Carpet Replacement, Appliance
Replacement,
HVAC/Water
Heater Replacement;
Miniblinds/Drapes/Ceiling
Fans:
|
|
________
|
|
________
|
|
|
|
|
|
NON-RECURRING
EXPENSES
To
Include Capital Expenses for: Playground, Major Signage,
Lawns/Trees/Shrubs,
Paving/Parking, Roof Replacement,
Carpentry/Siding/Balconies,
Exterior Paint,
Major
Concrete/Sidewalks, Foundations, Major Exterior,
Boiler
Replacement, Major HVAC Replacement, Plumbing Replace,
Electrical
Replace, Other Major, Fire & Storm, Ins.
Loss
Recovery:
Net
Cash Flow
|
|
________
|
|
________
|
|
|
Certified By:
|
___________________________________
|
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|
Name:
|
___________________________________
|
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Title:
|
___________________________________
|
Management Company:
_____________________
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EXHIBIT
D
Intentionally
Deleted
EXHIBIT
E
Form of
Direction Letter
[Letterhead
of Landlord]
[Name and
Address of tenant]
Re:
[Address of Premises]
Dear
tenant:
You are
hereby directed to make all future payments of rent and other sums due to
Landlord under the Lease payable as follows:
Payable To:
|
[____________] and Wachovia Bank,
National Association
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If by federal wire
transfer
:
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Bank:
|
Wachovia Bank, NA
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ABA #:
|
053-000-219
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Acct Name:
|
[__________]
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Acct #:
|
|
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Ref Loan #:
|
___________________
|
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If by US
Mail
:
|
|
|
|
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|
_________________
|
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|
PO
Box _____
|
|
|
Charlotte,
NC 28260-1443
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|
If by Overnight
Courier
:
|
|
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Wachovia
Bank, NA
|
|
1525
West WT Harris Blvd
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|
Bldg
2C2 (Ref # ______)
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|
Charlotte,
NC 28262
|
|
Ref
Loan #:_____________________
|
Please
take particular care in making the check payable only to the above-mentioned
names because only checks made payable to the referenced names will be credited
against sums due by you to landlord. Until otherwise advised in writing by
Landlord
and
the
above-mentioned bank (or its successor), you should continue to make your
payments for rent and other sums as directed by the terms of this
letter.
Thank you
in advance for your cooperation with this change in payment
procedures.
EXHIBIT
10.23
CONSENT AND
AGREEMENT
The
undersigned (“
Manager
”)
acknowledges an assignment of documents contained in that certain Deed of Trust,
Assignment of Leases, Security Agreement and Fixture Filing (the “
Security
Instrument
”) to be
executed and delivered by LVP OAKVIEW STRIP CENTER LLC, a Delaware limited
liability company ("Borrower"), having its chief executive offices c/o The
Lightstone Group, 326 Third Street, Lakewood, New Jersey 08701 to the trustee
named therein for the benefit of WACHOVIA BANK, NATIONAL ASSOCIATION
(“
Lender
”), in
connection with that certain loan (the “
Loan
”) of
TWENTY-SEVEN MILLION FIVE HUNDRED THOUSAND AND
00/100
DOLLARS ($27,500,000.00)
being
made by Lender to Borrower to finance certain real property and improvements
more particularly described in the Security Instrument, said real property and
improvements being hereinafter referred to as the “
Property
.”
Manager has agreed to perform or supply certain services in connection with the
management of the Property pursuant to a certain property management agreement,
dated December __, 2006 (the “
Contract
”), a
true, accurate and complete copy of which has been delivered to Lender. Manager
does hereby (a) warrant and represent that the Contract contains all
agreements between Manager and Borrower relating to the Property;
(b) acknowledge and consent to the assignment of the Contract as set forth
in the Security Instrument and to any further assignment thereof by Lender;
(c) warrant and represent that no default exists under the terms of any
agreement between Borrower and Manager; and (d) acknowledge that Borrower
has satisfied all conditions precedent to commencement of performance by Manager
under the Contract. Manager does hereby agree that: (i) in the event of any
default by Borrower under the terms of the “Loan Documents” (as defined in the
Security Instrument), Manager shall, upon receipt of written notice and demand
of Lender, continue performance on behalf of Lender provided that Manager is
reimbursed for such performance rendered thereafter on behalf of Lender in
accordance with the Contract; (ii) in the event of any default by Borrower
under the Contract, Manager shall deliver to Lender, by certified United States
mail, postage prepaid, return receipt requested, addressed to Wachovia Bank,
National Association, Commercial Real Estate Services, 8739 Research Drive URP -
4, NC 1075, Charlotte, North Carolina 28262, Attention: Real Estate Capital
Markets, Commercial Real Estate Finance, written notice of such default and the
action required to cure the same, and Lender shall have a reasonable time (but
in no event less than thirty days after receipt of such notice) within which
Lender shall have the right, but not the obligation, to cure such default, and
the delivery of such notice of default and the failure of Lender to cure the
same within such time allowed shall be conditions precedent to the exercise of
any right or remedy of Manager arising by reason of such default;
(iii) Manager shall not enter into any material modification of, or
addition to, the Contract without the prior written consent of Lender such
consent not to be reasonably withheld; (iv) in the event of any default by
Borrower under the terms of the Loan Documents, or upon the occurrence of
certain circumstances which are more particularly described in the Security
Instrument, the Contract shall be terminable at the option of Lender upon thirty
days’ notice; (v) the rights of Manager under the Contract to receive any
compensation, reimbursement of costs and expenses or other payments in
consideration for its management services for the Property shall be and remain
subordinate in all respects to the Lender’s rights under the Loan Documents;
(vi) Manager acknowledges receipt of a copy of the Security Instrument; (vii)
the Contract may be terminated at any time by Lender for cause (including, but
not limited to, Manager’s gross negligence, misappropriation of funds, willful
misconduct or fraud) by delivery of written notice of such termination to
Manager; and (viii) Manager shall comply with the terms and conditions contained
in the Security Instrument relating to the management of the
Property.
Manager
represents that it is looking solely to Borrower, and not to Lender, for payment
under the Contract and Manager waives any and all liens and claims which Manager
may now or hereafter have upon the proceeds of the Loan or the
Property.
All
notices to Manager shall be sent by certified United States Mail, postage
prepaid, return receipt requested, to Manager at the address set forth on the
signature page hereof.
In the
event of an inconsistency between the terms of the Contract and the terms of
this Consent and Agreement, the terms of this Consent and Agreement shall
control.
No
modification, amendment, extension, discharge, termination or waiver of any
provision of this Consent and Agreement shall in any event be effective unless
the same shall be in a writing signed by the party against whom enforcement is
sought, and then such waiver of consent shall be effective only in the specific
instance, and for the purpose, for which given.
This
Consent and Agreement (a) shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns, (b) shall be
governed by, and construed in accordance with, the laws of Nebraska, and (c) is
given by Manager for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Manager, and is intended to
induce Lender to make the Loan to Borrower.
*
*
*
*
*
WITNESS
the hand and seal of Manager, as of December 20, 2006.
|
|
|
|
BEACON
PROPERTY
MANAGEMENT,
LLC, a
limited
liability company
|
|
|
|
|
By:
|
/s/ Gail Grossman
|
|
Name:
Gail Grossman
Title:
Vice President
|
Address
for Notices to Manager:
326 Third
Street
Lakewood,
New Jersey 08701
EXHIBIT
10.24
PROPERTY MANAGEMENT
AGREEMENT
MANAGEMENT
AGREEMENT made as of January 4, 2007, between 1407 Broadway Real Estate LLC, a
Delaware limited liability company having an office at 326 Third Street,
Lakewood, New Jersey 08701,
(hereinafter
referred to as the “
Owner
”), and
Trebor Management Corp., a New York corporation having an office at 1407
Broadway, New York, New York 10018 (hereinafter referred to as the “
Agent
”).
W I T N E S S E T
H
In
consideration of the mutual covenants herein contained and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed as follows:
1.
Appointment of
Agent
.
The
Owner hereby appoints Agent as the sole and exclusive managing agent of the
property known as
1407
Broadway
, New
York, New York (the “
Property
”) and
Agent hereby accepts such appointment to perform such duties and services and on
such terms and conditions as hereinafter provided.
2.
Duties of
Agent
. The
duties of Agent shall be generally to operate and manage the Property and to
perform all services reasonably necessary for the care, protection, maintenance
and operation of the Property and shall include, but not be limited to, the
following:
(a)
On behalf
of and with the approval of the Owner (which approval shall not be unreasonably
withheld, delayed or conditioned, and which approval shall be deemed granted if
not reasonably denied in writing within five (5) business days after Agent’s
request for such approval is submitted) hire, discharge and supervise the work
of all persons necessary to be employed by the Owner in order to properly
maintain and operate the Property. In connection therewith, Agent shall use
reasonable care, and all persons hired and supervised in accordance with this
subsection shall be in the sole employ of the Owner and not in the employ of
Agent, and Agent shall in no way be liable for any act or omission of any
persons so employed or to any such persons for wages or other compensation.
Agent shall, on behalf of and at the expense of the Owner, disburse all wages or
other compensation to such persons;
(b)
At its
own expense, maintain a sufficient staff to perform all administrative,
bookkeeping, clerical, receiving and disbursing services required in connection
with the performance of its duties hereunder, provided, however, that Agent
shall not be responsible for the expense of any personnel retained by or on
behalf of the Owner;
(c)
Bill and
collect all rent and additional rent (hereinafter, “
Rent Charges
”), and
other amounts due and payable by tenants of the Property (hereinafter,
“
Tenants
”) and
other income from the Property and send late notices to any Tenants who have not
made timely payments of Rent Charges allowing for any applicable grace periods
therefor; and, in the event of a default by a Tenant under any lease, to sue for
collection of any late payments and/or seek the Tenant’s eviction from the
Property, or retain attorneys to do any of the aforesaid;
(d)
Through
employees of the Owner or when required, in Agent’s judgment, through
independent contractors, cause the Property to be repaired, restored, cleaned,
added to, improved, altered, replaced and maintained in such condition as may be
deemed advisable by Agent, and, in conjunction therewith, to purchase such
equipment, furniture, tools, appliances, materials, supplies, and uniforms as
Agent shall deem necessary or advisable, provided that the expense to be
incurred for any single repair by an independent contractor or for any single
purchase shall not exceed $50,000 without the prior written consent of the
Owner, except if part of a pre-approved budgeted item or in the case of
emergency repairs, immediately necessary for the preservation of the Property or
the safety of the Tenants, or other persons, or required to avoid the suspension
of any necessary service in the Property or reasonably necessary to avoid the
criminal liability of the Owner or Agent, in which case such emergency repairs
may be made by Agent irrespective of the cost thereof without the prior approval
of the Owner, but Agent shall, with reasonable promptness, notify the Owner of
such emergency repairs;
(e)
Unless
otherwise directed in writing by the Owner in each instance, and as deemed
necessary by Agent, enter into contracts for a term of no longer than three (3)
years or requiring annual payments 10% greater than those in effect during the
prior year for the same or similar services, for elevator maintenance, telephone
service, window cleaning, steam, gas, electricity and water services, security
services, extermination and other services as shall from time to time be
approved by the Owner and shall do so in its name or the name of the Owner, as
the Owner shall elect; provided, that any individual service contract in excess
of three (3) years or $25,000 per annum shall require the consent of the Owner,
unless said service contract is part of a pre-approved budget;
(f)
On behalf
of and at the cost and expense of the Owner, cause such acts or things to be
done in and about the Property, and to prepare and file all such documents, as
shall be necessary to comply with all federal, state and municipal statutes,
rules and regulations of, and remedy all violations charged by, any such
authorities, the New York Board of Fire Underwriters, the New York Fire
Insurance Exchange or similar body. Any one order or violation involving an
expenditure of over $50,000 shall be complied with only with the prior written
approval of the Owner, but orders or violations requiring emergency action
immediately necessary for the preservation or safety of the Property or for the
safety of the Tenants or other persons, or required to avoid the suspension of
any necessary service, or reasonably necessary to avoid criminal liability of
Agent or the Owner, may be complied with irrespective of the costs thereof,
without the prior approval of the Owner, but Agent shall, with reasonable
promptness, notify the Owner of same;
(g)
On behalf
of and at the expense of the Owner cause to be effected and maintained, through
agents and brokers approved by the Owner, in such amounts and with such
insurance companies as the Owner shall approve, property and liability insurance
covering the Owner and the Property as the Owner and Agent shall deem necessary
or reasonably desirable for the protection of the interests of the Owner and
Agent, and Agent shall be named as an insured party in all liability policies;
(h)
Deposit
all monies received by it for or on behalf of the Owner (less any sums deducted
by Agent in accordance with the provisions of this agreement) to the account of
the Owner in one or more special bank accounts selected and maintained by Agent
for such purpose and no such monies shall be commingled with other funds of
Agent;
(i)
Review
all bills received for services, work and supplies ordered in connection with
maintaining and operating the Property, pay all such bills, and also pay all
real estate taxes, water charges, sewer rents and assessments assessed with
respect to the Property as and when the same shall become due and payable;
(j)
Supervise
the moving in and out of Tenants;
(k)
Consider
and, when reasonable, attend to the complaints of Tenants and advise the Owner
of any complaints not attended to, and the reason(s) therefor;
(l)
Cause to
be prepared and filed the necessary forms for unemployment insurance, social
security taxes and withholding taxes and all other forms required by any
federal, state or municipal authority, provided that any costs and expenses
associated with such filings shall be the responsibility of the Owner;
(m)
Render to
the Owner monthly statements of receipts and expenditures on a cash basis for
the preceding month and for the year to date; and
(n)
Set up
and maintain separate and accurate books of account, check books, and payroll
and other records of the Owner, and maintain orderly files of all rent records,
leases, bills, vouchers, documents, correspondence, insurance policies, papers,
etc. (collectively called “documents”) pertaining to the Property, all of which
shall be and remain the property of the Owner; provided, however, that Agent
shall not be required to maintain any documents for more than six (6) years
unless specifically requested to do so in writing by the Owner. Agent shall,
within a reasonable period after request of the Owner, make all of said
documents available to the Owner and its officers, accountants, attorneys and
other representatives and shall deliver same to the Owner or its agents or
representatives within a reasonable period after demand.
(o)
For each
year during the term of this Agreement, at least sixty (60) days after the
commencement of Owner’s fiscal year (which is presently a calendar year), Agent
shall prepare and submit to Owner proposed annual operating and capital budgets
for such fiscal year containing an estimated income and operating expense
statement and an estimated capital expense statement, in a form reasonably
satisfactory to or reasonably approved by Owner, for the operation of the
Property during that fiscal year of Owner (on a monthly basis ) or such other
operating period as may be specified by Owner. The proposed budgets shall also
include a recommendation as to an operating reserve and a capital reserve. Agent
and Owner shall discuss such proposed budgets until the proposed budgets, with
any changes therein as may be reasonably requested by Owner, are approved by
Owner (and upon such approval, the proposed annual budgets shall constitute the
“Current Budget”). If the proposed budgets are not approved by Owner for any
period, then the prior Current Budget (as increased until approval by five (5%)
percent per annum) shall be deemed to constitute the Current Budget until the
proposed budget is approved by Owner. Agent shall use its commercially
reasonable efforts to cause the Property to be operated, leased, repaired and
maintained in accordance with the Current Budget. Agent shall not, without the
prior written approval of Owner, incur any expenses in the management,
maintenance, leasing, or operation of the Property not set forth in such Current
Budget or which would result in: (i) the amount of any single annual budget
category or line item being exceeded by more than 10%, (ii) the amount of the
total Current Budget being exceeded by more than 5%, or (iii) a single
expenditure exceeding the annual budgeted amount by $50,000.00. All expenses
shall be charged to the proper account set forth in the Current Budget and no
expense shall be classified or reclassified to avoid exceeding a budgeted amount
except to the extent that a miscellaneous or contingency category exists.
Notwithstanding the foregoing, Agent may incur costs immediately necessary for
emergency repairs and other matters of an emergency nature; however, Agent shall
use commercially reasonable efforts to notify Owner by telephone and obtain
Owner’s oral approval before undertaking such emergency repair. If such approval
is not obtained, Agent shall only incur the minimum expenses necessary in
Agent’s reasonable judgment in connection with such emergency repair until
Owner’s approval is obtained. Agent shall, in any event, promptly notify Owner
in writing as to such emergency repair. All approvals to be given by Owner
pursuant to the provisions of this paragraph 2 shall not be unreasonably
withheld, delayed or conditioned.
3.
Authority of
Agent
. Subject
to the conditions and limitations set forth in
Article 2
, the
Owner authorizes Agent to perform any act or do anything necessary or desirable
to carry out the intent and purposes of this agreement. Everything done by Agent
shall be done as agent of the Owner and all obligations or expenses incurred
shall be for the account, on behalf and at the expense of the Owner. To the
extent obtainable all purchases or commitments made by Agent for the Owner shall
be in writing and shall provide or be deemed to provide that Agent is acting as
agent for the Owner and shall not be liable or responsible with respect to any
such commitment or purchase. Any payments made by Agent hereunder shall be made
out of such funds as Agent may from time to time hold for the account of the
Owner or as may be provided by the Owner. Agent shall not be obligated to make
any advance to or for the account of the Owner or to pay any amount except out
of funds held or provided as aforesaid, nor shall Agent be obliged to incur any
liability or obligation unless the Owner shall furnish Agent with the necessary
funds for the discharge thereof. If Agent shall advance voluntarily for the
Owner’s account any amount, for the payment of any obligation or expense
authorized hereunder to be paid in connection with the maintenance and operation
of the Property, the Owner shall reimburse Agent therefor within ten (10) days
after demand.
4.
Indemnification;
Reimbursement
.
Owner
agrees:
(a)
To
indemnify, defend and hold harmless Agent from any and all claims for damages or
injuries to persons or property by reason of any cause whatsoever either in and
about the Property or elsewhere when Agent is carrying out the provisions of
this agreement or acting under the express or implied directions of the Owner,
unless arising solely from the gross negligence, bad faith or willful misconduct
of Agent in carrying out its duties hereunder;
(b)
To
reimburse Agent upon demand for any monies which Agent is required to pay out
for any reason whatsoever, either in connection with, or as an expense in
defense of, any claim, civil or criminal action, proceeding, charge or
prosecution made, instituted or maintained against Agent, or the Owner and Agent
jointly or severally, affecting or due to the condition or use of the Property
or acts or omissions of Agent or employees of the Owner, or arising out of or
based upon any law, regulation, requirement, contract or award relating to the
hours of employment, working conditions, wages and/or compensation of employees
or former employees of the Owner; and
(c)
To defend
promptly and diligently, at the Owner’s sole cost and expense, any claim, action
or proceeding brought against Agent, or Agent and the Owner jointly or
severally, arising out of or connected with any of the foregoing, and to hold
harmless and fully indemnify Agent from any judgment, loss or settlement on
account thereof.
It is
expressly understood and agreed that the provisions of this paragraph shall
survive the termination of this agreement, but this shall not be construed to
mean that liability of the Owner does not survive as to other provisions of this
agreement.
5.
Compensation
. Owner
shall pay Agent as compensation for services hereunder, other than for leasing
of space on behalf of the
Owner
, an
annual fee of eight hundred sixty-five thousand and 00/100 ($865,000.00) dollars
for the first year of the Term (hereinafter defined), and such annual fee shall
increase by five (5%) percent above the fee payable for the previous year for
each year throughout the Term. All annual fees to Agent shall be payable in
advance in equal monthly installments on the first day of each month, which
Agent may deduct from the Rent Charges or other funds collected by Agent for the
account of the
Owner
. Such
annual fee is intended to cover all salaries, payroll taxes, health care and
other employee costs in respect of Agent’s employees (collectively, “Employee
Expenses”). Any excess of such annual fee over the actual Employee Expenses for
any year during the Term (which shall be paid in the discretion of Agent) shall
be accrued by Agent and applied towards Employee Expenses in subsequent year(s)
during the Term, in Agent’s discretion; provided, however, that Agent shall have
no duty or obligation to account to Owner at the end of the Term for any such
accrued excess remaining at such time.
Agent
shall also be reimbursed, promptly after request therefor from time to time, for
all reasonable out-of-pocket expenses incurred by Agent in the performance of
its duties hereunder including, without limitation, office expenses, advertising
expenses and telephone charges, but not including the payment of Employee
Expenses (such reimbursable expenses aggregated approximately $75,000.00 for the
fiscal year ended August 31, 2005).
6.
Term
.
(a)
The term
of this agreement (“Term”) shall commence on the date first written above and
shall remain in effect for a term of five (5) years unless extended or sooner
terminated as provided herein. If Agent shall fail to substantially perform any
of its material services, agreements, representations, warranties, covenants, or
obligations herein, and shall fail to cure said failure within thirty (30) days
of notice of said failure sent by the Owner to Agent, the Owner
shall
have the right to terminate this agreement at the end of any calendar month on
not less than thirty (30) days’ prior written notice to Agent. If the Owner
shall
unreasonably refuse to comply with or abide by any proper rule, order,
determination, ordinance or law of any federal, state or municipal authority
having jurisdiction or asserting jurisdiction, Agent may terminate this
agreement at any time on thirty (30) days’ prior notice in writing to the Owner.
Agent may otherwise terminate this agreement on ninety (90) days’ prior written
notice to the Owner. If this agreement shall terminate on other than the last
day of a month, then the monthly installment of compensation payable to Agent
shall be prorated on a per diem basis. Upon termination, the parties shall
account to each other with respect to all uncompleted business, and Agent shall
deliver to the Owner all leases, books, records and other documents owned by or
belonging to the Owner which may be in the possession of Agent.
(b)
In the
event a petition in bankruptcy is filed by
Owner
or
Agent, or in the event that an involuntary petition is filed against
the
Owner
or Agent
and not discharged or bonded against within ninety (90) days, or in the event
that
the
Owner
or Agent
shall make an assignment for the benefit of creditors or take advantage of any
insolvency act, the other party hereto may forthwith terminate this agreement
without notice.
(c)
(I)
Subject
to and conditioned upon the satisfaction of all of the terms and conditions
hereinafter set forth including, without limitation, the timely payment by Owner
of the Termination Fee (as such term is hereinafter defined), Owner shall have
the right to terminate this agreement at any time after the second
(2
nd
) annual
anniversary of the commencement date of the term of this agreement (such right
is hereinafter referred to as “Owner’s Termination Right”). Such termination
shall be effective on the date (“Termination Date”) which shall be the last day
of any calendar month subsequent to the second (2
nd
)
anniversary of the commencement date of the term of this agreement as shall be
designated in a notice from Owner to Agent (“Termination Notice”) of Owner’s
exercise of Owner’s Termination Right. Owner shall give the Termination Notice
to Agent at least ninety (90) days prior to the date set forth in the
Termination Notice as the Termination Date. Owner’s Termination Right shall also
be subject to and conditioned upon the satisfaction of the following additional
conditions precedent: (i) Owner shall be required to terminate this agreement
for a good faith, bona fide business reason by an independent institutional
leasehold mortgagee providing funding to Owner in respect of the Property, and
Owner shall provide Agent with reasonably sufficient evidence of such
requirement prior to or simultaneously with the service of the Termination
Notice by Owner upon Agent; and (ii) together with Owner’s Termination Notice,
Owner shall pay to Agent, by official bank check payable to the direct order of
Agent, a termination fee (“Termination Fee”) in an amount equal to the sum of
(1) the aggregate amount of all sums due and to become due to Agent pursuant to
the provisions of paragraph 5 above and all other applicable provisions of this
agreement accrued from the Termination Date through and including the original
fixed expiration date of the term of this Agreement, without discount, and (2)
all unpaid sums due and to become due to Agent pursuant to paragraph 5 above and
all other applicable provisions of this Agreement, without discount, accrued
from the date the Termination Notice is served upon Agent through and including
the Termination Date. If any portion of the Termination Fee cannot be
established with certainty, such portion shall be reasonably estimated by Owner
based upon historical information for the calendar year immediately prior to the
calendar year in which the Termination Date shall occur, assuming a five (5%)
percent per year compounded increase for each subsequent calendar year.
(II)
Provided
and on condition that the Termination Notice shall be timely and properly served
upon Agent in accordance with the foregoing provisions of this paragraph 6
together with full and proper payment of the Termination Fee, this Agreement
shall be terminated effective as of the Termination Date, and the parties shall
have no further obligations or liabilities to each other under or pursuant to
this agreement from and after the Termination Date, except that Owner’s
obligation to pay Agent all compensation and other sums due to Agent under this
agreement through the Termination Date, Owner’s obligation to pay the full
amount of the Termination Fee to Agent, and Agent’s right to seek and obtain
arbitration as provided in this Agreement, shall survive the termination of this
Agreement.
7.
Relationship of Parties; No
Minimum Time Requirements
.
(a)
Nothing
contained in this agreement shall be deemed or construed to create a partnership
or joint venture between the Owner and Agent or to cause Agent to be responsible
in any way for the debts or obligations of the Owner or any other party, it
being the intention of the parties that the only relationship hereunder is that
of agent and principal.
(b)
Notwithstanding
anything to the contrary set forth in this agreement or any prior course of
conduct, it is expressly acknowledged and agreed by the parties that (i) Agent,
in Agent’s sole and absolute discretion, shall have the right to employ, engage
and discharge, for Agent’s own account, such persons as Agent shall from time to
time determine, whether or not any of such persons shall be employed or engaged
at any time(s) in connection with the management of the Property, (ii) neither
Robert S. Gettinger, Clark Gettinger, or any other principal or employee of
Agent shall be required to devote such person’s full time to the management of
the Property, and each of such persons shall devote only such time and effort to
the management of the Property as Agent shall determine, in its sole and
absolute judgment, shall be necessary for the performance of Agent’s obligations
under this agreement, (iii) the principals of Agent shall not be required to be
engaged by Agent as their sole and exclusive function, and such principals may
have other business interests and may engage in other business activities and
investments in addition to those relating to Agent’s business and (iv) the
incapacity or death of Robert S. Gettinger, Clark Gettinger or any other
principal or employee of Agent shall not affect the payment by Owner of Agent’s
compensation or any of Owner’s other obligations under this agreement.
8.
Captions
.
Captions have been inserted at the beginning of each section hereof for
convenience of reference only and such captions shall not affect the
construction or interpretation of any such section.
9.
Notices
. All
statements, requests and notices hereunder shall be in writing and shall be
sufficient in all respects if sent by certified or registered mail, or by a
nationally recognized next business day delivery service (such as Federal
Express), to the appropriate party at its address first above written. All such
sufficient statements, requests and notices hereunder shall be deemed given
three (3) business days after being deposited in the mails in a properly
addressed and sealed envelope, postage prepaid in the event of mailed notices,
or upon delivery, in the event of notices given by a next business day delivery
service. Any notice of change of address or of an additional person to receive
future notices shall not be effective until received.
10.
Counterparts;
Facsimile
. This
agreement may be executed in more than one counterpart which, taken together,
shall constitute the original of this agreement. This agreement may be validly
executed by means of facsimile signature.
11.
Assignment
. This
agreement and every provision hereof, shall bind, apply to and run in favor of
the Owner and Agent and their respective successors in interest and may not be
changed, waived or terminated orally. The Owner may not assign this agreement
without the written consent of Agent. Agent may assign this agreement and all of
Agent’s rights hereunder, and delegate all of Agent’s obligations hereunder, to
an entity which controls, or is controlled by, or is under common control with
Agent, and/or which is formed or to be formed by Robert Gettinger and/or Clark
Gettinger.
12.
Partial
Invalidity
. If any
term or provision of this agreement or the application thereof to any person or
circumstances shall, to any extent, be invalid or unenforceable, the remainder
of this agreement, or the application of such term to other persons or
circumstances, shall not be affected thereby, and each term and provision of
this agreement shall be invalid and be enforced to the fullest extent permitted
by law.
13.
Merger; Entire
Agreement
.
This
agreement contains the entire understanding of the parties with respect to the
subject matter hereof and supersedes any prior communication or agreement with
respect thereto.
14.
Applicable
Law
.
Without
limitation of any of the provisions of this Agreement
,
this
Agreement shall be construed and enforced in accordance with the internal laws
of the State of New York, without regard to any presumption or other rule or
custom requiring construction or interpretation against the party causing this
Agreement to be drafted.
15.
Attorneys’
Fees
.
Without
limitation of any of the provisions of this Agreement
,
in the
event that either party hereto shall commence litigation against the other in
connection herewith, the losing party in such action shall reimburse the
reasonable attorneys' fees, expenses and court costs of the prevailing party in
such action.
16.
Arbitration
. If any
dispute shall arise between or involving the parties hereto with respect to any
matter or thing relating to this Agreement, then such dispute shall be promptly
submitted to and decided by binding arbitration by the American Arbitration
Association in the County of New York in accordance with the Expedited
Procedures of the Commercial Arbitration Rules of the American Arbitration
Association, as same may hereafter be amended, supplemented, supplanted or
replaced. The award rendered by the arbitrators shall be final, and judgment may
be entered upon such award in accordance with applicable law in any court having
jurisdiction. Each party shall bear its own legal and accounting fees in
connection with such arbitration hearing and all filing fees shall be borne
equally by the parties; however, the arbitrators shall have the power to award
legal fees and costs to either party as the arbitrators may see fit.
17.
Guaranty
. By
execution of a copy of this agreement below, and as a material inducement to
Agent to enter into and perform under this agreement, Lightstone Holdings, LLC
(“Guarantor”) hereby absolutely, unconditionally and irrevocably guarantees to
Agent, and to Agent’s successors and assigns, the full and timely performance,
payment and observation by Owner of all of Owner’s covenants, obligations,
representations and warrantees under and/or pursuant to this agreement.
Guarantor hereby waives notice of acceptance of the provisions of this paragraph
17, notice of default under this agreement or any other notices required under
this agreement, and all other notices to which Guarantor might otherwise be
entitled, whether by statute, rule of law or otherwise, and any demand for
payment or performance under the provisions of this paragraph 17. Guarantor’s
obligations under this agreement shall remain in full force and effect without
regard to, and shall not be impaired or affected by: (a) any amendment,
extension, renewal or modification of, or addition or supplement to, any of the
terms, conditions or provisions of this agreement; (b) any compromise, release,
consent, extension, indulgence or other action or inaction with respect to any
of the terms, conditions or provisions of this agreement; (c) any exercise,
non-exercise or delay in exercise by Agent of any right, power or remedy under
or in respect of this agreement, or any waiver of any such right, power or
remedy; (d) any bankruptcy, insolvency, reorganization, arrangement, adjustment,
composition, liquidation, or the like of Owner or any other guarantor, or the
discharge or release of Owner or any other guarantor in any such bankruptcy
proceeding; (e) any sale, lease or transfer of any or all of the assets, shares
of stock, partnership interests or other ownership interests of Owner or
Guarantor or (f) any other circumstance, whether or not Guarantor, Owner or
Agent shall have had actual or constructive notice or knowledge thereof. The
liability of Guarantor is coextensive with that of Owner and also joint and
several with Owner, and action or suit may be brought against Guarantor and
carried to final judgment and/or completion and recovery had, either with or
without making Owner a party thereto. Insofar as the payment by of any sums of
money to Agent is involved, the provisions of this paragraph 17 constitute a
guaranty of payment and not of collection. The provisions of this paragraph 17
shall survive the expiration or earlier termination of the term of this
agreement.
THE REMAINDER OF THIS PAGE IS
INTENTIONALLY LEFT BLANK
IN
WITNESS WHEREOF, the parties hereto have executed this agreement as of the date
and year first above written.
|
|
|
|
1407 Broadway Real
Estate LLC, Owner
|
|
|
|
|
By:
|
/s/
David Lichtenstein
|
|
Name:
David Lichtenstein
|
|
Title:
President
|
|
|
|
|
Trebor Management
Corp., Agent
|
|
|
|
|
By:
|
/s/
Robert S. Gettinger
|
|
Name:
Robert S. Gettinger
|
|
Title:
President
|
GUARANTOR:
Lightstone
Holdings, LLC
|
|
|
|
|
|
|
|
By:
/s/ David Lichtenstein
|
|
|
|
Name:
David
Lichtenstein
|
|
|
|
Title:
President
|
|
|
|
EXHIBIT
10.25
PREPARED BY AND
UPON
RECORDATION RETURN
TO:
Weil,
Gotshal & Manges LLP
767 Fifth
Avenue
New York,
New York 10153
Attn: W.
Michael Bond, Esq.
1407 BROADWAY REAL ESTATE
LLC
,
Mortgagor
to
LEHMAN BROTHERS HOLDINGS
INC.
,
Mortgagee
___________________________________
LEASEHOLD
MORTGAGE, ASSIGNMENT OF LEASES AND
RENTS,
SECURITY AGREEMENT AND FIXTURE
FINANCING STATEMENT
AMOUNT OF MORTGAGE:
$106,000,000
___________________________________
Dated:
January 4, 2007
LOCATION
OF PREMISES
Street
Address:
|
535
Seventh Avenue, also known as 1407 Broadway
|
City
of
|
New
York
|
County
of
|
New
York
|
State
of
|
New
York
|
Block:
|
814
|
Lots:
|
15
|
TABLE OF CONTENTS
Page
ARTICLE
I
|
GRANTS
OF SECURITY
|
1
|
1.1
|
Property
Mortgaged
|
1
|
1.2
|
Pledge
of Monies Held
|
6
|
ARTICLE
II
|
DEBT
AND OBLIGATIONS SECURED
|
6
|
2.1
|
Debt
|
6
|
2.2
|
Other
Obligations
|
7
|
2.3
|
Debt
and Other Obligations
|
7
|
2.4
|
Payments
|
7
|
2.5
|
Advances
by Mortgagee
|
7
|
ARTICLE
III
|
MORTGAGOR
COVENANTS
|
7
|
3.1
|
Payment
of Debt
|
7
|
3.2
|
Warranty
of Title
|
8
|
3.3
|
Incorporation
by Reference
|
8
|
ARTICLE
IV
|
FURTHER
ASSURANCES
|
8
|
4.1
|
Recording
of Security Instrument, Etc.
|
8
|
4.2
|
Further
Acts, Etc.
|
9
|
4.3
|
Changes
in Tax, Debt Credit and Documentary Stamp Laws
|
9
|
4.4
|
Leasehold
Mortgage Provisions
|
9
|
ARTICLE
V
|
ASSIGNMENT
OF RENTS
|
15
|
5.1
|
Assignment
of Rents
|
15
|
ARTICLE
VI
|
SECURITY
AGREEMENT
|
16
|
6.1
|
Security
Agreement
|
16
|
ARTICLE
VII
|
DUE
ON SALE/ENCUMBRANCE
|
17
|
7.1
|
No
Sale/Encumbrance
|
17
|
ARTICLE
VIII
|
PREPAYMENT
|
17
|
8.1
|
Prepayment
Only in Accordance with Note
|
17
|
ARTICLE
IX
|
DEFAULT
|
17
|
9.1
|
Events
of Default
|
17
|
ARTICLE
X
|
RIGHTS
AND REMEDIES
|
17
|
10.1
|
Remedies
|
17
|
TABLE OF CONTENTS
(continued)
Page
10.2
|
Other
Rights, Etc.
|
21
|
10.3
|
Right
to Release Any Portion of the Property
|
22
|
ARTICLE
XI
|
WAIVERS
|
22
|
11.1
|
Waiver
of Trial By Jury
|
22
|
11.2
|
Additional
Waivers
|
22
|
11.3
|
Mortgagor's
Waivers
|
23
|
ARTICLE
XII
|
EXCULPATION
|
23
|
12.1
|
Exculpation
|
23
|
ARTICLE
XIII
|
NOTICES
|
23
|
13.1
|
Notices
|
23
|
ARTICLE
XIV
|
APPLICABLE
LAW
|
23
|
14.1
|
Choice
of Law
|
23
|
14.2
|
Provisions
Subject to Applicable Law
|
24
|
ARTICLE
XV
|
MISCELLANEOUS
PROVISIONS
|
24
|
15.1
|
Survival
|
24
|
15.2
|
No
Oral Change
|
24
|
15.3
|
Duplicate
Originals; Counterparts
|
24
|
15.4
|
Number
and Gender
|
24
|
15.5
|
Headings,
Etc.
|
24
|
15.6
|
Inapplicable
Provision
|
25
|
15.7
|
General
Definitions
|
25
|
15.8
|
Entire
Agreement
|
25
|
15.9
|
Time
|
25
|
15.10
|
Liability
|
25
|
15.11
|
Binding
Effect
|
25
|
15.12
|
Subrogation
|
25
|
15.13
|
Exhibits
|
26
|
15.14
|
Future
Advances
|
26
|
16.1
|
Trust
Fund
|
26
|
16.2
|
Property
Encumbered
|
26
|
TABLE OF CONTENTS
(continued)
Page
16.3
|
Insurance
|
26
|
16.4
|
Leases
|
27
|
16.5
|
Statutory
Construction
|
27
|
16.6
|
Maximum
Amount Secured
|
27
|
16.7
|
Payment
of Transfer Taxes
|
27
|
16.8
|
Inconsistencies
|
28
|
|
|
|
THIS
LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FINANCING STATEMENT (the "
Security Instrument
") is
made as of the 4th day of January, 2007, by 1407 BROADWAY REAL ESTATE LLC, a
Delaware limited liability company, having an address at c/o The Lightstone
Group, 326 Third Street, Lakewood, New Jersey 08701 ("
Mortgagor
"), to
LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation (individually and as lead
arranger and administrative agent for itself and certain co-lenders), having an
address at 399 Park Avenue, 8th Floor, New York, New York 10022 ("
Mortgagee
").
RECITALS:
A.
Borrower
owns the subleasehold estate in certain real property located at 1407 Broadway,
Borough of Manhattan, City of New York, New York pursuant to the terms of that
certain Sublease (as defined below), whose metes and bounds are more
particularly described on
Exhibit
A
attached
hereto.
B.
This
Security Instrument is given in connection with that certain Loan Agreement (the
"
Loan Agreement
") dated
of even date herewith, by and between the Mortgagor and the Mortgagee herewith
pursuant to which Mortgagor has obtained a loan in the amount of up to
$127,250,000 (the "
Loan
").
C.
Mortgagor
desires to secure the payment of the Debt (hereinafter defined) and the
performance of all of Mortgagor's obligations under the Note and the other Loan
Documents. Capitalized terms used, but not defined, herein shall have the
meanings given to such terms in the Loan Agreement.
ARTICLE I
GRANTS OF
SECURITY
1.1
Property Mortgaged
.
NOW,
THEREFORE, in order to secure the payment of the Debt and the performance of the
Obligations (hereinafter defined) in the principal amount of $106,000,000 and in
consideration of Ten and No/100 Dollars ($10.00) in hand paid by Mortgagee to
Mortgagor, the Recitals above stated, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Mortgagor GRANTS, BARGAINS, SELLS, ASSIGNS, RELEASES, ALIENS, TRANSFERS,
WARRANTS, DEMISES, CONVEYS and MORTGAGES to Mortgagee and its successors and
assigns forever and grants to Mortgagee and its successors and assigns forever a
continuing security interest in and to all assets of Mortgagor, including all of
Mortgagor's right, title and interest including the Leasehold Estate
(hereinafter defined), together with all of Mortgagor's right, title and
interest in and to the following described property, all of which other property
is pledged primarily on a parity with the Leasehold Estate and not secondarily
(the Leasehold Estate and the following property are collectively referred to as
the "
Property
"):
(a)
Premises
. The
subleasehold estate pursuant to that certain lease agreement, dated as of
February 1, 1954, between Webb & Knapp, Inc. (“
Webb & Knapp
”) and
Gettinger Associates and recorded on February 6, 1954 in Liber 4868 cp 339 (the
“
Sublease
”),
together with all of the Mortgagor’s right, title, interest and privileges in,
to and otherwise by virtue of the Sublease (the "
Leasehold Estate
");
(b)
Additional
Land
. All
additional lands, estates and development rights hereafter acquired by Mortgagor
for use in connection with the Leasehold Estate and the development of the
Leasehold Estate that may, from time to time, by supplemental security
instrument or otherwise, be expressly made subject to the Lien of this Security
Instrument;
(c)
Improvements
. All
buildings, structures, fixtures, additions, enlargements, extensions,
modifications, repairs, replacements and improvements now or hereafter erected
or located on the Leasehold Estate, including, but not limited to, all
apparatus, equipment, and appliances used in the operation or occupancy of the
real property described above, it being intended by the parties that all such
items shall be conclusively considered to be a part of the Leasehold Estate,
whether or not attached or affixed to the Leasehold Estate (the "
Improvements
")
;
together with all mineral, oil and gas and other hydrocarbon substances in, on
or under the Leasehold Estate;
(d)
After Acquired
Property
. All
property acquired by Mortgagor after the date of this Security Instrument which
by the terms of this Security Instrument shall be subject to the Lien and/or the
security interest created hereby, shall immediately upon the acquisition thereof
by Mortgagor and without any further mortgage, conveyance or assignment become
subject to the Lien and security interest created by this Security
Instrument;
(e)
Easements
. All
easements, rights-of-way or use, rights, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights and credits, and all estates, rights,
titles, interests, privileges, liberties, servitudes, tenements, hereditaments
and appurtenances of any nature whatsoever, in any way now or hereafter
belonging, relating or pertaining to the Leasehold Estate and the Improvements
and the reversion and reversions, remainder and remainders, and all land lying
in the bed of any street, road or avenue, opened or proposed, in front of or
adjoining the Leasehold Estate, to the center line thereof and all the estates,
rights, titles, interests, dower and rights of dower, curtesy and rights of
curtesy, property, possession, claim and demand whatsoever, both at law and in
equity, of Mortgagor of, in and to the Leasehold Estate and the Improvements and
every part and parcel thereof, with the appurtenances thereto; and all interest
or estate which Mortgagor may hereafter acquire in the property described above,
and all additions and accretions thereto, and the proceeds of any of the
foregoing;
(f)
Fixtures and Personal
Property
. All
goods, furnishings, work in progress, machinery, equipment, fixtures (including
all heating, air conditioning, plumbing, lighting, communications and elevator
fixtures) and other property of every kind and nature whatsoever owned by
Mortgagor, or in which Mortgagor has or shall have an interest, now or hereafter
located upon the Leasehold Estate or the Improvements, or appurtenant thereto,
and used in connection with the present or future operation and occupancy of the
Leasehold Estate and the Improvements and all building equipment, materials and
supplies of any nature whatsoever owned by Mortgagor, or in which Mortgagor has
or shall have an interest, now or hereafter located upon the Leasehold Estate
and the Improvements, or appurtenant thereto, or used in connection with the
present or future operation and occupancy of the Leasehold Estate and the
Improvements (collectively, the "
Personal Property
"), and
the right, title and interest of Mortgagor in and to any of the Personal
Property which may be subject to any security interests, as defined in the
Uniform Commercial Code, as adopted and enacted by the state or states where any
of the Leasehold Estate is located (the "
Uniform Commercial
Code
" or
"
UCC
"),
superior in lien to the Lien of this Security Instrument and all proceeds and
products of the above;
(g)
Leases and
Rents
. All
current and future leases, rental agreements, occupancy agreements and other
agreements of whatever form now or hereafter affecting the use, enjoyment or
occupancy of, or the conduct of any activity upon or in, all or any part of the
Leasehold Estate or the Improvements, including any guaranties, extensions,
renewals, replacements or modifications thereof, whether before or after the
filing by or against Mortgagor of any petition for relief under 11 U.S.C. § 101
et
seq
. (the
"
Bankruptcy Code
"), as
the same may be amended from time to time (the "
Leases
") and
all rents, rent equivalents, moneys payable as damages or in lieu of rent or
rent equivalents, royalties (including all oil and gas or other mineral
royalties and bonuses), income, receivables, receipts, revenues, deposits
(including security, utility and other deposits), accounts, cash, issues, fees,
profits, charges for services rendered, and other consideration of whatever form
or nature received by or paid to or for the account of or benefit of Mortgagor
or its agents or employees from any and all sources (including any warrants,
stock options or other rights granted to Mortgagor, any principal or their
Affiliates in connection with any Lease) arising from or attributable to the
Leasehold Estate and the Improvements, together with all proceeds from the sale
or other disposition of the Leases and the right to receive and apply the Rents
to the payment of the Debt and all right, title and interest of Mortgagor, its
successors and assigns therein and thereunder, including all guarantees, letters
of credit and any other credit support given by any guarantor in connection
therewith, cash or securities deposited under the Leases to secure the
performance by the lessees of their obligations thereunder and all rents,
additional rents, revenues, issues and profits (including all oil and gas or
other mineral royalties and bonuses) from the Leasehold Estate and the
Improvements whether paid or accruing before or after the filing by or against
Mortgagor of any petition for relief under the Bankruptcy Code (collectively,
the "
Rents
") and
all proceeds from the sale or other disposition of the Leases and the right to
receive and apply the Rents to the payment of the Debt;
(h)
Condemnation
Awards
. All
awards or payments, including interest thereon, which may heretofore and
hereafter be made with respect to the Leasehold Estate, whether from the
exercise of the right of eminent domain (including any transfer made in lieu of
or in anticipation of the exercise of the right), or for a change of grade, or
for any other injury to or decrease in the value of the Leasehold
Estate;
(i)
Insurance
Proceeds
. All
proceeds of and any unearned premiums on any insurance policies covering the
Leasehold Estate, including the right to receive and apply the proceeds of any
insurance judgments, or settlements made in lieu thereof, for damage to the
Property;
(j)
Tax
Certiorari
. All
refunds, rebates or credits in connection with a reduction in real estate taxes
and assessments charged against the Leasehold Estate as a result of tax
certiorari or any applications or proceedings for reduction;
(k)
Rights
. The
right, in the name and on behalf of Mortgagor, to commence any action or
proceeding to protect the interest of Mortgagee in the Leasehold Estate and
while an Event of Default remains uncured, to appear in and defend any action or
proceeding brought with respect to the Leasehold Estate;
(l)
Agreements
. All
agreements, contracts, certificates, instruments, franchises, permits, licenses,
plans, specifications and other documents, now or hereafter entered into, and
all rights therein and thereto, respecting or pertaining to the use, occupation,
construction, management or operation of the Leasehold Estate and any part
thereof and any Improvements or respecting any business or activity conducted on
the Property and any part thereof and all agreements with management agents,
leasing agents, sales agents, service and maintenance agents, contractors and
other third parties, whether now existing or hereafter arising, relating to the
management, operation, leasing, sale, maintenance or repair of the Property,
including equipment leases, personal property leases, purchase and sale
agreements, together with any amendments or modifications thereto and any
replacements thereof executed during the term of the Loan; any and all contract
rights (including any contract with any architect or engineer or with any other
provider of goods or services for or in connection with any construction, repair
or other work upon the Property) relating to the Property; and any and all
warranties and guaranties relating to the Property or any fixtures, equipment or
personal property owned by Mortgagor and located on and/or used in connection
with the Property now existing or hereafter arising; any and all plans, permits,
licenses, certificates of use and occupancy (or their equivalent), trade names,
insurance policies, applications and approvals issued by any Governmental
Authority or agency relating to the construction, ownership, operation and/or
use of the Property, whether now existing or hereafter arising; and any and all
rights, powers, privileges, claims, remedies and causes of action of every kind
which Mortgagor now has or may in the future have with respect to or by reason
of its interest in the contracts or any other items referenced above, and all
right, title and interest of Mortgagor therein and thereunder, including the
right, while an Event of Default remains uncured, to receive and collect any
sums payable to Mortgagor thereunder.
(m)
Service
Rights
. Any
agreements, contracts, rights, licenses or other interests of any type
(collectively, the "
Service Rights
")
(whether exclusive or non-exclusive) granted or given to any Person to provide
any products or services to or for or with respect to the Leasehold Estate, any
Tenant or any occupants of the Leasehold Estate, including any of the same
related to telecommunications,
internet
products or services, including, but not limited to, personal computer hardware
and software, internet hardware and software, internet access services,
printers, video display systems, audio sound systems and communication
telephonic devices, as well as related and complementary products and services
and any substitutes for, and items that are a technological evolution of, any of
the foregoing products.
(n)
Intangibles
. All
accounts, escrows, documents, instruments, chattel paper, claims, deposits and
other general intangibles, as the foregoing terms are defined in the Uniform
Commercial Code of the state in which the Property is located; all franchises,
trade names, trademarks, symbols, service marks, logos, copyrights, goodwill,
books, records, plans, specifications, designs, drawings, permits, consents,
licenses, all rights, interest and privileges that now or hereafter relate to,
are derived from or are used in connection with the Leasehold Estate, the
Improvements or the Personal Property, or the use, operation, maintenance,
occupancy or enjoyment thereof or the conduct of any business or activities
thereon, including without limitation, any rights which Mortgagor or Mortgagor's
Affiliates now or may hereafter have as developer or declarant under any
covenants, conditions, restrictions or declarations now or hereafter relating to
the Leasehold Estate or the Improvements; and all approvals, actions, refunds of
real estate taxes and assessments (and any other governmental impositions
related to the Property), and causes of action that now or hereafter relate to,
are derived from or are used in connection with the Leasehold Estate, the
Improvements or the Personal Property, or the use, operation, maintenance,
occupancy or enjoyment thereof or the conduct of any business or activities
thereon (hereinafter collectively referred to as the "
Intangibles
");
(o)
Options
. All
options to purchase and rights of first refusal to purchase or acquire a fee
estate, easement interest or other real property right to land, both vacant and
improved, adjoining the Leasehold Estate now or hereafter in
effect;
(p)
Conversion
. All
proceeds of the conversion, voluntary or involuntary, of any of the foregoing
including proceeds of insurance and condemnation awards, into cash or
liquidation claims;
(q)
Other
Rights
.
Inventory, cash receipts, deposit accounts, accounts receivable, contract
rights, licenses, agreements, notes, drafts, letters of credit, all proceeds of
the conversion, voluntary or involuntary, of any of the foregoing including
proceeds of insurance and condemnation awards, into cash or liquidation claims;
any other rights to the payment of money; all permits, consents, approvals,
licenses, authorizations and other rights granted by, given by or obtained from,
any Governmental Authority with respect to the Property; all deposits or other
security now or hereafter made with or given to utility companies by Mortgagor
with respect to the Property; all plans, drawings and specifications relating to
the Property; all loan funds held by Mortgagee, whether or not disbursed; all
funds deposited with Mortgagee pursuant to any loan agreement; all reserves,
deferred payments, deposits, accounts, refunds, cost savings and payments of any
kind related to the Property or any portion thereof (including, but not limited
to all refunds, rebates or credits in connection with a reduction in real estate
taxes and assessments charged against the Property as a result of tax certiorari
or any applications or proceedings for reduction of taxes); the right, in the
name and on behalf of Mortgagor, to commence any action or proceeding to protect
the interest of Mortgagee in the Property and while an Event of Default remains
uncured, to appear in and defend any action or proceeding brought with respect
to the Property; all options to purchase and rights of first refusal to purchase
or acquire a fee estate, easement interest or other real property right to land,
both vacant and improved, adjoining the Leasehold Estate now or hereafter in
effect; together with any proceeds, products, offspring, rents and profits from
any of the foregoing, including those from sale, exchange, transfer, collection,
loss, damage, disposition, substitution or replacement of any of the foregoing;
together with all books, records and files relating to any of the foregoing;
and
(r)
Proceeds
. All
proceeds, products, offspring, rents and profits from any of the foregoing,
including those from sale, exchange, transfer, collection, loss, damage,
disposition, substitution or replacement of any of the foregoing.
As to all
of the above described Property which is or which hereafter becomes a "fixture"
under applicable law, this Security Instrument constitutes a fixture filing
under the UCC, as amended or recodified from time to time.
1.2
Pledge of Monies
Held
.
Mortgagor hereby pledges to Mortgagee, and grants to Mortgagee a security
interest in, any and all monies now or hereafter held by Mortgagee pursuant to
the Loan Agreement or the other Loan Documents (including the Reserves) as
additional security for the Obligations until expended or applied or required to
be applied as provided in this Security Instrument, the Loan Agreement and the
other Loan Documents.
CONDITIONS TO
GRANT
TO HAVE
AND TO HOLD the Property hereby mortgaged and conveyed, or so intended, unto the
Mortgagee and its successors and assigns, forever;
PROVIDED,
HOWEVER, these presents are upon the express condition that, if Mortgagor shall
well and truly pay to Mortgagee the Debt at the time and in the manner provided
in the Note, this Security Instrument and the other Loan Documents, shall well
and truly perform the Other Obligations as set forth in this Security Instrument
and the other Loan Documents and shall well and truly abide by and comply with
each and every covenant and condition set forth in the Loan Documents, these
presents and the estate hereby granted shall cease, terminate and be void.
ARTICLE II
DEBT AND OBLIGATIONS
SECURED
2.1
Debt
. This
Security Instrument and the grants, assignments and transfers made in
Article I
are
given for the purpose of securing the following, in such order of priority as
Mortgagee may determine in its sole discretion (the "
Debt
"): (1)
all principal, interest and other amounts due under or secured by the Loan
Documents; (2) the payment of all other monies agreed or provided to be paid by
Mortgagor in the Note or the other Loan Documents; (3) the payment of all sums
advanced pursuant to this Security Instrument to protect and preserve the
Property and the Lien and the security interest created hereby; (4) the payment
of all sums advanced and costs and expenses incurred by Mortgagee in connection
with the Debt or any part thereof, any renewal, extension, modification,
consolidation, change, substitution or restatement or any part thereof, or the
acquisition or perfection of the security therefor, whether made or incurred at
the request of Mortgagor or Mortgagee (including, without limitation, (i)
modifications of the required principal payment dates or interest payment dates
or both, as the case may be, deferring or accelerating payment dates wholly or
partly; or (ii) modifications, extensions or renewals of the Debt or any
part thereof at a different rate of interest whether or not in the case of a
note, the modification, extension or renewal is evidenced by a new or additional
promissory note or notes); (5) all principal, interest, and other amounts which
may hereafter be loaned by Mortgagee, its successors or assigns, to or for the
benefit of the owner of the Property, when evidenced by a promissory note or
other instrument which, by its terms, is secured hereby; (6) all other
indebtedness, obligations and liabilities now or hereafter existing of any kind
of Mortgagor to Mortgagee under documents which recite that they are intended to
be secured by this Security Instrument; and (7) payment and performance of all
covenants and obligations hereunder and under the Loan Documents, if
any.
2.2
Other Obligations
. This
Security Instrument and the grants, assignments and transfers made in
Article I
are also
given for the purpose of securing the performance of all of the agreements,
covenants, conditions, warranties, representations and other obligations (other
than to repay the Debt) made or undertaken by Mortgagor or any other Person to
Mortgagee or others as set forth in the Loan Documents (the "
Other Obligations
").
2.3
Debt and Other
Obligations
. The
obligations of Mortgagor and all other Persons for the payment of the Debt and
the performance of the Other Obligations shall be referred to herein
collectively as the "
Obligations
". The
term "
Obligations
" is used
herein in its broadest and most comprehensive sense and shall be deemed to
include, without limitation, all interest and charges, prepayment premiums (if
any), late charges and loan fees at any time accruing or assessed on any of the
Debt.
2.4
Payments
. Unless
payments are made in the required amount in immediately available funds at the
place where the Note is payable, remittances in payment of all or any part of
the Debt shall not, regardless of any receipt or credit issued therefor,
constitute payment until the required amount is actually received by Mortgagee
in funds immediately available at the place where the Note is payable (or any
other place as Mortgagee, in Mortgagee's sole discretion, may have established
by delivery of written notice thereof to Mortgagor) and shall be made and
accepted subject to the condition that any check or draft may be handled for
collection in accordance with the practice of the collecting bank or banks.
Acceptance by Mortgagee of any payment in an amount less than the amount then
due shall be deemed an acceptance on account only, and the failure to pay the
entire amount then due (subject to applicable cure periods) shall be and
continue to be an Event of Default.
2.5
Advances by
Mortgagee
. It is
specifically understood and agreed that all funds which are advanced by
Mortgagee and employed in performance of the obligations of Mortgagor under this
Mortgage, the Loan Agreement or the other Loan Documents, including, without
limitation, advances made to pay any interest accrued on the principal under the
Note as the same becomes due from time to time under the terms of the Note
and/or Loan Agreement, or which are advanced in the exercise of Mortgagee's
judgment that the same are necessary or desirable to complete, operate, maintain
or market the Property or to protect Mortgagee's security under the Loan
Documents, shall, because of economic necessity and compulsion, be deemed
advanced by Mortgagee under an obligation to do so regardless of the identity of
the person or persons to whom such funds are furnished and shall be added to the
Debt evidenced by the Note and shall be equally secured by this Mortgage and
shall have the same priority as all amounts, if any, advanced as of the date
hereof.
ARTICLE III
MORTGAGOR
COVENANTS
Mortgagor
covenants and agrees with Mortgagee that:
3.1
Payment of Debt
.
Mortgagor will pay the Debt at the time and in the manner provided in the Loan
Documents.
3.2
Warranty of Title
.
Mortgagor hereby warrants that: (a) Mortgagor has good, marketable and
insurable title to the Leasehold Estate, including the right to encumber the
Property; (b) Mortgagor has the full power, authority and right to execute,
deliver and perform its Obligations under this Security Instrument and to
encumber, grant, bargain, sell, convey, assign and mortgage the Property in
accordance with the terms hereof; (c) Mortgagor possesses an unencumbered
interest in the Leasehold Estate and the Improvements and Mortgagor owns the
Property free and clear of all Liens, encumbrances and charges whatsoever except
for those exceptions shown in the title insurance policy insuring the Lien of
this Security Instrument; and (d) this Security Instrument is and will remain a
valid and enforceable first Lien on and security interest in the Property,
subject only to those exceptions shown in the title insurance policy insuring
the Lien of this Security Instrument. Mortgagor shall forever warrant, defend
and preserve such title and the validity and priority of the Lien of this
Security Instrument and shall forever warrant and defend the same to Mortgagee
against the claims of all Persons whomsoever. The foregoing warranty of title
shall survive the foreclosure of this Security Instrument and shall inure to the
benefit of and be enforceable by Mortgagee in the event Mortgagee acquires title
to the Property pursuant to any foreclosure or deed in lieu of foreclosure or
otherwise.
3.3
Incorporation by
Reference
. All the
covenants, conditions, terms, provisions and agreements contained in (a) the
Note and (b) the other
Loan
Documents, are hereby made a part of this Security Instrument to the same extent
and with the same force as if fully set forth herein, including, but not
limited, to
Section
5.20
of the
Loan Agreement (Operation of Property) and
Section
6.2
of the
Loan Agreement (Tax and Insurance Escrows). All Persons who may have or acquire
an interest in the Property shall be deemed to have notice of the terms of the
Obligations and to have notice, if provided therein, that: (a) the Note or the
Loan Agreement may permit borrowing, repayment and re-borrowing so that
repayments shall not reduce the amounts of the Obligations; and (b) the rate of
interest on one or more Obligations may vary from time to time.
ARTICLE IV
FURTHER
ASSURANCES
4.1
Recording of Security Instrument,
Etc.
Mortgagor forthwith upon the execution and delivery of this Security Instrument
and thereafter, from time to time, will cause this Security Instrument and any
of the other Loan Documents (including all UCC financing statements) creating a
Lien or security interest or evidencing the Lien hereof upon the Property and
each instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect and perfect the Lien or security
interest hereof upon, and the interest of Mortgagee in, the Property. Mortgagor
will pay all taxes, filing, registration or recording fees, and all reasonable
expenses incident to the preparation, execution, acknowledgment and/or recording
of the Note, this Security Instrument, the other Loan Documents, any note or
mortgage supplemental hereto, any security instrument with respect to the
Property and any instrument of further assurance, and any modification or
amendment of the foregoing documents, and all federal, state, county and
municipal taxes, duties, imposts, assessments and charges arising out of or in
connection with the execution and delivery of this Security Instrument, any
mortgage supplemental hereto, any security instrument with respect to the
Property or any instrument of further assurance, and any modification or
amendment of the foregoing documents, except where prohibited by law so to
do.
4.2
Further Acts, Etc.
Mortgagor will, at the sole cost and expense of Mortgagor, and without any cost
or expense to Mortgagee, do, execute, acknowledge and deliver all and every such
further acts, deeds, conveyances, mortgages, assignments, notices of
assignments, transfers and assurances as Mortgagee shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Mortgagee, the Property and rights hereby mortgaged,
granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and
transferred or intended now or hereafter so to be, or which Mortgagor may be or
may hereafter become bound to convey or assign to Mortgagee, or for carrying out
the intention or facilitating the performance of the terms of this Security
Instrument or for filing, registering or recording this Security Instrument, or
for complying with all Legal Requirements. Mortgagor, on demand, will execute
and deliver and hereby authorizes Mortgagee to execute in the name of Mortgagor
or without the signature of Mortgagor to the extent Mortgagee may lawfully do
so, one or more financing statements, chattel mortgages or other instruments, to
evidence or perfect more effectively the security interest of Mortgagee in the
Property. Mortgagor grants to Mortgagee an irrevocable power of attorney coupled
with an interest for the purpose of exercising and perfecting any and all rights
and remedies available to Mortgagee pursuant to this
Section
4.2
, and
Mortgagor hereby acknowledges and agrees that Mortgagor shall have no claim or
cause of action against Mortgagee arising out of Mortgagee's execution and/or
recordation of any instruments by or on behalf of Mortgagor pursuant to the
foregoing power of attorney.
4.3
Changes in Tax, Debt Credit and
Documentary Stamp Laws
.
(a)
If
any law is enacted or adopted or amended after the date of this Security
Instrument which deducts the Debt from the value of the Property for the purpose
of taxation or which imposes a tax, either directly or indirectly, on the Debt
or Mortgagee's interest in the Property, Mortgagor will pay the tax, with
interest and penalties thereon, if any. If Mortgagee is advised by counsel
chosen by Mortgagee that the payment of tax by Mortgagor would be unlawful or
taxable to Mortgagee or unenforceable or provide the basis for a defense of
usury, then Mortgagee shall have the option by written notice of not less than
ninety (90) days to declare the Debt immediately due and payable.
(b)
Mortgagor
will not claim or demand or be entitled to any credit or credits on account of
the Debt for any part of the Taxes or Other Charges assessed against the
Property, or any part thereof, and no deduction shall otherwise be made or
claimed from the assessed value of the Property, or any part thereof, for real
estate tax purposes by reason of this Security Instrument or the Debt. If such
claim, credit or deduction shall be required by law, Mortgagee shall have the
option, by written notice of not less than ninety (90) days, to declare the Debt
immediately due and payable.
(c)
If at any
time the United States of America, any State thereof or any subdivision of any
such State shall require revenue or other stamps to be affixed to the Note, this
Security Instrument, or any of the other Loan Documents or impose any other tax
or charge on the same, Mortgagor will pay for the same, with interest and
penalties thereon, if any.
4.4
Leasehold Mortgage
Provisions.
(a)
Mortgagor
hereby covenants, warrants and represents as follows:
(i)
to
Mortgagor’s knowledge, that certain lease, dated as of January 14, 1954, between
The Prudential Insurance Company of America, as landlord, and Webb & Knapp,
as tenant (such lease, as amended and assigned, the “
Ground Lease
”) and
the Sublease are in full force and effect, unmodified by any writing or
otherwise, except as otherwise previously disclosed;
(ii)
to
Mortgagor’s knowledge, all rent, additional rent and/or other charges reserved
in or payable under the Ground Lease and the Sublease have been paid to the
extent that they are due to the date hereof;
(iii)
Mortgagor
enjoys the quiet and peaceful possession of the Leasehold Estate;
(iv)
except
for the claims made in the Kamber Litigation and the letter from Kamber’s
attorneys and as otherwise previously disclosed to Mortgagee, Mortgagor and the
lessor under the Sublease (the “
Sublessor
”) have
not delivered or received any notices of default under the Ground Lease and/or
the Sublease and, to the best of Mortgagor's knowledge, is not in default under
any of the terms of the Ground Lease and/or the Sublease and there are no
circumstances which, with the passage of time or the giving of notice or both,
would constitute a default under the Ground Lease and/or the
Sublease;
(v)
except as
previously disclosed to Mortgagee, the granting of this Mortgage does not
violate the terms of the Ground Lease and/or the Sublease nor is the consent of
the lessor under the Ground Lease (the "
Ground Lessor
") and/or
the consent of the Sublessor required to be obtained in connection with the
granting of this Mortgage;
(vi)
to the
best of Mortgagor's knowledge, the Ground Lessor and/or Sublessor are not in
default under any of the terms of the Ground Lease and/or the Sublease on their
part to be observed or performed;
(vii)
to the
best of Mortgagor's knowledge, Mortgagor has delivered to Mortgagee true,
accurate and complete copies of the Ground Lease and the Sublease;
(viii)
Mortgagor
shall pay the rent and all other sums and charges mentioned in, and payable
under, the Sublease and shall cause the Sublessor to pay rent and other sums and
charges payable under the Ground Lease prior to same becoming
delinquent;
(ix)
Mortgagor
shall timely perform and observe all of the terms, covenants and conditions
required to be performed and observed by the lessee under the Sublease, the
breach of which could permit any party to the Sublease to validly terminate the
Sublease (including, but without limiting the generality of the foregoing, any
payment obligations), shall do all things necessary to preserve and to keep
unimpaired its rights under the Sublease, shall not waive, excuse or discharge
any of the material obligations of the Sublease without Mortgagee's prior
written consent in each instance, and shall diligently and continuously enforce
the obligations of the Sublessor;
(x)
Mortgagor
shall cause the Sublessor to timely perform and observe all of the terms,
covenants and conditions required to be performed and observed by the lessee
under the Ground Lease, the breach of which could permit any party to the Ground
Lease to validly terminate the Ground Lease (including, but without limiting the
generality of the foregoing, any payment obligations), shall cause the Sublessor
to do all things necessary to preserve and to keep unimpaired its rights under
the Ground Lease, shall cause the Sublessor not to waive, excuse or discharge
any of the material obligations of the Ground Lease without Mortgagee's prior
written consent in each instance, and shall cause the Sublessor to diligently
and continuously enforce the obligations of the Ground Lessor;
(xi)
Mortgagor
shall not do or knowingly and intentionally permit or suffer any event or
omission as a result of which there could occur a default under the Sublease
which would remain uncured after the applicable grace period or any event which,
with the giving of notice or the passage or time, or both, would constitute a
default under the Sublease, which could permit any party to the Sublease to
validly terminate the Sublease (including, but without limiting the generality
of the foregoing, a default in any payment obligation);
(xii)
Mortgagor
shall cause the Sublessor not to do or knowingly and intentionally permit or
suffer any event or omission as a result of which there could occur a default
under the Ground Lease which would remain uncured after the applicable grace
period or any event which, with the giving of notice or the passage or time, or
both, would constitute a default under the Ground Lease, which could permit any
party to the Ground Lease to validly terminate the Ground Lease (including, but
without limiting the generality of the foregoing, a default in any payment
obligation);
(xiii)
Mortgagor
shall not cancel, terminate, surrender, modify or amend or in any way permit the
alteration of any of the provisions of the Sublease or agree to any termination,
amendment, modification or surrender of the Sublease without Mortgagee's prior
written consent in each instance. Mortgagor hereby assigns to Mortgagee, as
further security for the payment of the Indebtedness and for the performance and
observance of the terms, covenants and conditions of the Loan Documents, all of
the rights, privileges and prerogatives of Mortgagor to surrender the Sublease
or to terminate, cancel, modify, change, supplement, alter or amend the
Sublease, and any such surrender of the Sublease or termination, cancellation,
change, supplement, alteration or amendment of the Sublease, without the prior
written consent of Mortgagee, shall be void and of no force and effect
(provided, however, so long as there is no breach of or default under any of the
covenants or agreements herein contained to be performed by Mortgagor, or in the
performance by Mortgagor of any of the terms, covenants and conditions contained
in the Sublease, Mortgagee shall have no right to terminate, cancel, modify,
change, supplement, alter or amend the Sublease);
(xiv)
Mortgagor
shall promptly notify Mortgagee of any material defaults by any party under the
Sublease and shall deliver to Mortgagee copies of any notice of default by any
party under the Sublease, or of any notice from the Sublessor of its intention
to terminate the Sublease or to re-enter and take possession of the Property,
promptly upon delivery or receipt of such notice, as the case may
be;
(xv)
Mortgagor
shall notify Mortgagee of any material defaults by any party under the Ground
Lease and shall deliver to Mortgagee copies of any notice of default by any
party under the Ground Lease, or of any notice from the Ground Lessor of its
intention to terminate the Ground Lease or to re-enter and take possession of
the Property, promptly upon delivery or receipt of such notice, as the case may
be;
(xvi)
Mortgagor
shall, in a timely manner, furnish to Mortgagee copies of such information and
evidence as Mortgagee may reasonably request concerning Mortgagor's due
observance, performance and compliance with the terms, covenants and conditions
of the Sublease;
(xvii)
Mortgagor
shall, in a timely manner, furnish to Mortgagee copies of such information and
evidence as Mortgagee may reasonably request concerning Sublessor's due
observance, performance and compliance with the terms, covenants and conditions
of the Ground Lease;
(xviii)
Subject
to the terms and conditions of the Sublease, Mortgagor shall not consent to the
subordination of the Sublease to any mortgages of the fee interest in the
Leasehold Estate;
(xix)
Subject
to the terms and conditions of the Ground Lease, Mortgagor shall cause Sublessor
not to consent to the subordination of the Ground Lease to any mortgages of the
fee interest in the Leasehold Estate;
(xx)
Any
default by Mortgagor under the Sublease, in each case not cured within the
applicable grace period, shall constitute a default hereunder;
(xxi)
Mortgagor,
at its sole cost and expense, shall execute and deliver to Mortgagee, within ten
(10) business days after request, such documents, instruments or agreements as
may be reasonably required to permit Mortgagee to cure any default under the
Sublease not cured within the applicable grace period; and
(xxii)
Mortgagor,
at its sole cost and expense, shall take all actions necessary and/or reasonably
required by Mortgagee to provide to Mortgagee all of the leasehold mortgagee
protections available under the Sublease.
(b)
In the
event of default by Mortgagor in the performance of any of its obligations under
the Sublease not cured within the applicable grace period, including, but
without limiting the generality of the foregoing, any default in the payment of
any sums payable thereunder, then, in each and every case, Mortgagee may, at its
option, following notice to Mortgagor, cause the default or defaults to be
remedied and otherwise exercise any and all of the rights of Mortgagor
thereunder in the name of and on behalf of Mortgagor; provided, however, that
failure to provide notice to Mortgagor shall not be deemed a default by
Mortgagee. Mortgagor shall, within ten (10) business days of demand, reimburse
Mortgagee for all advances made and expenses incurred by Mortgagee in curing any
such default (including, without limiting the generality of the foregoing,
reasonable attorneys' fees and disbursements), together with interest thereon
computed at the Default Rate from the date demanded until paid to Mortgagee. All
such advances, together with interest thereon, shall be secured by this
Mortgage.
(c)
Mortgagor
shall give Mortgagee notice of its intention to exercise each and every option,
if any, including, without limitation, any purchase or extension options, at
least thirty (30) days prior to the expiration of the time to exercise such
option under the terms thereof. If Mortgagor intends to exercise any such
option, it shall deliver to Mortgagee, with the notice of such decision, a copy
of the notice of extension and/or purchase delivered to the lessor thereunder,
together with the terms and conditions of such extension and/or purchase.
Mortgagor hereby expressly acknowledges and appoints Mortgagee as its
attorney-in-fact to exercise any such option in the name of and on behalf of
Mortgagor, which power of attorney shall be irrevocable and shall be deemed
coupled with an interest.
(d)
Mortgagor
shall use commercially reasonable efforts to obtain and deliver to Mortgagee
within twenty (20) business days after written demand by Mortgagee or such
longer period of time provided in the Sublease, an estoppel certificate from the
Sublessor providing the information the Sublessor is required to provide in an
estoppel letter pursuant to the terms of the Sublease.
(e)
Anything
contained herein to the contrary notwithstanding, this Mortgage shall not
constitute an assignment of the Sublease within the meaning of any provision
thereof prohibiting its assignment and Mortgagee shall have no liability or
obligation thereunder by reason of its acceptance of this Mortgage. Mortgagee
shall be liable for the obligations of the lessee arising under the Sublease for
only that period of time which Mortgagee is in possession of the Leasehold
Estate or has acquired, by foreclosure or otherwise, and is holding all of
Mortgagor's right, title and interest therein.
(f)
It is
hereby agreed that the fee title in the Leasehold Estate, the leasehold estate
under the Ground Lease and the Leasehold Estate shall not merge but shall always
be kept separate and distinct, notwithstanding the union of said estates in
either the Ground Lessor, the Sublessor, Mortgagor or a third party, whether by
purchase or otherwise. If Mortgagor shall acquire fee title to the property
leased to Mortgagor, or any other estate, title or interest in the property
demised under the Ground Lease and/or the Sublease, or any portion thereof,
then, immediately upon Mortgagor's acquisition thereof, this Mortgage
automatically shall spread to cover Mortgagor's fee interest in such leased
property on the same terms, covenants and conditions as set forth herein. Upon
such acquisition, Mortgagor, at its sole cost and expense, shall deliver to
Mortgagee an ALTA Form B Mortgage Title Insurance Policy insuring that this
Mortgage, as so spread to cover Mortgagor's fee interest in such leased
property, is a valid first lien on Mortgagor's interest therein, subject only to
the Permitted Exceptions. It is the intention of Mortgagor and Mortgagee that no
documents, instruments or agreements shall be necessary to confirm the foregoing
spread of this Mortgage to cover Mortgagor's fee interest in such leased
property, as aforesaid, and that such spreader shall occur automatically upon
the consummation of Mortgagor's acquisition of such estate, title or interest to
such leased property. Notwithstanding the foregoing, Mortgagor shall make,
execute, acknowledge and deliver to Mortgagee or so cause to be made, executed,
acknowledged and delivered to Mortgagee, in form reasonably satisfactory to
Mortgagee, all such further or other documents, instruments, agreements or
assurances as may be reasonably required by Mortgagee to confirm the foregoing
spread of this Mortgage to cover Mortgagor's fee interest in such leased
property. Mortgagor shall pay all reasonable expenses incurred by Mortgagee in
connection with the preparation, execution, acknowledgement, delivery and/or
recording of any such documents, including but without limiting the generality
of the foregoing, all filing, registration and recording fees and charges,
documentary stamps, mortgage taxes, intangible taxes, and reasonable attorneys'
fees, costs and disbursements.
(g)
If any
action or proceeding shall be instituted to evict Mortgagor or to recover
possession of the Property or any part thereof or interest therein or any action
or proceeding otherwise affecting the Ground Lease and/or the Sublease or this
Mortgage shall be instituted, then Mortgagor will, promptly upon service thereof
on or to Mortgagor, deliver to Mortgagee a true and complete copy of each
petition, summons, complaint, notice of motion, order to show cause and of all
other provisions, pleadings, and papers, however designated, served in any such
action or proceeding.
(h)
Mortgagor
will not agree to arbitrate any disputes arising under the Sublease, except for
those certain disputes which by the terms of such Sublease must be arbitrated,
without the written consent of Mortgagee, which consent can be withheld at the
sole discretion of Mortgagee. In the event of any arbitration, Mortgagor will
give Mortgagee prompt written notice of the commencement of such arbitration and
so long as no Event of Default shall have occurred and be continuing hereunder,
(i) Mortgagee shall have the right to intervene and participate in any such
proceeding, (ii) Mortgagor shall confer with Mortgagee to the extent which
Mortgagee reasonably deems necessary for the protection of Mortgagee, upon the
written request of Mortgagee and (iii) Mortgagor shall select an arbitrator
who is reasonably approved in writing by Mortgagee; provided, however, that if
at the time any such proceeding shall be commenced or shall be in progress an
Event of Default shall have occurred and be continuing hereunder, Mortgagor
hereby irrevocably appoints and constitutes Mortgagee as its true and lawful
attorney-in-fact, which appointment is coupled with an interest, in its name,
place and stead, to exercise, at the expense of Mortgagor, all right, title and
interest of Mortgagor in connection with such arbitration, including the right
to appoint arbitrators and to conduct arbitration proceedings on behalf of
Mortgagor. Nothing contained herein shall obligate Mortgagee to participate in
such arbitration.
(i)
Mortgagor
shall, within ten (10) business days after written demand therefor from
Mortgagee, deliver to Mortgagee proof of payment of all items that are required
to be paid by Mortgagor under the Sublease, including, without limitation, rent
and other charges required to be paid under the Sublease.
(j)
Mortgagor
shall cause the Sublessor, within ten (10) business days after written demand
therefor from Mortgagee, to deliver to Mortgagee proof of payment of all items
that are required to be paid by Mortgagor under the Ground Lease, including,
without limitation, rent and other charges required to be paid under the Ground
Lease.
(k)
If the
Ground Lease and/or the Sublease shall be terminated prior to the natural
expiration of their term, and if, pursuant to any provision of the Ground Lease
and/or the Sublease, Mortgagee or its designee shall acquire from the Ground
Lessor and/or the Sublessor a new lease of the Property demised thereunder and
the improvements located thereon, Mortgagor shall have no right, title or
interest in or to such new lease or the leasehold estate created thereby, or
renewal privileges therein contained.
(l)
Mortgagor
agrees to notify Mortgagee within ten (10) days after the filing of a petition
for relief by or against the Mortgagor under section 301, 302, or 303 of title
11 of the United States Code (as such statute or any such successor statute may
now or hereafter be in effect, the "
Bankruptcy
Code
"). The
failure of Mortgagor, within ten (10) days after the commencement of a case
under the Bankruptcy Code by or against Mortgagor (the "
Bankruptcy
Case
") to (i)
file a motion seeking approval of and authorization by the court overseeing the
Bankruptcy Case (the "
Bankruptcy
Court
") for
the assumption of the Sublease pursuant to section 365(a) of the Bankruptcy Code
or (ii) obtain such approval and authorization of the Bankruptcy Court and
actually assume the Sublease within forty (40) days after the commencement of
the Bankruptcy Case shall presumptively be deemed "cause" for granting Mortgagee
leave from the automatic stay pursuant to section 362(d)(i) of the Bankruptcy
Code. In addition to the other remedies provided to Mortgagee herein, Mortgagee
shall have the right, as the assignee of Mortgagor, to assume or to compel
timely assumption of the Sublease in the Bankruptcy Case. Mortgagor shall be
responsible for all costs required in connection with any such assumption of the
Sublease, including any amounts required to be spent to cure defaults
thereunder, and Mortgagor shall, on demand, reimburse Mortgagee for all advances
made and expenses incurred in curing any of such default (including, without
limitation, reasonable attorneys' fees and reasonable appellate attorneys' fees,
paralegal fees, court costs through all appellate level and disbursements),
together with interest thereon computed at the Default Rate from the date
demanded until paid to Mortgagee.
(m)
Mortgagor
hereby irrevocably assigns to Mortgagee its right to make the election permitted
by section 365(h) of the Bankruptcy Code and Mortgagor hereby appoints Mortgagee
its attorney-in-fact for purposes of making such election. Mortgagor shall
notify Mortgagee of the existence of any case under the Bankruptcy Code
involving the Sublessor immediately after Mortgagor becomes aware thereof, but
in no event later than five (5) business days thereafter. Mortgagor shall file a
notice of appearance in any such case involving the Sublessor, which notice of
appearance shall specifically state that notices in such case should also be
provided to Mortgagee. Mortgagor shall provide Mortgagee with a copy of any
pleadings or other notices received in such case.
(n)
Notwithstanding
anything to the contrary, in the event of a conflict between the provisions of
this Section 4.4 and the provisions of Section 5.31 of the Loan Agreement, the
provisions that offer the Mortgagee the greatest protection and/or most
favorable terms shall govern and control.
ARTICLE V
ASSIGNMENT OF
RENTS
5.1
Assignment of
Rents
.
Mortgagor hereby absolutely and unconditionally assigns to Mortgagee all of
Mortgagor's right, title and interest in and to all current and future Leases
and Rents. Nevertheless, subject to the terms of this
Article V
, the
Assignment of Leases and the Lockbox Agreement, Mortgagee grants to Mortgagor a
revocable license to collect, receive and apply the Rents in accordance with the
Loan Agreement and the other Loan Documents. Mortgagor shall hold the Rents, or
a portion thereof, sufficient to discharge all current sums due on the Debt, for
use in the payment of such sums.
ARTICLE VI
SECURITY
AGREEMENT
6.1
Security Agreement
. This
Security Instrument is both a real property mortgage and a "security agreement"
within the meaning of the Uniform Commercial Code. The Property includes both
real and personal property and all other rights and interests, whether tangible
or intangible in nature, of Mortgagor in the Property. Mortgagor by executing
and delivering this Security Instrument has granted and hereby grants to
Mortgagee, as security for the Obligations, a security interest in the Property
to the full extent that the Property may be subject to the Uniform Commercial
Code (said portion of the Property so subject to the Uniform Commercial Code
being referred to in this Paragraph as the "
Collateral
"). This
Security Instrument shall also constitute a "fixture filing" for the purposes of
the Uniform Commercial Code. As such, this Security Instrument covers all items
of the Collateral that are or are to become fixtures. Information concerning the
security interest herein granted may be obtained from the parties at the
addresses of the parties set forth in
Section
13.1
. If an
Event of Default shall occur, Mortgagee, in addition to any other rights and
remedies which it may have, shall have and may exercise, immediately and without
demand, any and all rights and remedies granted to a secured party upon default
under the Uniform Commercial Code, including the right to take possession of the
Collateral or any part thereof and to take such other measures as Mortgagee may
deem necessary for the care, protection and preservation of the Collateral or
the sale thereof. Upon request or demand of Mortgagee, Mortgagor shall at its
expense assemble the Collateral and make it available to Mortgagee at a
convenient place acceptable to Mortgagee. Mortgagor shall pay to Mortgagee on
demand any and all expenses, including reasonable attorneys' fees and
disbursements, incurred or paid by Mortgagee in protecting its interest in the
Collateral and in enforcing its rights hereunder with respect to the Collateral.
The proceeds of any disposition of the Collateral, or any part thereof, may be
applied by Mortgagee to the payment of the Debt in such priority and proportions
as Mortgagee in its sole discretion shall deem proper. In the event of any
change in name, identity or structure of Mortgagor, Mortgagor shall notify
Mortgagee thereof and promptly after request shall execute (if required), file
and record such Uniform Commercial Code forms as are necessary to maintain the
priority of Mortgagee's lien upon and security interest in the Collateral and
shall pay all out-of-pocket expenses and fees in connection with the filing and
recording thereof. If Mortgagee shall require the filing or recording of
additional Uniform Commercial Code forms or continuation statements, Mortgagor
shall, promptly after request, execute, file and record such Uniform Commercial
Code forms or continuation statements as Mortgagee shall deem necessary, and
shall pay all expenses and fees in connection with the filing and recording
thereof. Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on Mortgagor's behalf any financing or other statements signed only by
Mortgagee, as secured party, in connection with the Collateral covered by this
Security Instrument, and Mortgagor hereby acknowledges and agrees that Mortgagor
shall have no claim or cause of action against Mortgagee arising out of
Mortgagee's execution and/or recordation of any instruments by or on behalf of
Mortgagor pursuant to the foregoing power of attorney. Any notice of sale,
disposition or other intended action by Mortgagee with respect to the Collateral
sent to Mortgagor in accordance with
Section 13.1
at least
ten (10) days prior to such action, shall constitute commercially reasonable
notice to Mortgagor. In addition to the foregoing, Mortgagor hereby expressly
authorizes and agrees with Mortgagee that Mortgagee shall have full right and
authority to prepare and record and/or file, without the necessity of a
signature by Mortgagor, in form, scope and substance satisfactory to Mortgagee,
any and all financing statements, fixture financing statements, and any and all
renewals or extensions of said financing statements and such additional
financing statements as Mortgagee may, from time to time, consider necessary to
perfect and preserve Mortgagee's security interest herein granted and Mortgagee
may cause such statements and assurances to be recorded and filed at such times
and places as may be required or permitted by law to so perfect and preserve
such security interests.
ARTICLE VII
DUE ON
SALE/ENCUMBRANCE
7.1
No
Sale/Encumbrance
. Except
as specifically permitted by the Loan Agreement, Mortgagor agrees that Mortgagor
shall not, without the prior written consent of Mortgagee, sell, convey,
mortgage, grant, bargain, encumber, pledge, assign, or otherwise transfer the
Property or any part thereof or permit the Property or any part thereof to be
sold, conveyed, mortgaged, granted, bargained, encumbered, pledged, assigned, or
otherwise transferred. Mortgagor further agrees that Mortgagor will not allow
any Transfer or other similar action prohibited by the Loan
Agreement.
ARTICLE VIII
PREPAYMENT
8.1
Prepayment Only in Accordance with
Note
. The
Debt may be prepaid only in strict accordance with the express terms and
conditions of the Note and the Loan Agreement.
ARTICLE IX
DEFAULT
9.1
Events of Default
. The
occurrence of the following event(s) shall constitute an "
Event of Default
":
(a)
the
occurrence of any Event of Default as defined in the Loan Agreement (which
includes but is not limited to a default by Mortgagor under this Security
Instrument beyond any applicable notice and cure periods).
ARTICLE X
RIGHTS AND
REMEDIES
10.1
Remedies
.
(a)
Upon the
occurrence of any Event of Default, Mortgagee may take such action, without
notice or demand, as Mortgagee deems advisable to protect and enforce the rights
of Mortgagee against Mortgagor and in and to the Property, including the
following actions, each of which may be pursued concurrently or otherwise, at
such time and in such order as Mortgagee may determine, in its sole discretion,
without impairing or otherwise affecting the other rights and remedies of
Mortgagee:
(i)
declare
the entire Debt and all other Obligations to be immediately due and
payable;
(ii)
institute
a proceeding or proceedings, judicial or nonjudicial, by advertisement or
otherwise, for the foreclosure of the Security Instrument under applicable Legal
Requirements in which case the Property or any interest therein may be sold for
cash or upon credit in one or more parcels or in several interests or portions
and in any order or manner, and to apply the proceeds received upon the
Obligations in such order and manner as Mortgagee determines in its sole
discretion;
(iii)
with or
without entry, to the extent permitted and pursuant to the procedures provided
by applicable Legal Requirements, institute proceedings for the partial
foreclosure of this Security Instrument for the portion of the Debt then due and
payable, subject to the continuing Lien and security interest of this Security
Instrument for the balance of the Debt not then due unimpaired and without loss
of priority;
(iv)
sell for
cash or upon credit the Property or any part thereof and all estate, claim,
demand, right, title and interest of Mortgagor therein and rights of redemption
thereof, pursuant to the power of sale contained herein or otherwise, at one or
more sales, as an entirety or in parcels, at such time and place, upon such
terms and after such notice thereof as may be required or permitted by
law;
(v)
institute
an action, suit or proceeding in equity for the specific performance of any
covenant, condition or agreement contained herein, or in any of the other Loan
Documents;
(vi)
recover
judgment on the Note either before, during or after any proceedings for the
enforcement of this Security Instrument or the other Loan
Documents;
(vii)
apply for
the appointment of a trustee, receiver, liquidator or conservator of the
Property, without notice and without regard for the adequacy of the security for
the Obligations and without regard for the solvency of the Mortgagor, any
Guarantor or of any Person liable for the payment of the Obligations, without
the necessity of a declaration that the Obligations are immediately due and
payable, and Mortgagor hereby consents to such appointment;
(viii)
subject
to any applicable Legal Requirement, the license granted to Mortgagor under
Section
5.1
shall
automatically be revoked and Mortgagee may enforce Mortgagee's interest in the
Leases and Rents (including revocation of any license granted to Mortgagor) and
enter into or upon the Property, either personally or by its agents, nominees or
attorneys and dispossess Mortgagor and its agents and servants therefrom,
without becoming a mortgagee in possession and without liability for trespass,
damages or otherwise and exclude Mortgagor and its agents or servants wholly
therefrom, and take possession of all books, records, papers and accounts
relating thereto and Mortgagor agrees to surrender possession of the Property
and of such books, records, papers and accounts to Mortgagee upon demand, and
thereupon Mortgagee may, with or without notice, without releasing Mortgagor
from any Obligations, and without any obligation to do so, cure any breach or
Event of Default and may therefore, without limitation, (A) use, operate,
manage, control, insure, maintain, repair, restore and otherwise deal with all
and every part of the Property and conduct the business thereat;
(B) complete any construction on the Property in such manner and form as
Mortgagee deems advisable; (C) make alterations, additions, renewals,
replacements and improvements to or on the Property; (D) exercise all rights and
powers of Mortgagor with respect to the Property, whether in the name of
Mortgagor or otherwise, including the right to make, cancel, enforce or modify
Leases, obtain and evict tenants, and demand, sue for, collect and receive all
Rents of the Property and every part thereof; and (E) apply the receipts from
the Property to the payment of Debt in such order, priority and proportions as
Mortgagee shall deem appropriate in Mortgagee's sole discretion, after deducting
therefrom all expenses (including reasonable attorneys' fees and disbursements)
incurred in connection with the aforesaid operations and all amounts necessary
to pay the taxes, assessments insurance and other charges in connection with the
Property, as well as reasonable compensation for the services of Mortgagee, its
counsel, agents and employees;
(ix)
require
Mortgagor to pay monthly in advance to Mortgagee, or any receiver appointed to
collect the Rents, the fair and reasonable rental value for the use and
occupation of any portion of the Property occupied by Mortgagor or any Affiliate
and require Mortgagor or any Affiliate to vacate and surrender possession to
Mortgagee of the Property or to such receiver and, in default thereof, evict
Mortgagor and/or any Affiliate by summary proceedings or otherwise;
(x)
Mortgagee
may proceed at its election, in any sequence: (a) to dispose of any
Collateral separately from the sale of the Property in accordance with the UCC
or other applicable Legal Requirements, and (b) to dispose of some or all of the
Property in any combination consisting of both real and personal property
together in one or more sales to be held in accordance with the UCC or other
applicable Legal Requirements; or
(xi)
pursue or
enforce any other right or remedy allowed by any Loan Document or applicable
Legal Requirements including those rights and remedies available to a secured
party under the UCC or other applicable Legal Requirements.
In the
event of a sale, by foreclosure, power of sale or otherwise, of less than all of
the Property, this Security Instrument shall continue as a Lien and security
interest on the remaining portion of the Property unimpaired and without loss of
priority.
(b)
The
proceeds of any sale made under or by virtue of this Section, together with any
other sums which then may be held by Mortgagee under this Security Instrument or
any other Loan Document, whether under the provisions of this
Section
10.1
or
otherwise, less all Enforcement Costs, shall be applied by Mortgagee, to the
payment of the Debt and the Obligations in such order, priority and proportion
as Mortgagee in its sole discretion shall deem proper.
(c)
Mortgagee
may adjourn from time to time any sale by Mortgagee to be made under or by
virtue of this Security Instrument by announcement at the time and place
appointed for such sale or for such adjourned sale or sales; and, except as
otherwise provided by any applicable Legal Requirements, Mortgagee, without
further notice or publication, may make such sale at the time and place to which
the same shall be so adjourned.
(d)
Upon the
completion of any sale or sales pursuant hereto, Mortgagee, or an officer of any
court empowered to do so, shall execute and deliver to the accepted purchaser or
purchasers a good and sufficient instrument, or good and sufficient instruments,
conveying, assigning and transferring all estate, right, title and interest in
and to the property and rights sold. Mortgagee is hereby irrevocably appointed
the true and lawful attorney of Mortgagor, in Mortgagor's name and stead, to
make all necessary conveyances, assignments, transfers and deliveries of the
Property and rights so sold and for that purpose Mortgagee may execute all
necessary instruments of conveyance, assignment and transfer, and may substitute
one or more Persons with like power, Mortgagor hereby ratifying and confirming
all that its said attorney or such substitute or substitutes shall lawfully do
by virtue hereof. Any sale or sales made under or by virtue of this
Section
10.1
, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, shall operate to
divest all the estate, right, title, interest, claim and demand whatsoever,
whether at law or in equity, of Mortgagor in and to the properties and rights so
sold, and shall be a perpetual bar both at law and in equity against Mortgagor
and against any and all Persons claiming or who may claim the same, or any part
thereof from, through or under Mortgagor.
(e)
Mortgagee
shall have the right to appear in and defend any action or proceeding brought
with respect to the Property and to bring any action or proceeding, in the name
and on behalf of Mortgagor, which Mortgagee, in Mortgagee's discretion, decides
should be brought to protect Mortgagee's interest in the Property.
(f)
Upon any
sale made under or by virtue of this Security Instrument, whether made under the
power of sale herein granted or under or by virtue of judicial proceedings or of
a judgment or decree of foreclosure and sale, Mortgagee may bid for and acquire
the Property or any part thereof and in lieu of paying cash therefor may make
settlement for the purchase price by crediting upon the Debt the net sales price
after deducting therefrom the expenses of the sale and costs of the action and
any other sums which Mortgagee is authorized to deduct under the Security
Instrument.
(g)
No
recovery of any judgment by Mortgagee and no levy of an execution under any
judgment upon the Property or upon any other property of Mortgagor shall affect
in any manner or to any extent the Lien of this Security Instrument upon the
Property or any part thereof, or any Liens, rights, powers or remedies of
Mortgagee hereunder, but such Liens, rights, powers and remedies of Mortgagee
shall continue unimpaired as before.
(h)
Upon the
occurrence of any Event of Default, Mortgagee may, but without any obligation to
do so and without notice to or demand on Mortgagor and without releasing
Mortgagor from any Obligation, cure the same in such manner and to such extent
as Mortgagee may deem necessary to protect the security hereof. Mortgagee is
authorized to enter upon the Property (subject to rights of tenants)for such
purposes, or appear in, defend, or bring any action or proceeding to protect
Mortgagee's interest in the Property or to foreclose this Security Instrument or
collect the Debt.
(i)
Mortgagee
may terminate or rescind any proceeding or other action brought in connection
with its exercise of the remedies provided in this
Section
10.1
at any
time before the conclusion thereof, as determined in Mortgagee's sole discretion
and without prejudice to Mortgagee.
(j)
All costs
and expenses of Mortgagee in exercising its rights and remedies under this
Section
10.1
or
incurred as a result of any of the events described in
Section 7.4
of the
Loan Agreement, including reasonable attorneys' fees and disbursements to the
extent permitted by law, shall be paid by Mortgagor immediately upon notice from
Mortgagee, with interest at the Default Rate for the period after notice from
Mortgagee and such costs and expenses shall constitute a portion of the Debt and
shall be secured by this Security Instrument and shall be immediately due and
payable upon demand by Mortgagee therefor.
(k)
The
interests and rights of Mortgagee under the Note, this Security Instrument or in
any of the other Loan Documents shall not be impaired by any indulgence,
including (i) any renewal, extension or modification which Mortgagee may grant
with respect to any of the Debt, (ii) any surrender, compromise, release,
renewal, extension, exchange or substitution which Mortgagee may grant with
respect to the Property or any portion thereof; (iii) any modification,
waiver or failure to enforce any provisions of the Loan Documents; or
(iv) any release or indulgence granted to any maker, endorser, Guarantor,
indemnitor or surety of any of the Debt.
(l)
After the
occurrence and during the continuance of an Event of Default, Mortgagee shall
have the right to appear in and defend any action or proceeding brought with
respect to the Property and to bring any action or proceeding, in the name and
on behalf of Mortgagor, which Mortgagee, in Mortgagee's discretion, decides
should be brought to protect Mortgagee's interest in the Property.
(m)
Mortgagee
shall have the right from time to time to take action to recover any sum or sums
which constitute a part of the Debt as the same become due, without regard to
whether or not the balance of the Debt shall be due, and without prejudice to
the right of Mortgagee thereafter to bring an action of foreclosure, or any
other action, for a default or defaults by Mortgagor existing at the time such
earlier action was commenced.
10.2
Other Rights, Etc.
(a)
The
failure of Mortgagee to insist upon strict performance of any term hereof, shall
not be deemed to be a waiver of such term or any other term of this Security
Instrument or the other Loan Documents. Mortgagor shall not be relieved of
Mortgagor's obligations hereunder by reason of (i) the failure of Mortgagee to
comply with any request of Mortgagor or any Guarantor to take any action to
foreclose this Security Instrument or otherwise enforce any of the provisions
hereof or of the Note or the other Loan Documents, (ii) the release, regardless
of consideration, of the whole or any part of the Property, or of any Person
liable for the Debt or any portion thereof, or (iii) any agreement or
stipulation by Mortgagee extending the time of payment or otherwise modifying or
supplementing the terms of the Note, this Security Instrument or the other Loan
Documents.
(b)
It is
agreed that Mortgagor bears the risk of loss or damage to the Property, and
Mortgagee shall have no liability whatsoever for decline in value of the
Property, for failure to maintain the Policies, or for failure to determine
whether insurance in force is adequate as to the amount of risks insured, unless
Mortgagee is in possession of the Property. Possession by Mortgagee shall not be
deemed an election of judicial relief, if any such possession is requested or
obtained, with respect to any Property or Collateral not in Mortgagee's actual
and/or physical possession.
(c)
Mortgagee
may resort for the payment of the Debt to any other security held by Mortgagee
in such order and manner as Mortgagee, in its sole discretion, may elect.
Mortgagee may take action to recover the Debt or any portion thereof, or to
enforce any covenant hereof without prejudice to the right of Mortgagee
thereafter to foreclose this Security Instrument. The rights of Mortgagee under
this Security Instrument shall be separate, distinct and cumulative and none
shall be given effect to the exclusion of the others. No act of Mortgagee shall
be construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Mortgagee shall not be limited exclusively to
the rights and remedies herein stated but shall be entitled to every right and
remedy now or hereafter afforded at law or in equity.
10.3
Right to Release Any Portion of the
Property
.
Mortgagee may release any portion of the Property, for such consideration as
Mortgagee may require (or as may be required pursuant to the Loan Agreement)
without, as to the remainder of the Property, in any way impairing or affecting
the Lien or priority of this Security Instrument, or improving the position of
any subordinate lienholder with respect thereto, except to the extent that the
obligations hereunder shall have been reduced by the actual monetary
consideration, if any, received by Mortgagee for such release, and may accept by
assignment, pledge or otherwise any other property in place thereof as Mortgagee
may require without being accountable for so doing to any other lienholder. This
Security Instrument shall continue as a Lien and security interest in the
remaining portion of the Property.
ARTICLE XI
WAIVERS
11.1
Waiver of Trial By
Jury
.
MORTGAGOR AND MORTGAGEE HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS
SECURITY INSTRUMENT. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY
AND VOLUNTARILY BY MORTGAGOR AND MORTGAGEE, AND IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO TRIAL BY JURY
WOULD OTHERWISE ACCRUE OR ARISE. EACH PARTY IS HEREBY AUTHORIZED TO FILE A COPY
OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER THE
OTHER PARTY.
11.2
Additional Waivers
.
Mortgagee may resort to any remedies and the security given by the Note, this
Security Instrument or any of the other Loan Documents, in whole or in part, and
in such portions and in such order as determined by Mortgagee in Mortgagee's
sole discretion. No such action shall in any way be considered a waiver of any
rights, benefits or remedies evidenced or provided by the Note, this Security
Instrument or any of the other Loan Documents. The failure of Mortgagee to
exercise any right, remedy or option provided in the Note, this Security
Instrument or any of the other Loan Documents shall not be deemed a waiver of
such right, remedy or option or of any covenant or obligation secured by the
Note, this Security Instrument or any of the other Loan Documents. No acceptance
by Mortgagee of any payment after the occurrence of any Event of Default and no
payment by Mortgagee of any obligation for which Mortgagor is liable hereunder
shall be deemed to waive or cure any Event of Default with respect to Mortgagor,
or Mortgagor's liability to pay such obligation. No sale of all or any portion
of the Property, no forbearance on the part of Mortgagee and no extension of
time for the payment of the whole or any portion of the Debt, or any other
indulgence given by Mortgagee to Mortgagor, shall operate to release or in any
manner affect the interest of Mortgagee in the remaining Property or the
liability of Mortgagor to pay the Debt. No waiver by Mortgagee shall be
effective unless it is in writing and then only to the extent specifically
stated. In case Mortgagee shall have proceeded to invoke any right, remedy or
recourse permitted hereunder or under any of the other Loan Documents and shall
thereafter elect to discontinue or abandon the same for any reason, Mortgagee,
shall have the unqualified right to do so and, in such event, Mortgagor,
Mortgagee shall be restored to their former positions with respect to the Debt
secured hereby, this Security Instrument, the other Loan Documents, the Property
and otherwise, and the rights, remedies, recourses and powers of Mortgagee,
shall continue as if the same had never been invoked.
11.3
Mortgagor's
Waivers
.
Mortgagor waives, to the extent permitted by law, (a) the benefit of all laws
now existing or that may hereafter be enacted providing for any appraisement
before sale of any portion of the Property, (b) all rights and remedies which
Mortgagor may have or be able to assert by reason of the laws of the state where
the Property is located pertaining to the rights and remedies of sureties, (c)
the right to assert any statute of limitations as a bar to the enforcement of
the lien of this Mortgage or to any action brought to enforce the Note or any of
the Obligations, (d) any rights, legal or equitable, to require marshalling of
assets or to require foreclosure sales in a particular order. Mortgagee shall
have the right to determine the order in which any portion of the Property is
subject to the remedies herein and the order in which the Obligations are
satisfied by proceeds realized by such remedies. To the extent permitted by law,
Mortgagor hereby waives any and all rights of redemption from sale under any
order or decree of foreclosure of this Mortgage or under any sale pursuant to
any statute, order, decree or judgment of any court, on its own behalf, and on
behalf of each and every person acquiring any interest in or title to the
Property or any portion thereof.
ARTICLE XII
EXCULPATION
12.1
Exculpation
. The
provisions of Article IX of the Loan Agreement are hereby incorporated by
reference to the fullest extent as if the text of such Article were set forth in
its entirety herein.
ARTICLE XIII
NOTICES
13.1
Notices
. All
notices given under this Security Instrument shall be given and become effective
as provided in the Loan Agreement.
ARTICLE XIV
APPLICABLE
LAW
14.1
Choice of Law
. This
Security Instrument shall be interpreted, construed and enforced according to
the laws of the State of New York. This choice of law is made pursuant to New
York General Obligation Law Section 5-1401. Should any obligation or remedy
under this Security Instrument be invalid or unenforceable pursuant to the laws
provided herein to govern, the laws of the other state referred to hereinabove
or of another state whose laws can validate and apply thereto shall
govern.
14.2
Provisions Subject to Applicable
Law
. All
rights, powers and remedies provided in this Security Instrument may be
exercised only to the extent that the exercise thereof does not violate any
applicable Legal Requirements and are intended to be limited to the extent
necessary so that they will not render this Security Instrument invalid,
unenforceable or not entitled to be recorded, registered or filed under the
provisions of any Legal Requirements.
ARTICLE XV
MISCELLANEOUS
PROVISIONS
15.1
Survival
. This
Security Instrument and all covenants, agreements, representations and
warranties made herein and in the certificates delivered in connection with the
Loan Documents shall survive the making by Mortgagee of the Loan and the
execution and delivery to Mortgagee of the Note, and shall continue in full
force and effect so long as all or any of the Debt is outstanding and unpaid
unless a longer period is expressly set forth herein or in the other Loan
Documents. Whenever in this Security Instrument any of the parties hereto is
referred to, such reference shall be deemed to include the legal
representatives, successors and assigns of such party. All covenants, promises
and agreements in this Security Instrument, by or on behalf of Mortgagor, shall
inure to the benefit of the legal representatives, successors and assigns of
Mortgagee.
15.2
No Oral Change
. No
modification, amendment, extension, discharge, termination or waiver of any
provision of this Security Instrument, the Note, or any other Loan Document, nor
consent to any departure by Mortgagee therefrom, shall in any event be effective
unless the same shall be in a writing signed by the party against whom
enforcement is sought, and then such waiver or consent shall be effective only
in the specific instance, and for the purpose, for which given. Except as
otherwise expressly provided herein, no notice to or demand on Mortgagor, shall
entitle Mortgagor to any other or future notice or demand in the same, similar
or other circumstances.
15.3
Duplicate Originals;
Counterparts
. This
Security Instrument may be executed in any number of duplicate originals and
each duplicate original shall be deemed to be an original. This Security
Instrument may be executed in several counterparts, each of which counterparts
shall be deemed an original instrument and all of which together shall
constitute a single Security Instrument. The failure of any party hereto to
execute this Security Instrument, or any counterpart hereof, shall not relieve
the other signatories from their obligations hereunder.
15.4
Number and Gender
.
Whenever the context may require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural and vice versa.
15.5
Headings, Etc.
. The
headings and captions of various Sections of this Security Instrument are for
convenience of reference only and are not to be construed as defining or
limiting, in any way, the scope or intent of the provisions hereof.
15.6
Inapplicable
Provision
. If any
term of this Security Instrument or any application thereof shall be invalid or
unenforceable, the remainder of this Security Instrument and any other
application of the term shall not be affected thereby.
15.7
General
Definitions
. Unless
the context clearly indicates a contrary intent or unless otherwise specifically
provided herein, words used in this Security Instrument may be used
interchangeably in singular or plural form and the word "
Mortgagor
" shall
mean "each Mortgagor and any subsequent owner or owners of the Property or any
part thereof or any interest therein," the word "
Mortgagee
" shall
mean "Mortgagee and any subsequent holder of the
Note
,
" the
word "
Note
" shall
mean "the Note and any other evidence of indebtedness secured by this Security
Instrument," the word "
Person
" or
"
person
" shall
include an individual, corporation, limited liability company, partnership,
trust, unincorporated association, government, governmental authority, and any
other entity, the word "
Property
" shall
include any portion of the Property and any interest therein, and the phrases
"
attorneys' fees
" and
"
counsel fees
" shall
include any and all attorneys', paralegal and law clerk fees and disbursements,
including fees and disbursements at the pre-trial, trial and appellate levels
incurred or paid by Mortgagee in protecting its interest in the Property, the
Leases and the Rents, enforcing its rights under this Security Instrument and
any and all attorneys', paralegal and law clerk fees and disbursements arising
as a result of or during the course of any case or proceeding by or against any
Mortgagor Party for relief under any Bankruptcy Laws.
Section
1.1
and
Schedule I
of the
Loan Agreement are incorporated herein by reference for all
purposes.
15.8
Entire Agreement
. This
Security Instrument and the other Loan Documents together constitute a written
agreement and represent the final agreement between the parties and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements
of the parties. There are no unwritten oral agreements between the parties.
Mortgagor hereby acknowledges that, except as incorporated in writing in the
Note, this Security Instrument and the other Loan Documents, there are not, and
were not, and no Persons are or were authorized by Mortgagee to make, any
representations, understandings, stipulations, agreements or promises, oral or
written, with respect to the transaction which is the subject of the Note, this
Security Instrument and the other Loan Documents.
15.9
Time
. Time is
of the essence with respect to all provisions of this Security
Instrument.
15.10
Liability
. If
Mortgagor consists of more than one Person, the obligations and liabilities of
each such Person hereunder shall be joint and several.
15.11
Binding Effect
. This
Security Instrument shall be binding upon and inure to the benefit of Mortgagor
and Mortgagee and their respective permitted successors and assigns
forever.
15.12
Subrogation
. If any
or all of the proceeds of the Note have been used to extinguish, extend or renew
any indebtedness heretofore existing against the Property, then, to the extent
of the funds so used, Mortgagee shall be subrogated to all of the rights,
claims, Liens, titles, and interests existing against the Property heretofore
held by, or in favor of, the holder of such indebtedness and such former rights,
claims, Liens, titles, and interests, if any, are not waived but rather are
continued in full force and effect in favor of Mortgagee and are merged with the
Lien and security interest created herein as cumulative security for the
repayment of the Debt, the performance and discharge of Mortgagor's obligations
hereunder, under the Note and the other Loan Documents and the performance and
discharge of the Other Obligations.
15.13
Exhibits
. All
exhibits attached hereto are hereby incorporated herein by reference and made a
part of this Security Instrument.
15.14
Future Advances.
This
Mortgage is given to secure payment of the Note, whether the entire amount
thereof shall have been advanced to the Mortgagor at the date hereof, or at a
later date, and to secure the payment and performance of all other Obligations
of Mortgagor under the Note, and any other amount or amounts that may be added
to the Debt under the terms of this Mortgage, all of which Debt shall be equally
secured with and have the same priority as any amounts advanced at the date
hereof. It is agreed that any future advances made by Mortgagee to or for the
benefit of Mortgagor from time to time under this Mortgage shall be deemed to be
obligatory, and the amount of any such advances and all interest accruing
thereon, shall be equally secured by this Mortgage and have the same priority as
all amounts, if any, advanced as of the date hereof and be subject to all of the
terms and provisions of this Mortgage. The total amount of indebtedness that may
be so secured may increase or decrease from time to time, but the total unpaid
balance so secured at any one time, plus interest thereon, plus any
disbursements made for the payment of taxes, levies, insurance or other liens,
charges or encumbrances on the Property, plus interest on such disbursements at
the Default Rate, shall not exceed Two Hundred Percent (200%) of the aggregate
of the face amount of the Note.
ARTICLE XVI
LOCAL LAW
PROVISIONS
16.1
Trust Fund
.
Pursuant to
Section 13
of the
Lien Law of New York, Mortgagor shall receive the advances secured hereby and
shall hold the right to receive such advances as a trust fund to be applied
first for the purpose of paying the cost of any improvement and shall apply such
advances first to the payment of the cost of any such improvement on the
Mortgaged Property before using any part of the total of the same for any other
purpose.
16.2
Property
Encumbered
. This
Mortgage does not cover real property principally improved by one or more
structures containing in the aggregate six (6) or less residential dwelling
units having their own separate cooking facilities.
16.3
Insurance
. The
provisions of subsection 4 of
Section
254
of the
New York Real Property Law covering the insurance of buildings against loss by
fire shall not apply to this Mortgage or any of the other documents evidencing
or securing the Secured Obligations, including the Loan Agreement. In the event
of any conflict, inconsistency or ambiguity between the provisions of any of the
documents evidencing or securing the Secured Obligations, including this
Mortgage, the Loan Agreement and the provisions of subsection 4 of
Section
254
of the
New York Real Property Law covering the insurance of buildings against loss by
fire, the provisions of the documents evidencing or securing the Secured
Obligations, including this Mortgage, the Loan Agreement shall
control.
16.4
Leases
. Lender
shall have all of the rights against lessees of the Mortgaged Property set forth
in
Section
291-f
of the
Real Property Law of New York.
16.5
Statutory
Construction
. The
clauses and covenants contained in this Mortgage that are construed by
Section
254
of the
New York Real Property Law shall be construed as provided in those sections
(except as otherwise provided herein). The additional clauses and covenants
contained in this Mortgage shall afford rights supplemental to and not exclusive
of the rights conferred by the clauses and covenants construed by
Section
254
and
shall not impair, modify, alter or defeat such rights (except as otherwise
provided herein), notwithstanding that such additional clauses and covenants may
relate to the same subject matter or provide for different or additional rights
in the same or similar contingencies as the clauses and covenants construed by
Section
254
. The
rights of Mortgagee arising under the clauses and covenants contained in this
Mortgage shall be separate, distinct and cumulative and none of them shall be in
exclusion of the others. No act of Mortgagee shall be construed as an election
to proceed under any one provision herein to the exclusion of any other
provision, anything herein or otherwise to the contrary notwithstanding. In the
event of any inconsistencies between the provisions of
Section 254
and the
provisions of this Mortgage, the provisions of this Mortgage shall
prevail.
16.6
Maximum Amount
Secured
.
Notwithstanding anything contained herein to the contrary, the maximum amount of
indebtedness secured by this Mortgage at execution or which under any
contingency may become secured hereby at any time hereafter is $106,000,000,
together with Interest and late charges thereon to be computed from the date
hereof at the rate or rates specified in the Loan Agreement;
(a)
The
amounts paid by Mortgagee for real estate taxes, charges or assessments which
are imposed by law upon the Mortgaged Property upon failure of Mortgagor to do
so;
(b)
The
amounts paid by Mortgagee for insurance premiums covering the Mortgaged Property
upon failure by Mortgagor to do so;
(c)
Any
amount, cost or charge to which Mortgagee becomes subrogated upon payment,
provided such payment is made as a result of Mortgagor's failure to pay the same
and such payment is required hereunder;
(d)
Expenses
incurred in upholding or enforcing the lien of this Mortgage including, but not
limited to, the expenses of any litigation to prosecute or defend the rights and
lien created by this Mortgage; and
(e)
Interest
on all of the foregoing amounts in clauses (b) through (e) at such rates as
provided for in the Loan Agreement.
16.7
Payment of Transfer
Taxes
. Upon
any foreclosure of this Mortgage or any transfer in lieu of foreclosure,
Mortgagor shall pay: (i) any New York State Real Estate Transfer Tax payable
pursuant to
Article
31
of the
Tax Law of the State of New York, as the same may be amended, supplemented
and/or replaced from time to time (hereinafter referred to as the "
State Transfer Tax
Law
"); and
(ii) any New York City Real Property Transfer Tax payable pursuant to the
applicable laws of the City of New York, as the same may be amended,
supplemented and/or replaced from time to time (hereinafter referred to as the
"
City Transfer Tax
Law
").
(a)
Mortgagor
shall, at any time immediately upon request therefor by Mortgagee, execute and
deliver such affidavits, questionnaires and documents as may be necessary or
desirable to enable Mortgagee to comply with the State Transfer Tax Law and the
City Transfer Tax Law.
(b)
Mortgagor
hereby indemnifies and agrees to hold Mortgagee harmless from and against any
loss, cost, damage and expense (including, without limitation, attorneys' fees)
that Mortgagee may suffer or incur by reason of Mortgagor's failure to comply
with its obligations under this
Section
16.7
. The
foregoing indemnity shall survive any termination of this Mortgage, whether by
foreclosure, deed in lieu of foreclosure, or otherwise.
16.8
Inconsistencies
. In the
event of any inconsistencies between the terms and conditions of this
Article
16
and the
other provisions of this Mortgage, the terms and conditions of this
Article
16
shall
control and be binding.
[SIGNATURES ON FOLLOWING
PAGE]
IN
WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Mortgagor the day
and year first above written.
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MORTGAGOR:
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1407
BROADWAY REAL ESTATE LLC,
a
Delaware limited liability company
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By:
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/s/
David Lichtenstein
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Name: David Lichtenstein
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Title:
President
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EXHIBIT
A
(Description
of the Subleasehold Estate)
ALL that
certain plot, piece or parcel of land, situate, lying and being in the Borough
of Manhattan, County, City and State of New York, bounded and described as
follows:
BEGINNING
at the corner formed by the intersection of the southerly side of 39th Street
with the westerly side of Broadway;
RUNNING
THENCE southeasterly along the westerly side of Broadway 205 feet more or less
to the corner formed by the intersection of the northerly side of 38th Street
with the said westerly side of Broadway;
THENCE
westerly along the northerly side of 38th Street 156 feet 2-3/8 inches, more or
less to a point distant 200 feet East of 7th Avenue;
THENCE
northerly at right angles to 38th Street 98 feet 9 inches to the center line of
block;
THENCE
westerly along said center line of the block and parallel with 38th Street 200
feet to the easterly side of 7th Avenue;
THENCE
northerly along the easterly side of 7th Avenue 98 feet 9 inches to the corner
formed by the intersection of the said easterly side of 7th Avenue with the
southerly side of 39th Street;
THENCE
easterly along the southerly side of 39th Street 301 feet 2-5/8 inches to the
corner aforesaid, the point or place of BEGINNING.
EXHIBIT
10.26
PROMISSORY NOTE
U.S. $127,250,000.00
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January 4,
2007
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New York,
New York
FOR VALUE RECEIVED
, 1407
BROADWAY REAL ESTATE LLC, a Delaware limited liability company, having its
principal place of business at c/o The Lightstone Group, 326 Third Street,
Lakewood, New Jersey 08701 (“
Borrower
”)
absolutely and unconditionally promises to pay to the order of LEHMAN BROTHERS
HOLDINGS INC., a Delaware corporation (individually and as lead arranger and
administrative agent for itself and certain co-lenders), at Lender’s offices at
399 Park Avenue, 8th Floor, New York, New York 10022 (“
Lender
”), the
principal sum of ONE HUNDRED TWENTY-SEVEN MILLION TWO HUNDRED FIFTY THOUSAND AND
NO/100 Dollars (U.S. $127,250,000.00), with interest on the unpaid principal
balance to be computed from the date of this Promissory Note (this “
Note
”) on
funds advanced from time to time at the Applicable Interest Rate (defined
below), in lawful money of the United States of America, in immediately
available funds, which shall at the time of payment be legal tender for payment
of all debts and dues, public and private. This Note is secured by, among other
things, that certain Leasehold Mortgage Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Financing Statement dated of even date herewith,
executed by Borrower in favor of Lender (as amended, restated, supplemented or
otherwise modified from time to time, the “
Security
Instrument
”). All
capitalized terms used in the Note and not otherwise defined in
Section
1.10
hereof
or elsewhere in this Note shall have the meanings assigned to such terms in the
Loan Agreement (as hereinafter defined), all of the terms of the Loan Agreement
being hereby incorporated into and made a part of this Note by reference for all
purposes.
1.
PAYMENT OF PRINCIPAL AND
INTEREST
.
1.1
Payments
. The
principal, interest and all other sums due under this Note shall be payable at
the office of Lender as set forth above, or at such other place as Lender may
from time to time designate in writing, as follows:
(a)
Commencing
on the ninth (9th) day of February, 2007 and continuing on the ninth (9th) day
of each and every successive month thereafter or, if such day is not a Business
Day, the immediately preceding Business Day (each, a “
Payment Date
”)
through and including the Maturity Date, Borrower shall pay (i) monthly
installments of interest on the outstanding principal balance of this Note as of
such Payment Date at the Applicable Interest Rate for the Interest Period in
which such Payment Date occurs. Notwithstanding the foregoing, interest on the
outstanding principal amount of this Note for the period from the date hereof
through and including January 14, 2007 shall be paid by Borrower on the date
hereof.
(b)
Subject
to
Section
1.11
hereof,
the entire outstanding principal balance of this Note, together with accrued and
unpaid interest and any other amounts due under this Note and the other Loan
Documents shall be due and payable on the Maturity Date and after a
Securitization shall include, without limitation, all interest that would have
accrued on the outstanding principal balance of this Note through the end of the
Interest Period during which the Maturity Date occurs (even if such period
extends beyond the Maturity Date).
(c)
All
amounts due under this Note shall be payable without setoff, counterclaim or any
other deduction whatsoever.
(d)
Additionally,
payments shall be made on this Note as required by the Loan Agreement and the
other Loan Documents.
1.2
Interest
.
Interest on the outstanding principal balance of this Note shall accrue at the
Applicable Interest Rate from the date hereof to the Maturity Date and after a
Securitization through the end of the Interest Period in which the Maturity Date
occurs; provided, however, notwithstanding anything to the contrary contained
herein or in any other Loan Document, any principal payments made on this Note
from and including any Payment Date through and including the last day of the
Interest Period in which such Payment Date occurs (each, a “
Gap Period
”) shall
be disregarded for purposes of determining the interest payment due and payable
on such Payment Date with respect to interest accruing during the corresponding
Gap Period and shall be treated as if such principal payments were made on the
first day of the next Interest Period. Adjustments to the Applicable Interest
Rate in connection with changes in the LIBOR Rate (or the Treasury Rate, if
applicable) shall be made on the first day of each Interest Period
(“
Interest Rate
Adjustment Date
”).
1.3
Computation
.
Interest on the outstanding principal balance of this Note shall be calculated
by multiplying (a) the actual number of days elapsed in the period for which the
calculation is being made by (b) a daily rate equal to the Applicable Interest
Rate divided by three hundred sixty (360) by (c) the outstanding principal
balance of this Note. In computing the number of days during which interest
accrues, the day on which funds are advanced shall be included regardless of the
time of day such advance is made, and the day on which funds are repaid shall be
included unless repayment is credited prior to Lender's close of business. The
amount of interest shall be rounded up to the nearest one eighth percent
(.125%).
1.4
Determination
. Each
determination of an Applicable Interest Rate by Lender pursuant to any provision
of this Note shall be conclusive and binding on Borrower absent manifest error.
Payments under this Note or any other Loan Document made in federal funds
immediately available in the place designated for payment which are received by
Lender prior to 2:00 p.m. local time at said place of payment shall be
considered by Lender as having been received prior to close of business, while
other payments may, at the option of Lender, not be credited until immediately
available to Lender in federal funds in the place designated for payment prior
to 2:00 p.m. local time at said place of payment on a day on which Lender is
open for business.
1.5
Making of
Payments
. Each
payment by Borrower hereunder or under the Loan Agreement or any other Loan
Document shall be made in funds settled through the New York Clearing House
Interbank Payments System or other funds immediately available to Lender on the
date such payment is due to Lender, without presentment, demand, protest or
notice of any kind, all such notices being hereby waived and without setoff,
counterclaim or other deduction of any nature. Whenever any payment hereunder or
under the Loan Agreement or any other Loan Document shall be stated to be due on
a day which is not a Business Day such payment shall be made on the next
following Business Day.
1.6
Application
. Prior
to an Event of Default and except as otherwise expressly provided herein or in
the Loan Agreement or any other Loan Document, payments under this Note shall be
applied
first
, to the
payment of late fees and other costs and charges due in connection with this
Note, as Lender determines in its sole discretion,
second
to the
payment of interest on the outstanding principal balance of this Note through
the prepayment date; provided, however that after a Securitization interest
shall be paid through the end of the Interest Period in which such payment is
made and, if applicable, through the end of the Succeeding Interest Period,
notwithstanding that such Interest Period or Succeeding Interest Period extends
beyond the date of such payment, and
third
, to the
reduction of the outstanding principal balance (in inverse order of maturity
whether or not then due). After an Event of Default, payments under this Note
shall be applied as Lender may determine in Lender's sole discretion. No
principal amount repaid may be reborrowed.
1.7
Additional Costs; Alternate
Interest Rate
.
Anything herein to the contrary notwithstanding, if (i) on any date on
which the LIBOR Rate would otherwise be set, Lender shall have determined in
good faith (which determination shall be conclusive absent manifest error) that
adequate and reasonable means do not exist for ascertaining the LIBOR Rate, or
(ii) at any time Lender shall have determined in good faith (which determination
shall be conclusive absent manifest error) that the making, maintenance or
funding of any part of the Loan based on the LIBOR Rate has been made
impracticable or unlawful by compliance by Lender in good faith with any law or
guideline or interpretation or administration thereof by any Governmental
Authority charged with the interpretation or administration thereof or with any
request or directive of any such Governmental Authority (whether or not having
the force of law); then and in any such event, Lender may notify Borrower of
such determination (any such notice being referred to herein as a “
Treasury Rate
Notice
”) which
Treasury Rate Notice shall be given to Borrower by telephone at least one (1)
Business Day prior to the last day of the related Interest Period, with a
written confirmation of such determination promptly thereafter. If Lender gives
Borrower a Treasury Rate Notice, the obligation of Lender to charge interest to
Borrower at the LIBOR Rate shall be suspended until Lender shall have later
notified Borrower of Lender's determination in good faith (which determination
shall be conclusive absent manifest error) that the circumstances giving rise to
such previous determination no longer exist as provided below. If Lender gives
Borrower a Treasury Rate Notice, the LIBOR Rate shall automatically be converted
to the sum of the Treasury Rate plus the LIBOR To Treasury Spread (such sum
being the “
Adjusted Treasury
Rate
”), and
commencing on the first day of the next succeeding Interest Period, this Note
shall bear interest at a rate of interest per annum equal to the greater of (i)
the Adjusted Treasury Rate from time to time, as determined by Lender, plus the
Margin, and (ii) the Eurodollar Rate in effect at the time Lender delivers the
Treasury Rate Notice (in either case, rounded up, if necessary, to the nearest
one eighth percent (.125%)) (such rate being referred to herein as the
“
Alternate Interest
Rate
”). This
Note shall continue to bear interest at the Alternate Interest Rate until Lender
determines that the Eurodollar Rate can be determined in accordance with the
provisions of this Note and gives notice to the Borrower by telephone of such
determination, confirmed in writing, as soon as reasonably practical, but in no
event later than one (1) Business Day prior to the last day of the then current
Interest Period. If such notice is given, this Note shall bear interest at such
Eurodollar Rate commencing on the first day of the next succeeding Interest
Period. Notwithstanding anything to the contrary contained herein, in no event
shall the Borrower have the right to elect to have the Loan bear interest at
either the Eurodollar Rate or the Alternate Interest Rate.
1.8
Capital
Adequacy
. If
Lender determines that compliance with any law or regulation or with any
guideline or request from any central bank or other governmental agency (whether
or not having the force of law) affects or would affect the amount of capital
required or expected to be maintained by Lender, or any corporation controlling
Lender, as a consequence of, or with reference to, Lender's or such
corporation's commitments or its making or maintaining advances below the rate
which Lender or such corporation controlling Lender could have achieved but for
such compliance (taking into account the policies of Lender or such corporation
with regard to capital), then Borrower shall, from time to time, within thirty
(30) days after written demand by Lender, pay to Lender additional amounts
sufficient to compensate Lender or such corporation controlling Lender to the
extent that Lender determines such increase in capital is allocable to Lender's
obligations hereunder. A certificate as to such amounts, submitted to Borrower
by Lender shall be conclusive and binding for all purposes, absent manifest
error.
1.9
Indemnification
.
Borrower agrees to indemnify Lender and to hold Lender harmless from any actual
loss or expense which Lender sustains or incurs as a consequence of (I) any
default by Borrower in payment of the principal of or interest on this Note
while bearing interest at the Eurodollar Rate, including, without limitation,
any such loss or expense arising from interest or fees payable by Lender to
lenders of funds obtained by it in order to maintain the Eurodollar Rate, (II)
any prepayment (whether voluntary or mandatory) of this Note on a day that (A)
is not a Payment Date or (B) is a Payment Date if Borrower did not give the
prior written notice of such prepayment required pursuant to the terms of this
Note or the Loan Agreement, including, without limitation, such loss or expense
arising from interest or fees payable by Lender to lenders of funds obtained by
it in order to maintain the Eurodollar Rate hereunder and (III) the conversion
of the Applicable Interest Rate from the Eurodollar Rate to the Alternate
Interest Rate pursuant to
Section
1.7
on a
date other than a Payment Date, including, without limitation, such loss or
expenses arising from interest or fees payable by Lender to lenders of funds
obtained by it in order to maintain the Eurodollar Rate hereunder (the amounts
referred to in clauses (I), (II) and (III) are herein referred to collectively
as the “
Breakage Costs
”). This
provision shall survive payment of the Note and the satisfaction of all other
obligations of Borrower hereunder and under the Loan Agreement and the other
Loan Documents.
1.10
Definitions
. In
addition to other terms defined elsewhere in this Note, as used herein, the
following terms shall have the following meanings:
“
Applicable Interest
Rate
” shall
mean an interest rate per annum equal to (i) the Eurodollar Rate or (ii) the
Alternate Interest Rate, if the Loan begins bearing interest at the Alternate
Interest Rate in accordance with the provisions of
Section
1.7
hereof.
“
Assumed Note Rate
” shall
mean an interest rate equal to the sum of one percent (1.00%) plus the LIBOR
Rate as determined on the preceding LIBOR Determination Date plus three percent
(3.00%).
“
Business Day
” shall
mean a day on which commercial banks are not authorized or required by law to
close in the State of New York.
“
Eurodollar Rate
” shall
mean, with respect to any Interest Period, an interest rate equal to the LIBOR
Rate plus three percent (3.00%) per annum.
“
Interest Period
” shall
mean, in connection with the calculation of interest accrued with respect to any
specified Payment Date, the period from and including the fifteenth (15th)
calendar day of the prior calendar month to and including the fourteenth (14th)
day of the calendar month in which the applicable Payment Date occurs. Each
Interest Period shall be a full month and shall not be shortened by reason of
any payment of the Loan prior to the expiration of such Interest
Period.
“
LIBOR Business Day
” shall
mean any day upon which United States dollar deposits may be dealt in on the
London and the New York interbank markets and on which commercial banks and
foreign exchange markets are open in London and New York City.
“
LIBOR Rate
” shall
mean with respect to each Interest Period, the quoted offered rate for one-month
United States dollar deposits with leading banks in the London interbank market
that appears on Dow Jones Market Services (formerly Telerate) page 3750 (or the
successor thereto) (“
Page 3750
”)
(provided that at least two offered rates appear on Page 3750)) as of 11:00
a.m., London time, on the date which is two (2) LIBOR Business Days prior to the
relevant Interest Rate Adjustment Date (“
LIBOR Determination
Date
”)
(rounded upward, if necessary, to the nearest one-sixteenth of one percent
(1/16%)). If as of such time on any LIBOR Determination Date, no quotation is
given on such Page 3750, then the Lender shall establish LIBOR on such LIBOR
Determination Date by requesting four Reference Banks meeting the criteria set
forth herein to provide the quotation offered by its principal London office for
making one-month United States dollar deposits with leading banks in the London
interbank market as of 11:00 a.m., London time, on such LIBOR Determination
Date. If two or more Reference Banks provide such offered quotations, then the
LIBOR Rate for the next Interest Period shall be the arithmetic mean of such
offered quotations (rounded upward if necessary to the nearest whole multiple of
1/1,000%. If only one or none of the Reference Banks provides such offered
quotations, then the LIBOR Rate for the next Interest Period shall be the
Reserve Rate. If on any LIBOR Determination Date, Lender is required but is
unable to determine the LIBOR Rate in the manner provided in the immediately two
preceding sentences, the LIBOR Rate for the next Interest Period shall be
determined in accordance with the provisions of
Section
1.7
hereof.
“
LIBOR To Treasury
Spread
” shall
mean the difference, if positive, between the LIBOR Rate and the Treasury Rate
on the date of any Treasury Rate Notice. If such difference is negative, the
LIBOR To Treasury Spread shall be deemed to be equal to zero.
“
Loan Agreement
” shall
mean that certain Loan Agreement dated as of even date herewith between Borrower
and Lender, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time to time.
“
Margin
” shall
mean three percent (3.00%).
“
Maturity Date
” shall
mean (i) January 9
,
2010, or
upon the valid exercise of the First Extension Option, January 9, 2011, or upon
the valid exercise of the Second Extension Option, January 9, 2012 or (ii) any
earlier date on which this Note is required to be paid in full, by acceleration
or otherwise.
“
Reference Bank
” shall
mean a leading bank engaged in transactions in Eurodollar deposits in the
international Eurocurrency market that has an established place of business in
London. If any such Reference Bank should be removed from Page 3750 or in any
other way fail to meet the qualifications of a Reference Bank, Lender may in its
reasonable discretion designate alternative Reference Banks meeting the criteria
specified above.
“
Reserve Rate
” shall
mean the rate per annum which Lender determines to be the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/1,000%) of the
one-month United States dollar lending rates that at least three major New York
City banks selected by Lender are quoting, at 11:00 a.m. (New York time) on the
relevant LIBOR Determination Date, to the principal London offices of at least
two of the Reference Banks. In the event that at least two such rates are not
obtained, Reserve Rate shall mean the lowest one-month United States dollar
lending rate which New York City banks reasonably selected by Lender are quoting
as of 11:00 a.m. (New York time) on such LIBOR Determination Date to leading
European banks.
“
Treasury Rate
” shall
mean with respect to each Interest Rate Adjustment Date, the weekly average
yield on United States Treasury Securities adjusted to a constant maturity of
six months last published by the Federal Reserve Board prior to such Interest
Rate Adjustment Date.
1.11
Payment on Maturity
Date
.
Borrower shall pay to Lender on the Maturity Date the outstanding principal
balance of this Note, all accrued and unpaid interest hereon and all other
amounts due hereunder and under the Agreement and the other Loan Documents,
including, without limitation, all interest that would have accrued on the
outstanding principal balance of this Note through and including the Maturity
Date; provided, however, that after a Securitization, interest shall be paid
through the end of the Interest Period in which the Maturity Date occurs (even
if such Interest Period extends beyond the Maturity Date).
2.
DEFAULT
.
2.1
Late Fee
. If any
sum payable under this Note or any other Loan Document is not paid on or before
the date on which it is due, Borrower shall pay to Lender upon demand an amount
equal to the lesser of five percent (5.0%) of such unpaid sum or, if prohibited
or restricted by Legal Requirements, the maximum amount permitted by applicable
law to defray the expenses incurred by Lender in handling and processing such
delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment and such amount shall be secured by the Security Instrument
and the other Loan Documents.
2.2
Remedies
. The
entire outstanding principal sum of this Note, together with all interest
accrued and unpaid thereon and all other sums due under this Note, the Security
Instrument, or any of the other Loan Documents, or any portion thereof,
including without limitation, any amounts described in
Section
12.9
of the
Loan Agreement shall without notice become immediately due and payable at the
option of Lender upon the occurrence of any Event of Default including without
limitation, an Event of Default resulting from a Transfer in violation of the
terms of the Loan Agreement. Time is of the essence in this Note, the Security
Instrument and the other Loan Documents. All of the terms, covenants and
conditions contained in the Security Instrument and the other Loan Documents are
hereby made part of this Note to the same extent and with the same force as if
they were fully set forth herein. If Borrower’s obligations under this Note or
any of the other Loan Documents are enforced by Lender through an
attorney-at-law, or any payment due under this Note or the other Loan Documents
is collected by or through an attorney-at-law or collection agency, Borrower
agrees to pay all out of pocket costs incurred by Lender in connection
therewith, including, but not limited to, reasonable fees and disbursements of
legal counsel (whether with respect to a retained firm or Lender’s in-house
staff), collection agency costs, whether or not suit be brought, and any and all
costs or fees arising as a result of the filing of or during the course of any
case under any Bankruptcy Laws with respect to any of the Borrower
Parties.
2.3
Default
Rate
. Upon
the occurrence of an Event of Default, Lender shall be entitled to receive and
Borrower shall pay interest on the entire unpaid principal sum at the Applicable
Interest Rate plus five percent (5.0%) (the “
Default Rate
”). The
Default Rate shall be automatically computed from the occurrence of the Event of
Default until the actual receipt and collection of this Note in full or, if
permitted by Lender or otherwise provided in the Loan Documents, the date such
Event of Default is cured. This charge shall be added to this Note, and shall be
deemed secured by the Security Instrument and the other Loan Documents. This
clause, however, shall not be construed as an agreement or privilege to extend
the date of the payment of this Note or any other sums payable under the Loan
Documents, nor as a waiver of any other right or remedy accruing to Lender by
reason of the occurrence of any Event of Default. In the event the Default Rate
would otherwise exceed the maximum rate permitted by applicable law, the Default
Rate shall be the maximum rate permitted by applicable law.
2.4
Post-Judgment
.
Interest shall accrue on any judgment obtained by Lender in connection with the
enforcement or collection of this Note or the other Loan Documents (including
foreclosure of the Security Instrument) until such judgment amount is
irrevocably paid in full at a rate equal to the greater of (a) the Default
Rate or (b) the highest legal rate applicable to judgments within such
jurisdiction; provided, however, that interest shall not accrue at a rate in
excess of the maximum rate of interest, if any, which may be charged by Lender
or collected from Borrower under applicable law.
2.5
Remedies
Cumulative
. The
remedies available to Lender under this Note and in the other Loan Documents, or
at law or in equity, shall be cumulative and concurrent, and may be pursued
singly, successively or together in Lender’s sole discretion and as often as
occasion therefor shall arise.
3.
PREPAYMENT
.
3.1
Prepayment
.
Provided no Event of Default exists, the principal balance of this Note may be
prepaid in whole or in part at any time provided (i) written notice of such
prepayment specifying the intended date of prepayment is received by Lender not
more than sixty (60) days and not less than thirty (30) days prior to the date
of such prepayment, (ii) such prepayment is accompanied by all interest accrued
hereunder and all other sums due hereunder or under the other Loan Documents
through the date of prepayment, (iii) in addition to the payment required in
clause (ii) above, if a Securitization has occurred, such prepayment includes an
amount equal to the interest that would have accrued at the Applicable Interest
Rate on the amount of principal being prepaid through the end of the Interest
Period in which such prepayment occurs, notwithstanding that such Interest
Period extends beyond the date of prepayment, (iv) in addition to the payments
required in clauses (ii) and (iii) above, if a Securitization has occurred and
if such prepayment is made during the period from and including the first day
after a Payment Date through and including the last day of the Interest Period
in which such prepayment occurs, such prepayment includes all interest on the
principal amount being prepaid which would have accrued from the first day of
the Interest Period immediately following the Interest Period in which the
prepayment occurs (the “
Succeeding Interest
Period
”)
through and including the end of the Succeeding Interest Period, calculated at
(1) the Applicable Interest Rate if such prepayment occurs on or after the LIBOR
Determination Date for the Succeeding Interest Period or (2) the Assumed Note
Rate if such prepayment occurs before the LIBOR Determination Date for the
Succeeding Interest Period (the sums due under clauses (ii), (iii) and (iv) of
this
Section
3.1
hereinafter collectively referred to as the “
Interest Shortfall
”), (v)
such prepayment includes all Breakage Costs, if any, without duplication of any
sums paid pursuant to the preceding clause (iv); and (vi) such prepayment
includes all other sums then due under this Note, the Loan Agreement or the
other Loan Documents. Notwithstanding anything to the contrary in this Note, the
Security Instrument or the other Loan Documents, any notice of prepayment
pursuant to this Section shall be irrevocable and the principal balance of the
Note shall be absolutely and unconditionally due and payable on the date
specified in any notice given pursuant to this
Section
3.1
unless
Borrower (i) revokes such notice of prepayment in writing at least two (2) days
prior to the date designated as the prepayment date in such notice of
prepayment, and (ii) pays all of Lender's costs and expenses incurred related to
such prospective prepayment, including, without limitation, any Breakage Costs.
Notwithstanding the foregoing or anything to the contrary contained herein or in
any other Loan Document, Borrower shall not be permitted to prepay the principal
balance of this Note in whole or in part at any time prior to the Lockout Date
except for and to the extent of prepayments of principal resulting from the
application of any Casualty/Condemnation Involuntary Prepayments. No principal
amount repaid may be reborrowed.
If the
Interest Shortfall (or any portion thereof) was calculated based upon the
Assumed Note Rate, upon determination of the LIBOR Rate on the LIBOR
Determination Date for the Succeeding Interest Period, (i) if the Applicable
Interest Rate for such Succeeding Interest Period is less than the Assumed Note
Rate, Lender shall promptly refund to Borrower the amount of such Interest
Shortfall paid, calculated at a rate equal to the difference between the Assumed
Note Rate and the Applicable Interest Rate, or (ii) if the Applicable Interest
Rate for such Succeeding Interest Period is greater than the Assumed Note Rate,
Borrower shall promptly (and in no event later than the ninth (9th) day of the
following month) pay Lender, without additional interest or other late charges
or penalties, the amount of such additional Interest Shortfall calculated at a
rate equal to the excess of the Applicable Interest Rate over the Assumed Note
Rate.
3.2
Mandatory Prepayments
Resulting From Casualty and Condemnation
. The
Loan is subject to mandatory prepayment (unless otherwise agreed to by Lender)
in certain instances of Casualty and Condemnation (each, a “
Casualty/Condemnation Involuntary
Prepayment
”), in
the manner and to the extent set forth in the Loan Agreement. Each
Casualty/Condemnation Involuntary Prepayment shall be made in accordance with
the Loan Agreement. On the Payment Date immediately following the date on which
Borrower actually receives any Insurance Proceeds and/or Condemnation Proceeds
or sooner, if requested by Borrower, if and to the extent Lender is not
obligated to or does not otherwise agree to make such Insurance Proceeds and/or
Condemnation Proceeds available to Borrower for the Restoration of the Property,
Borrower shall prepay (without Prepayment Premium) the outstanding principal
balance of this Note in an amount equal to one hundred percent (100%) of such
Insurance Proceeds and/or Condemnation Proceeds. Provided no Event of Default
has occurred and is continuing, such prepayment shall be applied, (a)
first
, to
interest on the outstanding principal balance of this Note accrued at the
Applicable Interest Rate on the amount prepaid through and including the date of
prepayment and, if a Securitization has occurred, to interest on the outstanding
principal balance of the Loan that would have accrued at the Applicable Interest
Rate on the amount prepaid through the end of the Interest Period in which such
prepayment occurs, notwithstanding that such Interest Period extends beyond the
date of prepayment, (b)
second
, to
Breakage Costs, if any, and any other sums due under this Note, the Loan
Agreement or the other Loan Documents and (c)
third
, toward
the outstanding principal balance of this Note.
3.3
Prepayment Upon
Default
. If
following the occurrence of any Event of Default, Lender shall accelerate the
Loan, Borrower shall pay all amounts payable under this Note or any of the other
Loan Documents (which amounts shall include all amounts payable under
Section
3.1
). If
Borrower shall tender payment of an amount sufficient to satisfy the Debt at any
time prior to a sale of the Property or any part thereof, either through
foreclosure or the exercise of the other remedies available to Lender under the
Loan Documents, such tender by Borrower shall be deemed to be voluntary and
Borrower shall pay all amounts due and payable under the Loan Documents and any
other amounts described in this
Section 3
.
4.
SECURITY
. The
indebtedness evidenced by this Note is governed by the Loan Agreement and the
obligations created hereby (including without limitation the amounts authorized
by
Section 2
to be
collected by Lender) are secured by, among other things, the Security Instrument
and other Loan Documents.
5.
EXCULPATION
.
Notwithstanding anything to the contrary contained in this Note, the liability
of Borrower to pay this Note and for the performance of the other agreements,
covenants and obligations contained herein and in the other Loan Documents shall
be limited as set forth in
Article IX
of the
Loan Agreement, the terms of which are incorporated herein by this
reference.
6.
GENERAL
.
6.1
Written Amendment
Only
. This
Note may not be modified, amended, waived, extended, changed, discharged or
terminated orally or by any act or failure to act on the part of Borrower or
Lender, but only by an agreement in writing signed by Borrower and
Lender.
6.2
Certain
Waivers
. Except
for any notices specifically required by the Loan Agreement, Borrower and all
others who may become liable for the payment of all or any part of the Debt do
hereby severally waive presentment and demand for payment, notice of dishonor,
protest and notice of protest, notice of non-payment and notice of intent to
accelerate the maturity hereof (and of such acceleration). No release of any
security for the Loan or extension of time for payment of this Note or any
installment hereof, and no alteration, amendment or waiver of any provision of
this Note or the other Loan Documents made by agreement between Lender and any
other Person shall release, modify, amend, waive, extend, change, discharge,
terminate or affect the liability of Borrower, or any other Person who may
become liable for the payment of all or any part of the Debt, under this Note
and the other Loan Documents. Lender may release any guarantor or indemnitor of
the Loan from liability, in every instance without the consent of Borrower
hereunder, and without waiving any rights the Lender may have hereunder, the
other Loan Documents or by virtue of the laws of the State in which the Property
is located or any other state of the United States.
6.3
Severability
. If any
provision or obligation under this Note and the other Loan Documents shall be
determined by a court of competent jurisdiction to be invalid, illegal or
unenforceable, that provision shall be deemed severed from the Loan Documents
and the validity, legality and enforceability of the remaining provisions or
obligations shall remain in full force as though the invalid, illegal, or
unenforceable provision had never been a part of the Loan
Documents.
6.4
Notices
. All
notices or other written communications hereunder shall be given and become
effective as provided
Section
12.5
of the
Loan Agreement.
6.5
Set-Off
Preference
.
Borrower is and shall be obligated to pay principal, interest, and any and all
other amounts which become payable hereunder or under the other Loan Documents
absolutely and unconditionally and without any abatement, postponement,
diminution or deduction and without any reduction for counterclaim or setoff. In
the event that at any time any payment received by Lender hereunder shall be
deemed by a court of competent jurisdiction to have been a voidable preference
or fraudulent conveyance under any bankruptcy, insolvency or other debtor relief
law, then the obligation to make such payment shall survive any cancellation or
satisfaction of this Note or return thereof to Borrower and shall not be
discharged or satisfied with any prior payment thereof or cancellation of this
Note, but shall remain a valid and binding obligation enforceable in accordance
with the terms and provisions hereof, and such payment shall be immediately due
and payable upon demand.
6.6
Successors and
Assigns
. The
terms and provisions hereof shall be binding upon and inure to the benefit of
Borrower and Lender and their respective heirs, executors, legal
representatives, successors, successors-in-title and permitted assigns, whether
by voluntary action of the parties or by operation of law. As used in this Note
and the other Loan Documents, the terms “
Borrower
” and
“
Lender
” shall
be deemed to include their respective heirs, executors, legal representatives,
successors, successors-in-title and permitted assigns (no right to assign on the
part of Borrower being implied hereby), whether by voluntary action of the
parties or by operation of law.
6.7
Interpretation
.
Section
1.2
of the
Loan Agreement is hereby incorporated into this Note by reference for all
purposes.
6.8
WAIVER OF TRIAL BY
JURY
. BORROWER AND LENDER BY ACCEPTING
THIS NOTE HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY
SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS NOTE. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND
LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE
AS TO WHICH THE RIGHT TO TRIAL BY JURY WOULD OTHERWISE ACCRUE OR ARISE. EACH
PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS
CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER PARTY.
6.9
GOVERNING
LAW
. THIS NOTE WAS NEGOTIATED IN WHOLE
OR IN PART IN THE STATE OF NEW YORK AND ACCEPTED BY LENDER IN THE STATE OF NEW
YORK, AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM
THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL
RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY,
AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS NOTE AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS) AND
ANY LEGAL REQUIREMENTS OF THE UNITED STATES OF AMERICA. AT ALL TIMES THE
PROVISIONS FOR THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS AND
SECURITY INTERESTS CREATED PURSUANT TO THE LOAN DOCUMENTS SHALL BE GOVERNED BY
AND CONSTRUED ACCORDING TO THE LAW OF THE STATE OF NEW YORK. THIS CHOICE OF
GOVERNING LAW IS MADE PURSUANT TO NEW YORK GENERAL OBLIGATION LAW SECTION
5-1401.
ANY SUIT, ACTION OR PROCEEDING
AGAINST BORROWER ARISING OUT OF OR RELATING TO THIS NOTE MAY AT LENDER’S OPTION
BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF
NEW YORK, AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE
BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR
PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. ANY SUIT, ACTION OR PROCEEDING
BROUGHT BY BORROWER ARISING OUT OF OR RELATING TO THIS NOTE OR THE OTHER LOAN
DOCUMENTS OR THE LENDER-BORROWER RELATIONSHIP CREATED THEREBY (WHETHER IN
CONTRACT OR IN TORT) SHALL ONLY BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN
THE CITY OF NEW YORK, COUNTY OF NEW YORK, AND BORROWER WAIVES ANY OBJECTIONS
WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF
ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO
THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER
DOES HEREBY DESIGNATE AND APPOINT
HERRICK, FEINSTEIN LLP, 2 PARK
AVENUE, NEW YORK, NEW YORK 10016, ATTENTION: SHELDON CHANALES,
ESQ.
AS ITS AUTHORIZED AGENT TO ACCEPT
AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED
IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW
YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID
ADDRESS AND WRITTEN NOTICE OF SAID SERVICE MAILED OR DELIVERED TO BORROWER IN
THE MANNER PROVIDED IN THE LOAN AGREEMENT SHALL BE DEEMED IN EVERY RESPECT
EFFECTIVE SERVICE OF PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN THE STATE OF NEW YORK.
BORROWER (I) SHALL GIVE PROMPT
NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER,
(II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE
AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT
AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF
PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS
AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED
WITHOUT LEAVING A SUCCESSOR.
6.10
COUNTERPARTS
. This
Note may be executed in any number of counterparts, each of which shall be an
original, but all of which shall constitute one and the same
instrument.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, Borrower has duly executed this Note the day and year first
above written.
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1407 BROADWAY REAL ESTATE
LLC,
a
Delaware limited liability company
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By:
|
/s/
David Lichtenstein
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Name: David Lichtenstein
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Title:
President
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EXHIBIT
10.27
GUARANTY OF RECOURSE
OBLIGATIONS
January
4, 2007
FOR VALUE RECEIVED
, and to
induce LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation (individually and
as lead arranger and administrative agent for itself and certain co-lenders)
(“
Lender
”),
having an address at 399 Park Avenue, 8th Floor, New York, New York 10022, to
enter into that certain Loan Agreement (as amended, restated, supplemented or
otherwise modified from time to time, the “
Loan
Agreement
”) of
even date herewith with 1407
BROADWAY
REAL ESTATE
LLC, a
Delaware limited liability company (“
Borrower
”),
having an address at c/o The Lightstone Group, 326 Third Street, Lakewood, New
Jersey 08701, for a loan
(the
“
Loan
”),
evidenced by (i) that certain Promissory Note dated of even date herewith in the
stated principal amount of $127,250,000 (as amended, restated, split, severed,
consolidated, supplemented or otherwise modified from time to time, the
“
Note
”)
(except as otherwise indicated herein, each capitalized term used herein that is
not specifically defined herein shall have the meaning given to such term in the
Loan Agreement), and secured by the Security Instrument and the other Loan
Documents, the undersigned and each other Person who executes and delivers a
joinder hereto in accordance with
Section
11(b)
hereof
(individually, a “
Guarantor
” and,
collectively, the “
Guarantors
”),
hereby absolutely, unconditionally and irrevocably, and jointly and severally as
a primary obligor with all other obligated Persons, guarantees the full and
prompt payment and performance of all of the Guaranteed Obligations (hereinafter
defined).
The
following additional provisions shall govern and apply to this Guaranty of
Recourse Obligations (this “
Guaranty
”):
1.
Guarantors’
Liability
.
As used
herein, the term “
Guaranteed
Obligations
” means
the following:
a.
If a Full
Recourse Event occurs, the “
Guaranteed
Obligations
” shall
mean all of the “
Obligations
”, as
defined in the Loan Agreement (including the entire principal balance of the
Debt, all accrued interest thereon and all other amounts, costs or expenses
payable pursuant to the Loan Documents) together with all Enforcement Costs
(hereinafter defined).
b.
If a
Partial Recourse Event occurs, but a Full Recourse Event has not occurred, the
“
Guaranteed
Obligations
” shall
mean the sum of (i) all Losses (hereinafter defined) plus (ii) all Enforcement
Costs.
Unless
and until a Full Recourse Event and/or a Partial Recourse Event occurs, Lender
shall not pursue any claims under this Guaranty.
As used
herein, the term “
Losses
” shall
mean any and all claims, suits, liabilities (including strict liabilities),
actions, proceedings, obligations, debts, damages, actual and out-of-pocket
losses, out-of-pocket costs (including any and all costs and expenses incurred
in the preservation, restoration and protection of the Property), expenses,
fines, penalties, charges, fees, judgments, awards, amounts paid in settlement,
punitive damages, foreseeable consequential damages and damages, actual and
out-of-pocket costs and expenses of whatever kind or nature (including
reasonable attorneys’ fees and other costs of defense) arising out of, incurred
because of or related to the occurrence of any Partial Recourse Event. The term
“
Enforcement Costs
” shall
mean any and all out-of-pocket costs and expenses, including reasonable legal
expenses and attorneys’ fees, (a) described in Section 7.4 of the Loan
Agreement, (b) incurred or paid by Lender in protecting Lender’s interest in the
Property, or (c) incurred in collecting any amount payable under this Guaranty
or the other Loan Documents, or (d) incurred in enforcing Lender’s rights under
this Guaranty or with respect to the Property, in each of clauses (a) through
(d) whether or not any legal proceeding is commenced hereunder or thereunder and
whether or not any Default or Event of Default shall have occurred and is
continuing, together with interest thereon at the Default Rate (as defined in
each Note) from the date paid or incurred by Lender until the costs and expenses
described in this sentence are paid by Borrower or a Guarantor. Enforcement
Costs shall include any of the foregoing incurred during or following the (i)
exercise of any remedy by Lender under this Guaranty or the other Loan Documents
or following the occurrence of an Event of Default, (ii) foreclosure of any
mortgage prior to or subsequent to the Security Instrument not permitted under
the Loan Documents, whether or not Lender is made a party to, or otherwise
becomes involved in, such proceedings, in which proceeding Lender is made a
party, (iii) bankruptcy, insolvency, reorganization, rehabilitation, liquidation
or other similar proceeding in respect of any Borrower Party or an assignment by
any Borrower Party for the benefit of its creditors, (iv) enforcement of the
Obligations of or collection of any payments due from any Guarantor under this
Guaranty, or from any Borrower Party under any of the other Loan Documents or
with respect to the Property, or (v) incurring of any costs or expenses by
Lender in connection with any refinancing or restructuring of the credit
arrangements provided under this Guaranty or the other Loan Documents in the
nature of a “work-out”, modification or restructuring. To the extent Lender
receives any payment by any Person (including Guarantor) or pursuant to the
exercise of any rights or remedies under the Loan Documents (including as a
result of any foreclosure or transfer in lieu of foreclosure on any collateral
or security for the Loan), Lender may apply any such payment to Obligations that
are not Guaranteed Obligations until all Obligations that are not Guaranteed
Obligations are paid in full, unless at the time of any such payment by
Guarantor from Guarantor’s own funds (and not from the Property or any
collateral or security for the Loan) Guarantor advises Lender that such payment
is being made on account of the Guaranteed Obligations.
2.
No Waiver
. Nothing
contained in this Guaranty shall (i) prevent Lender from exercising any
rights or remedies against (a) any Person (including Borrower) who may be liable
for the Obligations or the Guaranteed Obligations or (b) any property or
collateral encumbered by any of the Loan Documents or from joining each or any
Guarantor in any action whereby Lender seeks to preserve any potential liability
of such Guarantor under this Guaranty (such as preserving a deficiency judgment
after foreclosing on the Property or otherwise pursuing any other collateral),
or to pursue Lender’s rights with respect to the Property or any other
collateral for the Loan, (ii) be deemed to be a release or impairment of the
Obligations or the Guaranteed Obligations or any security interest in favor of
Lender encumbering the Property or any other collateral for the Loan, or (iii)
affect Lender’s rights under or pursuant to any other guaranty or indemnity. To
the extent Guarantors are liable for the Guaranteed Obligations, each Guarantor
shall be jointly and severally liable for the Guaranteed Obligations with
Borrower and any other Person who may be liable.
3.
No
Limitation
. Nothing
contained in this Guaranty shall limit any Guarantor’s liability arising under
or pursuant to any other Loan Document, including the Environmental and
Hazardous Substance Indemnification Agreement. The Guaranteed Obligations shall
be in addition to and shall not limit or in any way affect the obligations of
any Guarantor under any other existing or future guaranties unless said other
guaranties are expressly modified or revoked in a writing signed by Lender. This
Guaranty is independent of the Obligations of Borrower and/or any other Person
under the other Loan Documents. Lender may bring a separate action to enforce
the provisions hereof against each or any Guarantor without taking action
against Borrower or any other Person or joining Borrower or any other Person as
a party to such action.
4.
Consideration
. Each
Guarantor acknowledges that Lender would not have entered into the transactions
contemplated by the Loan Documents without the execution and delivery of this
Guaranty by such Guarantor and the execution and delivery of this Guaranty are
material inducements to Lender to make the Loan and enter into the Loan
Agreement. Each Guarantor further acknowledges that such Guarantor is directly
or indirectly, the owner of an ownership interest in Borrower, and accordingly,
such Guarantor will receive a direct and material benefit from Lender entering
into the Loan Documents and making the Loan to Borrower. Accordingly, each
Guarantor hereby acknowledges and agrees that the consideration received by such
Guarantor for the execution and delivery of this Guaranty is actual and
adequate. Each Guarantor further acknowledges and agrees that such Guarantor has
had the benefit of legal counsel in connection with the execution and delivery
of this Guaranty and such Guarantor has not executed and delivered this Guaranty
under any fraud, duress, undue influence or coercion of any kind. Each Guarantor
hereby acknowledges that: (a) the obligations undertaken by such Guarantor in
this Guaranty are complex in nature, and (b) numerous possible defenses to the
enforceability of the Guaranteed Obligations may presently exist and/or may
arise hereafter, and (c) as part of Lender’s consideration for entering into
this transaction, Lender has specifically bargained for the waiver and
relinquishment by such Guarantor of all such defenses. Given all of the above,
each Guarantor does hereby represent and confirm to Lender that such Guarantor
is fully informed regarding, and that such Guarantor does thoroughly understand:
(i) the nature of all such possible defenses, and (ii) the circumstances under
which such defenses may arise, and (iii) the benefits which such defenses might
confer upon such Guarantor, and (iv) the legal consequences to such Guarantor of
waiving such defenses. Each Guarantor acknowledges that such Guarantor makes
this Guaranty with the intent that this Guaranty and all of the informed waivers
herein shall each and all be fully enforceable by Lender, and that Lender is
induced to enter into this transaction in material reliance upon the presumed
full enforceability thereof.
5.
Guaranty
.
Notwithstanding anything to the contrary contained herein, the maximum liability
of each Guarantor hereunder shall not exceed the amount which is one dollar less
than the amount which would otherwise make this Guaranty unenforceable pursuant
to any fraudulent conveyance, bankruptcy, insolvency or similar
law.
6.
Guaranty
Absolute
. This
Guaranty is an irrevocable, absolute, continuing guaranty of payment and
performance and not a guaranty of collection. This Guaranty may not be revoked
by any Guarantor and shall continue to be effective with respect to any
Guaranteed Obligations (as applicable) arising or created after any attempted
revocation by such Guarantor and, if such Guarantor is a natural person, after
such Guarantor’s death (in which event this Guaranty shall be binding upon such
Guarantor’s estate and such Guarantor’s legal representatives and heirs). The
fact that at any time or from time to time the Obligations or the Guaranteed
Obligations may be increased or reduced pursuant to the Loan Documents,
amendments to the Loan Documents or otherwise shall not release or discharge the
obligation of any Guarantor to Lender with respect to the Guaranteed
Obligations. This Guaranty may be enforced by Lender and any subsequent holder
of the Note and shall not be discharged by the assignment or negotiation of all
or part of such Note. The liability of each Guarantor hereunder shall be
absolute, unconditional and irrespective of:
(a)
lack of
validity, genuineness or enforceability of the Note or any other Loan Document
between Lender and Borrower or other Person relating thereto;
(b)
change in
the time, manner, place of payment of the indebtedness under, or in any other
term of, or any other amendment or waiver of, or any consent to, or departure
from, any Loan Document or other agreement between Borrower or any other Person
and Lender, including the Note;
(c)
insolvency
of, or voluntary or involuntary bankruptcy, assignment for the benefit of
creditors, reorganization or other similar proceedings affecting Borrower or any
other Person or any of their respective assets;
(d)
other
circumstance, other than satisfaction of the Obligations by payment in full,
which might otherwise constitute a defense available to, or a discharge of,
Borrower or any other Person in respect of the Obligations or the Guaranteed
Obligations;
(e)
at any
time or from time to time, without notice to any Guarantor, the time for any
performance of or compliance with any of the Obligations or the Guaranteed
Obligations shall be extended or modified, or such performance or compliance
shall be waived;
(f)
any of
the acts mentioned in any of the provisions of the Note or any other Loan
Documents shall be done or omitted;
(g)
the
exercise of any of Lender’s rights or remedies under the Loan
Documents;
(h)
the
maturity of any of the Obligations or the Guaranteed Obligations shall be
accelerated, or any of the Obligations or the Guaranteed Obligations shall be
modified, supplemented or amended in any respect, or any right under the Note or
any other Loan Documents shall be waived or any other guarantee of any of the
Obligations or the Guaranteed Obligations or any security therefor shall be
released or exchanged in whole or in part or otherwise dealt with;
or
(i)
any Lien
or security interest granted to, or in favor of, the Lender as security for any
of the Obligations or the Guaranteed Obligations shall fail to be
perfected.
No
payment made by any Guarantor, any other guarantor or any other Person, or
received or collected by Lender from any Guarantor, any other guarantor or any
other Person by virtue of any action or proceeding or set off or application at
any time in reduction of or in payment of the Obligations or the Guaranteed
Obligations shall be deemed to modify, release or otherwise affect the liability
of any Guarantor under this Guaranty for the balance of the Guaranteed
Obligations. Notwithstanding any such payments received or collected by Lender
in connection with the Obligations or the Guaranteed Obligations, each Guarantor
shall, subject to the limitations herein contained, remain liable for the
balance of the Guaranteed Obligations until all the Guaranteed Obligations are
paid in full. This Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Obligations or the
Guaranteed Obligations is rescinded or must otherwise be returned by Lender upon
the insolvency, bankruptcy or reorganization of Borrower or any other Person
otherwise, all as though such payment had not been made.
Lender
shall not be required to inquire into the powers of any Borrower Party or any
respective member, partner, shareholder, manager, officer, director or any other
agent acting or purporting to act on behalf of any Borrower Party, or any other
signatory to any of the Loan Documents, and monies, advances, renewals or
credits described in this Guaranty in fact borrowed or obtained from Lender in
professed exercise of such powers shall be deemed to form part of the debts and
liabilities hereby guaranteed, notwithstanding that such borrowing or obtaining
of monies, advances, renewals, or credits shall be in excess of the powers of
any Borrower Party or any respective partner, member, manager, officer, director
or other agent of any Borrower Party aforesaid, or be in any way irregular,
defective or informal.
7.
Dealing with the Borrower
and Others.
(a)
The
Obligations and the Guaranteed Obligations shall not be released, discharged,
limited or in any way affected by anything done, suffered or permitted by Lender
in connection with any monies or credit advanced by Lender to Borrower or on
behalf of Borrower pursuant to the Loan Documents or any security therefor,
including any loss of or in respect of any security received by Lender from
Borrower or any other Person. It is agreed that Lender, without releasing,
discharging, limiting or otherwise affecting in whole or in part the Obligations
or the Guaranteed Obligations and each Guarantor’s liabilities under this
Guaranty may, without limiting the generality of the foregoing:
(i)
Grant
time, renewals, extensions, indulgences, releases, waivers, modifications and
discharges to Borrower or any other Person guaranteeing payment of or otherwise
liable with respect to the Obligations or the Guaranteed Obligations (each such
party, an “
Obligor
”).
(ii)
Take or
abstain from taking security or collateral from Borrower or any Obligor or from
perfecting security or collateral of Borrower or any Obligor.
(iii)
Take, or
delay in taking or refusing to take, any and all action with respect to the Note
and the other Loan Documents (regardless of whether same might vary the risk or
alter the rights, remedies or recourses of Guarantors), including specifically
(but without limitation) the settlement or compromise of any amount allegedly
due thereunder, all without notice or consideration to or the consent of any
Guarantor.
(iv)
Apply all
monies at any time received from Borrower or any Obligor upon such part of the
Obligations or the Guaranteed Obligations as Lender may see fit (subject to the
requirements of the Loan Documents).
(v)
Otherwise
deal with Borrower or any Obligor as Lender may see fit.
(vi)
Declare
all sums owing to Lender under the Note and the other Loan Documents due and
payable upon the occurrence of an Event Default under the Loan Documents or
decline to do so.
(vii)
Otherwise
modify the terms of any of the Loan Documents.
(viii)
Release,
substitute or add any one or more endorsers of the Note or guarantors of
Borrower’s obligations under the Note or the other Loan Documents.
(b)
Lender
shall not be bound or obliged to exhaust recourse against Borrower or any other
Obligor or any security, guaranty, indemnity, mortgage or collateral Lender may
hold or take any other action (other than to make demand pursuant to
Section
13
of this
Guaranty) before being entitled to payment from Guarantors hereunder. It is the
intent of Guarantors and Lender that the Guaranteed Obligations are primary,
absolute and unconditional under any and all circumstances and that, until all
of Borrower’s obligations under the Loan Documents are fully and finally
satisfied, such obligations shall not be discharged or released, in whole or in
part, by any act or occurrence which might be deemed a legal or equitable
discharge or release of any Guarantor.
8.
Subrogation
. No
Guarantor shall exercise any right of subrogation with respect to Borrower or
any Obligor with respect to payments made to Lender hereunder or otherwise until
such time as all Guaranteed Obligations shall have been irrevocably paid in
full. In the case of the liquidation, winding-up or bankruptcy of Borrower or
any Obligor (whether voluntary or involuntary) or in the event that Borrower or
any Obligor shall make an arrangement or composition with its creditors, Lender
shall have the right to rank first for its full claim and to receive all
payments in respect thereof until its claim has been paid in full and each
Guarantor shall, subject to the limitations herein contained, continue to be
liable to Lender for any balance of the Guaranteed Obligations. To the extent
permitted by law, each Guarantor irrevocably releases and waives any subrogation
rights or right of contribution or indemnity (whether arising by operation of
law, contract or otherwise) which such Guarantor may have against the Property
or any part thereof, any collateral pledged as security for the Loan, Borrower
or any Obligor or any Person constituting such Borrower or any Obligor if and to
the extent any such right or rights would give rise to a claim under the
Bankruptcy Code that payments to Lender with respect to the Obligations
constitute a preference in favor of such Guarantor or a claim under the
Bankruptcy Code that any such preference is recoverable from Lender. If any
Guarantor becomes subrogated by payment or otherwise to any of the rights of
Lender pursuant to any of the Loan Documents or applicable law, the rights of
Lender to which such Guarantor shall be subrogated shall be accepted by such
Guarantor “as is” and without any representation or warranty of any kind by
Lender, express or implied, with respect to the legality, value, validity or
enforceability of any of such rights, or the existence, availability, value,
merchantability or fitness for any particular purpose of any collateral and
shall be without recourse to Lender. Unless and until all of the Debt is
irrevocably paid in full and all Obligations under the Loan are irrevocably paid
and performed in full, each Guarantor further unconditionally and irrevocably
waives any right to enforce any remedy which Lender now has or may hereafter
have against Borrower or any Obligor, and further waives any benefit of, and any
right to participate in, any security now or hereafter held by Lender, and
waives any defense based upon an election of remedies by Lender which destroys
or otherwise impairs any subrogation rights of such Guarantor or the right of
such Guarantor to proceed against Borrower or any Obligor for reimbursement, or
both.
9.
Representations and
Warranties
. Each
Guarantor hereby represents and warrants to Lender that:
(a)
Such
Guarantor is not insolvent (as such term is defined or determined for purposes
of the Bankruptcy Code or any other applicable law), and the execution and
delivery of this Guaranty will not make such Guarantor insolvent (as such term
is defined or determined for purposes of the Bankruptcy Code or any other
applicable law).
(b)
Such
Guarantor has all requisite power and authority to carry on its business, to
hold title to and own the property it owns, to execute, deliver and perform this
Guaranty and each of the other Loan Documents to which it is a party, and to
consummate the transactions contemplated hereby and thereby.
(c)
The
execution and delivery of this Guaranty and the other Loan Documents to which it
is a party and the performance by such Guarantor of the Guaranteed Obligations
and any other obligations hereunder or thereunder do not and will not (i)
contravene, violate or conflict with in any material respect, or result in a
breach of or default under, any contractual obligation of such Guarantor or to
which such Guarantor or such Guarantor’s assets is or are subject, or (ii)
violate in any material respect any provision of any Legal Requirement, or (iii)
result in or require the creation or imposition of any Lien in favor of any
Person other than Lender on any of the properties or revenues of such Guarantor
pursuant to any Legal Requirement or material contractual obligation of such
Guarantor.
(d)
No
consent, approval, or authorization of, or registration, declaration, or filing
with, any Governmental Authority or any other Person is required and has not
been obtained in writing by such Guarantor, in connection with the execution,
delivery, and performance by such Guarantor of each of the Loan Documents to
which it is a party or any of the transactions contemplated by such Loan
Documents.
(e)
This
Guaranty, and each of the other Loan Documents to which such Guarantor is a
party, has been duly authorized, executed and delivered by it, and this
Guaranty, and each term and provision hereof, is the legal, valid and binding
obligation of such Guarantor enforceable against such Guarantor in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, moratorium, insolvency, reorganization or similar laws affecting
creditors, rights generally and general principles of equity (whether considered
in an action or proceeding in equity or at law).
(i)
All
financial statements delivered to Lender at any time by or on behalf of such
Guarantor (a) are true and correct in all material respects, (b) fairly present
in a manner consistent with prior statements submitted to Lender the respective
financial conditions of the subjects thereof and for the periods referenced
therein, and (c) have been prepared in accordance with Acceptable Accounting
Principles consistently applied and there has been no Material Adverse Change in
the financial position of such Guarantor since the respective dates of (or
periods covered by) such statements. Without limiting the foregoing, all assets
shown on such financial statements, unless clearly designated to the contrary on
such financial statements, (A) are free and clear of any exemption or any claim
of exemption of such Guarantor or any other Person, (B) accurately reflect all
debt and prior pledges or encumbrances of or on any of such Guarantor's assets
(direct or indirect) at the date of the financial statements and at all times
thereafter and (C) are owned individually (and solely managed) by such Guarantor
and not jointly with any spouse or other Person.
(f)
There are
no conditions precedent to the effectiveness of this Guaranty.
(g)
There are
no legal proceedings or claims or demands pending against or, to such
Guarantor’s knowledge threatened against, such Guarantor or any of its assets
that either (a) would adversely affect its ability to comply with this Guaranty
or any of the other Loan Documents or could render Guarantor insolvent or (b)
seek a judgment against Guarantor or any of its assets in excess of
$1,000,000.
(h)
Neither
this Guaranty nor any financial information, certificate or statement furnished
to Lender by or on behalf of such Guarantor contains any untrue statement of a
material fact or intentionally omits to state a material fact necessary to make
the statements herein and therein, in the light of the circumstances under which
they are made, not misleading.
(i)
No
conditions exist which would prevent such Guarantor from complying with the
provisions of this Guaranty or any of the other Loan Documents to which it is a
party within the time limits set forth herein and therein.
(j)
Such
Guarantor has filed all tax returns and reports required by law to have been
filed by it, and has paid all taxes, assessments and governmental charges levied
upon it or any of its assets which are due and payable, except any such taxes or
charges which are being contested in good faith by appropriate proceedings and
for which adequate reserves have been set aside.
(k)
Such
Guarantor has adequate means of obtaining from sources other than Lender, on a
continuing basis, financial and other information pertaining to Borrower's
financial condition, the condition (financial and otherwise) of the Property and
Borrower's activities relating thereto and the status of Borrower's performance
of the Obligations under the Loan Documents, and such Guarantor shall keep
adequately informed from such means of any facts, events or circumstances which
might in any way affect such Guarantor's risks hereunder.
(l)
Such
Guarantor is not an "employee benefit plan" (within the meaning of section 3(3)
of ERISA) to which ERISA applies and no assets of such Guarantor constitute
assets of any such plan.
(m)
Such
Guarantor is not engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock, and no proceeds of the Loan will be used
for a purpose which violates, or would be inconsistent with Federal Reserve
System Board of Governors' Board Regulation U or X (as such terms are used in
Federal Reserve System Board of Governors' Board Regulation U or X or any
regulations substituted therefor, as from time to time in effect).
(n)
Such
Guarantor is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(o)
All
amounts payable by such Guarantor under the Loan Documents may be made free and
clear of, and without deduction for or on account of, any tax.
10.
Transfers
. Each
Guarantor shall comply with the restrictions on Transfer set forth in
Section
5.22
of the
Loan Agreement.
11.
Financial Reporting of
Guarantors
. Each
Guarantor shall provide or cause to be provided to Lender the
following:
(a)
Within
one hundred twenty (120) days after the end of each Fiscal Year, a copy of such
Guarantor's balance sheet, income statement, cash flows statement and statement
of changes in financial position for such Fiscal Year. Each such annual report
shall (i) include a schedule of all material contingent liabilities and all
other notes and schedules relating thereto, (ii) be in a form reasonably
satisfactory to the Lender, (iii) be prepared in accordance with Acceptable
Accounting Principles consistently applied, and (iv) be certified to Lender by
such Guarantor.
(b)
Copies of
such Guarantor’s federal and state income tax returns for each taxable year, as
filed with the appropriate Governmental Authority, within forty-five (45) days
after filing of same.
(c)
From time
to time promptly after Lender’s request, such additional information, reports
and statements (including quarterly financial statements) regarding the business
operations and financial condition of such Guarantor (including, without
limitation, financial information on any investment or partnership interests or
membership interests or holdings or any other asset which is reflected on such
Guarantor’s financial statements) as Lender may reasonably request.
12.
Omitted.
13.
Demand for
Payment
.
(a)
Subject
to the limitations on Guarantors’ liability set forth herein, each Guarantor
shall make payment of the Guaranteed Obligations and other amounts payable by
such Guarantor hereunder within ten (10) Business Days after demand therefor is
made by Lender to such Guarantor in writing. Lender shall not be required to
seek payment of the Obligations or the Guaranteed Obligations from Borrower or
any Obligor or any other Person (including any other guarantor) prior to
exercising Lender’s rights and enforcing Lender’s remedies under this Guaranty
and the other Loan Documents. It shall not be necessary for Lender, in order to
exercise Lender’s rights and enforce Lender’s remedies under this Guaranty or
under the other Loan Documents, first to institute suit or exhaust Lender’s
remedies against the Property or any other collateral given as security for the
Loan, Borrower or any other Person liable for the Debt (including any other
guarantor or any other Guarantor under this Guaranty), to have Borrower or any
other obligated Person (including any other guarantor or any other Guarantor
under this Guaranty) joined with any Guarantor in any suit brought under this
Guaranty or to enforce Lender’s rights against any security which shall ever
have been given to secure the Debt. However, in the event Lender elects in
Lender’s sole discretion to enforce and/or exercise any remedies it may possess
with respect to the Property or any other security for the Obligations prior to
demanding payment from any Guarantor, each Guarantor shall nevertheless be
obligated hereunder for the Guaranteed Obligations and not repaid or recovered
incident to the exercise of such remedies. The obligations of each Guarantor
hereunder are independent of the obligations of Borrower. A separate action may
be brought and prosecuted against each or any Guarantor, subject to the
limitations on each Guarantor’s liability herein expressed. Each Guarantor
expressly waives any rights under any statute or the common law, providing any
requirement that Lender institute suit or exercise or exhaust Lender’s remedies
or rights against the Property or any other collateral or security for the Loan,
Borrower or against any other Person, guarantor, or other collateral guaranty
securing all or any part of the Obligations, prior to enforcing any rights
Lender has under this Guaranty, or otherwise. Each Guarantor agrees that such
Guarantor’s liability hereunder is primary, absolute and unconditional without
regard to the liability of any other party, it being understood that this
Guaranty is a guaranty of payment and performance and not merely of collection.
Without limitation to the foregoing, each Guarantor waives, to the extent the
same are applicable: (i) any defense based upon any legal disability or other
defense of Borrower, any other guarantor or other Person, or by reason of the
cessation or limitation of the liability of Borrower from any cause other than
full payment of all sums payable under the Note or any of the other Loan
Documents; (ii) any defense based upon any lack of authority of the officers,
directors, partners or agents acting or purporting to act on behalf of Borrower
or any principal of Borrower or any defect in the formation of Borrower or any
principal of Borrower; (iii) any defense based upon the application by Borrower
of the proceeds of the Loan for purposes other than the purposes represented by
Borrower to Lender or intended or understood by Lender or any Guarantor; (iv)
any and all rights and defenses arising out of an election of remedies by
Lender; (v) any defense based upon Lender’s failure to disclose to any Guarantor
any information concerning the Property, Lender’s underwriting of the Loan and
the Property, Borrower’s financial condition or any other circumstances bearing
on Borrower’s ability to pay all sums payable under the Note or any of the other
Loan Documents; (vi) any defense based upon any statute or rule of law
which provides that the obligation of a surety must be neither larger in amount
nor in any other respects more burdensome than that of a principal; (vii) any
defense based upon Lender’s election, in any proceeding instituted under the
Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code
or any successor statute; (viii) any defense based upon any borrowing or any
grant of a security interest under Section 364 of the Bankruptcy Code;
(ix) presentment, demand, protest and notice of any kind (except as
expressly required herein); (x) the benefit of any statute of limitations
affecting the liability of any Guarantor hereunder or the enforcement hereof;
(xi) any defense arising by reason of any insolvency, death, insanity, minority,
dissolution or any other defense of Borrower, or any other surety, co-maker,
endorser or guarantor of Borrower’s obligations under the Loan Documents, it
being agreed that each Guarantor shall remain liable hereon regardless of
whether Borrower or any other such Person be found not liable thereon for any
reason; (xii) all suretyship defenses of every kind and nature; and (xiii) any
claim any Guarantor might otherwise have against Lender by virtue of Lender’s
invocation of any right, remedy or recourse permitted Lender hereunder or under
the other Loan Documents. Each Guarantor
further
waives any and all rights and defenses that such Guarantor may have because the
Borrower’s debt is secured by real property; this means, among other things,
that: (1) Lender may collect from such Guarantor without first foreclosing
on any real or personal property collateral pledged by Borrower; (2) if Lender
forecloses on any real property collateral pledged by Borrower, then (A) the
amount of the Guaranteed Obligations may be reduced only by the price for which
that collateral is sold at the foreclosure sale, even if the collateral is worth
more than the sale price, and (B) Lender may collect from such Guarantor even if
Lender, by foreclosing on the real property collateral, has destroyed any right
such Guarantor may have to collect from Borrower.
Finally,
each Guarantor agrees that the performance of any act or any payment which tolls
any statute of limitations applicable to the Loan Documents shall similarly
operate to toll the statute of limitations applicable to such Guarantor’s
liability hereunder.
(b)
This
Guaranty may not be revoked by any Guarantor and shall continue to be effective
with respect to the Guaranteed Obligations arising or created after any
attempted revocation by any Guarantor. The liquidation, dissolution or
withdrawal of Borrower or any Guarantor shall not terminate or affect this
Guaranty. Each Guarantor agrees that to the extent Borrower makes a payment or
payments to Lender, which payment or payments or any part thereof are at any
time invalidated, declared to be fraudulent or preferential, set aside or
required for any of the foregoing reasons or for any other reason to be repaid
or paid over to a custodian, trustee, receiver, or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, then to the
extent of such payment or repayment, the Guaranteed Obligations or any part
thereof intended to be satisfied shall be revived and continued in full force
and effect as if said payment or repayment had not been made and each Guarantor
shall, subject to the limitations on its liability herein contained, be
primarily liable for such Guaranteed Obligations and any prior release or
discharge from the terms of this Guaranty given to such Guarantor by Lender
shall be without effect, and this Guaranty shall remain in full force and effect
to the extent of such amount required to be repaid or paid over as aforesaid.
Each Guarantor agrees that this Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time payment or performance of any of
the Obligations or the Guaranteed Obligations, or any part thereof, is avoided,
rescinded or waived and must otherwise be restored, disgorged, reimbursed or
repaid by Lender and shall continue in full force and effect as long as there
exists a possibility that any payment or performance of any of the Obligations
or the Guaranteed Obligations may be avoided, rescinded or waived and so
restored, disgorged, reimbursed or repaid. Each Guarantor, jointly and
severally, agrees to indemnify the Lender on demand for all reasonable costs and
expenses (including reasonable fees of counsel) incurred by the Lender in
connection with such rescission or restoration, including any such costs and
expenses incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law. Each Guarantor acknowledges that a
principle purpose of this Guaranty is to ensure payment of the Guaranteed
Obligations to Lender in the event of the bankruptcy or insolvency of Borrower,
the commencement of proceedings by or against Borrower under the Bankruptcy
Code, or the appointment of a trustee or receiver for the estate or assets, or
any part thereof, of Borrower, and that Lender is entering into the Loan
Documents in reliance upon the enforceability of this Guaranty in the event of
the bankruptcy or insolvency of Borrower, the appointment of a trustee or
receiver for the assets, or any part thereof, of Borrower, or the commencement
of proceedings by or against Borrower under the Bankruptcy Code. Each Guarantor
shall remain liable for the Guaranteed Obligations notwithstanding any
extension, reduction, modification, composition or other alteration of the
Obligations or the Guaranteed Obligations as a result of any proceeding under
the Bankruptcy Code (as the Obligations and the Guaranteed Obligations existed
without giving effect to any such extension, reduction, modification,
composition or other alteration). Accordingly, each Guarantor further
acknowledges and agrees that in the event that proceedings by Lender against
Borrower are stayed by or in any court for any reason, or in the event that the
Loan Documents are terminated or not enforced by action of a court or trustee in
such proceedings, such stay, termination or unenforceability shall not prevent
or prohibit any action by Lender upon this Guaranty, notwithstanding any
potential allegation by any Guarantor that enforcement of this Guaranty may in
any manner inhibit or prevent the reorganization or rehabilitation of Borrower.
Each Guarantor acknowledges and agrees that such Guarantor’s efforts are not
necessary for a successful reorganization or rehabilitation of Borrower or any
other Person and such Guarantor therefore waives any right to seek a stay or
injunction of any proceeding against such Guarantor with respect to this
Guaranty whether based on Section 105 of the Bankruptcy Code or
otherwise.
(c)
In any
bankruptcy or other proceeding in which the filing of claims is required by law,
each Guarantor shall file, at the option of Lender (which shall be exercised in
Lender’s sole and absolute discretion), all claims which such Guarantor may have
against Borrower relating to any indebtedness of Borrower to such Guarantor and
shall assign to Lender all rights of such Guarantor thereunder. If any Guarantor
does not file any such claim, Lender, as attorney-in-fact for such Guarantor, is
hereby authorized to do so in the name of such Guarantor or, in Lender’s
discretion, to assign the claim to a nominee and to cause proof of claim to be
filed in the name of Lender’s nominee. The foregoing power of attorney is
coupled with an interest and cannot be revoked. Lender or its nominee shall have
the right to accept or reject any plan proposed in such proceeding and to take
any other action which a party filing a claim is entitled to do. In all such
cases, whether in administration, bankruptcy or otherwise, the Person or Persons
authorized to pay such claim shall pay to Lender the amount payable on such
claim and, to the full extent necessary for that purpose, each Guarantor hereby
assigns to Lender all of such Guarantor’s rights to any such payments or
distributions;
provided
,
however
, that
the Guaranteed Obligations shall not be satisfied except to the extent that
Lender receives cash by reason of any such payment or distribution. If Lender
receives anything hereunder other than cash, the same shall be held as
collateral for amounts due under this Guaranty. In the event of any foreclosure
sales of the Property and/or any other collateral covered by the Loan Documents,
the proceeds of such sales shall be applied first to the discharge of that
portion of the Guaranteed Obligations then remaining unpaid as to which such
Guarantor is not fully personally liable pursuant to this Guaranty, it being the
express intention of the parties that the application of the proceeds of such
foreclosure sales shall be in such a manner as not to extinguish or reduce such
Guarantor’s personal liability hereunder until all of the Guaranteed Obligations
as to which such Guarantor is not personally liable hereunder have been paid in
full. Nothing contained in this
Section
13
shall be
construed to require that Lender foreclose the liens and security interests
created in the Loan Documents as a condition precedent to bringing an action
against any Guarantor upon this Guaranty, or as an agreement that any
Guarantor’s liability is limited to any deficiency remaining after such a
foreclosure.
14.
Waiver of Notice of
Acceptance
. Each
Guarantor hereby waives notice of acceptance of this Guaranty.
15.
Additional
Guaranties
. This
Guaranty is in addition and without prejudice to any other guaranties of any
kind (whether or not in the same form as this instrument) now or hereafter held
by Lender with respect to the Debt. Lender shall not be obligated to proceed
under any other guaranty or security with respect to any or all of the
Obligations or the Guaranteed Obligations before being entitled to payment from
each or any Guarantor under this Guaranty.
16.
GOVERNING
LAW
. THIS INSTRUMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. THIS
CHOICE OF LAW IS MADE PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION
5.1401.
17.
WAIVER OF TRIAL BY
JURY
. LENDER BY ACCEPTING THIS GUARANTY
AND EACH GUARANTOR HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS
GUARANTY. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND
VOLUNTARILY BY EACH GUARANTOR AND LENDER, AND IS INTENDED TO ENCOMPASS EACH
INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO TRIAL BY JURY WOULD OTHERWISE
ACCRUE OR ARISE. EACH PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS
PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER
PARTY.
18.
Addresses of
Notices
. All
notices, demands, and other communications provided for hereunder shall be in
writing and shall be given or made in the manner set forth in the Loan Agreement
and addressed as set forth below or as to each party at such other address or
addresses within the continental United States of America as shall be designated
by such party in a written notice to each other party complying as to delivery
with the terms of this
Section
18
:
|
If to Lender:
|
|
Lehman Brothers Holdings Inc.
|
|
|
|
399
Park Avenue, 8th Floor
New
York, New York 10022
Attention:
Charles Manna
Telephone:
(212) 526-4071
Facsimile:
(646) 758-5366
MTS
No.: WH4463
|
|
with copies to:
|
|
Lehman
Brothers Holdings Inc.
399
Park Avenue, 8th Floor
New
York, New York 10022
Attention:
David Broderick
Telephone:
(212) 526-2453
Facsimile:
(646) 758-5311
MTS
No.: WH4463
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
Weil,
Gotshal & Manges LLP
767
Fifth Avenue
New
York, New York 10153
Attention:
W. Michael Bond, Esq.
Telephone:
(212) 310-8000
Facsimile:
(212) 310-8007
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
Weil,
Gotshal & Manges LLP
1395
Brickell Avenue, Suite 1200
Miami,
Florida 33131
Attention:
Beatriz Azcuy-Diaz, Esq.
Telephone:
(305) 577-3100
Facsimile:
(305) 374-7159
|
|
|
|
|
|
with a copy to
|
|
|
|
Servicer:
|
|
TriMont
Real Estate Advisors, Inc.
Monarch
Tower
3424
Peachtree Road N.E., Suite 2200
Atlanta,
Georgia 30326
Attention:
J. Gregory Winchester
Telephone:
(404) 420-5600
Facsimile:
(404) 420-5610
MTS
No.: WH4463/Asset No.: 1152701
|
|
|
|
|
|
If to Owner
|
|
|
|
or Borrower:
|
|
1407 Broadway Real Estate LLC
1407
Broadway Mezz LLC
c/o
The Lightstone Group
326
Third Street
Lakewood,
New Jersey 08701
Attention:
David Lichtenstein
Telephone:
(732) 367-0129
Facsimile:
(732) 363-7183
|
|
|
|
with a copy to:
|
|
|
|
|
|
|
|
Herrick,
Feinstein LLP
2
Park Avenue
New
York, New York 10016
Attention:
Sheldon Chanales, Esq.
Telephone:
(212) 592-1472
Facsimile:
(212) 545-3313
|
19.
This
Section shall not be construed in any way to affect or impair any waiver of
notice or demand provided in this Guaranty or in any other Loan Document or to
require giving of notice or demand to or upon any Person in any situation or for
any reason except as may otherwise be specifically provided for in this Guaranty
or the other Loan Documents.
20.
No Waiver,
Remedies
. No
failure on the part of Lender to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law. Any amendments to, or
revisions of, any provisions of this Guaranty must be in writing and signed by
Guarantors and Lender to be effective. Any waiver of any provision of this
Guaranty must be in writing and signed by the party against whom such waiver is
sought to be enforced.
21.
Benefit and Binding
Nature
. This
Guaranty is a continuing guaranty of payment and shall (a) remain in full force
and effect until irrevocable payment in full of the Guaranteed Obligations and
all other amounts payable hereunder, (b) be binding upon each Guarantor, such
Guarantor’s personal representatives, executors, administrators, heirs,
distributees and successors and assigns, and (c) inure to the benefit of and be
enforceable by Lender and its respective successors and assigns.
22.
Jurisdiction
.
EACH
GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
NEW YORK STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY
OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
GUARANTY OR ANY OTHER LOAN DOCUMENT, AND EACH GUARANTOR HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH NEW YORK STATE COURT, OR TO THE EXTENT PERMITTED BY LAW, IN
SUCH FEDERAL COURT. EACH GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT SUCH GUARANTOR MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN SUCH COURT. THIS
CONSENT TO JURISDICTION IS MADE PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW
SECTION 5.1402.
EACH
GUARANTOR DOES HEREBY DESIGNATE HERRICK, FEINSTEIN LLP, 2 PARK AVENUE, NEW YORK,
NEW YORK 10016, ATTENTION: SHELDON CHANALES, ESQ., AS ITS AGENT FOR SERVICE OF
PROCESS AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND
WRITTEN NOTICE OF SAID SERVICE MAILED OR DELIVERED TO SUCH GUARANTOR IN THE
MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON SUCH GUARANTOR, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE
OF NEW YORK. A COPY OF SUCH SERVICE OF PROCESS SHALL BE DELIVERED TO: HERRICK,
FEINSTEIN LLP, 2 PARK AVENUE, NEW YORK, NEW YORK 10016, ATTENTION: SHELDON
CHANALES, ESQ.
23.
Subordination
. Any
indebtedness of Borrower or any Obligor to any Guarantor now or hereafter
existing is hereby subordinated to the Guaranteed Obligations. If Lender so
requests, (a) all instruments evidencing such indebtedness shall be duly
endorsed and delivered to Lender, (b) all security for such indebtedness
shall be duly assigned and delivered to Lender, (c) such indebtedness shall
be enforced, collected and held by such Guarantor as trustee for Lender and
shall be paid over to Lender on account of the Loan but without reducing or
affecting in any manner the liability of such Guarantor under the other
provisions of this Guaranty, and (d) such Guarantor shall execute, file and
record such documents and instruments and take such other action as Lender deems
necessary or appropriate to perfect, preserve and enforce Lender’s rights in and
to such indebtedness and any security therefor. If any Guarantor fails to take
any such action, Lender, as attorney-in-fact for such Guarantor, is hereby
authorized to do so in the name of such Guarantor. The foregoing power of
attorney is coupled with an interest and cannot be revoked. Each Guarantor
agrees that such Guarantor will not seek, accept, or retain for such Guarantor’s
own account, any payment from or on behalf of Borrower or any Obligor on account
of such subordinated debt. Any payments to such Guarantor on account of such
subordinated debt shall be collected and received by such Guarantor in trust for
Lender and shall be paid over to Lender on account of the Guaranteed Obligations
without impairing or releasing the obligations of such Guarantor hereunder. Each
Guarantor hereby unconditionally and irrevocably agrees that (i) such Guarantor
will not at any time assert against Borrower or any Obligor (or the estate of
Borrower or any Obligor in the event Borrower or any Obligor becomes bankrupt or
becomes the subject of any case or proceeding under the bankruptcy laws of the
United States of America) any right or claim to indemnification, reimbursement,
contribution or payment for or with respect to any amounts such Guarantor may
pay or be obligated to pay Lender pursuant to this Guaranty, including the
Guaranteed Obligations, and any and all obligations which such Guarantor may
perform, satisfy or discharge, under or with respect to this Guaranty, unless
and until all of the Guaranteed Obligations shall have been irrevocably paid in
full, and (ii) such Guarantor subordinates all such rights and claims (including
“claims” as defined in 11 U.S.C. §§ 101
et
seq
.) to
indemnification, reimbursement, contribution, exoneration or payment which
Guarantor may now or at any time have against Borrower or any Obligor (or estate
of Borrower or any Obligor in the event Borrower or Obligor becomes bankrupt or
becomes the subject of any case or proceeding under the bankruptcy laws of the
United States of America), whether such rights arise under an express or implied
contract or by operation of law, to each of the obligations of Borrower under
the other Loan Documents and the Loan Agreement unless and until all of the
Guaranteed Obligations shall have been irrevocably paid in full. Each Guarantor
further agrees not to assign, sell, pledge, hypothecate or otherwise transfer
all or any part of the indebtedness of Borrower or any Obligor owing to such
Guarantor.
24.
Waivers
. All
diligence in collection or protection, and all presentment, demand (except as
provided herein) or protest, and except as provided for herein or any other Loan
Documents, notice to each Guarantor or any other Person of any of the following
are expressly waived: maturity, extension of time, change in nature or form of
the Obligations or the Guaranteed Obligations, acceptance of further security,
release of further security, composition or agreement arrived at as to the
amount of, or the terms of, the Obligations or the Guaranteed Obligations,
adverse change in the financial condition of Borrower or any Obligor or any
other fact which might materially increase the risk to any Guarantor, protest,
acceleration, intent to accelerate, dishonor, default, non-payment and the
creation and existence of any of the Obligations or the Guaranteed Obligations,
and of any security and collateral therefor, and of any extensions of credit and
indulgence hereunder and all other provisions of law which are or might be in
conflict with the terms of this Guaranty. In addition to the waivers contained
herein, each Guarantor waives and agrees that such Guarantor shall not at any
time insist upon, plead or in any manner whatever claim or take the benefit or
advantage of, any appraisal, valuation, stay, extension, marshalling of assets
or redemption laws, or exemption, whether now or at any time hereafter in force,
which may delay, prevent or otherwise affect the performance by such Guarantor
of the Guaranteed Obligations under, or the enforcement by Lender of, this
Guaranty. Each Guarantor represents, warrants and agrees that, as of the date of
this Guaranty, such Guarantor’s obligations under this Guaranty are not subject
to any offsets, counterclaims or defenses against Lender or Borrower of any
kind. Each Guarantor further agrees that such Guarantor’s obligations under this
Guaranty shall not be subject to any counterclaims or offsets against Lender or
against Borrower of any kind that may arise in the future.
25.
Instrument for the Payment
of Money
. Each
Guarantor hereby acknowledges that this Guaranty constitutes an instrument for
the payment of money, and consents and agrees that Lender, at its sole option,
in the event of a dispute by such Guarantor in the payment of any moneys due
hereunder, shall have the right to bring motion-action under New York CPLR
Section 3213.
26.
Additional
Waivers
. Lender
may enforce the obligations of each or any Guarantor without first resorting to
or exhausting any security or collateral or without first having recourse to the
Note, the Security Instrument, or any other Loan Documents or the Property,
through foreclosure proceedings or otherwise, provided, however, that nothing
herein shall inhibit or prevent Lender from suing on the Note, foreclosing, or
exercising any power of sale under, the Security Instrument, or exercising any
other rights and remedies thereunder. This Agreement is not collateral or
security for the debt of Borrower pursuant to the Loan.
It is not
necessary for an Event of Default to have occurred for Lender to exercise its
rights pursuant to this Agreement. Pursuant to
Section
9.1
of the
Loan Agreement, the obligations pursuant to this Agreement are exceptions to any
non-recourse or exculpation provision of the Loan Documents, including
Section
9.1
of the
Loan Agreement, and each Guarantor is fully and personally liable for such
obligations, and its liability is not limited to the original or amortized
principal balance of the Loan or the value of the Property.
27.
Interpretation
.
Section
1.2
of the
Loan Agreement is hereby incorporated into this Guaranty by reference for all
purposes.
28.
Attorneys'
Fees
. In the
event Lender is required to incur legal fees or expenses in order to enforce
this Guaranty after a failure by any Guarantor to pay any amount due pursuant to
this Guaranty in accordance with the terms hereof, then Guarantors shall also be
liable to Lender for any reasonable legal fees or expenses so incurred whether
or not suit is filed, expressly including, without limitation, all reasonable
costs, attorneys' fees and expenses incurred by the Lender in connection with
any insolvency, bankruptcy, reorganization, arrangement or other similar
proceedings involving Borrower or any Guarantor as the insolvent or bankrupt
party which in any way affect the exercise by the Lender of its rights and
remedies hereunder.
29.
Loan
Sales
. Each
Guarantor agrees that this Guaranty shall be sufficient evidence of the
obligations of such Guarantor to each Investor, and each Guarantor further
agrees to cooperate with Lender at no cost to Guarantor (except as set forth in
the Loan Agreement) in connection with any sale, assignment, securitization,
conveyance, alienation or pledge or other transfer made, including the delivery
of such amendments to this Guaranty as may be reasonably requested by the Lender
or desired by the Rating Agencies or otherwise to effect a Securitization;
provided, however, that such Guarantor shall not be required to modify or amend
this Guaranty if such modification or amendment would modify or amend any of the
economic terms or conditions of this Guaranty or impose any additional liability
or obligation on such Guarantor. Lender may forward to each Investor or any
Rating Agency, each prospective Investor, and any organization maintaining
databases on the underwriting and performance of commercial mortgage loans, all
documents and information which Lender now has or may hereafter acquire relating
to the Loan or to Lender or the Property.
30.
Counterparts
. This
Guaranty may be executed in any number of counterparts, each of which shall be
an original, but all of which shall constitute one and the same
instrument.
31.
Joint and Several
Liability
. The
obligations, covenants and agreements of Guarantors hereunder shall be the joint
and several obligations, covenants and agreements of each Guarantor, whether or
not specifically sated hereon.
[SIGNATURE PAGE
FOLLOWS]
IN
WITNESS WHEREOF, each Guarantor has executed this Guaranty as of the day and
year first above written.
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LIGHTSTONE HOLDINGS LLC
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By:
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/s/ David
Lichtenstein
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Name:
David Lichtenstein
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Title:
President
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EXHIBIT
10.28
NET PROFITS
AGREEMENT
THIS NET
PROFITS AGREEMENT (the “
Agreement
”) is
executed and entered into as of the 4th day of January, 2007 (the “
Execution
Date
”), by
and among LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation, its successors
and/or assigns (“
Lehman
”), whose
address is 399 Park Avenue, 8th Floor, New York, New York 10022, and 1407
BROADWAY REAL ESTATE LLC, a Delaware limited liability company (“
Borrower
”), whose
address is c/o The Lightstone Group, 326 Third Street, Lakewood, New Jersey
08701, and, solely with respect to the provisions of Article 6 and Sections 7.15
and 7.13, each of the other parties hereto (each, an “
Owning
Entity
”)
W
I
T
N
E
S
S
E
T
H
:
WHEREAS,
Lehman is making a loan in the amount of $127,250,000 (the “
Loan
”) to
Borrower pursuant to that certain Loan Agreement dated of even date herewith
between Borrower and Lehman (the “
Loan
Agreement
”).
WHEREAS,
as a condition to making the Loan, Lehman has required that Borrower and each
Owning Entity enter into this Agreement.
NOW,
THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for and in consideration of the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed, Borrower
and Lehman hereby agree as follows:
ARTICLE 1
DEFINITIONS
A.
DEFINED
TERMS. For purposes of this Agreement, unless the context otherwise requires,
the following terms shall have the respective meanings assigned to them in this
Article I or in the sections and subsections referred to below:
1.1
“
Allowed
Rate
” shall
mean a rate of interest equal to six percent (6%) per annum, compounded
annually.
1.2
“
Approved
Budget
” shall
have the meaning assigned to it in
Section
3.5
hereof.
1.3
“
Borrower’s Allowed
Return
” as of
any date shall mean a cumulative return on the Borrower’s cash equity investment
in the Property at the Allowed Rate.
1.4
“
Borrower’s Cash Flow
Amount
” shall
mean an amount equal to the amount of any distributions to members of Borrower
at any time other than as a result of clause (i) of the definition of Net
Profits plus the amount of any fees or other compensation paid by or on behalf
of Borrower to Affiliates of Borrower and not either (x) disclosed on the
closing statement delivered to and approved by Lehman or (y) permitted by the
Approved Budget or otherwise approved by Lehman.
1.5
“
Borrower’s Maximum Permitted
Return
” as of
any date shall mean a cumulative return on the Borrower’s cash equity investment
in the Property at a rate of interest equal to nine percent (9%) per annum,
compounded annually.
1.6
“
Business
Plan
” shall
have the meaning assigned to it in
Section
3.5
hereof.
1.7
“
Capital
Proceeds
” shall
mean the gross cash receipts of Borrower from any Capital
Transaction.
1.8
“
Capital
Transaction
” shall
mean any transaction involving the sale, assignment, transfer, liquidation,
condemnation or settlement in lieu thereof, disposition, financing, refinancing
or any other conversion to cash of all or any portion of the Property or the
equity or membership interests in Borrower, directly or indirectly (including,
without limitation, through merger, consolidation, an initial public offering or
otherwise), other than the leasing of space for occupancy and/or any other
transaction with respect to the Property or the direct or indirect ownership
interests in Borrower outside the ordinary course of business.
1.9
“
Event of
Default
” shall
have the meaning assigned to it in Section 5.1 hereof.
1.10
“
Major
Decision
” shall
mean any of the following:
(i)
Approving
the merger, consolidation, dissolution, transfer or winding up of the
Borrower;
(ii)
Approving
any changes in the purposes of the Borrower or engaging in any other business
not related to the purpose of the Borrower.
(iii)
Approving
any financing or refinancing of the Property or any material modification of
amendment thereof,
(iv)
Admitting
an additional member or selling or issuing any additional ownership interests in
the Borrower;
(v)
Entering
into, amending, terminating or enforcing the rights of the Borrower under any
(x) Affiliate Agreement or (y) transaction with any Affiliate; provided,
however, that Lehman shall not unreasonably withhold its consent if the terms of
such Affiliate Agreement or transaction are on fair market terms and
conditions;
(vi)
(a)
Responding to a petition filed against the Borrower for a proceeding under any
bankruptcy, insolvency, reorganization, or similar act; (b) filing of any
consent to any such proceeding against the Borrower; (c) making any decision to
contest or not to contest such proceeding against the Borrower; (d) commencing a
voluntary case or proceeding under any bankruptcy, insolvency, reorganization,
or similar act (e) making a general assignment of the property of the Borrower
for the benefit of creditors; (f) appointing, or acquiescing in the appointment
of; a custodian or receiver; and (g) taking any actions with respect to any of
the foregoing proceedings other than those which are routine and
non-substantive;
(vii)
Approving
the terms and conditions of any direct or indirect sale, transfer, assignment,
exchange, mortgage, pledge, security interest, ground lease, master lease or
other disposition of any kind of all or any part of any Property or the other
material assets of the Borrower, except for (a) any lease or installment sales
contract for personal property and equipment in the ordinary course of business,
(b) any sale or disposition and/or replacement of personal property in the
ordinary course of business or (c) a Permitted Transfer (as defined in the Loan
Agreement);
(viii)
Acquiring,
directly or indirectly through one or more other entities, of (A) any material
assets, other than in the ordinary course of business or (B) any equity interest
in any person on behalf of or by the Borrower;
(ix)
Entering
into any partnership, joint venture or similar relationship with, or acquiring
any interest in, any corporation, limited liability company, partnership,
association or other business organization by the Borrower;
(x)
Doing any
act in contravention of this Agreement or any applicable law, or receive (or
cause any of its affiliates to receive) any rebate or give-up or participate in
any reciprocal business arrangements or receive any benefit separate from the
Borrower based on the business or activities of the Borrower which circumvent
the provisions of this Agreement;
(xi)
Approving
any material amendment to the Operating Agreement;
(xii)
Any
decision to undertake any expansion, or addition to, the Property or any new
development of the Property;
(xiii)
Initiating
or settling any litigation on behalf of the Borrower other than: (a) tenant
dispossessory and/or collection actions with tenants or other occupants
involving defaults of such tenants; (b) actions with service providers in the
ordinary course of business; and (c) matters covered by insurance, excluding
deductibles, and (d) matters where the claim is less than
$5,000,000;
(xiv)
Any
decision to undertake any development, alteration, modification, improvement or
renovation of any portion of the Property costing individually or, if in a
series of related transactions, in the aggregate, in excess of
$2,500,000;
(xv)
Approving
all material matters relating to: (a) uninsured casualties affecting any portion
of any Property where the damage arising from any single casualty event or
series of related casualty events is in excess of $5,000,000 in the aggregate;
and (b) any condemnation or eminent domain proceeding affecting the
Property;
(xvi)
Approving
changes to the insurance coverage to be maintained for the Property or the
Borrower that are inconsistent with the standard insurance requirements of
institutional lenders;
(xvii)
Creating
or modifying any mortgage, lien, security interest, charge or encumbrance in any
portion of the Property or any other Borrower assets, provided, however, that
incurring any personal property lease obligation or similar lien in the ordinary
course of business shall not be deemed to constitute the creation of a mortgage,
lien or other security interest in Borrower assets;
(xviii)
Distributing
of cash, other than in strict accordance with the terms of the distribution
provisions of the Operating Agreement and this Agreement;
(xix)
Redeeming,
purchasing or otherwise acquiring all or any portion of any interest in
Borrower;
(xx)
Entering
into, terminating (except following a default by the tenant thereunder) or
modifying the Sublease, the Ground Lease or any Major Lease, or any renewal of a
Major Lease or entering into any other lease not in accordance with the then
current leasing guidelines approved by Lehman;
(xxi)
Making
any loan or other extension of credit by the Borrower (except in connection with
tenant work under a Lease or any other lease of space at the Property approved
by Lehman or not requiring Lehman’s approval);
(xxii)
Other
than pursuant to the Loan Documents, entering into any swap, hedge, collar or
other interest rate protection agreement other than as may be required in
connection with any financing or refinancing approved by Lehman;
(xxiii)
Doing any
act in contravention of any documents binding upon or otherwise affecting the
Borrower;
(xxiv)
Except as
permitted hereby and strictly in accordance herewith, amending or modifying, or
deviating from, the Business Plan or the then-effective Approved Budget; and
(xxv)
Entering
into, or permitting any Affiliate to enter into, any agreement with the
sublessor under the Sublease, including without limitation, any purchase
agreement with respect to sublessor’s interest under the Sublease.
1.11
“
Net
Profits
” shall
mean (i) the Capital Proceeds less the costs and expenses actually paid in cash,
associated and incurred in connection with such Capital Transaction and which
have been approved by Lehman in its reasonable discretion
less
(ii) the
amount of any principal payment on the Loan and the Mezzanine Loan as a result
of such Capital Transaction,
less
(iii)
Borrower’s cash equity investment in the Property
less
(iv) the
difference, if positive, between (A) Borrower’s Allowed Return and (B)
Borrower’s Cash Flow Amount as of the date of determination of Net Profits plus
interest on Borrower’s Cash Flow Amount from the date of receipt until such date
of determination at six percent (6%) per annum,
plus
(v) the
difference, if positive, between (A) Borrower’s Cash Flow Amount as of the date
of determination of Net Profits plus interest on Borrower’s Cash Flow Amount
from the date of receipt until such date of determination at nine percent (9%)
per annum and (B) Borrower’s Maximum Permitted Return.
1.12
“
Net Profits
Amount
” shall
mean thirty-five percent (35%) of all Net Profits.
1.13
“
Operating
Agreement
” shall
mean the Limited Liability Company Agreement of Borrower as in existence from
time to time.
1.14
“
Organizational
Documents
” shall
have the meaning assigned to in
Section
4.2
hereof.
1.15
“
Person
” shall
mean any individual, corporation, partnership, limited liability company, joint
venture, estate, trust, unincorporated association, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
1.16
“
Proposed
Budget
” shall
have the meaning assigned to it in
Section
3.5
hereof.
1.17
“
Uncontrollable
Expenses
” means:
(a) insurance premiums, (b) utility costs, (c) labor costs
controlled by union or collective bargaining agreements
or other
industry-wide cost increases which are beyond the reasonable control of
Borrower
,
(d) those costs required by applicable legal requirements, including
property taxes, (e) leasing fees, brokerage commissions and other costs which
vary based on the amount of space leased during the relevant period, including
legal fees, (f) unanticipated elevator repair costs, (g) costs associated with
an emergency or other circumstance where prompt action is necessary to alleviate
conditions that require an immediate expenditure of funds in order to avoid, or
lessen or reduce the likelihood of, personal injury or material damage to any
real or personal property and (h) snow removal
and other
costs which vary based on weather or other factors beyond Borrower’s
control.
1.18
Further Definitional
Provisions
.
(a)
Defined
terms used herein and not otherwise defined herein shall have the meaning set
forth in the Loan Agreement.
(b)
Defined
terms used in the singular shall include the plural and vice versa.
(c)
The words
“hereof”, “herein”, “hereunder” and similar terms when used in this Agreement,
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement. “Including” means “including without limitation”.
(d)
All
computations of Net Profits shall be determined in accordance with cash basis
accounting principles reasonably acceptable to Lehman. If a promissory note or
notes are delivered as all or a portion of the consideration for any Capital
Transaction, then the cash proceeds, if and when received as a result of
payments on such notes, shall be treated as Capital Proceeds only when actually
received, and the receipt of any such notes shall not be deemed the receipt of
cash for purposes hereof.
ARTICLE 2
NET PROFITS
AMOUNT
2.1
Net Profits
Amount
.
(a)
Borrower
shall pay to Lehman the Net Profits Amount in accordance with the terms of this
Agreement simultaneously with receipt of any cash pursuant to any Capital
Transactions; provided, however, that Borrower may establish a reasonable
reserve or holdback for anticipated costs or expenses associated and incurred in
connection with such Capital Transaction and which have not yet been determined;
provided, however, that any amounts remaining in such reserve or holdback after
payment of such costs or expenses shall be deemed Net Profits and shall be paid
in accordance with the provisions of this Agreement. After the Net Profits
Amount with respect to any Capital Transactions is paid to Lehman any remaining
Net Profits with respect to such Capital Transaction may be distributed to
Borrower’s members in accordance with the Operating Agreement. In all cases,
Lehman must receive the Net Profits Amount with respect to any Capital
Transactions prior to the distribution of any Net Profits with respect to any
Capital Transactions to the members of Borrower. Lehman’s rights pursuant to
this Agreement are independent of the Loan and shall survive the repayment of
the Loan. Borrower’s obligation to pay the Net Profit Amount to Lehman shall be
secured by a pledge of all the membership interests in Borrower as well as by
pledges
of all of
the interests in the sole member of Borrower, subject to any pledges granted in
connection with the Mezzanine Loan. The Borrower Parties acknowledge that Lehman
may, subject to the terms hereof, transfer and assign Lehman’s rights pursuant
to this Agreement separately from any of Lehman’s rights with respect to the
Loan. Lehman’s rights with respect to the Net Profits Amount are fully earned
upon execution and delivery of the Loan Agreement and are not conditioned on any
act or occurrence whatsoever. In no event shall Lehman have any obligation to
make any contributions to Borrower in exchange for Lehman’s rights with respect
to the Net Profits Amount. If any portion of the Net Profits Amount is not
timely paid to Lehman, any such amounts shall bear interest at the Default
Rate.
(b)
Lehman
may not assign or encumber all or any part of its rights with respect to this
Agreement without the consent or approval of Borrower, which shall not be
unreasonably withheld, conditioned or delayed. If Borrower fails to respond to
any request for any such approval within ten Business Days (which request for
approval shall state in boldface type that if Borrower fails to respond, its
approval shall be conclusively presumed to have been granted
)
, such
approval shall be conclusively presumed to have been granted. Any assignment
(but not an encumbrance by Lehman) shall be subject to Section 7.6 as to
Lehman. Lehman shall give Borrower written notice of any such assignment or
encumbrance and in the absence of such notice, Borrower shall fulfill its
obligations hereunder with respect to the payment of the Net Profits Amount by
paying or causing any such amounts to be paid to Lehman. Upon any default by any
Borrower Party with respect to this Agreement, in addition to any other remedies
which Lehman may have at law or in equity, Lehman shall have the right to bring
a suit for specific performance against any of the Borrower
Parties.
(c)
The
Borrower Parties and Lehman stipulate and agree that none of the terms and
provisions contained in this Agreement shall ever be construed to create a
contract to pay for the use, forbearance or detention of money in an amount in
excess of the maximum amount permitted to be charged by applicable law, if any.
None of Borrower Parties or other Person now or hereafter becoming liable for
payment of the Loan shall ever be required to pay interest on the Loan in an
amount in excess of the maximum amount which lawfully may be charged under Legal
Requirements and the provisions of this paragraph shall control over all other
provisions of this Agreement. If this Agreement, taken together with the
interest otherwise contracted for, charged or received with respect to the Loan,
shall exceed the maximum amount of interest allowed under applicable law, Lehman
shall, at the option of Lehman, either refund to Borrower the amount of such
excess or shall reduce the amount of this Agreement to the extent of such excess
or shall credit the amount of such excess against the principal balance of the
Loan then outstanding in such order and manner as Lehman may elect. The terms
and provisions of this paragraph shall control every other provision of this
Agreement, the Note, the Loan Agreement and all other agreements in connection
with the Loan. All amounts not payable to Lehman under this Agreement on account
of the foregoing limitation shall be retained by Borrower, provided that, if at
a later date Lehman determines that a greater amount of the Net Profits could
lawfully be paid to Lehman, all Net Profits thereafter received shall be paid to
Lehman until Lehman shall have received, on a cumulative basis, the Net Profits
Amount to which Lehman is entitled pursuant to this Agreement, subject to the
limitations of this paragraph.
2.2
Relationship
. It is
not the intention of the parties that Lehman be or become a member, partner,
joint venturer or other owner of or with Borrower unless and until Lehman
exercises the Conversion Option . By entering into this Agreement and/or by
accepting the Net Profits Amount, Lehman does not become a member, partner,
joint venturer or owner of or with Borrower, and in no event shall Lehman become
a member, a partner, joint venturer or owner of or with Borrower or be or become
liable for any of the debts, obligations, or liabilities of Borrower as a result
of the acceptance of the Net Profits Amount.
2.3
Adjustment
.
Borrower shall not directly or indirectly, pay, distribute or cause to be paid
or distributed to the holders of any of the interests in Borrower, prior to the
exercise of the Conversion Option, any (i) cash (except for (a) cash flow (other
than Capital Proceeds) distributed pursuant to Borrower’s Organizational
Documents and (b) Capital Proceeds after payment of the Net Profits Amount); or
(ii) any evidence of indebtedness, any further or additional interests in
Borrower or any property of any nature whatsoever; or (iii) warrants, options or
other rights to subscribe for or purchase any evidences of Borrower’s
indebtedness or any interest in Borrower or in any other property of any nature
whatsoever unless such warrants, options or other rights allow the holder to
acquire only a portion of the existing rights of the existing owners of Borrower
and are subject in all respects to the rights of Lehman hereunder; or (iv) any
right to acquire any of the foregoing. Borrower shall not, directly or
indirectly, prior to the exercise of the Conversion Option, reorganize its
capital, reclassify its ownership interests, or consolidate or merge with any
other Person, or take any similar action without the prior written consent of
Lehman not to be unreasonably withheld. Additionally, Borrower shall not,
directly or indirectly, prior to exercise of the Conversion Option,
by any
action, including without limitation, amend its Organizational Documents or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of ownership interests or any other action, avoid or
seek to avoid the observance or performance of the rights of Lehman pursuant to
this Agreement (or pursuant to the Organizational Documents, after exercise of
the Conversion Option), but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Lehman set forth in this
Agreement (or pursuant to the Organizational Documents, after exercise of the
Conversion Option). In the event of the taking of any action to dilute or
otherwise adversely affect Lehman’s rights pursuant to this Agreement (and
pursuant to the Organizational Documents after exercise of the Conversion
Option), Lehman’s rights with respect to the Net Profits Amount shall be
increased (but not decreased) automatically and without further action in order
to maintain Lehman’s rights with respect to the Net Profits Amount as
contemplated by this Agreement (and Lehman’s rights pursuant to the
Organizational Documents after exercise of the Conversion Option) and Borrower
agrees to take all actions necessary to evidence any such adjustment (although
no such action shall be necessary). In no event may any of Borrower Parties
amend or modify or take other action pursuant to the Organizational Documents of
Borrower that would adversely affect Lehman’s rights to the Net Profits Amount
or Lehman’s rights after the exercise of the Conversion Option and Borrower
shall cause the Organizational Documents to provide (i) that such Organizational
Documents are subject to this Agreement, (ii) that such Organizational Documents
cannot be amended without Lehman’s prior written consent, and (iii) that the
taking of any action to dilute or otherwise adversely affect Lehman’s rights
pursuant to this Agreement or pursuant to the Organizational Documents of
Borrower is prohibited. Notwithstanding the foregoing, after the Net Profits
Amount with respect to any Capital Transaction then due to Lehman has been paid,
Borrower may distribute any remaining Net Profits with respect to such Capital
Transaction to its members, subject to the terms and conditions of the Loan
Documents. In all events, however, the Net Profits Amount must be paid to Lehman
prior to or simultaneously with the payment or distribution of any Net Profits
to the members of Borrower.
2.4
Survival
.
Lehman’s rights pursuant to this Agreement shall survive the repayment of the
Loan, until all of the Property is sold to a Person that is not an Affiliate of
Borrower and payment in full is made to Lehman of the full Net Profits Amount or
Borrower purchases Lehman’s interest pursuant to Section 7.6, at which time this
Agreement will terminate and be of no further force or effect.
ARTICLE 3
AFFIRMATIVE
COVENANTS
Unless
and until all of the Property is sold to a Person that is not an Affiliate of
Borrower and Lehman is paid the Net Profits Amount in full (and notwithstanding
any repayment of the Loan) Borrower covenants and agrees that unless Lehman
otherwise consents in writing:
3.1
Notifications from
Borrower
.
Borrower shall promptly notify Lehman in writing of each of the
following:
(a)
Any
change in any material fact or circumstance represented or warranted in this
Agreement; and
(b)
Any
proposed Major Decision.
3.2
Maintenance and Granting of
Liens and Security Interests
.
Borrower shall execute and deliver to Lehman all security agreements, financing
statements, documents and instruments, and do such other things as are required
by this Agreement, or as Lehman shall reasonably request or deem reasonably
necessary in order to maintain the validity, enforceability and perfection of
Lehman’s rights pursuant to this Agreement.
3.3
No Encumbrances or
Liens
. Except
for the Loan Documents, Borrower shall not permit any other liens, encumbrances,
mortgages, deeds of trust or unbonded mechanic’s or materialman’s liens to
affect any portion of the Property without Lehman’s written consent. Lehman
shall have no obligation to consent to any such lien. Notwithstanding the
foregoing, after prior written notice to Lender, Borrower, at its own expense,
shall have the right to contest the existence of any liens, encumbrances,
mortgages, deeds of trust or unbonded mechanic’s or materialman’s liens
affecting any portion of the Property, subject to the terms and conditions set
forth in Section 5.4 of the Loan Agreement.
3.4
Major
Decisions
.
Notwithstanding anything to the contrary contained in this Agreement, no act
shall be taken, sum expended, decision made or obligation incurred by Borrower
or any Affiliate with respect to a Major Decision without the prior written
consent of Lehman; provided, however, that Lehman will not unreasonably withhold
its consent with respect to the matters listed in clauses (xiii), (xiv), (xv),
(xvi) or (xxi) of the definition of Major Decision.
3.5
Budget
.
Borrower shall prepare and deliver to Lehman, within sixty (60) days prior to
the beginning of each calendar year, an annual expenditure budget for Borrower
and the Property, if any, including all planned capital expenditures and all
anticipated costs and expenses for such ensuing calendar year (“
Proposed
Budget
”). The
Proposed Budget shall also include a business plan for the Borrower’s proposed
operations during the forthcoming calendar year, including Borrower’s proposed
leasing guidelines. The Proposed Budget shall be prepared and submitted in a
form reasonably acceptable to Lehman and shall set forth in reasonable detail
budgeted capital and other expenses. Lehman shall have the right to approve each
Proposed Budget in Lehman’s reasonable discretion. In the event that Lehman
objects to the Proposed Budget submitted by the Borrower, Lehman shall advise
the Borrower of such objections within fifteen (15) Business Days after receipt
thereof (and deliver to the Borrower a reasonably detailed description of such
objection) and the Borrower shall promptly revise such Proposed Budget and
resubmit the same to Lehman. Lehman shall advise the Borrower of any objections
to such revised Proposed Budget, in Lehman’s reasonable discretion, within ten
(10) Business Days after receipt thereof (and deliver to the Borrower a
reasonably detailed description of such objection) and the Borrower shall
promptly revise the same in accordance with the process described in this
Section
3.5
until
Lehman approves a Proposed Budget, in Lehman’s reasonable discretion; provided
that, if Lehman fails to approve such a Proposed Budget, the operating budget
and the capital expenditure budget for such calendar year shall be the budget
attached hereto as
Exhibit A
(the
“
Business
Plan
”). Each
such Proposed Budget approved by Lehman in accordance with terms hereof (or, if
applicable, the Proposed Budget for such year included in the Business Plan
referred to in the proviso to the immediately preceding sentence) shall
hereinafter be referred to as an “
Approved
Budget
.”
Notwithstanding the foregoing, Borrower may exceed the Approved Budget for all
line items by up to five percent (5%) of the total amount of the Budget for all
line items in any calendar year and may incur Uncontrollable Expenses without
Lehman’s consent.
ARTICLE 4
REPRESENTATIONS AND
WARRANTIES
To induce
Lehman to enter into this Agreement, Borrower hereby represents and warrants to
Lehman as follows:
4.1
Authorization
.
Borrower is duly authorized to execute and deliver this Agreement and all other
documents to be executed in connection herewith, and is and will continue to be
authorized to perform its obligations under this Agreement and such other
agreements.
4.2
Organizational
Documents
.
Attached hereto as
Exhibit B
is a
true and correct copy of the Operating Agreement and all other Organizational
Documents of Borrower together with all amendments thereto, if any (the
“
Organizational
Documents
”).
Borrower shall not amend, modify, or supplement the Operating Agreement or any
of the Organizational Documents of Borrower and shall not admit any additional
members in Borrower, without the prior written consent of Lehman in each
instance, which consent may be withheld in Lehman’s sole and absolute
discretion. Any attempt to do so shall be null and void and of no force or
effect.
4.3
Consents
. No
consent, approval, authorization or order of any court or governmental
authority, or third party is required in connection with the execution and
delivery by Borrower of this Agreement and the other documents to be executed in
connection herewith, or to consummate the transactions contemplated
hereby.
4.4
Enforceable
Obligations
. This
Agreement and the other documents to be executed in connection herewith, when
duly executed and delivered in accordance with this Agreement, will be the legal
and binding obligations of Borrower and enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency or other laws of
general application relating to the enforcement of creditors’
rights.
4.5
Restatement and
Representations
.
Borrower hereby restates all of the representations and warranties made by each
of the Borrower Parties in the Loan Agreement for the benefit of Lehman as if
such representations were fully set forth herein.
ARTICLE 5
DEFAULTS
5.1
Events of
Default
. An
Event of Default shall exist if any one or more of the following events (herein
called “
Events of
Default
”) shall
occur:
(a)
The
failure by Borrower to make any payment (other than the failure to pay the Net
Profits Amount) on or before the fifth (5th) Business Day after the same are due
to Lehman as required by this Agreement or the failure by Borrower to pay the
Net Profits Amount on the date when due;
(b)
The
failure or refusal of Borrower to keep or perform any covenant or other term or
condition specified herein for a period of thirty (30) days after written notice
from Lehman;
(c)
The
incorrectness in any material respect, as of the date hereof, of any
representation or warranty made by Borrower to Lehman herein;
(d)
The
application for or the appointment of a receiver, trustee, intervenor, custodian
or liquidator of Borrower;
(e)
The act
of Borrower in taking or permitting to be taken any action seeking relief or an
order for relief under, or any other action taking advantage of, any bankruptcy,
debtor relief or similar laws;
(f)
The
filing of an involuntary petition against Borrower under any bankruptcy,
insolvency or reorganization provision of any debtor relief or similar laws if
such petition (1) results in the entry of an order for relief or any such
adjudication or appointment or (2) remains undismissed, undischarged or
unbonded for a period of ninety (90) days; or
(g)
any
“Event of Default” as defined in the Loan Agreement if the Loan Agreement is
still in effect.
5.2
Rights of
Lehman
. Upon
the occurrence of an Event of Default, Lehman shall have the right, at its sole
option and without further notice to Borrower, to pursue all available rights or
remedies, at law or in equity or under this Agreement and any documents securing
this Agreement, including any pledge agreements. In this regard, in addition to
any other remedies which Lehman may have at law or in equity, Borrower
acknowledges that an action for damages is inadequate to protect Lehman’s rights
and thus Lehman shall have the right to bring a suit for specific performance or
injunctive or other equitable relief.
ARTICLE 6
RIGHT OF FIRST
OFFER
6.1
Right of First Offer on
Property or Interests in Borrower
. If at
any time Borrower wishes to transfer the Property or any portion thereof, or any
Owning Entity wishes to Transfer its direct or indirect interest (or any portion
thereof) in Borrower (the “
Equity
Interest
”; and/or
the Property shall be referred to as the “
Subject
Interests
”) such
Person (“
a Transferring
Party
”) shall
provide not less than fifteen (15) days’ prior written notice (the “
ROFO
Notice
”) to
Lehman. The ROFO Notice shall set forth all of the material terms of the
proposed transfer (including the identification of the Subject Interest to be
transferred and the price payable in cash, at which the Transferring Party would
be willing to sell the Subject Interest (the “
ROFO
Price
”) and
specifying any liens or encumbrances that will not be discharged in connection
with any such sale). Upon receipt of a ROFO Notice, Lehman will have the right
to purchase the Subject Interest of the Transferring Party on the terms set
forth in such ROFO Notice by Lehman delivering written notice thereof to the
Transferring Party (the “
Election
Notice
”) within
fifteen (15) days after receipt of the applicable ROFO Notice together with a
deposit in an amount equal to ten percent (10%) of the ROFO Price (“
Deposit
”). The
Deposit shall be delivered to an escrow agent acceptable to Lehman and the
Transferring Party and will be held in an interest-bearing, segregated account
at a federally insured financial institution. If Lehman fails to timely deliver
an Election Notice and/or the Deposit, Lehman shall be deemed to have
irrevocably waived its rights under this
Section
6.1
with
respect to the applicable ROFO Notice, except as provided below. Notwithstanding
anything to the contrary herein, any Owning Entity may Transfer its direct or
indirect interest (or any portion thereof) in Borrower in connection with a
Permitted Transfer (as defined in the Loan Agreement), so long as such
transferee executes and delivers to Lehman a Joinder and Consent in
substantially the same form as the Joinder and Consent attached hereto whereby
it agrees to be bound by the terms of this Agreement.
6.2
If Lehman
validly and timely delivers an Election Notice and the Deposit, the closing of
the purchase shall be on a date (the “
ROFO Closing
Date
”)
designated by Lehman which is not more than forty-five (45) days after the
delivery of the Election Notice and at a place designated in the ROFO Notice (or
if the ROFO Notice does not designate a closing place, at such place as may be
mutually agreed upon between the Transferring Party and Lehman, and otherwise
such closing shall be in escrow). At the closing:
(i)
The
Transferring Party shall deliver to Lehman (or a nominee thereof) a duly
executed and acknowledged instrument of assignment or conveyance transferring
the Subject Interest to Lehman (or its nominee) free and clear of all liens and
encumbrances (other than the liens and encumbrances which the ROFO Notice
specified would not be discharged at closing), which instrument shall contain
surviving representations concerning due organization and authority of the
Transferring Party and the absence of liens and encumbrances (other than the
liens and encumbrances which the ROFO Notice specified would not be discharged
at closing) and shall contain a provision indemnifying and holding Lehman (or
its nominee) harmless from any loss, liability, cost or expense (including
reasonable attorneys’ fees) it may incur by reason of any breach of such
representation;
(ii)
Lehman
shall pay or cause to be paid the ROFO Price to the Transferring Party in
immediately available funds;
(iii)
all
prorations shall be apportioned between the Transferring Party and Lehman for
the current calendar period, as of 11:59 p.m. of the day preceding the ROFO
Closing Date; and
(iv)
the
Transferring Party shall discharge of record all liens and encumbrances
affecting its Subject Interest (other than the liens and encumbrances which the
ROFO Notice specified would not be discharged at closing), and if the
Transferring Party fails to do so, Lehman (or its nominee) may use any portion
of the ROFO Price to pay and discharge any such liens and/or encumbrances and
any related expenses and adjourn the closing for such period as may be necessary
for such purpose.
6.3
If Lehman
waives (or is deemed to have waived) its right to acquire the Subject Interest
offered by the Transferring Party in a given ROFO Notice, the Subject Interest
offered by the Transferring Party may be sold by the Transferring Party, for not
less than ninety-five percent (95%) of the ROFO Price offered to Lehman, at any
time during the next one hundred eighty (180) day period subsequent to the
earlier of receipt of the written waiver by all of Lehman of its right to
purchase the interests being offered by the Transferring Party under
Section
6.1
and the
expiration of the thirty (30) day period for Lehman to respond to the ROFO
Notice with no such written waiver being delivered.
6.4
In the
event the Transferring Party fails to consummate any sale or transfer of the
Subject Interest for the ROFO Price or within the time period provided in
Section
6.3
, then
the Subject Interest shall be re-offered to Lehman in connection with any
further proposed transfer.
6.5
Lehman shall be deemed to
have waived its right of first offer with respect to a Subject Interest that is
part of a settlement arrangement entered into with respect to the Kamber
Litigation if and to the extent the terms of the settlement arrangement are
approved by Lehman.
ARTICLE 7
GENERAL TERMS AND
CONDITIONS
7.1
Notices
. All
notices, demands, requests and other communications shall be given and become
effective as provided in the Loan Agreement, the provisions of which are
incorporated hereby by reference as if fully set forth herein.
7.2
Modifications
. No
provisions of this Agreement or any other documents executed in connection
herewith may be modified, waived or terminated, except by an instrument in
writing executed by the party against whom a modification, waiver or termination
is sought to be enforced.
7.3
Severability
. In case
any of the provisions of this Agreement shall for any reason be held to be
invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and the Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
7.4
Binding
Effect
. This
Agreement shall be binding upon, and inure to the benefit of Lehman and Borrower
and their respective permitted successors and/or assigns.
7.5
Governing
Laws
.
THIS
AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. THIS CHOICE
OF LAW IS MADE PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401. THE
BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR
FEDERAL COURT SITTING IN THE COUNTY OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER DOCUMENT DELIVERED IN
CONNECTION HEREWITH OR THEREWITH, AND THE BORROWER HEREBY IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MUST BE HEARD AND
DETERMINED IN SUCH NEW YORK STATE COURT, OR TO THE EXTENT PERMITTED BY LAW, IN
SUCH FEDERAL COURT. THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH ACTION OR PROCEEDING. TO THE EXTENT PERMITTED BY LAW, THE
BORROWER ALSO IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY
SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES (CERTIFIED MAIL, RETURN
RECEIPT REQUESTED AND POSTAGE PREPAID) OF SUCH PROCESS TO THE BORROWER AT ITS
ADDRESS SET FORTH ABOVE. THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
THIS CONSENT TO JURISDICTION IS MADE PURSUANT TO NEW YORK GENERAL OBLIGATIONS
LAW SECTION 5-1402.
7.6
Assignment by Lehman; Right
of First Offer in Agreement
. Lehman
may not assign or transfer its rights pursuant to this Agreement without
Borrower’s prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed. In addition, if at any time Lehman wishes to
transfer its interest in this Agreement (the “
NPA
Interest
”),
Lehman shall provide not less than thirty (30) days’ prior written notice (the
“
NPA ROFO
Notice
”) to
Borrower. The NPA ROFO Notice shall set forth all of the material terms of the
proposed transfer (including the identification of the NPA Interest to be
transferred and the price payable in cash, at which Lehman would be willing to
sell the NPA Interest (the “
NPA ROFO
Price
”) and
specifying any liens or encumbrances that will not be discharged in connection
with any such sale). Upon receipt of a NPA ROFO Notice, Borrower will have the
right to purchase the NPA Interest of Lehman on the terms set forth in such NPA
ROFO Notice by Borrower delivering written notice thereof to Lehman (the
“
NPA Election
Notice
”) within
thirty (30) days after receipt of the applicable NPA ROFO Notice together with a
deposit in an amount equal to ten percent (10%) of the NPA ROFO Price
(“
NPA
Deposit
”). The
NPA Deposit shall be delivered to an escrow agent acceptable to Borrower and
Lehman and will be held in an interest-bearing, segregated account at a
federally insured financial institution. If Borrower fails to timely deliver an
NPA Election Notice and/or the NPA Deposit, Borrower shall be deemed to have
irrevocably waived its rights under this
Section
7.6
with
respect to the applicable NPA ROFO Notice, except as provided below.
7.7
If
Borrower validly and timely delivers an NPA Election Notice, the closing of the
purchase shall be on a date (the “
NPA ROFO Closing
Date
”)
designated by Borrower which is not more than forty-five (45) days after the
delivery of the NPA Election Notice and at a place designated in the NPA ROFO
Notice (or if the NPA ROFO Notice does not designate a closing place, at such
place as may be mutually agreed upon between Lehman and Borrower, and otherwise
such closing shall be in escrow). At the closing:
(i)
Lehman
shall deliver to Borrower (or a nominee thereof) a duly executed and
acknowledged instrument of assignment or conveyance transferring the NPA
Interest to Borrower (or its nominee) free and clear of all liens and
encumbrances (other than the liens and encumbrances which the NPA ROFO Notice
specified would not be discharged at closing), which instrument shall contain
surviving representations concerning due organization and authority of Lehman
and the absence of liens and encumbrances (other than the liens and encumbrances
which the NPA ROFO Notice specified would not be discharged at closing) and
shall contain a provision indemnifying and holding Borrower (or its nominee)
harmless from any loss, liability, cost or expense (including reasonable
attorneys’ fees) it may incur by reason of any breach of such
representation;
(ii)
Borrower
shall pay or cause to be paid the NPA ROFO Price to Lehman in immediately
available funds; and
(iii)
Lehman
shall discharge of record all liens and encumbrances affecting its NPA Interest
(other than the liens and encumbrances which the NPA ROFO Notice specified would
not be discharged at closing), and if Lehman fails to do so, Borrower (or its
nominee) may use any portion of the NPA ROFO Price to pay and discharge any such
liens and/or encumbrances and any related expenses and adjourn the closing for
such period as may be necessary for such purpose.
7.8
If
Borrower waives (or is deemed to have waived) its right to acquire the NPA
Interest offered by Lehman in a given NPA ROFO Notice, the NPA Interest offered
by Lehman may be sold by Lehman, for not less than ninety-five percent (95%) of
the NPA ROFO Price offered to Borrower, at any time during the next one hundred
eighty (180) day period subsequent to the earlier of receipt of the written
waiver by all of Borrower of its right to purchase the interests being offered
by Lehman under
Section
7.6
and the
expiration of the thirty (30) day period for Borrower to respond to the NPA ROFO
Notice with no such written waiver being delivered.
7.9
In the
event Lehman fails to consummate any sale or transfer of the NPA Interest for
the NPA ROFO Price or within the time period provided in
Section
7.8
, then
the NPA Interest shall be re-offered to Borrower in connection with any further
proposed transfer.
7.10
Assignment by
Borrower
.
Borrower may not transfer or assign, directly or indirectly, any of its
obligations pursuant to this Agreement.
7.11
Counterparts
. This
Agreement may be executed in any number of separate counterparts, each of which
shall, collectively and separately, constitute one agreement.
7.12
Sole Discretion; Reasonable
Discretion
. Except
as specifically provided, whenever in this Agreement, Lehman may or must consent
to or approve any action or inaction or any fact or condition must be
satisfactory to Lehman, such consent or approval must be satisfactory to Lehman,
in Lehman’s sole and absolute discretion, without any express or implied
obligation of reasonableness or good faith unless otherwise provided to the
contrary provided herein. In the event Lehman has agreed not to unreasonably
withhold its consent, Borrower’s sole remedy in the event Lehman refuses to
grant such consent shall be to seek specific performance or other equitable
relief, and in no event shall Borrower have the right to seek monetary damages
as a result of Lehman withholding its consent pursuant to any provision of this
Agreement.
7.13
Waiver of Jury
Trial
. THE
BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT
ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS AGREEMENT, OR
ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY THE
BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE
AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LEHMAN IS
HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS
CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE BORROWER.
7.14
Certain Provisions Relating
to Lehman and its Affiliates
. The
Borrower and each of the Owning Entities expressly acknowledge that (y) Lehman
or one of its Affiliates (in such capacity, “
Lender
”) has
provided the Loan and Mezzanine Loan, and (z) in the future Lender may purchase
or acquire indebtedness of the Borrower or any Owning Entity from time to time
without notice to or approval by the Borrower or any Owning Entity and whether
or not any such financing or indebtedness is in default. Notwithstanding any
common ownership between the Lehman and the Lender: (a) Lehman, on the one
hand, and the Lender, on the other hand, may or may not be separate and distinct
legal entities but in all events have different investment goals and objectives;
(b) the Lender may exercise all the rights, privileges and benefits of the
holder of any such financing or indebtedness and enforce all remedies and other
provisions under the applicable documents evidencing or describing such
financing or indebtedness without regard to the fact that Lehman is the
beneficiary of this Agreement; and (c) to the maximum extent permitted by
applicable law, (I) the Borrower and the Owning Entities waive any claims
that the Borrower and the Owning Entity may have against Lehman arising by
reason of the fact that Lehman is the Lender and (ii) the Borrower and the
Owning Entities waive any claims that the Borrower and such Owning Entities may
have against Lehman arising by reason of the fact that Lender is making, or that
the Lender is holding, the Loan or any other financing or indebtedness of the
Borrower.
7.15
Proposal for New Debt
Financin
g.
(i)
In
addition to Lehman’s rights set forth in Article 9, Lehman shall have the right
to propose to Borrower New Debt Financing (as hereinafter defined) at any time
and from time to time provided that such New Debt Financing (a) shall be
prepayable without premium after 1 year following the closing date of such New
Debt Financing, (b) results in Net Profits of at least five percent (5%) of the
total debt and equity invested in the Property by Borrower and its Affiliates at
the time in question, (c) is on terms and conditions no worse than then market
terms and conditions, and (d) is non-recourse except for customary carve-outs,
and (e) is for an amount no less than the Loan (including any unfunded
amount).
(ii)
In the
event that Lehman makes any such proposal to Borrower, Borrower shall have
thirty (30) days to evaluate the proposal and advise Lehman as to whether
Borrower will enter into such New Debt Financing.
(iii)
In the
event Borrower fails to agree to enter into such New Debt Financing within such
30-day period, Lehman may at any time within the following thirty (30) days
advise Borrower of the terms and conditions of a proposed New Debt Financing
that satisfies the criteria set forth in clause (i) above. In such event,
Borrower shall effectuate such New Debt Financing within ninety (90) days
following Lehman’s proposal.
(iv)
In all
events, the provisions of Article 9 shall apply to any financing or refinancing
described in this
Section
7.15
.
7.16
Lehman’s
Approval
. If
Lehman fails to grant or withhold its consent or approval in writing
(i) within a period of ten (10) Business Days after it has received a
request for consent or approval under this Agreement and (ii) within an
additional period of five (5) Business Days after it has received a second
request for consent and which second notice shall advise Lehman (in 14-point
type or larger) that if Lehman fails to respond to Borrower’s second request for
consent within such five (5) Business Day period Lehman shall be deemed to have
approved or consented to the matter in question, then Lehman shall be deemed to
have approved or consented to such matter.
ARTICLE 8
CONVERSION OPTION
8.1
Conversion
Option
. Lehman
shall have the option (the “
Conversion
Option
”), at
any time in Lehman’s sole discretion, by delivering written notice to Borrower
and its constituent member(s), to elect to convert Lehman’s rights pursuant to
this Agreement into a membership interest in Borrower (the “
Conversion
”) as
more fully set forth in this Article. Upon exercise of the Conversion Option,
Lehman and Borrower and the members of Borrower shall execute and deliver such
documentation as either party may reasonably request in order to evidence the
exercise of the Conversion Option and the admission of Lehman to Borrower. In
the event Lehman exercises such option, Lehman shall thereafter have no further
right to any Net Profits Amount thereafter received pursuant to this Agreement
(Lehman’s rights with respect thereto being governed by the Operating Agreement
of Borrower after Lehman so elects to convert). In no event may any of the
Borrower Parties amend or modify or take other action pursuant to the
Organizational Documents of any of the Borrower Parties that would adversely
affect Lehman’s rights to the Net Profits Amount and the Organizational
Documents of the Borrower Parties shall prohibit the taking of any such action
and the Borrower Parties shall comply with such provisions of the Organizational
Documents.
8.2
Amendment of Operating
Agreement
. Upon
Lehman’s exercise of the Conversion Option, the Operating Agreement of the
Borrower shall be amended to grant to Lehman a special membership interest
whereby Lehman will receive 35% of all distributions resulting from a Capital
Transaction after the return to the members of Borrower of their cash equity
investment in Borrower plus the Borrower’s Allowed Return. All members of the
Borrower hereby irrevocably consent and agree to (a) the issuance of such
special membership interest to Lehman upon the date of the Conversion (the
“
Conversion
Date
”) and
(b) the admission of Lehman as a Special Member (the “
Special
Member
”)
effective on the Conversion Date. On the Conversion Date, the members of
Borrower shall execute an amendment to the Operating Agreement of Borrower
effectuating the transactions contemplated by this Article in form and substance
acceptable to Borrower and Lehman (the “
Amendment
”) and
acknowledging the admission of Lehman as the Special Member subject to the
terms, rights and obligations of this Agreement and the Amendment. The failure
to execute the Amendment shall be an Event of Default under this Agreement.
Simultaneously with any distributions to the members of Borrower, the Special
Member shall receive the Net Profits Amount in full in cash as the result of a
Capital Transaction.
8.3
Rights of Special
Member
. Without
limiting the foregoing, upon and after admission to the Borrower: (i) the
Special Member shall have the rights afforded to Lehman under this Agreement,
including, without limitation, rights to approve the Major Decisions, and (ii)
the Special Member shall not have any obligation to contribute money or property
for any reason or any circumstance, and shall have no obligation or liability in
respect of debts, liabilities or other obligations of the Borrower, or to make
loans to the Borrower.
ARTICLE 9
NEW DEBT FINANCING
If
Borrower or its constituent member(s) or the direct or indirect members of such
constituent member(s) desires to obtain additional or replacement debt
financing, which is in any way related to the Property, whether in the form of
refinancing or restructuring of all or part of any existing debt financing or by
obtaining additional debt financing (whether secured or unsecured) for any
purpose (collectively, “
New Debt
Financing
”),
Borrower shall notify Lehman of its intent to seek such New Debt Financing.
Within ten (10) days of receiving such notification from Borrower, Lehman (or
its Affiliates) shall have the right (but without any obligation to do so) to
submit to Borrower a term sheet, which shall contain all of the material terms
for the proposed New Debt Financing (the “
Lehman
Offer
”).
Borrower shall not obtain New Debt Financing offered by a third party lender
unless such New Debt Financing proposed by such third party lender (the
“
Third Party
Offer
”) taken
as a whole is materially better in terms of proceeds, rate and structure than
the Lehman Offer, in which case Borrower shall notify Lehman of such Third Party
Offer and Lehman (or its Affiliates) shall have the right (but without any
obligation to do so), within five (5) Business Days of receipt of such notice
from Borrower, to propose New Debt Financing which, taken as a whole, is on
terms at least as favorable as those contained in the Third Party Offer. In such
event, Borrower shall consummate such transaction with Lehman and not with the
third party lender. Notwithstanding anything to the contrary, Lehman shall not
be required to approve any New Debt Financing that would result in no Net
Profits or that would result in New Debt Financing less than 75% loan to value
(based on the Property’s stabilized value) in Lehman’s reasonable determination.
In the event the parties dispute the stabilized value of the Property, each
party will obtain an appraisal from a third party appraiser. In the event the
appraisers cannot agree, the appraisers will select a third appraiser whose
valuation of the Property (assuming stabilization) shall be deemed the value of
the Property for purposes of determining the loan to value ratio.
[SIGNATURES
APPEAR ON THE FOLLOWING PAGE]
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first written above.
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1407 BROADWAY REAL ESTATE
LLC
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By:
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/s/
David Lichtenstein
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Name: David Lichtenstein
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Title:
President
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/s/
LEHMAN
BROTHERS HOLDINGS INC.
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THE FOLLOWING PARTIES ARE
EXECUTING THIS AGREEMENT SOLELY FOR THE PURPOSE OF ARTICLE 6 AND SECTIONS
7.15 AND 7.13:
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1407 BROADWAY MEZZ LLC
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By:
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/s/ David Lichtenstein
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Name: David Lichtenstein
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Title:
President
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1407 BROADWAY MEZZ II
LLC
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By:
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/s/ David Lichtenstein
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Name: David Lichtenstein
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Title:
President
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LIGHTSTONE 1407 MANAGER
LLC
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By:
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/s/ David Lichtenstein
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Name: David Lichtenstein
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Title:
President
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LVP 1407 BROADWAY
LLC
,
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a Delaware limited liability
company
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By:
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Lightstone
Value Plus REIT LP,
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a Delaware limited partnership,
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its sole member
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By:
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Lightstone Value
Plus Real Estate
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Investment Trust, Inc., a
Maryland
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corporation, its
general partner
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By:
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Name: David Lichtenstein
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Title:
President
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LIGHTSTONE HOLDINGS,
LLC
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By:
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Name: David Lichtenstein
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Title:
President
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SHIFRA
LICHTENSTEIN
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JOINDER AND
CONSENT
The
undersigned (“
Joinder Party
”) has
reviewed the Net Profits Agreement (“
Agreement
”) dated
as of January 4, 2007 between Lehman Brothers Holdings Inc. (“
Lehman
”), and
1407 Broadway LLC, a Delaware limited liability company (“
Borrower
”), to
which this Joinder and Consent has been attached, and hereby covenants,
represents, warrants, acknowledges and agrees that:
(a)
Joinder
Party has read and reviewed the Agreement, and is familiar with the terms and
provisions thereof.
(b)
Joinder
Party consents to the Borrower’s execution of the Agreement without reservation
or qualification.
(c)
Joinder
Party covenants and agrees to cooperate with Borrower and each other Borrower
Party in the performance and observance of all covenants and agreements
contained in the Agreement on the part of Borrower or any other Borrower Party
as necessary to comply or facilitate Borrower’s or such other Borrower Party’s
compliance therewith.
(d)
Joinder
Party hereby agrees to be primarily liable, on a joint and several basis with
Borrower, for the amount of any Net Profits Amount due and payable to Lehman
pursuant to this Agreement.
(e)
WHENEVER
ANY PROVISION OF THE AGREEMENT PROVIDES FOR OR REFERS TO (i) THE ACKNOWLEDGMENT
OR AGREEMENT OF A JOINDER PARTY, (ii) THE WAIVER OR RELEASE OF RIGHTS BY ANY
JOINDER PARTY, (iii) THE GRANT BY SUCH JOINDER PARTY OF A POWER OF ATTORNEY IN
FAVOR OF LEHMAN OR (iv) THE APPOINTMENT BY A JOINDER PARTY OF AN AGENT FOR THE
SERVICE OF PROCESS, EACH JOINDER PARTY HEREBY CONSENTS TO AND CONFIRMS SUCH
ACKNOWLEDGMENT, AGREEMENT, WAIVER, GRANT OR APPOINTMENT (AS THE CASE MAY BE) AS
BEING ITS ACKNOWLEDGMENT, AGREEMENT, WAIVER, GRANT AND APPOINTMENT AS FULLY AS
IF SUCH ACKNOWLEDGMENT, AGREEMENT, WAIVER, GRANT OR APPOINTMENT (AS THE CASE MAY
BE) WERE FULLY SET FORTH HEREIN.
(f)
JOINDER
PARTY HEREBY WAIVES ANY AND ALL RIGHTS OR CLAIMS JOINDER PARTY NOW HAS OR MAY
HEREAFTER HAVE AGAINST BORROWER OR ANY BORROWER PARTY OR ANY OTHER PARTY TO THE
AGREEMENT, WHETHER BY WAY OF SUBROGATION, CONTRIBUTION, REIMBURSEMENT OR
OTHERWISE, ARISING BECAUSE OF JOINDER PARTY’S PAYMENT OR PERFORMANCE OF ANY OF
THE OBLIGATIONS. JOINDER PARTY WAIVES ALL SURETYSHIP DEFENSES OF EVERY KIND AND
NATURE.
(g)
JOINDER
PARTY ACKNOWLEDGES AND AGREES THAT ANY INDEBTEDNESS (AS SUCH TERM IS DEFINED IN
THE LOAN AGREEMENT) OF BORROWER TO JOINDER PARTY OR TO ANY AFFILIATE OF JOINDER
PARTY (“
AFFILIATE
INDEBTEDNESS
”),
WHETHER EXISTING PRIOR TO, ON OR AFTER SUCH MATURITY DATE, IS AND SHALL AT ALL
TIMES BE SUBJECT AND SUBORDINATE TO ALL OF THE OBLIGATIONS OF BORROWER TO
LEHMAN. JOINDER PARTY, ON BEHALF OF ITSELF AND ITS AFFILIATES, HEREBY
IRREVOCABLY WAIVES ANY RIGHT, CLAIM OR CAUSE OF ACTION TO COLLECT OR OBTAIN ANY
REIMBURSEMENT, RETURN OR REPAYMENT OF SUCH INDEBTEDNESS. UNLESS AND UNTIL THE
NET PROFITS HAVE BEEN PAID IN FULL TO LEHMAN AND ALL OTHER OBLIGATIONS HAVE BEEN
FULLY SATISFIED, ANY AMOUNTS RECEIVED BY BORROWER OR ANY BORROWER PARTY WITH
RESPECT TO ANY SUCH AFFILIATE INDEBTEDNESS BEFORE ALL OBLIGATIONS HAVE BEEN PAID
IN FULL SHALL BE HELD IN TRUST BY BORROWER AND EACH BORROWER PARTY AND APPLIED
IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT.
[SIGNATURES ON FOLLOWING
PAGE]
IN
WITNESS WHEREOF, the undersigned have duly executed this Joinder and Consent the
day and year first above written.
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LIGHTSTONE HOLDINGS,
LLC
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By:
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/s/ David
Lichtenstein
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David Lichtenstein
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Title:
President
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EXHIBIT
A
Budget
and Business Plan
EXHIBIT
B
Organizational
Documents of Borrower
EXHIBIT
10.29
MORTGAGE AND SECURITY AGREEMENT
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UNITED STATES OF AMERICA
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STATE OF LOUISIANA
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COUNTY/PARISH OF ST.
CHARLES
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BY:
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LVP GULF COAST INDUSTRIAL PORTFOLIO LLC
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IN FAVOR
OF:
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WACHOVIA BANK, NATIONAL
ASSOCIATION
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BE IT KNOWN
, that on
the 31st day of January, 2007, to be effective on February 1, 2007, before me,
the undersigned Notary Public, duly commissioned and qualified in and for the
State Parish aforesaid, of LVP Gulf Coast Industrial Portfolio LLC, and in the
presence of the undersigned competent witnesses, personally came and
appeared:
LVP GULF COAST INDUSTRIAL PORTFOLIO
LLC
, a
Delaware limited liability company, having a mailing address c/o
The Lightstone Group, 326 Third Street, Lakewood, New Jersey 08701,
last
four digits of taxpayer identification numbers of 5292, appearing herein through
Michael Schurer, its Vice President and duly authorized representative pursuant
to a resolution of its members and managers, a certified copy of which is
attached hereto (the “
Mortgagor
”).
WHO AFTER BEING DULY SWORN DECLARED
AS FOLLOWS:
Sealy
Fixed Portfolio C
Loan No.
50-2859389
W I T N E
S S E T H:
WHEREAS,
Lender has authorized a loan (hereinafter referred to as the “
Loan
”) to the
Delaware limited liability companies listed on Schedule 1 annexed hereto
(hereinafter collectively, "
Borrower
") in the
maximum principal sum of FIFTY THREE MILLION TWENTY FIVE THOUSAND AND NO/100
DOLLARS (53,025,000.00) (hereinafter referred to as the “
Loan
Amount
”), which
Loan is evidenced by that certain promissory note, dated the date hereof
(together with any supplements, amendments, modifications or extensions thereof,
hereinafter referred to as the “
Note
”) given
by Borrower, as maker, to Lender, as payee;
WHEREAS,
in consideration of the Loan, Mortgagor has agreed to make payments in amounts
sufficient to pay and redeem, and provide for the payment and redemption of the
principal of, premium, if any, and interest on the Note when due;
WHEREAS,
Mortgagor desires by this Mortgage and Security Agreement (this "Security
Instrument") to provide for, among other things, the issuance of the Note and
for the mortgage by Mortgagor with, and the creation of a security interest in
favor of, Lender, as security for Mortgagor’s obligations to Lender from time to
time pursuant to the Note and the other Loan Documents, but specifically
excluding the Indemnity and Guaranty (as hereinafter defined); and
WHEREAS,
Mortgagor and Lender intend these recitals to be a material part of this
Security Instrument.
WHEREAS,
all things necessary to make this Security Instrument the valid and legally
binding obligation of Mortgagor in accordance with its terms, for the uses and
purposes herein set forth, have been done and performed.
NOW
THEREFORE, to secure the payment of the principal of, prepayment premium (if
any) and interest on the Note and all other obligations, liabilities or sums due
or to become due under, or advanced in accordance herewith to protect the
security of, this Security Instrument, the Note or any other Loan Document,
including, without limitation, interest on said obligations, liabilities or sums
(said principal, premium, interest and other sums being hereinafter referred to
as the “
Debt
”), and
the performance of all other covenants, obligations and liabilities of Borrower
pursuant to the Loan Documents but specifically excluding the Indemnity and
Guaranty, and any and all other indebtedness now owing or which may hereafter be
owing by Borrower to Lender, now existing or hereafter coming into existence,
however and whenever incurred or evidenced, whether express or implied, direct
or indirect, absolute or contingent, or due or to become due, and all renewals,
modifications, consolidations, replacements and extensions thereof (together
with the Debt, collectively, the “
Secured
Indebtedness
” or
“
secured
indebtedness
”) FOR
THE PURPOSE OF SECURING THE SECURED INDEBTEDNESS OUTSANDING AT ANY TIME AND FROM
TIME TO TIME UP TO THE MAXIMUM AMOUNT OF FIFTY THREE MILLION TWNETY FIVE
THOUSAND AND NO/100 ($53,025,000.00) (THE “MAXIMUM AMOUNT”), Mortgagor has
executed and delivered this Security Instrument; and Mortgagor hereby
irrevocably mortgages, affects and hypothecates, pledges, collaterally assigns
and grants a continuing security interest upon, unto and in favor of Lender and
its successors and assigns all right, title and interest of Mortgagor in and to
all of the following property, rights, interests and estates, whether now owned
or hereafter acquired, together with the rights, privileges and appurtenances
thereto belonging, to the full extent that such property is susceptible of
mortgage under the Louisiana Civil Code, Louisiana Revised Statutes, and other
provisions of Louisiana law, grants a continuing security interest in favor of
Lender and its successors and assigns, as secured party, in all property and
rights described below as part of the Property (as defined below), whether now
owned or hereafter acquired, that are susceptible of a security interest under
Chapter 9 of the Louisiana Commercial Laws, La. R.S. § 10:9-101 et seq. or any
other provision of Louisiana law, and does further affect, hypothecate,
collaterally assign, and pledge unto and in favor of Lender and its successors
and assigns, as collateral assignee, all the present and future rents, as well
as all other property and rights described below as part of the Property (as
defined below), whether now owned or hereafter acquired, that are susceptible of
collateral assignment under La. R.S. § 9:4401, § 9:5386, or any other provision
of Louisiana law (collectively, the “Property”):
(a)
the
plot(s), piece(s) or parcel(s) of real property described in
Exhibits A -1 through Exhibit A-10
attached
hereto and made a part hereof (individually and collectively, hereinafter
referred to as the “
Premises
”);
(b)
(i) all
buildings, component parts, foundations, structures, fixtures, additions,
enlargements, extensions, modifications, repairs, replacements and improvements
of every kind or nature now or hereafter located on the Premises (hereinafter
collectively referred to as the “
Improvements
”); and
(ii) to the extent permitted by law, the name or names, if any, as may now
or hereafter be used for each Improvement, and the goodwill associated
therewith;
(c)
all
easements, servitudes, rights-of-way, strips and gores of land, streets, ways,
alleys, passages, sewer rights, water, water courses, water rights and powers,
ditches, ditch rights, reservoirs and reservoir rights, air rights and
development rights, lateral support, drainage, gas, oil and mineral rights,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating or pertaining to the Premises or the Improvements and the
reversion and reversions, remainder and remainders, whether existing or
hereafter acquired, and all land lying in the bed of any street, road or avenue,
opened or proposed, in front of or adjoining the Premises to the center line
thereof and any and all sidewalks, drives, curbs, passageways, streets, spaces
and alleys adjacent to or used in connection with the Premises and/or
Improvements and all the estates, rights, titles, interests, property,
possession, claim and demand whatsoever, both in law and in equity, of Mortgagor
of, in and to the Premises and Improvements and every part and parcel thereof,
with the appurtenances thereto;
(d)
all
machinery, equipment, fittings, apparatus, appliances, furniture, furnishings,
tools, fixtures (including, but not limited to, all heating, air conditioning,
ventilating, waste disposal, sprinkler and fire and theft protection equipment,
plumbing, lighting, communications and elevator fixtures) and other property of
every kind and nature whatsoever owned by Mortgagor, or in which Mortgagor has
or shall have an interest, now or hereafter located upon, or in, and located on
the Premises or the Improvements, or appurtenant thereto, and all building
equipment, materials and supplies of any nature whatsoever owned by Mortgagor,
or in which Mortgagor has or shall have an interest, now or hereafter located
upon, or in the Premises or the Improvements or appurtenant thereto
(hereinafter, all of the foregoing items described in this paragraph (d), along
with all replacement and additional items installed as contemplated in Section
8.01(e), are collectively called the “
Equipment
”), all
of which, and any replacements, modifications, alterations and additions
thereto, to the extent permitted by applicable law, shall be deemed to
constitute fixtures (herein, collectively, the “
Fixtures
”), and
are part of the real estate and security for the payment of the Debt and the
performance of Mortgagor’s obligations. To the extent any portion of the
Equipment is not real property or Fixtures under applicable law, it shall be
deemed to be personal property, and this Security Instrument shall constitute a
security agreement creating a security interest therein in favor of Lender under
the UCC;
(e)
all
awards or payments, including interest thereon, which may hereafter be made with
respect to the Premises, the Improvements, the Fixtures, or the Equipment,
whether from the exercise of the right of eminent domain (including but not
limited to any transfer made in lieu of or in anticipation of the exercise of
said right), or for a change of grade, or for any other injury to or decrease in
the value of the Premises, the Improvements or the Equipment or refunds with
respect to the payment of property taxes and assessments, and all other proceeds
of the conversion, voluntary or involuntary, of the Premises, Improvements,
Equipment, Fixtures or any other Property or part thereof into cash or
liquidated claims;
(f)
all
leases, tenancies, licenses and other agreements affecting the use, enjoyment or
occupancy of the Premises, the Improvements, the Fixtures, or the Equipment or
any portion thereof now or hereafter entered into, whether before or after the
filing by or against Mortgagor of any petition for relief under the Bankruptcy
Code and all reciprocal easement agreements and license agreements (hereinafter
collectively referred to as the “
Leases
”),
together with all cash or security deposits, lease termination payments, advance
rentals and payments of similar nature and guarantees or other security held by,
or issued in favor of, Mortgagor in connection therewith to the extent of
Mortgagor’s right or interest therein and all remainders, reversions and other
rights and estates appurtenant thereto, and all base, fixed, percentage or
additional rents, and other rents, oil and gas or other mineral royalties, and
bonuses, issues, profits and rebates and refunds or other payments made by any
Governmental Authority from or relating to the Premises, the Improvements, the
Fixtures or the Equipment plus all rents, common area charges and other payments
now existing or hereafter arising, whether paid or accruing before or after the
filing by or against Mortgagor of any petition for relief under the Bankruptcy
Code (herein, collectively, the “
Rents
”) and
all proceeds from the sale or other disposition of the Leases and the right to
receive and apply the Rents to the payment of the Debt;
(g)
all
proceeds of and any unearned premiums on any insurance policies covering the
Premises, the Improvements, the Fixtures, the Rents or the Equipment, including,
without limitation, the right to receive and apply the proceeds of any
insurance, judgments, or settlements made in lieu thereof, for damage to the
Premises, the Improvements, the Fixtures or the Equipment and all refunds or
rebates of Impositions, and interest paid or payable with respect
thereto;
(h)
all
deposit accounts, securities accounts, funds or other accounts maintained or
deposited with Lender, or its assigns, in connection herewith, including,
without limitation, the Security Deposit Account (to the extent permitted by
law), the Engineering Escrow Account, the Central Account, the Basic Carrying
Costs Sub-Account, the Basic Carrying Costs Escrow Account, the Debt Service
Payment Sub-Account, the Recurring Replacement Reserve Sub-Account, the
Recurring Replacement Reserve Escrow Account, the Reletting Reserve Sub-Account,
the Reletting Reserve Escrow Account, the Operation and Maintenance Expense
Sub-Account, the Operation and Maintenance Expense Escrow Account, the
Curtailment Reserve Escrow Account, the Curtailment Reserve Sub-Account, and all
monies and investments deposited or to be deposited in such
accounts;
(i)
all
accounts receivable, contract rights, franchises, interests, estate or other
claims, both at law and in equity, now existing or hereafter arising, and
relating to the Premises, the Improvements, the Fixtures or the Equipment, not
included in Rents;
(j)
all now
existing or hereafter arising claims against any Person with respect to any
damage to the Premises, the Improvements, the Fixtures or the Equipment,
including, without limitation, damage arising from any defect in or with respect
to the design or construction of the Improvements, the Fixtures or the Equipment
and any damage resulting therefrom;
(k)
all
deposits or other security or advance payments, including rental payments now or
hereafter made by or on behalf of Mortgagor to others, with respect to (i)
insurance policies, (ii) utility services, (iii) cleaning, maintenance, repair
or similar services, (iv) refuse removal or sewer service, (v) parking or
similar services or rights and (vi) rental of Equipment, if any, relating to or
otherwise used in the operation of the Premises, the Improvements, the Fixtures
or the Equipment;
(l)
all
intangible property now or hereafter relating to the Premises, the Improvements,
the Fixtures or the Equipment or its operation, including, without limitation,
software, letter of credit rights, trade names, trademarks (including, without
limitation, any licenses of or agreements to license trade names or trademarks
now or hereafter entered into by Mortgagor), logos, building names and
goodwill;
(m)
all now
existing or hereafter arising advertising material, guaranties, warranties,
building permits, other permits, licenses, plans and specifications, shop and
working drawings, soil tests, appraisals and other documents, materials and/or
personal property of any kind now or hereafter existing in or relating to the
Premises, the Improvements, the Fixtures, and the Equipment;
(n)
all now
existing or hereafter arising drawings, designs, plans and specifications
prepared by architects, engineers, interior designers, landscape designers and
any other consultants or professionals for the design, development,
construction, repair and/or improvement of the Property, as amended from time to
time;
(o)
the
right, in the name of and on behalf of Mortgagor, to appear in and defend any
now existing or hereafter arising action or proceeding brought with respect to
the Premises, the Improvements, the Fixtures or the Equipment as set forth
herein and to commence any action or proceeding to protect the interest of
Lender in the Premises, the Improvements, the Fixtures or the Equipment as set
forth herein;
(p)
all
agreements, grants of easements and/or rights-of-way, reciprocal easement
agreements, permits, declarations of covenants, conditions and restrictions,
disposition and development agreements, planned unit development agreements,
management or parking agreements, party wall agreements or other instruments
affecting the Property and all proceeds or income received with respect thereto;
and
(q)
all
proceeds, products, substitutions and accessions (including claims and demands
therefor) of each of the foregoing.
(r)
all
unearned premiums under insurance policies now or subsequently obtained by
Mortgagor relating to the Premises or Improvements and Mortgagor’s interest in
and to all such insurance policies and all proceeds of any such insurance
policies (including title insurance policies) including the right to collect and
receive such proceeds, subject to the provisions relating to insurance generally
set forth below; and all awards and other compensation, including the interest
payable thereon and the right to collect and receive the same, made to the
present or any subsequent owner of the Premises or Improvements for the taking
by eminent domain, condemnation or otherwise, of all or any part of the Premises
or any servitude, easement or other right therein; and with respect to the
proceeds referred to above, this Security Instrument is a collateral assignment
thereof pursuant to Louisiana Revised Statutes 9:5386, et seq., whether such
proceeds or any of them now exist or arise in the future, and the Mortgagor does
hereby irrevocably make, constitute and appoint the Lender and the agents of the
Lender as the true and lawful mandataries and attorneys-in-fact of Mortgagor to
carry out and enforce all of the Mortgagor's right, title and interest in and to
any or all of the proceeds hereby collaterally assigned. The collateral
assignment herein made of the proceeds shall not be construed as imposing upon
the Lender any obligations with respect thereto unless and until the Lender
shall become the absolute owner thereof and the Mortgagor shall have been wholly
dispossessed thereof.
All of
the foregoing items (a) through (q), together with all of the right, title and
interest of Mortgagor therein, are collectively referred to as the “
Property
”.
AND
Mortgagor covenants with and warrants to Lender that:
ARTICLE
I:
DEFINITIONS
Section
1.01.
Certain
Definitions
.
For all
purposes of this Security Instrument, except as otherwise expressly provided or
unless the context clearly indicates a contrary intent:
(i)
the
capitalized terms defined in this Section have the meanings assigned to them in
this Section, and include the plural as well as the singular;
(ii)
all
accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with GAAP; and
(iii)
the words
“herein”, “hereof”, and “hereunder” and other words of similar import refer to
this Security Instrument as a whole and not to any particular Section or other
subdivision.
“
Adjusted Net Cash
Flow
” shall
mean on any determination date, the Pro-Forma Net Operating Income less (a) the
Recurring Replacement Monthly Installment for all of the Cross-collateralized
Properties multiplied by twelve (12), (b) the Reletting Reserve Monthly
Installment for all of the Cross-collateralized Properties multiplied by twelve
(12), and (c) Net Capital Expenditures for all of the Cross-collateralized
Properties to be incurred (as estimated by Lender, in its reasonable discretion)
for the subsequent twelve (12) month period. The Adjusted Net Cash Flow shall be
calculated by Lender in accordance with the terms of this Security
Instrument.
“
Affiliate
” of any
specified Person shall mean any other Person directly or indirectly Controlling
or Controlled by or under direct or indirect common Control with such specified
Person.
“
Allocated Loan
Amount
” shall
mean the portion of the Loan Amount allocated to each Individual Property as set
forth on Exhibit F annexed hereto and made a part hereof.
“
Annual
Budget
” shall
mean an annual budget submitted by Mortgagor to Lender in accordance with the
terms of Section 2.09 hereof.
“
Appraisal
” shall
mean the appraisal of the Property and all supplemental reports or updates
thereto previously delivered to Lender in connection with the Loan.
“
Appraiser
” shall
mean the Person who prepared the Appraisal.
“
Approved Annual
Budget
” shall
mean each Annual Budget approved by Lender in accordance with terms
hereof.
“
Approved Manager
Standard
” shall
mean the standard of business operations, practices and procedures customarily
employed by entities which possess the Minimum Manager Credentials.
“
Architect
” shall
have the meaning set forth in Section 3.04(b)(i) hereof.
“
Assignment
” shall
mean the Assignment of Leases and Rents and Security Deposits of even date
herewith relating to the Property given by Mortgagor to Lender.
“
Bank
” shall
mean the bank, trust company, savings and loan association or savings bank
designated by Lender, in its sole and absolute discretion, in which the Central
Account shall be located.
“
Bankruptcy
Code
” shall
mean 11 U.S.C. §101 et seq., as amended from time to time.
“
Basic Carrying
Costs
” shall
mean the sum of the following costs associated with the Property: (a) Real
Estate Taxes and (b) insurance premiums.
“
Basic Carrying Costs Escrow
Account
” shall
mean the Escrow Account maintained pursuant to Section 5.06 hereof.
“
Basic Carrying Costs Monthly
Installment
” shall
mean Lender’s reasonable estimate of one-twelfth (1/12th) of the annual amount
for Basic Carrying Costs. “Basic Carrying Costs Monthly Installment” shall also
include, if required by Lender, a sum of money which, together with such monthly
installments, will be sufficient to make the payment of each such Basic Carrying
Cost at least thirty (30) days prior to the date initially due. Should such
Basic Carrying Costs not be ascertainable at the time any monthly deposit is
required to be made, the Basic Carrying Costs Monthly Installment shall be
determined by Lender in its reasonable discretion on the basis of the aggregate
Basic Carrying Costs for the prior Fiscal Year or month or the prior payment
period for such cost. As soon as the Basic Carrying Costs are fixed for the then
current Fiscal Year, month or period, the next ensuing Basic Carrying Costs
Monthly Installment shall be adjusted to reflect any deficiency or surplus in
prior monthly payments. If at any time during the term of the Loan Lender
determines that there will be insufficient funds in the Basic Carrying Costs
Escrow Account to make payments when they become due and payable, Lender shall
have the right to adjust the Basic Carrying Costs Monthly Installment such that
there will be sufficient funds to make such payments.
“
Basic Carrying Costs
Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
into which the Basic Carrying Costs Monthly Installments shall be
deposited.
“
Business
Day
” shall
mean any day other than (a) a Saturday or Sunday, or (b) a day on which banking
and savings and loan institutions in the State of New York or the State of North
Carolina are authorized or obligated by law or executive order to be closed, or
at any time during which the Loan is an asset of a Securitization, the cities,
states and/or commonwealths used in the comparable definition of “Business Day”
in the Securitization documents.
“
Capital
Expenditures
” shall
mean for any period, the amount expended for items capitalized under GAAP
including expenditures for building improvements or major repairs, leasing
commissions and tenant improvements.
“
Cash
Expenses
” shall
mean for any period, the operating expenses for the Property as set forth in an
Approved Annual Budget to the extent that such expenses are actually incurred by
Mortgagor minus payments into the Basic Carrying Costs Sub-Account, the Debt
Service Payment Sub-Account, the Reletting Reserve Sub-Account and the Recurring
Replacement Reserve Sub-Account.
“
Central
Account
” shall
mean an Eligible Account, maintained at the Bank, in the name of Lender or its
successors or assigns (as secured party) as may be designated by
Lender.
“
Closing
Date
”
shall mean the date of the Note.
“
Code
” shall
mean the Internal Revenue Code of 1986, as amended and as it may be further
amended from time to time, any successor statutes thereto, and applicable U.S.
Department of Treasury regulations issued pursuant thereto.
“
Condemnation
Proceeds
” shall
mean all of the proceeds in respect of any Taking or purchase in lieu
thereof.
“
Contractual
Obligation
” shall
mean, as to any Person, any provision of any security issued by such Person or
of any agreement, instrument or undertaking to which such Person is a party or
by which it or any of the property owned by it is bound.
“
Control
” means,
when used with respect to any specific Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person whether through ownership of voting securities,
beneficial interests, by contract or otherwise. The definition is to be
construed to apply equally to variations of the word “Control” including
“Controlled,” “Controlling” or “Controlled by.”
“
CPI
” shall
mean “The Consumer Price Index (New Series) (Base Period 1982-84=100) (all items
for all urban consumers)” issued by the Bureau of Labor Statistics of the United
States Department of Labor (the “
Bureau
”). If
the CPI ceases to use the 1982-84 average equaling 100 as the basis of
calculation, or if a change is made in the term, components or number of items
contained in said index, or if the index is altered, modified, converted or
revised in any other way, then the index shall be adjusted to the figure that
would have been arrived at had the change in the manner of computing the index
in effect at the date of this Security Instrument not been altered. If at any
time during the term of this Security Instrument the CPI shall no longer be
published by the Bureau, then any comparable index issued by the Bureau or
similar agency of the United States issuing similar indices shall be used in
lieu of the CPI.
“
Cross-collateralized
Mortgage
” shall
mean that certain mortgage, security agreement, assignment of rents and fixture
filing as originally executed or as same may hereafter from time to time be
supplemented, amended, modified, extended granted by the Texas Borrowers to
Lender as security for the Note.
“
Cross-collateralized
Property
” shall
mean each parcel or parcels of real property as identified on Exhibit G-1 to
G-14 attached hereto and made a part hereof encumbered by this Mortgage and the
Cross-collateralized Mortgage; provided, however, at such time, if any, that a
Cross-collateralized Property is released by Lender, the property which was
encumbered by either this Security Instrument or the Cross-collateralized
Mortgage shall no longer constitute a Cross-collateralized
Property.
“
Current
Month
” shall
mean the period from the eleventh (11
th
) day of
each month through and including the tenth (10
th
) day of
the following month.
"
Curtailment Reserve Escrow
Account
" shall
mean the Escrow Account maintained pursuant to Section 5.11 hereof into which
sums shall be deposited during an O&M Operative Period.
"
Curtailment Reserve
Sub-Account
" shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof.
“
Debt
” shall
mean the principal of, prepayment premium (if any) and interest on the Note and
all other obligations, liabilities or sums due or to become due under, or
advanced in accordance herewith to protect the security of, the Security
Instrument, the Note or any other Loan Document, including, without limitation,
interest on said obligations, liabilities or sums.
“
Debt Service
Coverage
” shall
mean the quotient obtained by dividing Adjusted Net Cash Flow for all of the
Cross-collateralized Properties for the specified period by the sum of the
aggregate payments of interest and principal due for such specified period under
the Note (determined as of the date the calculation of Debt Service Coverage is
required or requested hereunder) based upon an assumed Debt Service due and
payable on the Loan as calculated on a 7.1% debt service constant.
“
Debt Service Payment
Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which the Required Debt Service Payment shall be
deposited.
“
Default
” shall
mean any Event of Default or event which would constitute an Event of Default if
all requirements in connection therewith for the giving of notice, the lapse of
time, and the happening of any further condition, event or act, had been
satisfied.
“
Default
Rate
” shall
mean the lesser of (a) the highest rate allowable at law and (b) four percent
(4%) above the interest rate set forth in the Note.
“
Default Rate
Interest
” shall
mean, to the extent the Default Rate becomes applicable, interest in excess of
the interest which would have accrued on (a) the Principal Amount and (b) any
accrued but unpaid interest, if the Default Rate was not
applicable.
“
Development
Laws
” shall
mean all applicable subdivision, zoning, environmental protection, wetlands
protection, or land use laws or ordinances, and any and all applicable rules and
regulations of any Governmental Authority promulgated thereunder or related
thereto.
“
Eligible
Account
” shall
mean a segregated account which is either (a) an account or accounts maintained
with a federal or state chartered depository institution or trust company the
long term unsecured debt obligations of which are rated by each of the Rating
Agencies (or, if not rated by Fitch, Inc. (“
Fitch
”),
otherwise acceptable to Fitch, as confirmed in writing that such account would
not, in and of itself, result in a downgrade, qualification or withdrawal of the
then current ratings assigned to any certificates issued in connection with a
Securitization) in its second highest rating category at all times (or, in the
case of the Basic Carrying Costs Escrow Account, the long term unsecured debt
obligations of which are rated at least “AA” (or its equivalent)) by each of the
Rating Agencies (or, if not rated by Fitch, otherwise acceptable to Fitch, as
confirmed in writing that such account would not, in and of itself, result in a
downgrade, qualification or withdrawal of the then current ratings assigned to
any certificates issued in connection with a Securitization) or, if the funds in
such account are to be held in such account for less than thirty (30) days, the
short term obligations of which are rated by each of the Rating Agencies (or, if
not rated by Fitch, otherwise acceptable to Fitch, as confirmed in writing that
such account would not, in and of itself, result in a downgrade, qualification
or withdrawal of the then current ratings assigned to any certificates issued in
connection with a Securitization) in its second highest rating category at all
times or (b) a segregated trust account or accounts maintained with a federal or
state chartered depository institution or trust company acting in its fiduciary
capacity which, in the case of a state chartered depository institution is
subject to regulations substantially similar to 12 C.F.R. § 9.10(b), having in
either case a combined capital and surplus of at least $100,000,000 and subject
to supervision or examination by federal and state authority, or otherwise
acceptable (as evidenced by a written confirmation from each Rating Agency that
such account would not, in and of itself, cause a downgrade, qualification or
withdrawal of the then current ratings assigned to any certificates issued in
connection with a Securitization) to each Rating Agency, which may be an account
maintained by Lender or its agents. Eligible Accounts may bear interest. The
title of each Eligible Account shall indicate that the funds held therein are
held in trust for the uses and purposes set forth herein.
“
Engineer
” shall
have the meaning set forth in Section 3.04(b)(i) hereof.
“
Engineering Escrow
Account
” shall
mean an Escrow Account established and maintained pursuant to Section 5.12
hereof relating to payments for any Required Engineering Work.
“
Engineering
Report
” shall
mean the engineering report for the Property and any supplements or updates
thereto, previously delivered to Lender in connection with the
Loan.
“
Environmental
Problem
” shall
mean any of the following:
(a)
the
presence of any Hazardous Material on, in, under, or above all or any portion of
the Property;
(b)
the
release or threatened release of any Hazardous Material from or onto the
Property;
(c)
the
violation or threatened violation of any Environmental Statute with respect to
the Property; or
(d)
the
failure to obtain or to abide by the terms or conditions of any permit or
approval required under any Environmental Statute with respect to the
Property.
A
condition described above shall be an Environmental Problem regardless of
whether or not any Governmental Authority has taken any action in connection
with the condition and regardless of whether that condition was in existence on
or before the date hereof.
“
Environmental
Report
” shall
mean the environmental audit report for the Property and any supplements or
updates thereto, previously delivered to Lender in connection with the
Loan.
“
Environmental
Statute
” shall
mean any federal, state or local statute, ordinance, rule or regulation, any
judicial or administrative order (whether or not on consent) or judgment
applicable to Mortgagor or the Property including, without limitation, any
judgment or settlement based on common law theories, and any provisions or
condition of any permit, license or other authorization binding on Mortgagor
relating to (a) the protection of the environment or the health of persons
(including employees) from actual or potential exposure (or effects of exposure)
to any actual or potential release, discharge, disposal or emission (whether
past or present) of any Hazardous Materials or (b) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
Hazardous Materials, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (“
CERCLA
”), as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
§9601
et
seq.
, the
Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42
U.S.C. §6901
et
seq.
, the
Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977,
33 U.S.C. §1251
et
seq.
, the
Toxic Substances Control Act of 1976, 15 U.S.C. §2601
et
seq.
, the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §1101
et
seq.
, the
Clean Air Act of 1966, as amended, 42 U.S.C. §7401
et
seq.
, the
National Environmental Policy Act of 1975, 42 U.S.C. §4321, the Rivers and
Harbors Act of 1899, 33 U.S.C. §401
et
seq.
, the
Endangered Species Act of 1973, as amended, 16 U.S.C. §1531
et
seq.
, the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §651
et
seq.
, and the
Safe Drinking Water Act of 1974, as amended, 42 U.S.C. §300(f)
et
seq.
, and all
rules, regulations and guidance documents promulgated or published
thereunder.
“
Equipment
” shall
have the meaning set forth in granting clause (d) of this Security
Instrument.
“
ERISA
” shall
mean the Employee Retirement Income Security Act of 1974, as amended from time
to time, and the regulations promulgated thereunder. Section references to ERISA
are to ERISA, as in effect at the date of this Security Instrument and, as of
the relevant date, any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
“
ERISA
Affiliate
” shall
mean any corporation or trade or business that is a member of any group of
organizations (a) described in Section 414(b) or (c) of the Code of which
Mortgagor or Guarantor is a member and (b) solely for purposes of potential
liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code
and the lien created under Section 302(f) of ERISA and Section 412(n) of the
Code, described in Section 414(m) or (o) of the Code of which Mortgagor or
Guarantor is a member.
“
Escrow
Account
” shall
mean each of the Engineering Escrow Account, the Basic Carrying Costs Escrow
Account, the Recurring Replacement Reserve Escrow Account, the Reletting Reserve
Escrow Account, the Operation, Maintenance Expense Escrow Account and the
Curtailment Reserve Escrow Account, each of which shall be an Eligible Account
or book entry sub-account of an Eligible Account.
“
Event of
Default
” shall
have the meaning set forth in Section 13.01 hereof.
“
Extraordinary
Expense
” shall
mean an extraordinary operating expense or capital expense not set forth in the
Approved Annual Budget or allotted for in the Recurring Replacement Reserve
Sub-Account or the Reletting Reserve Sub-Account.
“
Fiscal
Year
” shall
mean the twelve (12) month period commencing on January 1 and ending on December
31 during each year of the term of this Security Instrument, or such other
fiscal year of Mortgagor as Mortgagor may select from time to time with the
prior written consent of Lender.
“
Fixtures
” shall
have the meaning set forth in granting clause (d) of this Security
Instrument.
“
Force
Majeure
” shall
mean strikes, lockouts, labor disputes, acts of God, governmental restrictions,
regulations or controls, enemy or hostile governmental actions, terrorist acts,
civil commotion, insurrection, revolution, sabotage or fire or other casualty or
other events beyond the reasonable control of Mortgagor and/or its Affiliates,
but Mortgagor’s and/or its Affiliates’ lack of funds in and of itself shall not
be deemed a cause beyond the control of Mortgagor and/or its
Affiliates.
“
GAAP
” shall
mean generally accepted accounting principles in the United States of America,
as of the date of the applicable financial report, consistently
applied.
“
General
Partner
” shall
mean, if Mortgagor is a partnership, each general partner of Mortgagor and, if
Mortgagor is a limited liability company, each managing member of Mortgagor and
in each case, if applicable, each general partner or member of such general
partner or managing member.
“
Governmental
Authority
” shall
mean, with respect to any Person, any federal or State government or other
political subdivision thereof and any entity, including any regulatory or
administrative authority or court, exercising executive, legislative, judicial,
regulatory or administrative or quasi-administrative functions of or pertaining
to government, and any arbitration board or tribunal, in each case having
jurisdiction over such applicable Person or such Person’s property and any stock
exchange on which shares of capital stock of such Person are listed or admitted
for trading.
“
Guarantor
” shall
mean any Person guaranteeing, in whole or in part, the obligations of Mortgagor
under the Loan Documents.
“
Hazardous
Material
” shall
mean any flammable, explosive or radioactive materials, hazardous materials or
wastes, hazardous or toxic substances, pollutants, asbestos or any material
containing asbestos, molds, spores and fungus which may pose a risk to human
health or the environment or any other substance or material as defined in or
regulated by any Environmental Statutes.
“
Impositions
” shall
mean all taxes (including, without limitation, all real estate, ad valorem,
sales (including those imposed on lease rentals), use, single business, gross
receipts, value added, intangible, transaction, privilege or license or similar
taxes), assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior to the
date hereof and whether or not commenced or completed within the term of this
Security Instrument), ground rents, water, sewer or other rents and charges,
excises, levies, fees (including, without limitation, license, permit,
inspection, authorization and similar fees), and all other governmental charges,
in each case whether general or special, ordinary or extraordinary, or foreseen
or unforeseen, of every character in respect of the Property and/or any Rent
(including all interest and penalties thereon), which at any time prior to,
during or in respect of the term hereof may be assessed or imposed on or in
respect of or be a lien upon (a) Mortgagor (including, without limitation, all
franchise, single business or other taxes imposed on Mortgagor for the privilege
of doing business in the jurisdiction in which the Property or any other
collateral delivered or pledged to Lender in connection with the Loan is
located) or Lender, (b) the Property or any part thereof or any Rents therefrom
or any estate, right, title or interest therein, or (c) any occupancy,
operation, use or possession of, or sales from, or activity conducted on, or in
connection with the Property, or any part thereof, or the leasing or use of the
Property, or any part thereof, or the acquisition or financing of the
acquisition of the Property, or any part thereof, by Mortgagor.
“
Improvements
” shall
have the meaning set forth in granting clause (b) of this Security
Instrument.
“
Indemnified
Parties
” shall
have the meaning set forth in Section 12.01 hereof.
“
Indemnity and
Guaranty
” shall
mean that certain Indemnity and Guaranty executed and delivered by Lightstone
Value Plus Real Estate Investment Trust, Inc., dated as of the date
hereof.
“
Independent
” shall
mean, when used with respect to any Person, a Person who (a) is in fact
independent, (b) does not have any direct financial interest or any material
indirect financial interest in Mortgagor, or in any Affiliate of Mortgagor or
any constituent partner, shareholder, member or beneficiary of Mortgagor, (c) is
not connected with Mortgagor or any Affiliate of Mortgagor or any constituent
partner, shareholder, member or beneficiary of Mortgagor as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions and (d) is not a member of the immediate family of a Person
defined in (b) or (c) above.
“
Individual
Property
” shall
mean each parcel or parcels of real property encumbered by this Security
Instrument as identified on Exhibit F attached hereto and made a part
hereof.
“
Initial Engineering
Deposit
” shall
equal the amount set forth on Exhibit B attached hereto and made a part
hereof.
“
Initial Reletting Reserve
Deposit
” shall
equal the amount set forth on Exhibit B attached hereto and made a part
hereof.
“
Initial Recurring Reserve
Deposit
” shall
equal the amount required to be deposited by Mortgagor into the Recurring
Replacement Reserve Escrow Account on the Closing Date as set forth on Exhibit
B.
“
Insolvency
Opinion
” shall
have the meaning set forth in Section 2.02(g)(xix) hereof.
“
Institutional
Lender
” shall
mean any of the following Persons: (a) any bank, savings and loan
association, savings institution, trust company or national banking association,
acting for its own account or in a fiduciary capacity, (b) any charitable
foundation, (c) any insurance company or pension and/or annuity company,
(d) any fraternal benefit society, (e) any pension, retirement or
profit sharing trust or fund within the meaning of Title I of ERISA or for
which any bank, trust company, national banking association or investment
adviser registered under the Investment Advisers Act of 1940, as amended, is
acting as trustee or agent, (f) any investment company or business
development company, as defined in the Investment Company Act of 1940, as
amended, (g) any small business investment company licensed under the Small
Business Investment Act of 1958, as amended, (h) any broker or dealer
registered under the Securities Exchange Act of 1934, as amended, or any
investment adviser registered under the Investment Adviser Act of 1940, as
amended, (i) any government, any public employees’ pension or retirement
system, or any other government agency supervising the investment of public
funds, or (j) any other entity all of the equity owners of which are
Institutional Lenders; provided that each of said Persons shall have net assets
in excess of $1,000,000,000 and a net worth in excess of $500,000,000, be in the
business of making commercial mortgage loans, secured by properties of like
type, size and value as the Property and have a long term credit rating which is
not less than “BBB-” (or its equivalent) from the Rating Agency.
“
Insurance
Proceeds
” shall
mean all of the proceeds received under the insurance policies required to be
maintained by Mortgagor pursuant to Article III hereof.
“
Insurance
Requirements
” shall
mean all terms of any insurance policy required by this Security Instrument, all
requirements of the issuer of any such policy, and all regulations and then
current standards applicable to or affecting the Property or any use or
condition thereof, which may, at any time, be recommended by the Board of Fire
Underwriters, if any, having jurisdiction over the Property, or such other
Person exercising similar functions.
“
Interest
Rate
” shall
have the meaning set forth in the Note.
“
Late
Charge
” shall
have the meaning set forth in Section 13.09 hereof.
“
Leases
” shall
have the meaning set forth in granting clause (f) of this Security
Instrument.
“
Legal
Requirement
” shall
mean as to any Person, the certificate of incorporation, by-laws, certificate of
limited partnership, articles of organization, agreement of limited partnership
or other organization or governing documents of such Person, and any law,
statute, order, code, ordinance, judgment, decree, injunction, treaty, rule or
regulation (including, without limitation, Environmental Statutes, Development
Laws and Use Requirements) or determination of an arbitrator or a court or other
Governmental Authority and all covenants, agreements, restrictions and
encumbrances contained in any instruments, in each case applicable to or binding
upon such Person or any of its property or to which such Person or any of its
property is subject.
“
Lender
” shall
mean the Lender named herein and its successors or assigns.
“
Loan
” shall
have the meaning set forth in the Recitals hereto.
“
Loan
Amount
” shall
have the meaning set forth in the Recitals hereto.
“
Loan
Documents
” shall
mean this Security Instrument, the Note, the Assignment, and any and all other
agreements, instruments, certificates or documents executed and delivered by
Mortgagor, Borrower or any Affiliate of Mortgagor in connection with the
Loan.
“
Loan Year
” shall
mean each 365 day period (or 366 day period if the month of February in a leap
year is included) commencing on the first day of the month following the Closing
Date (provided, however, that the first Loan Year shall also include the period
from the Closing Date to the end of the month in which the Closing Date occurs).
“
Loss
Proceeds
” shall
mean, collectively, all Insurance Proceeds and all Condemnation Proceeds.
"
Louisiana
Borrowers
" shall
mean the Delaware limited liability companies listed on Schedule 1 annexed
hereto.
“
Major Space
Lease
” shall
mean any Space Lease of a tenant or Affiliate of such tenant where such tenant
or such Affiliate leases, in the aggregate, in excess of ten (10%) percent of
rentable square feet of space at the Property.
“
Management
Agreement
” shall
have the meaning set forth in Section 7.02 hereof.
“
Manager
” shall
mean Mortgagor and any other Person, other than Mortgagor, which manages the
Property on behalf of Mortgagor.
“
Manager
Certification
” shall
have the meaning set forth in Section 2.09 hereof.
“
Material Adverse
Effect
” shall
mean any event or condition that has a material adverse effect on (a) the
Property, (b) the business, profits, management, operations or condition
(financial or otherwise) of Mortgagor, (c) the enforceability, validity,
perfection or priority of the lien or security interest of any Loan Document or
(d) the ability of Mortgagor to perform any material obligations under any Loan
Document.
“
Maturity
”, when
used with respect to the Note, shall mean the Maturity Date set forth in the
Note, as same may be extended in accordance with the Note, or such other date
pursuant to the Note on which the final payment of principal, and premium, if
any, on the Note becomes due and payable as therein or herein provided, whether
at Stated Maturity or by declaration of acceleration, or otherwise.
“
Maturity
Date
” shall
mean the Maturity Date set forth in the Note.
“
Minimum Manager
Credentials
” shall
mean (i) the employment of a senior executive who has the responsibility for
oversight of the Property and has at least five (5) years’ experience in the
management of industrial centers and (ii) the management of not less than five
(5) industrial center properties (excluding the Cross-collateralized Properties)
having an aggregate leasable square footage of not less than the lesser of (a)
one million leasable square feet and (b) five (5) times the leasable square feet
of the Property.
“
Multiemployer
Plan
” shall
mean a multiemployer plan defined as such in Section 3(37) of ERISA to which
contributions have been, or were required to have been, made by Mortgagor,
Guarantor or any ERISA Affiliate and which is covered by Title IV of
ERISA.
“
Net Capital
Expenditures
” shall
mean for any period the amount by which Capital Expenditures during such period
exceeds reimbursements for such items during such period from any fund
established pursuant to the Loan Documents.
“
Net Operating
Income
” shall
mean in each Fiscal Year or portion thereof during the term hereof, Operating
Income less Operating Expenses.
“
Net
Proceeds
” shall
mean the excess of (a)(i) the purchase price (at foreclosure or otherwise)
actually received by Lender with respect to the Property as a result of the
exercise by Lender of its rights, powers, privileges and other remedies after
the occurrence of an Event of Default, or (ii) in the event that Lender (or
Lender’s nominee) is the purchaser at foreclosure by credit bid, then the amount
of such credit bid, in either case, over (b) all costs and expenses, including,
without limitation, all attorneys’ fees and disbursements and any brokerage
fees, if applicable, incurred by Lender in connection with the exercise of such
remedies, including the sale of such Property after a foreclosure against the
Property.
“
Note
” shall
have the meaning set forth in the Recitals hereto.
"
O&M Operative
Period
" shall
mean the period of time commencing upon the determination by Lender that the
Debt Service Coverage (tested quarterly except during the continuance of an
O&M Operative Period, in which event Debt Service Coverage shall be tested
monthly and shall be calculated based upon information contained in the reports
furnished to Lender pursuant to Section 2.09 hereof) is less than 1.10:1.0 for
the preceding fiscal quarter and terminating, in each case, on the Payment Date
next succeeding the date upon which Lender has determined that the Debt Service
Coverage has been 1.10:1 or greater for the immediately preceding two fiscal
quarters.
“
OFAC List
” means
the list of specially designated nationals and blocked persons subject to
financial sanctions that is maintained by the U.S. Treasury Department, Office
of Foreign Assets Control and accessible through the internet website
www.treas.gov/ofac/t11sdn.pdf
.
“
Officer’s
Certificate
” shall
mean a certificate delivered to Lender by Mortgagor which is signed on behalf of
Mortgagor by an authorized representative of Mortgagor which states that the
items set forth in such certificate are true, accurate and complete in all
respects.
“
Operating
Expenses
” shall
mean, in each Fiscal Year or portion thereof during the term hereof, all
expenses directly attributable to the operation, repair and/or maintenance of
the Property including, without limitation, (a) Impositions, (b) insurance
premiums, (c) management fees, whether or not actually paid, equal to the
greater of the actual management fees or expenses and four percent (4%) of
annual “base” or “fixed” Rent due under the Leases and (d) costs attributable to
the operation, repair and maintenance of the systems for heating, ventilating
and air conditioning the Improvements and actually paid for by Mortgagor.
Operating Expenses shall not include interest, principal and premium, if any,
due under the Note or otherwise in connection with the Debt, income taxes,
Capital Expenditures, any non-cash charge or expense such as depreciation,
amortization or any item of expense otherwise includable in Operating Expenses
which is paid directly by any tenant except real estate taxes paid directly to
any taxing authority by any tenant or contributions by Mortgagor to any reserve
funds required under the Loan Documents.
“
Operating
Income
” shall
mean, in each Fiscal Year or portion thereof during the term hereof, all revenue
derived by Mortgagor arising from the Property including, without limitation,
rental revenues (whether denominated as basic rent, additional rent, escalation
payments, electrical payments or otherwise) and other fees and charges payable
pursuant to Leases or otherwise in connection with the Property, and the
proceeds of business interruption, rent or other similar insurance. Operating
Income shall not include (a) Insurance Proceeds (other than proceeds of
rent, business interruption or other similar insurance allocable to the
applicable period) and Condemnation Proceeds (other than Condemnation Proceeds
arising from a temporary taking or the use and occupancy of all or part of the
applicable Property allocable to the applicable period), or interest accrued on
such Condemnation Proceeds, (b) proceeds of any financing, (c) proceeds of any
sale, exchange or transfer of the Property or any part thereof or interest
therein, (d) capital contributions or loans to Mortgagor or an Affiliate of
Mortgagor, (e) any item of income otherwise includable in Operating Income but
paid directly by any tenant to a Person other than Mortgagor except for real
estate taxes paid directly to any taxing authority by any tenant, (f) any other
extraordinary, non-recurring revenues, (g) Rent paid by or on behalf of any
lessee under a Space Lease which is the subject of any proceeding or action
relating to its bankruptcy, reorganization or other arrangement pursuant to the
Bankruptcy Code or any similar federal or state law or which has been
adjudicated a bankrupt or insolvent unless such Space Lease has been affirmed by
the trustee in such proceeding or action, (h) Rent paid by or on behalf of any
lessee under a Space Lease the demised premises of which are not occupied either
by such lessee or by a sublessee thereof unless the lessee thereunder has a
long-term unsecured debt rating of not less than “BBB+” (or its equivalent) from
the Rating Agency, (i) Rent paid by or on behalf of any lessee under a Space
Lease in whole or partial consideration for the termination of any Space Lease,
(j) rent paid by or on behalf of lessees under month-to-month Space Leases for
lessees which have been in occupancy for less than six (6) months, (k) rent paid
by or on behalf of any lessee under a Space Lease that is more than thirty (30)
days in arrears in its obligations under such Space Lease, (l) Rents paid by or
on behalf of lessees who have given notice that they will be vacating the
premises demised under their respective Space Leases more than thirty (30) days
prior to the stated expiration date set forth in such Space Leases, or (m) sales
tax rebates from any Governmental Authority.
“
Operation and Maintenance
Expense Escrow Account
” shall
mean the Escrow Account maintained pursuant to Section 5.09 hereof relating to
the payment of Operating Expenses (exclusive of Basic Carrying
Costs).
“
Operation and Maintenance
Expense Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which sums allocated for the payment of Cash Expenses, Net Capital
Expenditures and approved Extraordinary Expenses shall be
deposited.
“
Payment
Date
” shall
have the meaning set forth in the Note.
“
PBGC
” shall
mean the Pension Benefit Guaranty Corporation established under ERISA, or any
successor thereto.
“
Permitted
Encumbrances
” shall
have the meaning set forth in Section 2.05(a) hereof.
“
Person
” shall
mean any individual, corporation, limited liability company, partnership, joint
venture, estate, trust, unincorporated association, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the
foregoing.
“
Plan
” shall
mean an employee benefit or other plan established or maintained by Mortgagor,
Guarantor or any ERISA Affiliate during the five-year period ended prior to the
date of this Security Instrument or to which Mortgagor, Guarantor or any ERISA
Affiliate makes, is obligated to make or has, within the five year period ended
prior to the date of this Security Instrument, been required to make
contributions (whether or not covered by Title IV of ERISA or Section 302 of
ERISA or Section 401(a) or 412 of the Code), other than a Multiemployer
Plan.
“
Premises
” shall
have the meaning set forth in granting clause (a) of this Security
Instrument.
“
Principal
Amount
” shall
mean the Loan Amount as such amount may be reduced from time to time pursuant to
the terms of this Security Instrument, the Note or the other Loan
Documents.
“
Pro-Forma Net Operating
Income
” shall
mean Pro-Forma Operating Income less Pro-Forma Operating Expenses.
“
Pro-Forma Operating
Expenses
” shall
mean projected aggregate annualized Operating Expenses for all of the
Cross-collateralized Properties based on a trailing twelve (12)-month period as
reasonably adjusted by Lender to take into account, among other things,
anticipated increases or decreases in Operating Expenses.
“
Pro-Forma Operating
Income
” shall
mean the lesser of (i) projected aggregate Operating Income for the
Cross-collateralized Properties for the immediately subsequent 12-month period
and (ii) actual aggregate Operating Income for the Cross-collateralized
Properties for the immediately preceding 12-month period, as increased by
scheduled rent increases set forth in the Space Leases and rent anticipated from
tenants under Space Leases relating to any portion of the Premises which was
previously not occupied provided such tenants are then in occupancy pursuant to
Space Leases entered into in accordance with the terms of this Security
Instrument and have paid all rents due under the Space Lease without abatement,
suspension, deferment, diminution, reduction or other allowances for at least
one full calendar month, in each case as determined by Lender based on the most
recent rent roll and such other information as is required to be delivered by
Mortgagor pursuant to Section 2.09 hereof and as reasonably adjusted by Lender
to take into account, among other things, a vacancy factor equal to the greater
of (x) anticipated vacancies for the succeeding 12-month period and (b) actual
vacancies during the immediately preceding 12-month period.
“
Prohibited
Person
” means
any Person identified on the OFAC List or any other Person with whom a U.S.
Person may not conduct business or transactions by prohibition of Federal law or
Executive Order of the President of the United States of America.
“
Property
” shall
have the meaning set forth in the granting clauses of this Security
Instrument.
“
Property
Agreements
” shall
mean all agreements, grants of easements and/or rights-of-way, reciprocal
easement agreements, permits, declarations of covenants, conditions and
restrictions, disposition and development agreements, planned unit development
agreements, management or parking agreements, party wall agreements or other
instruments affecting the Property, but not including any brokerage agreements,
management agreements, service contracts, Space Leases or the Loan
Documents.
“
Rating
Agency
” shall
mean Standard & Poor’s Ratings Services, Inc., a division of The McGraw-Hill
Company, Inc. (“
Standard &
Poor’s
”),
Fitch, Inc., and Moody’s Investors Service, Inc. (“
Moody’s
”),
collectively, and any successor to any of them; provided, however, that at any
time after a Securitization, “Rating Agency” shall mean those of the foregoing
rating agencies that from time to time rate the securities issued in connection
with such Securitization.
“
Real Estate
Taxes
” shall
mean all real estate taxes, assessments (including, without limitation, all
assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not commenced or completed
within the term of this Security Instrument), water, sewer or other rents and
charges, and all other governmental charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Property (including all interest and penalties
thereon), which at any time prior to, during or in respect of the term hereof
may be assessed or imposed on or in respect of or be a lien upon the Property or
any part thereof or any estate, right, title or interest therein.
“
Realty
” shall
have the meaning set forth in Section 2.05(b) hereof.
“
Recurring Replacement
Expenditures
” shall
mean expenditures related to capital repairs, replacements and improvements
performed at the Property from time to time.
“
Recurring Replacement
Monthly Installment
” shall
mean the amount per month as set forth on Exhibit B attached hereto and made a
part hereof.
“
Recurring Replacement
Reserve Escrow Account
” shall
mean the Escrow Account maintained pursuant to Section 5.08 hereof relating to
the payment of Recurring Replacement Expenditures.
“
Recurring Replacement
Reserve Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which the Recurring Replacement Monthly Installment shall be
deposited.
“
Reletting
Expenditures
” shall
mean reasonable and actual out-of-pocket expenditures payable to bona-fide third
parties incurred by Mortgagor relating to reletting of space at the Property and
in connection with any brokerage commissions due and payable, or any
improvements and replacements required to be made by Mortgagor (or reasonable
and actual out-of-pocket expenditures paid to tenants in connection with any
improvements and replacements made by tenants at the Property) under the terms
of any Lease to prepare the relevant space for occupancy by the tenant
thereunder.
“
Reletting Reserve Escrow
Account
” shall
mean the Escrow Account maintained pursuant to Section 5.07 hereof relating to
the payment of Reletting Expenditures.
“
Reletting Reserve Monthly
Installment
” shall
mean (a) the amount set forth on Exhibit B attached hereto and made a part
hereof plus (b) all sums received by Mortgagor in connection with any
cancellation, termination or surrender of any Lease, including, without
limitation, any surrender or cancellation fees, buy-out fees, or reimbursements
for tenant improvements and leasing commissions.
“
Reletting Reserve
Sub-Account
” shall
mean the Sub-Account of the Central Account established pursuant to Section 5.02
hereof into which the Reletting Reserve Monthly Installment shall be
deposited.
“
Rents
” shall
have the meaning set forth in granting clause (f) of this Security
Instrument.
“
Rent
Account
” shall
mean an Eligible Account, maintained at the Bank, in the joint names of
Mortgagor and Lender or its successors or assigns (as secured party) as may be
designated by Lender.
“
Rent Roll
” shall
have the meaning set forth in Section 2.05 (o) hereof.
“
Required Debt Service
Coverage
” shall
mean a Debt Service Coverage of not less than
–
1.20:1.0.
“
Required Debt Service
Payment
” shall
mean, as of any Payment Date, the amount of interest and principal then due and
payable pursuant to the Note, together with any other sums due thereunder,
including, without limitation, any prepayments required to be made or for which
notice has been given under this Security Instrument, Default Rate Interest and
premium, if any, paid in accordance therewith.
“
Required Engineering
Work
” shall
mean the immediate engineering and/or environmental remediation work set forth
on Exhibit D attached hereto and made a part hereof.
“
Retention
Amount
” shall
have the meaning set forth in Section 3.04(b)(vii) hereof.
“
Securities
Act
” shall
mean the Securities Act of 1933, as the same shall be amended from time to
time.
“
Securitization
” shall
mean a public or private offering of securities by Lender or any of its
Affiliates or their respective successors and assigns which are collateralized,
in whole or in part, by this Security Instrument.
“
Security Deposit
Account
” shall
have the meaning set forth in Section 5.01 hereof.
“
Security
Instrument
” shall
mean this Security Instrument as originally executed or as it may hereafter from
time to time be supplemented, amended, modified or extended by one or more
indentures supplemental hereto.
“
Single Purpose
Entity
” shall
mean a corporation, partnership, joint venture, limited liability company, trust
or unincorporated association, which is formed or organized solely for the
purpose of holding, directly, an ownership interest in the Property or a general
partner interest in a Person, does not engage in any business unrelated to the
Property, does not have any assets other than those related to its interest in
the Property or a general partner interest in such Person, or any indebtedness,
other than as permitted by this Security Instrument or the other Loan Documents,
has its own separate books and records and has its own accounts, in each case
which are separate and apart from the books and records and accounts of any
other Person, holds itself out as being a Person separate and apart from any
other Person and which otherwise satisfies the criteria of the Rating Agency, as
in effect on the Closing Date, for a special-purpose bankruptcy-remote entity.
“
Solvent
” shall
mean, as to any Person, that (a) the sum of the assets of such Person, at a fair
valuation, exceeds its liabilities, including contingent liabilities, (b) such
Person has sufficient capital with which to conduct its business as presently
conducted and as proposed to be conducted and (c) such Person has not incurred
debts, and does not intend to incur debts, beyond its ability to pay such debts
as they mature. For purposes of this definition, “
debt
” means
any liability on a claim, and “
claim
” means
(a) a right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured, or (b) a right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured. With respect to any such contingent liabilities, such liabilities
shall be computed in accordance with GAAP at the amount which, in light of all
the facts and circumstances existing at the time, represents the amount which
can reasonably be expected to become an actual or matured
liability.
“
Space
Leases
” shall
mean any Lease or sublease thereunder (including, without limitation, any Major
Space Lease) or any other agreement providing for the use and occupancy of a
portion of the Property as the same may be amended, renewed or
supplemented.
“
State
” shall
mean any of the states which are members of the United States of
America.
“
Stated
Maturity
”, when
used with respect to the Note or any installment of interest and/or principal
payment thereunder, shall mean the date specified in the Note as the fixed date
on which a payment of principal and/or interest is due and payable.
“
Sub-Accounts
” shall
have the meaning set forth in Section 5.02 hereof.
“
Substantial
Casualty
” shall
have the meaning set forth in Section 3.04(a)(iv) hereof.
“
Taking
” shall
mean a condemnation or taking pursuant to the lawful exercise of the power of
eminent domain.
“
Transfer
” shall
mean the conveyance, assignment, sale, mortgaging, encumbrance, pledging,
hypothecation, granting of a security interest in, granting of options with
respect to, or other disposition of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration or of record) all or any portion of any legal or beneficial
interest (a) in all or any portion of the Property; (b) if Mortgagor or, if
Mortgagor is a partnership, any General Partner, is a corporation, in the stock
of Mortgagor or any General Partner; (c) if Mortgagor is a limited or general
partnership, joint venture, limited liability company, trust, nominee trust,
tenancy in common or other unincorporated form of business association or form
of ownership interest, in any Person having a legal or beneficial ownership in
Mortgagor, excluding any legal or beneficial interest in any constituent limited
partner, if Mortgagor is a limited partnership, or in any non-managing member,
if Mortgagor is a limited liability company, unless such interest would, or
together with all other direct or indirect interests in Mortgagor which were
previously transferred, aggregate 49% or more of the partnership or membership,
as applicable, interests in Mortgagor or would result in any Person who, as of
the Closing Date, did not own, directly or indirectly, 49% or more of the
partnership or membership, as applicable, interests in Mortgagor, owning,
directly or indirectly, 49% or more of the partnership or membership, as
applicable, interests in Mortgagor and excluding any legal or beneficial
interest in any General Partner unless such interest would, or together with all
other direct or indirect interest in the General Partner which were previously
transferred, aggregate 49% or more of the partnership or membership, as
applicable, interests in the General Partner (or result in a change in control
of the management of the General Partner from the individuals exercising such
control immediately prior to the conveyance or other disposition of such legal
or beneficial interest) and shall also include, without limitation to the
foregoing, the following: an installment sales agreement wherein Mortgagor
agrees to sell the Property or any part thereof or any interest therein for a
price to be paid in installments; an agreement by Mortgagor leasing all or
substantially all of the Property to one or more Persons pursuant to a single or
related transactions, or a sale, assignment or other transfer of, or the grant
of a security interest in, Mortgagor’s right, title and interest in and to any
Leases or any Rent; any instrument subjecting the Property to a condominium
regime or transferring ownership to a cooperative corporation; and the
dissolution or termination of Mortgagor or the merger or consolidation of
Mortgagor with any other Person.
Notwithstanding
the foregoing, “Transfer” shall not include the following transfer which would
otherwise be a Transfer pursuant to clause (c) above with respect to Mortgagor:
the acquisition, issuance or transfer (whether in one transaction or in a series
of transactions) of securities in Lightstone Value Plus Real Estate Investment
Trust, Inc., a Maryland corporation (hereinafter, "REIT") or the sale of REIT
shares pursuant to its prospectus dated May 22, 2005, as supplemented, if the
shares of REIT are listed on a national securities exchange and such transfer is
in the ordinary course of trading of REIT's shares on a national securities
exchange and so long as the securities of REIT are publicly traded except that
(x) REIT shall not merge or consolidate into another entity (i.e., where REIT is
not the surviving entity) (a “Merger”), and any transfer of interests or series
of transfers in interests in REIT shall not result in more than 49% of REIT
being owned by any single person or entity (or related group of people or
entities) (a “Majority Transfer”) if provided all of the following conditions
are satisfied if (i) written notice of any transfer
pursuant
to this proviso is given to Lender together with such documents relating to the
transfer as Lender may reasonably require, (ii) there is a change in Control of
Mortgagor, (iii) in the event that any Person (a “
Principal
Transferee
”) who
does not, as of the Closing Date, own or Control, directly or indirectly, 49% or
more of the partnership or membership, as applicable, interests in Mortgagor
acquires, directly or indirectly, 49% or more of the partnership or membership,
as applicable, interests in Mortgagor, Lender is furnished an opinion, in form
and substance and from counsel reasonably satisfactory to Lender, substantially
similar to the Insolvency Opinion which discusses the substantive
non-consolidation of Mortgagor with the Principal Transferee, (iv) no such
transfer has any adverse effect either on the Single Purpose Entity status of
Mortgagor under the requirements of any Rating Agency or on the status of
Mortgagor as a continuing legal entity liable for the payment of the Debt and
the performance of all other obligations secured hereby, (v) Mortgagor has
delivered a letter from each Rating Agency confirming that any rating issued by
the Rating Agency in connection with a Securitization will not, as a result of
the transfer, be downgraded from the then current ratings thereof, qualified or
withdrawn, (vi) in the event that any Person (together with its Affiliates)
acquires a twenty percent (20%) or greater interest, directly or indirectly, in
Mortgagor or there is a change in Control of Mortgagor, as a result of such
transfer, Lender shall have consented to such transfer in its sole and absolute
discretion.
“
UCC
” shall
mean the Uniform Commercial Code as in effect from time to time in the State in
which the Property is located.
“
Unscheduled
Payments
” shall
mean (a) all Loss Proceeds that Mortgagor has elected or is required to apply to
the repayment of the Debt pursuant to this Security Instrument, the Note or any
other Loan Documents, (b) any funds representing a voluntary or involuntary
principal prepayment and (c) any Net Proceeds.
“
Use
Requirements
” shall
mean any and all building codes, permits, certificates of occupancy or
compliance, laws, regulations, or ordinances (including, without limitation,
health, pollution, fire protection, medical and day-care facilities, waste
product and sewage disposal regulations), restrictions of record, easements,
reciprocal easements, declarations or other agreements affecting the use of the
Property or any part thereof.
“
Welfare
Plan
” shall
mean an employee welfare benefit plan as defined in Section 3(1) of ERISA
established or maintained by Mortgagor, Guarantor or any ERISA Affiliate or that
covers any current or former employee of Mortgagor, Guarantor or any ERISA
Affiliate.
“
Work
” shall
have the meaning set forth in Section 3.04(a)(i) hereof.
ARTICLE
II:
REPRESENTATIONS,
WARRANTIES
AND COVENANTS OF
MORTGAGOR
Section
2.01.
Payment of
Debt
.
Mortgagor will pay the Debt at the time and in the manner provided in the Note
and the other Loan Documents, all in lawful money of the United States of
America in immediately available funds.
Section
2.02.
Representations, Warranties
and Covenants of Mortgagor
.
Mortgagor represents, warrants and covenants to Lender:
(a)
Organization and
Authority
. Each
entity comprising Mortgagor (i) is a limited liability company, general
partnership, limited partnership or corporation, as the case may be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, (ii) has all requisite power and authority
and all necessary licenses and permits to own and operate the Property and to
carry on its business as now conducted and as presently proposed to be conducted
and (iii) is duly qualified, authorized to do business and in good standing in
the jurisdiction where the Property is located and in each other jurisdiction
where the conduct of its business or the nature of its activities makes such
qualification necessary. If Mortgagor is a limited liability company, limited
partnership or general partnership, each general partner or managing member, as
applicable, of Mortgagor which is a corporation is duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation.
(b)
Power
.
Mortgagor and, if applicable, each General Partner has full power and authority
to execute, deliver and perform, as applicable, the Loan Documents to which it
is a party, to make the borrowings thereunder, to execute and deliver the Note
and to grant to Lender a first lien on and security interest in the Property,
subject only to the Permitted Encumbrances.
(c)
Authorization of
Borrowing
. The
execution, delivery and performance of the Loan Documents to which Mortgagor is
a party, the making of the borrowings thereunder, the execution and delivery of
the Note, the grant of the liens on the Property pursuant to the Loan Documents
to which Mortgagor is a party and the consummation of the Loan are within the
powers of Mortgagor and have been duly authorized by Mortgagor and, if
applicable, the General Partners, by all requisite action (and Mortgagor hereby
represents that no approval or action of any member, limited partner or
shareholder, as applicable, of Mortgagor is required to authorize any of the
Loan Documents to which Mortgagor is a party other than such approval or action
that has already been granted or taken) and will constitute the legal, valid and
binding obligation of Mortgagor, enforceable against Mortgagor in accordance
with their terms, except as enforcement may be stayed or limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors’ rights
generally and by general principles of equity (whether considered in proceedings
at law or in equity) and will not (i) violate any provision of its partnership
agreement or partnership certificate or certificate of incorporation or by-laws,
or operating agreement, or articles of organization, as applicable, or, to its
knowledge, any law, judgment, order, rule or regulation of any court,
arbitration panel or other Governmental Authority, domestic or foreign, or other
Person affecting or binding upon Mortgagor or the Property, or (ii) violate any
provision of any indenture, agreement, mortgage, deed of trust, contract or
other instrument to which Mortgagor or, if applicable, any General Partner is a
party or by which any of their respective property, assets or revenues are
bound, or be in conflict with, result in an acceleration of any obligation or a
breach of or constitute (with notice or lapse of time or both) a default or
require any payment or prepayment under, any such indenture, agreement,
mortgage, deed of trust, contract or other instrument, or (iii) result in the
creation or imposition of any lien, except those in favor of Lender as provided
in the Loan Documents to which it is a party. The loan evidenced by the Note is
being made for business or investment purposes.
(d)
Consent
. Neither
Mortgagor nor, if applicable, any General Partner, is required to obtain any
consent, approval or authorization from, or to file any declaration or statement
with, any Governmental Authority or other agency in connection with or as a
condition to the execution, delivery or performance of this Security Instrument,
the Note
or
the other Loan Documents which has not been so obtained or filed.
(e)
Intentionally
Deleted
.
(f)
Other
Agreements
.
Mortgagor is not a party to nor is otherwise bound by any agreements or
instruments which, individually or in the aggregate, are reasonably likely to
have a Material Adverse Effect. Neither Mortgagor nor, if applicable, any
General Partner, is in violation of its organizational documents or other
restriction or any agreement or instrument by which it is bound, or any
judgment, decree, writ, injunction, order or award of any arbitrator, court or
Governmental Authority, or any Legal Requirement, in each case, applicable to
Mortgagor or the Property, except for such violations that would not,
individually or in the aggregate, have a Material Adverse Effect.
(g)
Maintenance of
Existence
.
Mortgagor and, if applicable, General Partner at all times since their formation
have been duly formed and existing and shall preserve and keep in full force and
effect their existence as a Single Purpose Entity.
(ii)
Mortgagor
and, if applicable, General Partner, at all times since their organization have
complied, and will continue to comply, with the provisions of its certificate
and agreement of partnership or certificate of incorporation and by-laws or
articles of organization and operating agreement, as applicable, and the laws of
its jurisdiction of organization relating to partnerships, corporations or
limited liability companies, as applicable.
(iii)
Mortgagor
and, if applicable, General Partner have done or caused to be done and will do
all things necessary to observe organizational formalities and preserve their
existence and each Mortgagor and, if applicable, General Partner will not amend,
modify or otherwise change the certificate and agreement of partnership or
certificate of incorporation and by-laws or articles of organization and
operating agreement, as applicable, or other organizational documents of
Mortgagor and, if applicable, General Partner without the prior written consent
of Lender.
(iv)
Mortgagor
and, if applicable, General Partner, have at all times accurately maintained,
and will continue to accurately maintain, their respective financial statements,
accounting records and other partnership, company or corporate documents
separate from those of any other Person, and Mortgagor will file its own tax
returns or, if Mortgagor and/or, if applicable, General Partner is part of a
consolidated group for purposes of filing tax returns, Mortgagor and General
Partner, as applicable will be shown as separate members of such group.
Mortgagor and, if applicable, General Partner have not at any time since their
formation commingled, and will not commingle, their respective assets with those
of any other Person and will maintain their assets in such a manner such that it
will not be costly or difficult to segregate, ascertain or identify their
individual assets from those of any other Person. Mortgagor and, if applicable,
General Partner will not permit any Affiliate independent access to their bank
accounts. Mortgagor and, if applicable, General Partner have at all times since
their formation accurately maintained and utilized, and will continue to
accurately maintain and utilize, their own separate bank accounts, payroll and
separate books of account, stationery, invoices and checks.
(v)
Mortgagor
and, if applicable, General Partner, have at all times paid, and will continue
to pay, their own liabilities from their own separate assets and shall each
allocate and charge fairly and reasonably any overhead which Mortgagor and, if
applicable, General Partner, shares with any other Person, including, without
limitation, for office space and services performed by any employee of another
Person.
(vi)
Mortgagor
and, if applicable, General Partner, have at all times identified themselves,
and will continue to identify themselves, in all dealings with the public, under
their own names and as separate and distinct entities and shall correct any
known misunderstanding regarding their status as separate and distinct entities.
Mortgagor and, if applicable, General Partner, have not at any time identified
themselves, and will not identify themselves, as being a division of any other
Person.
(vii)
Mortgagor
and, if applicable, General Partner, have been at all times, and will continue
to use commercially reasonable efforts to be, adequately capitalized in light of
the nature of their respective businesses; provided, however, in no event shall
any direct or indirect member, partner or principal of Mortgagor be required to
make additional capital contributions to any Mortgagor.
(viii)
Mortgagor
and, if applicable, General Partner, (A) have not owned, do not own and will not
own any assets or property other than the Property and any incidental personal
property necessary for the ownership, management or operation of the Property,
(B) have not engaged and will not engage in any business other than the
ownership, management and operation of the Property, (C) have not incurred and
will not incur any debt, secured or unsecured, direct or contingent (including
guaranteeing any obligation), other than (X) the Loan, and (Y) unsecured trade
and operational debt which (1) is not evidenced by a note, (2) is incurred in
the ordinary course of the operation of the Property, (3) does not exceed in the
aggregate two percent (2%) of the Allocated Loan Amount for the Property and (4)
which is, unless being contested in accordance with the terms of this Security
Instrument, paid prior to the earlier to occur of the forty-fifth (45th) day
after the date incurred and the date when due, (D) have not and will not pledge
their assets for the benefit of any other Person, and (E) have not made and will
not make any loans or advances to any Person (including any
Affiliate).
(ix)
Neither
Mortgagor nor, if applicable, any General Partner will change its name or
principal place of business without giving Lender at least thirty (30) days
prior written notice thereof.
(x)
Neither
Mortgagor nor, if applicable, any General Partner have, and neither of such
Persons will have, any subsidiaries.
(xi)
Mortgagor
will preserve and maintain its existence as a general partnership, limited
partnership or limited liability company, as applicable as of the Closing Date,
which is organized and existing under the laws of the State in which it is
organized as of the Closing Date and all material rights, privileges, tradenames
and franchises.
(xii)
Neither
Mortgagor, nor, if applicable, any General Partner, will merge or consolidate
with, or sell all or substantially all of its respective assets to any Person,
or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up
or dissolution). Neither any Mortgagor, nor, if applicable, any General Partner
will acquire any business or assets from, or capital stock or other ownership
interest of, or be a party to any acquisition of, any Person.
(xiii)
Mortgagor
and, if applicable, General Partner, have not at any time since their formation
assumed, guaranteed or held themselves out to be responsible for, and will not
assume, guarantee or hold themselves out to be responsible for the liabilities
or the decisions or actions respecting the daily business affairs of their
partners, shareholders or members or any predecessor company, corporation or
partnership, each as applicable, any Affiliates, or any other Persons. Mortgagor
has not at any time since its formation acquired, and will not acquire,
obligations or securities of its partners or shareholders, members or any
predecessor company, corporation or partnership, each as applicable, or any
Affiliates. Mortgagor and, if applicable, General Partner, have not at any time
since their formation made, and will not make, loans to its partners, members or
shareholders or any predecessor company, corporation or partnership, each as
applicable, or any Affiliates of any of such Persons. Mortgagor and, if
applicable, General Partner, have no known contingent liabilities nor do they
have any material financial liabilities under any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which such Person is a
party or by which it is otherwise bound other than under the Loan
Documents.
(xiv)
Mortgagor
has not at any time since its formation entered into and was not a party to,
and, will not enter into or be a party to, any transaction with its Affiliates,
members, partners or shareholders, as applicable, or any Affiliates thereof
except in the ordinary course of business of Mortgagor on terms which are no
less favorable to Mortgagor than would be obtained in a comparable arm’s length
transaction with an unrelated third party.
(xv)
If
Mortgagor is a limited partnership or a limited liability company, the General
Partner shall be a corporation or limited liability company whose sole asset is
its interest in Mortgagor and the General Partner will at all times comply, and
will cause Mortgagor to comply, with each of the representations, warranties,
and covenants contained in this Section 2.02(g) as if such representation,
warranty or covenant was made directly by such General Partner.
(xvi)
Mortgagor
shall at all times cause there to be at least two (2) duly appointed members of
the board of directors or board of managers or other governing board or body, as
applicable (an “
Independent
Director
”), of,
if Mortgagor is a corporation or single member limited liability company formed
in the State of Delaware, Mortgagor, and, if Mortgagor is a limited partnership
or multi-member limited liability company, of the General Partner, reasonably
satisfactory to Lender who shall not have been at the time of such individual’s
appointment, and may not be or have been at any time (A) a shareholder, officer,
director, attorney, counsel, partner, member or employee of Mortgagor or any of
the foregoing Persons or Affiliates thereof, (B) a customer or creditor of, or
supplier or service provider to, Mortgagor or any of its shareholders, partners,
members or their Affiliates, (C) a member of the immediate family of any Person
referred to in (A) or (B) above, D) a Person Controlling, Controlled by or under
common Control with any Person referred to in (A) through (C) above. A natural
person who otherwise satisfies the foregoing definition except for being the
Independent Director of a Single Purpose Entity Affiliated with Mortgagor or
General Partner shall not be disqualified from serving as an Independent
Director if such individual is at the time of initial appointment, or at any
time while serving as the Independent Director, an Independent Director of a
Single Purpose Entity Affiliated with Mortgagor or General Partner if such
individual is an independent director provided by a nationally-recognized
company that provides professional independent directors.
(xvii)
Mortgagor
and, if applicable, General Partner, shall not cause or permit the board of
directors or board of managers or other governing board or body, as applicable,
of each Mortgagor or, if applicable, General Partner, to take any action which,
under the terms of any certificate of incorporation, by-laws or articles of
organization with respect to any common stock, requires a unanimous vote of the
board of directors of Mortgagor, or, if applicable, the General Partner, unless
at the time of such action there shall be at least two members who are
Independent Directors.
(xviii)
Mortgagor
and, if applicable, General Partner shall pay the salaries of their own
employees and maintain a sufficient number of employees in light of their
contemplated business operations.
(xix)
Mortgagor
shall, and shall cause its Affiliates to, conduct its business so that the
assumptions made with respect to Mortgagor in that certain opinion letter
relating to substantive non-consolidation dated the date hereof (the
“
Insolvency
Opinion
”)
delivered in connection with the Loan shall be true and correct in all
respects.
(h)
No
Defaults
. No
Default or Event of Default has occurred and is continuing or would occur as a
result of the consummation of the transactions contemplated by the Loan
Documents. To the best of Mortgagor’s knowledge, Mortgagor is not in default
beyond any applicable notice and/or grace periods in the payment or performance
of any of its Contractual Obligations in any respect.
(i)
Consents and
Approvals
.
Mortgagor and, if applicable, each General Partner, have obtained or made all
necessary (i) consents, approvals and authorizations, and registrations and
filings of or with all Governmental Authorities and (ii) consents,
approvals, waivers and notifications of partners, stockholders, creditors,
lessors and other nongovernmental Persons, in each case, which are required to
be obtained or made by Mortgagor or, if applicable, the General Partner, in
connection with the execution and delivery of, and the performance by Mortgagor
of its obligations under, the Loan Documents.
(j)
Investment Company Act
Status, etc
.
Mortgagor is not (i) an “investment company,” or a company “controlled” by an
“investment company,” as such terms are defined in the Investment Company Act of
1940, as amended, or (ii) subject to any other federal or state law or
regulation which purports to restrict or regulate its ability to borrow
money.
(k)
Compliance with
Law
. (i)
Except as previously disclosed to Lender in writing, Mortgagor has received no
notice of violation of any Legal Requirements and (ii) except for such
violations which would not, individually or in the aggregate, have a Material
Adverse Effect, Mortgagor is in compliance in all material respects with all
Legal Requirements to which it or the Property is subject, including, without
limitation, all Environmental Statutes, the Occupational Safety and Health Act
of 1970, the Americans with Disabilities Act and ERISA. No portion of the
Property has been or will be purchased, improved, fixtured, equipped or
furnished with proceeds of any illegal activity and to the best of Mortgagor’s
knowledge, no illegal activities are being conducted at or from the
Property.
(l)
Financial
Information
. To the
best of Mortgagor’s knowledge, all financial data that has been delivered by
Mortgagor to Lender (i) is true, complete and correct in all material respects,
(ii) accurately represents the financial condition and results of operations of
the Persons covered thereby as of the date on which the same shall have been
furnished in all material respects, and (iii) to the extent prepared by an
independent certified public accounting firm, has been prepared in accordance
with GAAP (or such other accounting basis as is reasonably acceptable to Lender)
throughout the periods covered thereby except as disclosed therein. As of the
date hereof, neither Mortgagor nor, if applicable, any General Partner, has any
contingent liability, liability for taxes or other unusual or forward commitment
not reflected in such financial statements delivered to Lender. Since the date
of the last financial statements delivered by Mortgagor to Lender except as
otherwise disclosed in such financial statements or notes thereto, there has
been no change in the assets, liabilities or financial position of Mortgagor
nor, if applicable, any General Partner, or in the results of operations of
Mortgagor which would have a Material Adverse Effect. Neither Mortgagor nor, if
applicable, any General Partner, has incurred any obligation or liability,
contingent or otherwise not reflected in such financial statements which would
have a Material Adverse Effect.
(m)
Transaction Brokerage
Fees
. Neither
Mortgagor nor Lender have dealt with any financial advisors, brokers,
underwriters, placement agents, agents or finders in connection with the
transactions contemplated by this Security Instrument.
MORTGAGOR HEREBY AGREES TO INDEMNIFY
AND HOLD LENDER HARMLESS FOR, FROM AND AGAINST ANY AND ALL CLAIMS, LIABILITIES,
COSTS AND EXPENSES OF ANY KIND IN ANY WAY RELATING TO OR ARISING FROM (I) A
CLAIM BY ANY PERSON THAT SUCH PERSON ACTED ON BEHALF OF MORTGAGOR IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED HEREIN OR (II) ANY BREACH OF THE FOREGOING
REPRESENTATION. THE PROVISIONS OF THIS SUBSECTION (M) SHALL SURVIVE THE
REPAYMENT OF THE DEBT.
(n)
Federal Reserve
Regulations
. No part
of the proceeds of the Loan will be used for the purpose of purchasing or
acquiring any “margin stock” within the meaning of Regulations T, U or X of the
Board of Governors of the Federal Reserve System or for any other purpose which
would be inconsistent with such Regulations T, U or X or any other Regulations
of such Board of Governors, or for any purposes prohibited by Legal Requirements
or by the terms and conditions of the Loan Documents.
(o)
Pending
Litigation
. Except
as previously disclosed in writing to Lender, there are no actions, suits or
proceedings pending or, to the knowledge of Mortgagor, threatened against or
affecting Mortgagor or the Property in any court or before any Governmental
Authority which if adversely determined either individually or collectively has
or is reasonably likely to have a Material Adverse Effect.
(p)
Solvency; No
Bankruptcy
.
Mortgagor and, if applicable, the General Partner, (i) is and has at all times
been Solvent and will remain Solvent immediately upon the consummation of the
transactions contemplated by the Loan Documents and (ii) is free from
bankruptcy, reorganization or arrangement proceedings or a general assignment
for the benefit of creditors and is not contemplating the filing of a petition
under any state or federal bankruptcy or insolvency laws or the liquidation of
all or a major portion of such Person’s assets or property and Mortgagor has no
knowledge of any Person contemplating the filing of any such petition against it
or, if applicable, the General Partner. None of the transactions contemplated
hereby will be or have been made with an intent to hinder, delay or defraud any
present or future creditors of Mortgagor and Mortgagor has received reasonably
equivalent value in exchange for its obligations under the Loan Documents.
Mortgagor’s assets do not, and immediately upon consummation of the transaction
contemplated in the Loan Documents will not, constitute unreasonably small
capital to carry out its business as presently conducted or as proposed to be
conducted. Mortgagor does not intend to, nor believe that it will, incur debts
and liabilities beyond its ability to pay such debts as they may
mature.
(q)
Use of
Proceeds
. The
proceeds of the Loan shall be applied by Mortgagor to,
inter
alia
, (i)
satisfy certain secured loans presently encumbering all or a part of the
Property and (ii) pay certain transaction costs incurred by Mortgagor in
connection with the Loan. No portion of the proceeds of the Loan will be used by
Mortgagor for family, personal, agricultural or household use.
(r)
Tax
Filings
.
Mortgagor and, if applicable, each General Partner, have filed all federal,
state and local tax returns required to be filed and have paid or made adequate
provision for the payment of all federal, state and local taxes, charges and
assessments payable by Mortgagor and, if applicable, each General Partner.
Mortgagor and, if applicable, each General Partner, believe that their
respective tax returns properly reflect the income and taxes of Mortgagor and
said General Partner, if any, for the periods covered thereby, subject only to
reasonable adjustments required by the Internal Revenue Service or other
applicable tax authority upon audit.
(s)
Not Foreign
Person
.
Mortgagor is not a “foreign person” within the meaning of §1445(f)(3) of the
Code.
(t)
ERISA
.
(i)
The
assets of Mortgagor and Guarantor are not and will not become treated as “plan
assets”, whether by operation of law or under regulations promulgated under
ERISA. Each Plan and Welfare Plan, and, to the knowledge of Mortgagor, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, its terms and the
applicable provisions of ERISA, the Code and any other applicable Legal
Requirement, and no event or condition has occurred and is continuing as to
which Mortgagor would be under an obligation to furnish a report to Lender under
clause (ii)(A) of this Section. Other than an application for a favorable
determination letter with respect to a Plan, there are no pending issues or
claims before the Internal Revenue Service, the United States Department of
Labor or any court of competent jurisdiction related to any Plan or Welfare Plan
under which Mortgagor, Guarantor or any ERISA Affiliate, directly or indirectly
(through an indemnification agreement or otherwise), could be subject to any
material risk of liability under Section 409 or 502(i) of ERISA or Section 4975
of the Code. No Welfare Plan provides or will provide benefits, including,
without limitation, death or medical benefits (whether or not insured) with
respect to any current or former employee of Mortgagor, Guarantor or any ERISA
Affiliate beyond his or her retirement or other termination of service other
than (A) coverage mandated by applicable law, (B) death or disability benefits
that have been fully provided for by fully paid up insurance or (C) severance
benefits.
(ii)
Mortgagor
will furnish to Lender as soon as possible, and in any event within ten (10)
days after Mortgagor knows or has reason to believe that any of the events or
conditions specified below with respect to any Plan, Welfare Plan or
Multiemployer Plan has occurred or exists, an Officer’s Certificate setting
forth details respecting such event or condition and the action, if any, that
Mortgagor or its ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to PBGC (or any
other relevant Governmental Authority)) by Mortgagor or an ERISA Affiliate with
respect to such event or condition, if such report or notice is required to be
filed with the PBGC or any other relevant Governmental Authority:
(A)
any
reportable event, as defined in Section 4043 of ERISA and the regulations issued
thereunder, with respect to a Plan, as to which PBGC has not by regulation
waived the requirement of Section 4043(a) of ERISA that it be notified within
thirty (30) days of the occurrence of such event (provided that a failure to
meet the minimum funding standard of Section 412 of the Code and of Section 302
of ERISA, including, without limitation, the failure to make on or before its
due date a required installment under Section 412(m) of the Code and of Section
302(e) of ERISA, shall be a reportable event regardless of the issuance of any
waivers in accordance with Section 412(d) of the Code), and any request for a
waiver under Section 412(d) of the Code for any Plan;
(B)
the
distribution under Section 4041 of ERISA of a notice of intent to terminate any
Plan or any action taken by Mortgagor or an ERISA Affiliate to terminate any
Plan;
(C)
the
institution by PBGC of proceedings under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or the
receipt by Mortgagor or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by PBGC with respect to such Multiemployer
Plan;
(D)
the
complete or partial withdrawal from a Multiemployer Plan by Mortgagor or any
ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a result of a
purchaser default) or the receipt by Mortgagor or any ERISA Affiliate of notice
from a Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA;
(E)
the
institution of a proceeding by a fiduciary of any Multiemployer Plan against
Mortgagor or any ERISA Affiliate to enforce Section 515 of ERISA, which
proceeding is not dismissed within thirty (30) days;
(F)
the
adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the
Code or Section 307 of ERISA, would result in the loss of tax-exempt status of
the trust of which such Plan is a part if Mortgagor or an ERISA Affiliate fails
to timely provide security to the Plan in accordance with the provisions of said
Sections; or
(G)
the
imposition of a lien or a security interest in connection with a
Plan.
(iii)
Mortgagor
shall not knowingly engage in or permit any transaction in connection with which
Mortgagor, Guarantor or any ERISA Affiliate could be subject to either a civil
penalty or tax assessed pursuant to Section 502(i) or 502(l) of ERISA or Section
4975 of the Code, permit any Welfare Plan to provide benefits, including without
limitation, medical benefits (whether or not insured), with respect to any
current or former employee of Mortgagor, Guarantor or any ERISA Affiliate beyond
his or her retirement or other termination of service other than
(A) coverage mandated by applicable law, (B) death or disability benefits
that have been fully provided for by paid up insurance or otherwise or (C)
severance benefits, permit the assets of Mortgagor or Guarantor to become “plan
assets”, whether by operation of law or under regulations promulgated under
ERISA or adopt, amend (except as may be required by applicable law) or increase
the amount of any benefit or amount payable under, or permit any ERISA Affiliate
to adopt, amend (except as may be required by applicable law) or increase the
amount of any benefit or amount payable under, any employee benefit plan
(including, without limitation, any employee welfare benefit plan) or other
plan, policy or arrangement, except for normal increases in the ordinary course
of business consistent with past practice that, in the aggregate, do not result
in a material increase in benefits expense to Mortgagor, Guarantor or any ERISA
Affiliate.
(u)
Labor
Matters
. No
organized work stoppage or labor strike is pending or, to Mortgagor’s best
knowledge, threatened by employees or other laborers at the Property and neither
Mortgagor nor Manager (i) is involved in or, to the best of their knowledge,
threatened with any labor dispute, grievance or litigation relating to labor
matters involving any employees and other laborers at the Property, including,
without limitation, violation of any federal, state or local labor, safety or
employment laws (domestic or foreign) and/or charges of unfair labor practices
or discrimination complaints; (ii) has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act or the Railway Labor Act;
or (iii) is a party to, or bound by, any collective bargaining agreement or
union contract with respect to employees and other laborers at the Property and
no such agreement or contract is currently being negotiated by Mortgagor,
Manager or any of their Affiliates.
(v)
Mortgagor’s Legal
Status
.
Mortgagor’s exact legal name that is indicated on the signature page hereto,
organizational identification number and place of business or, if more than one,
its chief executive office, as well as Mortgagor’s mailing address, if
different, which were identified by Mortgagor to Lender and contained in this
Security Instrument, are true, accurate and complete. Mortgagor (i) will not
change its name, its place of business or, if more than one place of business,
its chief executive office, or its mailing address or organizational
identification number if it has one without giving Lender at least thirty (30)
days prior written notice of such change, (ii) if Mortgagor does not have an
organizational identification number and later obtains one, Mortgagor shall
promptly notify Lender of such organizational identification number and (iii)
Mortgagor will not change its type of organization, jurisdiction of organization
or other legal structure.
(w)
Compliance with
Anti-Terrorism, Embargo and Anti-Money Laundering Laws
. (i)
None of Mortgagor, General Partner, any Guarantor, or any Person who owns any
equity interest in or Controls Mortgagor, General Partner or any Guarantor
currently is identified on the OFAC List or otherwise qualifies as a Prohibited
Person, and Mortgagor has implemented procedures, approved by General Partner,
to ensure that no Person who now or hereafter owns an equity interest in
Mortgagor or General Partner is a Prohibited Person or Controlled by a
Prohibited Person, and (ii) none of Mortgagor, General Partner, or any Guarantor
are in violation of any Legal Requirements relating to anti-money laundering or
anti-terrorism, including, without limitation, Legal Requirements related to
transacting business with Prohibited Persons or the requirements of the Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001, U.S. Public Law 107-56, and the related
regulations issued thereunder, including temporary regulations, all as amended
from time to time. To the best of Mortgagor’s knowledge, no tenant at the
Property currently is identified on the OFAC List or otherwise qualifies as a
Prohibited Person, and, to the best of Mortgagor’s knowledge, no tenant at the
Property is owned or Controlled by a Prohibited Person. Mortgagor has
implemented procedures to ensure that no tenant at the Property is a Prohibited
Person or owned or Controlled by a Prohibited Person.
Section
2.03.
Further Acts,
etc
.
Mortgagor will, at the cost of Mortgagor, and without expense to Lender, do,
execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, mortgages, deeds of trust or deeds to secure debt, as applicable,
assignments, notices of assignments, transfers and assurances as Lender shall,
from time to time, reasonably require for the better assuring, conveying,
assigning, transferring, and confirming unto Lender the property and rights
hereby mortgaged, given, granted, bargained, sold, alienated, enfeoffed,
conveyed, confirmed, pledged, assigned and hypothecated, or which Mortgagor may
be or may hereafter become bound to convey or assign to Lender, or for carrying
out or facilitating the performance of the terms of this Security Instrument or
for filing, registering or recording this Security Instrument and, on demand,
will execute and deliver and hereby authorizes Lender to execute in the name of
Mortgagor or without the signature of Mortgagor to the extent Lender may
lawfully do so, one or more financing statements, chattel mortgages or
comparable security instruments to evidence more effectively the lien hereof
upon the Property. Mortgagor grants to Lender an irrevocable power of attorney
coupled with an interest for the purpose of protecting, perfecting, preserving
and realizing upon the interests granted pursuant to this Security Instrument
and to effect the intent hereof, all as fully and effectually as Mortgagor might
or could do; and Mortgagor hereby ratifies all that Lender shall lawfully do or
cause to be done by virtue hereof; provided that Lender shall not exercise such
power of attorney unless and until Mortgagor fails to take the required action
within five (5) Business Days of demand unless the failure to so exercise it
could, in Lender’s reasonable judgment, result in a Material Adverse Effect.
Upon receipt of an affidavit of an officer of Lender as to the loss, theft,
destruction or mutilation of the Note or any other Loan Document which is not of
public record, and, in the case of any such mutilation, upon surrender and
cancellation of such Note or other applicable Loan Document, Mortgagor will
issue, in lieu thereof, a replacement Note or other applicable Loan Document,
dated the date of such lost, stolen, destroyed or mutilated Note or other Loan
Document in the same principal amount thereof and otherwise of like
tenor.
Section
2.04.
Recording of Security
Instrument, etc
.
Mortgagor forthwith upon the execution and delivery of this Security Instrument
and thereafter, at the request of Lender, from time to time, will cause this
Security Instrument, and any security instrument creating a lien or security
interest or evidencing the lien hereof upon the Property and each instrument of
further assurance to be filed, registered or recorded in such manner and in such
places as may be required by any present or future law in order to publish
notice of and fully perfect and protect the lien or security interest hereof
upon, and the interest of Lender in, the Property. Mortgagor will pay all
filing, registration or recording fees, and all expenses incident to the
preparation, execution and acknowledgment of this Security Instrument, any
mortgage, deed of trust or deed to secure debt, as applicable, supplemental
hereto, any security instrument with respect to the Property and any instrument
of further assurance, and all federal, state, county and municipal taxes,
duties, imposts, assessments and charges imposed on, or arising out of or in
connection with the execution, delivery and recording of this Security
Instrument, any mortgage, deed of trust or deed to secure debt, as applicable,
supplemental hereto, any security instrument with respect to the Property or any
instrument of further assurance, except where prohibited by law to do so, in
which event Lender may declare the Debt to be immediately due and payable.
Mortgagor shall hold harmless and indemnify Lender, and its successors and
assigns, against any liability incurred as a result of the imposition of any tax
on the making and recording of this Security Instrument.
Section
2.05.
Representations and
Warranties as to the Property
.
Mortgagor represents and warrants with respect to the Property as
follows:
(a)
Lien Priority and
Perfection
. This
Security Instrument is a valid and enforceable (and, upon recordation in the
Official Records, will be a perfected) first lien on the Property, free and
clear of all encumbrances, security interests, and liens having priority over
the lien and security interest of this Security Instrument, except for the items
set forth as exceptions to or subordinate matters in the title insurance policy
insuring the lien of this Security Instrument, none of which, individually or in
the aggregate, materially interfere with the benefits of the security intended
to be provided by this Security Instrument, materially affect the value or
insurability of the Property, impair the use or operation of the Property for
the use currently being made thereof or impair Mortgagor’s ability to pay its
obligations in a timely manner (such items being the “
Permitted
Encumbrances
”).
(b)
Title
.
Mortgagor has, subject only to the Permitted Encumbrances, good, insurable and
marketable fee simple title to the Premises, Improvements and Fixtures
(collectively, the “
Realty
”) and to
all easements and rights benefiting the Realty and has the right, power and
authority to mortgage, encumber, give, grant, bargain, sell, alien, enfeoff,
convey, confirm, pledge, assign, and hypothecate the Property. Subject to
Permitted Encumbrances, Mortgagor will preserve its interest in and title to the
Property and will forever warrant and defend the same to Lender against any and
all claims made by, through or under Mortgagor and will forever warrant and
defend the validity and priority of the lien and security interest created
herein against the claims of all Persons whomsoever claiming by, through or
under Mortgagor. The foregoing warranty of title shall survive the foreclosure
of this Security Instrument and shall inure to the benefit of and be enforceable
by Lender in the event Lender acquires title to the Property pursuant to any
foreclosure. In addition, there are no outstanding options or rights of first
refusal to purchase the Property or Mortgagor’s ownership thereof.
(c)
Taxes and
Impositions
. Other
than those being contested in accordance herewith, all taxes and other
Impositions and governmental assessments due and owing and not delinquent in
respect of, and affecting, the Property have been paid. Other than those being
contested in accordance herewith, Mortgagor has paid all Impositions which
constitute special governmental assessments in full, except for those
assessments which are permitted by applicable Legal Requirements to be paid in
installments, in which case all installments which are due and payable have been
paid in full. There are no pending, or to Mortgagor’s best knowledge, proposed
special or other assessments for public improvements or otherwise affecting the
Property, nor are there any contemplated improvements to the Property that may
result in such special or other assessments.
(d)
Casualty; Flood
Zone
. Except
as set forth in the Engineering Report and Environmental Report, the Realty is
in good repair and free and clear of any damage, destruction or casualty
(whether or not covered by insurance) that would materially affect the value of
the Realty or the use for which the Realty was intended, there exists no
structural or other material defects or damages in or to the Property and
Mortgagor has not received any written notice from any insurance company or
bonding company of any material defect or inadequacies in the Property, or any
part thereof, which would materially and adversely affect the insurability of
the same or cause the imposition of extraordinary premiums or charges thereon or
of any termination or threatened termination of any policy of insurance or bond.
No portion of the Premises is located in an “area of special flood hazard,” as
that term is defined in the regulations of the Federal Insurance Administration,
Department of Housing and Urban Development, under the National Flood Insurance
Act of 1968, as amended (24 CFR § 1909.1) or Mortgagor has obtained the
flood insurance required by Section 3.01(a)(vi) hereof. The Premises either does
not lie in a 100 year flood plain that has been identified by the Secretary of
Housing and Urban Development or any other Governmental Authority or, if it
does, Mortgagor has obtained the flood insurance required by Section 3.01(a)(vi)
hereof.
(e)
Completion;
Encroachment
. All
Improvements necessary for the efficient use and operation of the Premises,
including, without limitation, all Improvements which were included for purposes
of determining the appraised value of the Property in the Appraisal, have been
completed and none of said Improvements lie outside the boundaries and building
restriction lines of the Premises. Except as set forth in the title insurance
policy insuring the lien of this Security Instrument, no improvements on
adjoining properties encroach upon the Premises.
(f)
Separate
Lot
. The
Premises are taxed separately without regard to any other real estate and
constitute a legally subdivided lot under all applicable Legal Requirements (or,
if not subdivided, no subdivision or platting of the Premises is required under
applicable Legal Requirements), and for all purposes may be mortgaged,
encumbered, conveyed or otherwise dealt with as an independent parcel. Except as
previously disclosed in writing to Lender, the Property does not benefit from
any tax abatement or exemption.
(g)
Use
. To the
best of Mortgagor’s knowledge, the existence of all Improvements, the present
use and operation thereof and the access of the Premises and the Improvements to
all of the utilities and other items referred to in paragraph (k) below are in
compliance in all material respects with all Leases affecting the Property and
all applicable Legal Requirements, including, without limitation, Environmental
Statutes, Development Laws and Use Requirements. Mortgagor has not received any
notice from any Governmental Authority alleging any uncured violation relating
to the Property of any applicable Legal Requirements. There will be no
residential use of the Property.
(h)
Licenses and
Permits
.
Mortgagor currently holds and will continue to hold all certificates of
occupancy, licenses, registrations, permits, consents, franchises and approvals
of any Governmental Authority or any other Person which are material for the
lawful occupancy and operation of the Realty or which are material to the
ownership or operation of the Property or the conduct of Mortgagor’s business.
All such certificates of occupancy, licenses, registrations, permits, consents,
franchises and approvals are current and in full force and effect.
(i)
Environmental
Matters
.
Mortgagor has received and reviewed the Environmental Report and has no reason
to believe that the Environmental Report contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained therein or herein, in light of the circumstances under which such
statements were made, not misleading.
(j)
Property
Proceedings
. Other
than as previously disclosed in writing by Mortgagor to Lender, there are no
actions, suits or proceedings pending or, to Mortgagor’s knowledge, threatened
in any court or before any Governmental Authority or arbitration board or
tribunal (i) relating to (A) the zoning of the Premises or any part
thereof, (B) any certificates of occupancy, licenses, registrations,
permits, consents or approvals issued with respect to the Property or any part
thereof, (C) the condemnation of the Property or any part thereof, or
(D) the condemnation or relocation of any roadways abutting the Premises
required for access or the denial or limitation of access to the Premises or any
part thereof from any point of access to the Premises, (ii) asserting that
(A) any such zoning, certificates of occupancy, licenses, registrations,
permits, consents and/or approvals do not permit the operation of any material
portion of the Realty as presently being conducted, (B) any material
improvements located on the Property or any part thereof cannot be located
thereon or operated with their intended use or (C) the operation of the
Property or any part thereof is in violation in any material respect of any
Environmental Statutes, Development Laws or other Legal Requirements or Space
Leases or Property Agreements or (iii) which might (A) affect the validity or
priority of any Loan Document or (B) have a Material Adverse
Effect.
(k)
Utilities
. The
Premises has rights of access to water, gas and/or electrical supply, storm and
sanitary sewerage facilities, other required public utilities (with respect to
each of the aforementioned items, by means of either a direct connection to the
source of such utilities or through connections available on publicly dedicated
roadways directly abutting the Premises or through permanent insurable easements
benefiting the Premises), fire and police protection, parking, and means of
direct access between the Premises and public highways over recognized curb cuts
(or such access to public highways is through private roadways which may be used
for ingress and egress pursuant to permanent insurable easements).
(l)
Mechanics’
Liens
. The
Property is free and clear of any mechanics’ liens or liens in the nature
thereof, and no rights are outstanding that under law could give rise to any
such liens, any of which liens are or may be prior to, or equal with, the lien
of this Security Instrument, except those which are insured against by the title
insurance policy insuring the lien of this Security Instrument. No stop notices
have been served with respect to any work, labor or materials furnished to or
for the benefit of the Property or any portion thereof, and no disputes
currently exist with respect to any of such matters.
(m)
Title
Insurance
. Lender
has received a lenders’ commitment to issue a title insurance policy insuring
this Security Instrument as a first lien on the Realty subject only to Permitted
Encumbrances.
(n)
Insurance
. The
Property is insured in accordance with the requirements set forth in Article III
hereof.
(o)
Space
Leases
.
(i)
Mortgagor
has delivered a true, correct and complete schedule of all Space Leases as of
the date hereof, which accurately and completely sets forth in all material
respects, for each such Space Lease, the following (collectively, the “Rent
Roll”): the name and address of the tenant with the lease expiration date,
extension and renewal options; the base rent and percentage rent payable; all
additional rent and pass through obligations; and the security deposit held
thereunder and the location of such deposit.
(ii)
Each
Space Lease constitutes the legal, valid and binding obligation of Mortgagor
and, to the knowledge of Mortgagor, is enforceable against the tenant thereof.
Except as set forth on the Rent Roll
or in any
estoppel certificate delivered to Lender
, no
default exists, or with the passing of time or the giving of notice would exist
by Mortgagor or, to the best of Mortgagor’s knowledge, by any tenant at the
Property, (A) under any Major Space Lease or (B) under any other Space Leases
which would, in the aggregate, have a Material Adverse Effect.
(iii)
Except as
disclosed to Lender and to the best of Mortgagor’s knowledge, no tenant under
any Space Lease has, as of the date hereof, paid Rent more than thirty (30) days
in advance, and the Rents under such Space Leases have not been waived,
released, or otherwise discharged or compromised.
(iv)
Except as
set forth on the Rent Roll or previously disclosed in writing to Lender, all
material work to be performed by Mortgagor under the Space Leases has been
substantially performed, all contributions to be made by Mortgagor to the
tenants thereunder have been made except for any held-back amounts, and all
other conditions precedent to each such tenant’s obligations thereunder have
been satisfied.
(v)
Except as
previously disclosed to Lender in writing or in the Space Leases provided to
Lender, there are no options to terminate any Space Lease.
(vi)
Except as
previously disclosed in writing to Lender, each tenant under a Major Space Lease
has entered into occupancy of the demised premises to the extent required under
the terms of its Major Space Lease, and each such tenant is open and conducting
business with the public in the demised premises. Except as previously disclosed
in writing to Lender, to the best knowledge of Mortgagor, after due inquiry,
each tenant under a Lease other than a Major Space Lease has entered into
occupancy of its demised premises under its Lease to the extent required under
the terms of its Lease and each such tenant is open and conducting business with
the public in the demised premises.
(vii)
Mortgagor
has delivered to Lender true, correct and complete copies of all Space Leases
described in the Rent Roll.
(viii)
Each
Space Lease is in full force and effect and (except as disclosed on the Rent
Roll or in any estoppel certificate delivered to Lender) has not been assigned,
modified, supplemented or amended in any way.
(ix)
Except as
set forth on the Rent Roll, each tenant under each Space Lease is free from
bankruptcy, reorganization or arrangement proceedings or a general assignment
for the benefit of creditors.
(x)
No Space
Lease provides any party with the right to obtain a lien or encumbrance upon the
Property superior to the lien of this Security Instrument or to subject to the
Property to any mechanics lien.
(p)
Property
Agreements
.
(i)
Mortgagor
has delivered to Lender true, correct and complete copies of all Property
Agreements.
(ii)
No
Property Agreement provides any party with the right to obtain a lien or
encumbrance upon the Property superior to the lien of this Security
Instrument.
(iii)
To the
best of Mortgagor’s knowledge, no default exists or with the passing of time or
the giving of notice or both would exist under any Property Agreement which
would, individually or in the aggregate, have a Material Adverse
Effect.
(iv)
Mortgagor
has not received or given any written communication which alleges that a default
exists or, with the giving of notice or the lapse of time, or both, would exist
under the provisions of any Property Agreement.
(v)
No
condition exists whereby Mortgagor or any future owner of the Property may be
required to purchase any other parcel of land which is subject to any Property
Agreement or which gives any Person a right to purchase, or right of first
refusal with respect to, the Property.
(vi)
To the
best knowledge of Mortgagor, no offset or any right of offset exists respecting
continued contributions to be made by any party to any Property Agreement except
as expressly set forth therein. Except as previously disclosed to Lender in
writing, no material exclusions or restrictions on the utilization, leasing or
improvement of the Property (including non-compete agreements) exists in any
Property Agreement.
(vii)
All
“pre-opening” requirements contained in all Property Agreements (including, but
not limited to, all off-site and on-site construction requirements), if any,
have been fulfilled, and, to the best of Mortgagor’s knowledge, no condition now
exists whereby any party to any such Property Agreement could refuse to honor
its obligations thereunder.
(viii)
Except as
previously disclosed in writing to Lender, all work, if any, to be performed by
Mortgagor under each of the Property Agreements has been substantially
performed, all contributions to be made by Mortgagor to any party to such
Property Agreements have been made, and all other material conditions to such
party’s obligations thereunder have been satisfied.
(q)
Personal
Property
.
Mortgagor has delivered to Lender a true, correct and complete schedule of all
personal property, if any, owned by Mortgagor and located upon the Realty or
used in connection with the use or operation of the Realty and Mortgagor
represents that it has good and marketable title to all such personal property,
free and clear of any liens or security interests, except for liens and security
interests created under the Loan Documents, liens and security interests
otherwise disclosed to Lender in writing and disclosed in the title insurance
policy insuring the lien of this Security Instrument, and liens and security
interests which describe the equipment and other personal property owned by
tenants.
(r)
Leasing Brokerage and
Management Fees
. Except
as previously disclosed to Lender in writing, there are no brokerage fees or
commissions payable by Mortgagor with respect to the leasing of space at the
Property and there are no management fees payable by Mortgagor with respect to
the management of the Property.
(s)
Security
Deposits
. All
security deposits with respect to the Property on the date hereof have been
transferred to the Security Deposit Account on the date hereof, and Mortgagor is
in compliance with all Legal Requirements relating to such security deposits as
to which failure to comply might, individually or in the aggregate, have a
Material Adverse Effect.
(t)
Appraisal
.
Mortgagor has no knowledge that any of the facts or assumptions on which the
Appraisal was based are false or incomplete in any material respect and has no
information that would reasonably suggest that the fair market value determined
in the Appraisal does not reflect the actual fair market value of the
Property.
(u)
Representations
Generally
. No
representation, warranty or statement of fact made by or on behalf of Mortgagor
in this Security Instrument or in any certificate, document or schedule
furnished to Lender pursuant hereto, contains any untrue statement of a material
fact or omits to state any material fact necessary to make statements contained
therein or herein not misleading (which may be to Mortgagor’s best knowledge
where so provided herein). There are no facts presently known to Mortgagor which
have not been disclosed to Lender which would, individually or in the aggregate,
have a Material Adverse Effect nor as far as Mortgagor can foresee might,
individually or in the aggregate, have a Material Adverse Effect.
Section
2.06.
Removal of
Lien
.
(a)
Mortgagor shall, at its expense, maintain this Security Instrument as a first
lien on the Property and shall keep the Property free and clear of all liens and
encumbrances of any kind and nature other than the Permitted Encumbrances.
Mortgagor shall, within thirty (30) days following receipt of notice of the
filing thereof, promptly discharge of record, by bond or otherwise, any such
liens and, promptly upon request by Lender, shall deliver to Lender evidence
reasonably satisfactory to Lender of the discharge thereof.
(b)
Without
limitation to the provisions of Section 2.06(a) hereof, Mortgagor shall (i) pay,
from time to time when the same shall become due, all claims and demands of
mechanics, materialmen, laborers, and others which, if unpaid, might result in,
or permit the creation of, a lien on the Property or any part thereof, (ii)
cause to be removed of record (by payment or posting of bond or settlement or
otherwise) any mechanics’, materialmens’, laborers’ or other lien on the
Property, or any part thereof, or on the revenues, rents, issues, income or
profit arising therefrom, and (iii) in general, do or cause to be done, without
expense to Lender, everything reasonably necessary to preserve in full the lien
of this Security Instrument. If Mortgagor fails to comply with the requirements
of this Section 2.06(b), then, upon ten (10) Business Days’ prior notice to
Mortgagor, Lender may, but shall not be obligated to, pay any such lien, and
Mortgagor shall, within ten (10) Business Days after Lender’s demand therefor,
reimburse Lender for all sums so expended, together with interest thereon at the
Default Rate from the date advanced, all of which shall be deemed part of the
Debt. Nothing contained herein shall be deemed a consent or request of Lender,
express or implied, by inference or otherwise, to the performance of any
alteration, repair or other work by any contractor, subcontractor or laborer or
the furnishing of any materials by any materialmen in connection
therewith.
(c)
Notwithstanding
the foregoing, Mortgagor may contest any lien (other than a lien relating to
non-payment of Impositions, the contest of which shall be governed by Section
4.04 hereof) of the type set forth in subparagraph (b)(ii) of this Section 2.06
provided that, following prior notice to Lender (i) Mortgagor is contesting the
validity of such lien with due diligence and in good faith and by appropriate
proceedings, without cost or expense to Lender or any of its agents, employees,
officers, or directors, (ii) Mortgagor shall preclude the collection of, or
other realization upon, any contested amount from the Property or any revenues
from or interest in the Property, (iii) neither the Property nor any part
thereof nor interest therein, shall be in any danger of being sold, forfeited or
lost by reason of such contest by Mortgagor, (iv) such contest by Mortgagor
shall not affect the ownership, use or occupancy of the Property, (v) such
contest by Mortgagor shall not subject Lender or Mortgagor to the risk of civil
or criminal liability (other than the civil liability of Mortgagor for the
amount of the lien in question), (vi) such lien is subordinate to the lien of
this Security Instrument, (vii) Mortgagor has not consented to such lien, (viii)
Mortgagor has given Lender prompt notice of the filing of such lien and, upon
request by Lender from time to time, notice of the status of such contest by
Mortgagor and/or confirmation of the continuing satisfaction of the conditions
set forth in this Section 2.06(c), (ix) Mortgagor shall promptly pay the
obligation secured by such lien upon a final determination of Mortgagor’s
liability therefor, and (x) Mortgagor shall deliver written notice of its intent
to contest such lien at least thirty (30) days before commencing such contest
and also shall deliver to Lender, if requested by Lender, cash, a bond or other
security acceptable to Lender equal to 125% of the contested amount pursuant to
collateral arrangements reasonably satisfactory to Lender.
Section
2.07.
Cost of Defending and
Upholding this Security Instrument Lien
. If any
action or proceeding is commenced to which Lender is made a party relating to
the Loan Documents and/or the Property or Lender’s interest therein or in which
it becomes necessary to defend or uphold the lien of this Security Instrument or
any other Loan Document, Mortgagor shall, on demand, reimburse Lender for all
expenses (including, without limitation, reasonable attorneys’ fees and
disbursements) incurred by Lender in connection therewith, and such sum,
together with interest thereon at the Default Rate from and after such demand
until fully paid, shall constitute a part of the Debt.
Section
2.08.
Use of the
Property
.
Mortgagor will use, or cause to be used, the Property for such use as is
permitted pursuant to applicable Legal Requirements including, without
limitation, under the certificate of occupancy applicable to the Property, and
which is required by the Loan Documents. Mortgagor shall not suffer or permit
the Property or any portion thereof to be used by the public, any tenant, or any
Person not subject to a Lease, in a manner as is reasonably likely to impair
Mortgagor’s title to the Property, or in such manner as may give rise to a claim
or claims of adverse usage or adverse possession by the public, or of implied
dedication of the Property or any part thereof.
Section
2.09.
Financial
Reports
.
(a)
Mortgagor
will keep and maintain or will cause to be kept and maintained on a Fiscal Year
basis, in accordance with GAAP (or such other accounting basis reasonably
acceptable to Lender) consistently applied, proper and accurate books, tax
returns, records and accounts reflecting (i) all of the financial affairs
of Mortgagor and (ii) all items of income and expense in connection with the
operation of the Property or in connection with any services, equipment or
furnishings provided in connection with the operation thereof, whether such
income or expense may be realized by Mortgagor or by any other Person
whatsoever, excepting lessees unrelated to and unaffiliated with Mortgagor who
have leased from Mortgagor portions of the Premises for the purpose of occupying
the same. Lender shall have the right from time to time at all times during
normal business hours upon reasonable advance notice to examine such books, tax
returns, records and accounts at the office of Mortgagor or other Person
maintaining such books, tax returns, records and accounts and to make such
copies or extracts thereof as Lender shall desire. During the continuance of an
Event of Default, Mortgagor shall pay any costs and expenses incurred by Lender
to examine Mortgagor’s and Guarantor’s accounting records with respect to the
Property, as Lender shall determine to be necessary or appropriate in the
protection of Lender’s interest.
(b)
Mortgagor
will furnish Lender (i) annually, within one hundred twenty (120) days following
the end of each Fiscal Year of Mortgagor and (ii) on a quarterly basis, within
thirty (30) days following the end of each fiscal quarter of Mortgagor, with a
complete copy of Mortgagor’s financial statement consistently applied covering
(A) all of the financial affairs of Mortgagor and (B) the operation of the
Property for such Fiscal Year or fiscal quarters, as applicable, and containing
a statement of revenues and expenses, a statement of assets and liabilities and
a statement of Mortgagor’s equity. Each annual financial statement shall be
prepared by an Independent certified public accountant that is reasonably
acceptable to Lender in accordance with GAAP (or such other accounting basis
reasonably acceptable to Lender). Upon request made in connection with a
Securitization of the Loan or after the occurrence of an Event of Default, such
annual financial statements shall be audited by an Independent certified public
accountant that is reasonably acceptable to Lender in accordance with GAAP.
Together with the financial statements required to be furnished pursuant to this
Section 2.09(b), Mortgagor shall furnish to Lender (A) an Officer’s Certificate
certifying as of the date thereof (1) that the financial statements accurately
represent the results of operations and financial condition of Mortgagor and the
Property all in accordance with GAAP (or such other accounting basis reasonably
acceptable to Lender) consistently applied, and (2) whether, to the best of
such officer’s knowledge, there exists a Default under the Note or any other
Loan Document executed and delivered by Mortgagor, and if such event or
circumstance exists, the nature thereof, the period of time it has existed and
the action then being taken to remedy such event or circumstance and (B)
together with the financial statements delivered pursuant to Section 2.09(b)(ii)
above, a statement showing (1) Pro-Forma Net Operating Income at the end of the
most recent fiscal quarter (subject to verification by Lender in its reasonable
discretion) and (2) the calculation of Debt Service Coverage.
(c)
Mortgagor
will furnish Lender monthly, within twenty (20) days following the end of each
month, with (i) a true, complete and correct cash flow statement with respect to
the Property in the form attached hereto as Exhibit C and made a part hereof,
showing (A) all cash receipts of any kind whatsoever and all cash payments and
disbursements, (B) year-to-date summaries of such cash receipts, payments
and disbursements, and (C) during an O&M Operative Period, Pro Forma Net
Operating Income (subject to the verification by Lender) and a calculation of
Debt Service Coverage, (ii) a certification of Manager stating that such cash
flow statement is true, complete and correct and a list of all litigation and
proceedings affecting Mortgagor or the Property in which the amount involved is
$250,000 or more, if not covered by insurance (or $2,500,000 or more whether or
not covered by insurance), (iii) the sales per square foot for each lessee under
the Space Leases to the extent such information is required to be delivered by
such lessees and (iv) an occupancy report for the Property.
(d)
Mortgagor
will furnish Lender monthly, within twenty (20) days following the end of each
month, with a certification of Manager stating that all Operating Expenses with
respect to the Property which had accrued as of the last day of the month
preceding the delivery of the cash flow statement referred to in clause (c)
above have been fully paid or otherwise reserved for by Manager (any such
certification or any certification furnished by a Manager pursuant to clause (c)
above, a “
Manager
Certification
”).
(e)
Mortgagor
will furnish Lender annually, within twenty (20) days following the end of each
year and within twenty (20) days following receipt of such request therefor,
with a true, complete and correct rent roll for the Property, including a list
of which tenants are in default under their respective Leases, dated as of the
date of Lender’s request, identifying each tenant, the monthly rent and
additional rent, if any, payable by such tenant, the expiration date of such
tenant’s Lease, the security deposit, if any, held by Mortgagor under the Lease,
the space covered by the Lease, each tenant that has filed a bankruptcy,
insolvency, or reorganization proceeding since delivery of the last such rent
roll, the sales per square foot of each tenant, to the extent reported by
tenants under the terms of the Leases and the arrearages for such tenant, if
any, and such rent roll shall be accompanied by an Officer’s Certificate, dated
as of the date of the delivery of such rent roll, certifying that such rent roll
is true, correct and complete in all material respects as of its date and a copy
of each Space Lease entered into during the prior month.
(f)
Mortgagor
shall furnish to Lender, within thirty (30) days after Lender’s request
therefor, with such further detailed information with respect to the operation
of the Property and the financial affairs of Mortgagor as may be reasonably
requested by Lender.
(g)
Mortgagor
shall cause Manager to furnish to Lender, within twenty (20) days following the
end of each month, a schedule of tenant security deposits showing any activity
in the Security Deposit Account for such month, together with a certification of
Manager as to the balance in such Security Deposit Account and that such tenant
security deposits are being held in accordance with all Legal
Requirements.
(h)
Mortgagor
will furnish Lender annually, within ninety (90) days after the end of each
Fiscal Year, with a report setting forth (i) the Net Operating Income for such
Fiscal Year, (ii) the average occupancy rate of the Property during such
Fiscal Year, and (iii) the capital repairs, replacements and improvements
performed at the Property during such Fiscal Year and the aggregate Recurring
Replacement Expenditures made in connection therewith.
(i)
Mortgagor
shall furnish to Lender annually, within thirty (30) days of filing its
respective tax return, a copy of such tax return and either a copy of the tax
return of Guarantor within such thirty (30) day period or within ninety (90)
days after the end of each Fiscal Year, a certificate from an Independent
certified public accountant indicating the net worth of the
Guarantor.
(j)
Mortgagor
shall submit to Lender for Lender’s written approval an Annual Budget not later
than sixty (60) days prior to the commencement of each Fiscal Year or, with
respect to the Fiscal Year in which the Closing Date occurs, within sixty (60)
days of the Closing Date, in form satisfactory to Lender setting forth in
reasonable detail budgeted monthly operating income and monthly operating
capital and other expenses for the Property. Each Annual Budget shall contain,
among other things, limitations on management fees, third party service fees,
and other expenses as Mortgagor may reasonably determine. Lender shall have the
right to approve such Annual Budget which approval shall not be unreasonably
withheld, and in the event that Lender objects to the proposed Annual Budget
submitted by Mortgagor, Lender shall advise Mortgagor of such objections within
ten (10) Business Days after receipt thereof (and deliver to Mortgagor a
reasonably detailed description of such objections) and Mortgagor shall, within
four (4) Business Days after receipt of notice of any such objections, revise
such Annual Budget and resubmit the same to Lender. Lender shall advise
Mortgagor of any objections to such revised Annual Budget within seven (7)
Business Days after receipt thereof (and deliver to Mortgagor a reasonably
detailed description of such objections) and Mortgagor shall revise the same in
accordance with the process described herein until Lender approves an Annual
Budget, provided, however, that if Lender shall not advise Mortgagor of its
objections to any proposed Annual Budget within the applicable time period set
forth in this Section, then such proposed Annual Budget shall be deemed approved
by Lender. Until such time that Lender approves a proposed Annual Budget, the
most recently Approved Annual Budget shall apply; provided that, such Approved
Annual Budget shall be adjusted to reflect actual increases in Basic Carrying
Costs and utilities expenses. In the event that Mortgagor must incur an
Extraordinary Expense, then Mortgagor shall promptly deliver to Lender a
reasonably detailed explanation of such proposed Extraordinary Expense for
Lender’s approval, which approval may be granted or denied in Lender’s
reasonable discretion; provided, however, so long as no O&M Operative Period
is then in existence, no approval from Lender shall be required if (i) a single
Extraordinary Expense is equal to or less than five percent (5%) of the amount
set forth in the Approved Annual Budget for expenses related to such
Extraordinary Expense, or (ii) if no sum was budgeted for such expense in the
Approved Annual Budget, the Extraordinary Expense is less than or equal to five
percent (5%) of the Approved Annual Budget, provided that all Extraordinary
Expenses in any Fiscal Year do not exceed five percent (5%) of the Approved
Annual Budget. The Approved Annual Budget shall be prepared for the Property as
well as for all of the Cross-collateralized Properties.
(k)
In the
event that Mortgagor fails to deliver any of the financial statements, reports
or other information required to be delivered to Lender pursuant to this Section
2.09 on or prior to their due dates, if any such failure shall continue for
fifteen (15) days following notice thereof from Lender, without waiving any
default arising out of such failure, Mortgagor shall pay to Lender on each
Payment Date for each month or portion thereof that any such financial
statement, report or other information remains undelivered, an administrative
fee in the amount of Two Thousand Five Hundred Dollars ($2,500) and (ii) if
Mortgagor has not delivered any such reports within five (5) Business Days of
Lender’s giving an additional notice to Mortgagor requesting the missing
financial statement, report or other information, an O&M Operative Period
shall be deemed to have commenced. Mortgagor agrees that such administrative fee
(i) is a fair and reasonable fee necessary to compensate Lender for its
additional administrative costs and increased costs relating to Mortgagor’s
failure to deliver the aforementioned statements, reports or other items as and
when required hereunder and (ii) is not a penalty.
Section
2.10.
Litigation
.
Mortgagor will give prompt written notice to Lender of any litigation or
governmental proceedings pending or threatened (in writing) against Mortgagor
which might have a Material Adverse Effect.
Section
2.11.
Updates of
Representations
.
Mortgagor shall deliver to Lender within ten (10) Business Days of the request
of Lender an Officer’s Certificate updating all of the representations and
warranties contained in this Security Instrument and the other Loan Documents
and certifying that all of the representations and warranties contained in this
Security Instrument and the other Loan Documents, as updated pursuant to such
Officer’s Certificate, are true, accurate and complete as of the date of such
Officer’s Certificate or shall set forth the exceptions to representations
and/or warranties in reasonable detail, as applicable, and, upon Lender’s
request for further information with respect to such exceptions, shall provide
Lender such additional information as Lender may reasonably request.
Notwithstanding the foregoing, provided that no Event of Default has occurred
and is continuing, Mortgagor shall not be required to deliver the foregoing
Officer’s Certificate more than two (2) times in any Loan Year.
ARTICLE
III:
INSURANCE AND CASUALTY
RESTORATION
Section
3.01.
Insurance
Coverage
.
Mortgagor shall, at its expense, maintain the following insurance coverages with
respect to the Property during the term of this Security
Instrument:
(a)
(i)
Insurance
against loss or damage by fire, casualty and other hazards included in an
“all-risk” coverage endorsement or its equivalent, with such endorsements as
Lender may from time to time reasonably require and which are customarily
required by Institutional Lenders of similar properties similarly situated,
including, without limitation, if the Property constitutes a legal
non-conforming use, an ordinance of law coverage endorsement which contains
“Demolition Cost”, “Loss Due to Operation of Law” and “Increased Cost of
Construction” coverages, covering the Property in an amount not less than the
greater of (A) 100% of the insurable replacement value of the Property
(exclusive of the Premises and footings and foundations) and (B) such other
amount as is necessary to prevent any reduction in such policy by reason of and
to prevent Mortgagor, Lender or any other insured thereunder from being deemed
to be a co-insurer. Not less frequently than once every three (3) years,
Mortgagor, at its option, shall either (A) have the Appraisal updated or obtain
a new appraisal of the Property, (B) have a valuation of the Property made by or
for its insurance carrier conducted by an appraiser experienced in valuing
properties of similar type to that of the Property which are in the geographical
area in which the Property is located or (C) provide such other evidence as
will, in Lender’s sole judgment, enable Lender to determine whether there shall
have been an increase in the insurable value of the Property and Mortgagor shall
deliver such updated Appraisal, new appraisal, insurance valuation or other
evidence acceptable to Lender, as the case may be, and, if such updated
Appraisal, new appraisal, insurance valuation, or other evidence acceptable to
Lender reflects an increase in the insurable value of the Property, the amount
of insurance required hereunder shall be increased accordingly and Mortgagor
shall deliver evidence satisfactory to Lender that such policy has been so
increased.
(ii)
Commercial
general liability insurance against claims for personal and bodily injury and/or
death to one or more persons or property damage, occurring on, in or about the
Property (including the adjoining streets, sidewalks and passageways therein) in
such amounts as Lender may from time to time reasonably require (but in no event
shall Lender’s requirements be increased more frequently than once during each
twelve (12) month period) and which are customarily required by Institutional
Lenders for similar properties similarly situated, but not less than $1,000,000
per occurrence and $2,000,000 general aggregate on a per location basis and, in
addition thereto, not less than $75,000,000 excess and/or umbrella liability
insurance shall be maintained for any and all claims.
(iii)
Business
interruption, rent loss or other similar insurance (A) with loss payable to
Lender, (B) covering all risks required to be covered by the insurance provided
for in Section 3.01(a)(i) hereof and (C) in an amount not less than 90% of the
projected fixed or base rent plus percentage rent for the succeeding eighteen
(18) month period based on an occupancy rate of 100%. Such insurance coverage
shall provide for a six (6) month extended period of indemnity. The amount of
such insurance shall be determined upon the execution of this Security
Instrument, and not more frequently than once each calendar year thereafter
based on Mortgagor’s reasonable estimate of projected fixed or base rent plus
percentage rent, from the Property for the next succeeding eighteen (18) months.
In the event the Property shall be damaged or destroyed, Mortgagor shall and
hereby does assign to Lender all payment of claims under the policies of such
insurance, and all amounts payable thereunder, and all net amounts, shall be
collected by Lender under such policies and shall be applied in accordance with
this Security Instrument; provided, however, that nothing herein contained shall
be deemed to relieve Mortgagor of its obligations to timely pay all amounts due
under the Loan Documents.
(iv)
Intentionally
Deleted.
(v)
Insurance
against loss or damages from (A) leakage of sprinkler systems and (B) explosion
of steam boilers, air conditioning equipment, pressure vessels or similar
apparatus now or hereafter installed at the Property, in such amounts as Lender
may from time to time reasonably require and which are then customarily required
by Institutional Lenders of similar properties similarly situated.
(vi)
Flood
insurance in an amount equal to the full insurable value of the Property or the
maximum amount available, whichever is less, if the Improvements are located in
an area designated by the Secretary of Housing and Urban Development as being
“an area of special flood hazard” under the National Flood Insurance Program
(
i.e.
, having
a one percent or greater chance of flooding), and if flood insurance is
available under the National Flood Insurance Act.
(vii)
Worker’s
compensation insurance or other similar insurance which may be required by
Governmental Authorities or Legal Requirements.
(viii)
Intentionally
Deleted.
(ix)
Insurance
against damage resulting from acts of terrorism, or an insurance policy without
an exclusion for damages resulting from terrorism, on terms consistent with the
commercial property insurance policy required under subsections (i), (ii) and
(iii) above.
(x)
Such
other insurance as may from time to time be required by Lender and which is then
customarily required by Institutional Lenders for similar properties similarly
situated, against other insurable hazards, including, but not limited to,
malicious mischief, vandalism, mold, spores or fungus, sinkhole and mine
subsidence, acts of terrorism, windstorm and/or earthquake, due regard to be
given to the size and type of the Premises, Improvements, Fixtures and Equipment
and their location, construction and use. Additionally, Mortgagor shall carry
such insurance coverage as Lender may from time to time require if the failure
to carry such insurance may result in a downgrade, qualification or withdrawal
of any class of securities issued in connection with a Securitization or, if the
Loan is not yet part of a Securitization, would result in an increase in the
subordination levels of any class of securities anticipated to be issued in
connection with a proposed Securitization.
(b)
Mortgagor
shall cause any Manager of the Property to maintain fidelity insurance in an
amount equal to $5,000,000 or such lesser amount as Lender shall
approve.
Section
3.02.
Policy
Terms
.
(a)
All
insurance required by this Article III shall be in the form (other than with
respect to Sections 3.01(a)(vi) and (vii) above when insurance in those two
sub-sections is placed with a governmental agency or instrumentality on such
agency’s forms) and amount and with deductibles as, from time to time, shall be
reasonably acceptable to Lender, under valid and enforceable policies issued by
financially responsible insurers authorized to do business in the State where
the Property is located, with a general policyholder’s service rating of not
less than A- and a financial rating of not less than X as rated in the most
currently available Best’s Insurance Reports (or the equivalent, if such rating
system shall hereafter be altered or replaced) and shall have a claims paying
ability rating and/or financial strength rating, as applicable, of not less than
“AA” (or its equivalent), or such lower claims paying ability rating and/or
financial strength rating, as applicable, as Lender shall, in its sole and
absolute discretion, consent to, from a Rating Agency (one of which after a
Securitization in which Standard & Poor’s rates any securities issued in
connection with such Securitization, shall be Standard & Poor’s). Originals
or certified copies of all insurance policies shall be delivered to and held by
Lender. All such policies (except policies for worker’s compensation) shall name
Lender, its successors and/or assigns as an additional named insured, shall
provide for loss payable to Lender, its successors and/or assigns and shall
contain (or have attached): (i) standard “non-contributory mortgagee”
endorsement or its equivalent relating,
inter
alia
, to
recovery by Lender notwithstanding the negligent or willful acts or omissions of
Mortgagor; (ii) a waiver of subrogation endorsement as to Lender; (iii) an
endorsement indicating that neither Lender nor Mortgagor shall be or be deemed
to be a co-insurer with respect to any casualty risk insured by such policies
and shall provide for a deductible per loss of an amount not more than the
lesser of (x) that which is customarily maintained by owners of similar
properties similarly situated and (y) five percent (5%) of the Adjusted Net Cash
Flow, and (iv) a provision that such policies shall not be canceled, terminated,
denied renewal or amended, including, without limitation, any amendment reducing
the scope or limits of coverage, without at least thirty (30) days’ prior
written notice to Lender in each instance. Not less than thirty (30) days prior
to the expiration dates of the insurance policies obtained pursuant to this
Security Instrument, originals or certified copies of renewals of such policies
(or certificates evidencing such renewals) bearing notations evidencing the
payment of premiums or accompanied by other reasonable evidence of such payment
(which premiums shall not be paid by Mortgagor through or by any financing
arrangement which would entitle an insurer to terminate a policy) shall be
delivered by Mortgagor to Lender. Mortgagor shall not carry separate insurance,
concurrent in kind or form or contributing in the event of loss, with any
insurance required under this Article III.
(b)
If
Mortgagor fails to maintain and deliver to Lender the original policies or
certificates of insurance required by this Security Instrument, or if there are
insufficient funds in the Basic Carrying Costs Escrow Account to pay the
premiums for same, Lender may, at its option, procure such insurance, and
Mortgagor shall pay, or as the case may be, reimburse Lender for, all premiums
thereon promptly, upon demand by Lender, with interest thereon at the Default
Rate from the date paid by Lender to the date of repayment and such sum shall
constitute a part of the Debt.
(c)
Mortgagor
shall notify Lender of the renewal premium of each insurance policy and Lender
shall be entitled to pay such amount on behalf of Mortgagor from the Basic
Carrying Costs Escrow Account. With respect to insurance policies which require
periodic payments (i.e., monthly or quarterly) of premiums, Lender shall be
entitled to pay such amounts fifteen (15) days (or such lesser number of days as
Lender shall determine) prior to the respective due dates of such
installments.
(d)
The
insurance required by this Security Instrument may, at the option of Mortgagor,
be effected by blanket and/or umbrella policies issued to Mortgagor covering the
Property provided that, in each case, the policies otherwise comply with the
provisions of this Security Instrument and allocate to the Property, from time
to time (but in no event less than once a year), the coverage specified by this
Security Instrument, without possibility of reduction or coinsurance by reason
of, or damage to, any other property (real or personal) named therein. If the
insurance required by this Security Instrument shall be effected by any such
blanket or umbrella policies, Mortgagor shall furnish to Lender (i) original
policies or certified copies thereof, or an original certificate of insurance
together with reasonable access to the original of such policy to review such
policy’s coverage of the Property, with schedules attached thereto showing the
amount of the insurance provided under such policies applicable to the Property
and (ii) an Officer’s Certificate setting forth (A) the number of properties
covered by such policy, (B) the location by city (if available, otherwise,
county) and state of the properties, (C) the average square footage of the
properties, (D) a brief description of the typical construction type included in
the blanket policy and (E) such other information as Lender may reasonably
request.
Section
3.03.
Assignment of
Policies
.
(a)
Mortgagor
hereby assigns to Lender the proceeds of all insurance (other than worker’s
compensation and liability insurance) obtained pursuant to this Security
Instrument, all of which proceeds shall be payable to Lender as collateral and
further security for the payment of the Debt and the performance of the
Mortgagors’ obligations hereunder and under the other Loan Documents, and
Mortgagor hereby authorizes and directs the issuer of any such insurance to make
payment of such proceeds directly to Lender. Except as otherwise expressly
provided in Section 3.04 or elsewhere in this Article III, Lender shall have the
option, in its discretion, and without regard to the adequacy of its security,
to apply all or any part of the proceeds it may receive pursuant to this Article
in such manner as Lender may elect to any one or more of the following: (i) the
payment of the Debt, whether or not then due, in any proportion or priority as
Lender, in its discretion, may elect, (ii) the repair or restoration of the
Property, (iii) the cure of any Event of Default or (iv) the reimbursement of
the costs and expenses of Lender incurred pursuant to the terms hereof in
connection with the recovery of the Insurance Proceeds. Nothing herein contained
shall be deemed to excuse Mortgagor from repairing or maintaining the Property
as provided in this Security Instrument or restoring all damage or destruction
to the Property, regardless of the sufficiency of the Insurance Proceeds, and
the application or release by Lender of any Insurance Proceeds shall not cure or
waive any Default or notice of Default.
(b)
In the
event of the foreclosure of this Security Instrument or any other transfer of
title or assignment of all or any part of the Property in extinguishment, in
whole or in part, of the Debt, all right, title and interest of Mortgagor in and
to all policies of insurance required by this Security Instrument shall inure to
the benefit of the successor in interest to Mortgagor or the purchaser of the
Property to the extent that such policies are assignable or transferable. If,
prior to the receipt by Lender of any proceeds, the Property or any portion
thereof shall have been sold on foreclosure of this Security Instrument or by
deed in lieu thereof or otherwise, or any claim under such insurance policy
arising during the term of this Security Instrument is not paid until after the
extinguishment of the Debt, and Lender shall not have received the entire amount
of the Debt outstanding at the time of such extinguishment, whether or not a
deficiency judgment on this Security Instrument shall have been sought or
recovered or denied, then, the proceeds of any such insurance to the extent of
the amount of the Debt not so received, shall be paid to and be the property of
Lender, together with interest thereon at the Default Rate, and the reasonable
attorney’s fees, costs and disbursements incurred by Lender in connection with
the collection of the proceeds which shall be paid to Lender and Mortgagor
hereby assigns, transfers and sets over to Lender all of Mortgagor’s right,
title and interest in and to such proceeds. Notwithstanding any provisions of
this Security Instrument to the contrary, Lender shall not be deemed to be a
trustee or other fiduciary with respect to its receipt of any such proceeds,
which may be commingled with any other monies of Lender; provided, however, that
Lender shall use such proceeds for the purposes and in the manner permitted by
this Security Instrument. Any proceeds deposited with Lender shall be held by
Lender in an interest-bearing account, but Lender makes no representation or
warranty as to the rate or amount of interest, if any, which may accrue on such
deposit and shall have no liability in connection therewith. Interest accrued,
if any, on the proceeds shall be deemed to constitute a part of the proceeds for
purposes of this Security Instrument. The provisions of this Section 3.03(b)
shall survive the termination of this Security Instrument by foreclosure, deed
in lieu thereof or otherwise as a consequence of the exercise of the rights and
remedies of Lender hereunder after a Default.
Section
3.04.
Casualty
Restoration
.
(a)
(i)
In the
event of any damage to or destruction of any Individual Property, Mortgagor
shall give prompt written notice to Lender (which notice shall set forth
Mortgagor’s good faith estimate of the cost of repairing or restoring such
damage or destruction, or if Mortgagor cannot reasonably estimate the
anticipated cost of restoration, Mortgagor shall nonetheless give Lender prompt
notice of the occurrence of such damage or destruction, and will diligently
proceed to obtain estimates to enable Mortgagor to quantify the anticipated cost
and time required for such restoration, whereupon Mortgagor shall promptly
notify Lender of such good faith estimate) and, provided that restoration does
not violate any Legal Requirements, Mortgagor shall promptly commence and
diligently prosecute to completion the repair, restoration or rebuilding of such
Individual Property so damaged or destroyed to a condition such that such
Individual Property shall be at least equal in value to that immediately prior
to the damage to the extent practicable, in full compliance with all Legal
Requirements and the provisions of all Leases, and in accordance with Section
3.04(b) below. Such repair, restoration or rebuilding of the Property are
sometimes hereinafter collectively referred to as the “
Work
”.
(ii)
Notwithstanding
the foregoing provisions of this Section 3.04, upon the occurrence of any damage
to or destruction of the Individual Property, provided that such damage or
destruction is not a Substantial Casualty, if in Lender’s reasonable judgment
the cost of repair of or restoration to the Individual Property required as a
result of any damage or destruction is less than $1,000,000 in the aggregate and
the Work can be completed in less than one hundred eighty (180) days (but in no
event beyond the date which is six (6) months prior to the Maturity Date), then
Lender, shall permit Mortgagor to apply for and receive the Insurance Proceeds
directly from the insurer (and Lender shall advise the insurer to pay over such
Insurance Proceeds directly to Mortgagor), to the extent required to pay for any
such Work, with any excess thereof to be retained by Mortgagor.
(iii)
Subject
to Section 3.04(a)(iv), Lender shall apply any Insurance Proceeds which it may
receive towards the Work in accordance with Section 3.04(b) and the other
applicable sections of this Article III.
(iv)
If (A) an
Event of Default shall have occurred and is continuing, (B) Lender is not
reasonably satisfied that the Debt Service Coverage, after substantial
completion of the Work, will be at least equal to the Required Debt Service
Coverage, (C) more than thirty percent (30%) of the reasonably estimated fair
market value of the applicable individual Property is damaged or destroyed, (D)
Lender is not reasonably satisfied that the Work can be completed six (6) months
prior to Maturity or (E) Lender is not reasonably satisfied that Leases covering
at least 75% of the rentable square footage for the applicable individual
Property (immediately prior to such damage or destruction) will not be
terminated due to the casualty during and following the restoration, or (F)
Lender is not reasonably satisfied that the Work can be completed within twelve
(12) months of the damage to or destruction of the applicable individual
Property (each, a “
Substantial
Casualty
”),
Lender shall have the option, in its sole discretion to apply any Insurance
Proceeds it may receive pursuant to this Security Instrument (less any
reasonable cost to Lender of recovering and paying out such proceeds incurred
pursuant to the terms hereof and not otherwise reimbursed to Lender, including,
without limitation, reasonable attorneys’ fees and expenses) to the payment of
the Debt, without any prepayment fee or charge of any kind, or to allow such
proceeds to be used for the Work pursuant to the terms and subject to the
conditions of Section 3.04(b) hereof and the other applicable sections of this
Article III.
(v)
In the
event that Lender elects or is obligated hereunder to allow Insurance Proceeds
to be used for the Work, any excess proceeds remaining after completion of such
Work shall be applied to the payment of the Debt without any prepayment fee or
charge of any kind.
(b)
If any
Condemnation Proceeds in accordance with Section 6.01(a), or any Insurance
Proceeds in accordance with Section 3.04(a), are to be applied to the repair,
restoration or rebuilding of the Individual Property, then such proceeds shall
be deposited into a segregated interest-bearing bank account at the Bank, which
shall be an Eligible Account, held by Lender and shall be paid out from time to
time to Mortgagor as the Work progresses (less any reasonable cost to Lender of
recovering and paying out such proceeds, including, without limitation,
reasonable attorneys’ fees and costs allocable to inspecting the Work and the
plans and specifications therefor), subject to Section 5.13 hereof and to all of
the following conditions:
(i)
An
Independent architect or engineer selected by Mortgagor and reasonably
acceptable to Lender (an “
Architect
” or
“
Engineer
”) or a
Person otherwise reasonably acceptable to Lender, shall have delivered to Lender
a certificate estimating the cost of completing the Work, and, if the amount set
forth therein is more than the sum of the amount of Insurance Proceeds then
being held by Lender in connection with a casualty and amounts agreed to be paid
as part of a final settlement under the insurance policy upon or before
completion of the Work, Mortgagor shall have delivered to Lender (A) cash
collateral in an amount equal to such excess, or (B) an unconditional,
irrevocable, clean sight draft letter of credit, in form, substance and issued
by a bank reasonably acceptable to Lender, in the amount of such excess and
draws on such letter of credit shall be made by Lender to make payments pursuant
to this Article III following exhaustion of the Insurance Proceeds therefor or
(C) a completion bond in form, substance and issued by a surety company
reasonably acceptable to Lender.
(ii)
If the
cost of the Work is reasonably estimated by an Architect or Engineer in a
certification reasonably acceptable to Lender to be equal to or exceed five
percent (5%) of the Allocated Loan Amount for the Property, such Work shall be
performed under the supervision of an Architect or Engineer, it being understood
that the plans and specifications with respect thereto shall provide for Work so
that, upon completion thereof, the Property shall be at least equal in
replacement value and general utility to the Individual Property prior to the
damage or destruction.
(iii)
Each
request for payment shall be made on not less than ten (10) days’ prior notice
to Lender and shall be accompanied by a certificate of an Architect or Engineer,
or, if the Work is not required to be supervised by an Architect or Engineer, by
an Officer’s Certificate stating (A) that payment is for Work completed or
materials delivered in compliance with the plans and specifications, if required
under clause (ii) above, (B) that the sum requested is required to reimburse
Mortgagor for payments by Mortgagor to date, or is due to the contractors,
subcontractors, materialmen, laborers, engineers, architects or other Persons
rendering services or materials for the Work (giving a brief description of such
services and materials), and that when added to all sums previously paid out by
Lender does not exceed the value of the Work done to the date of such
certificate, (C) if the sum requested is to cover payment relating to repair and
restoration of personal property required or relating to the applicable
Property, that title to the personal property items covered by the request for
payment is vested in Mortgagor (unless Mortgagor is lessee of such personal
property), and (D) that the Insurance Proceeds and other amounts deposited by
Mortgagor held by Lender after such payment is equal to or more than the
estimated remaining cost to complete such Work; provided, however, that if such
certificate is given by an Architect or Engineer, such Architect or Engineer
shall certify as to clause (A) above, and such Officer’s Certificate shall
certify as to the remaining clauses above, and provided, further, that Lender
shall not be obligated to disburse such funds if Lender determines, in Lender’s
reasonable discretion, that Mortgagor shall not be in compliance with this
Section 3.04(b). Additionally, each request for payment shall contain a
statement signed by Mortgagor stating that the requested payment is for Work
satisfactorily done to date or for materials for the Work.
(iv)
Each
request for payment shall be accompanied by waivers of lien, in customary form
and substance, covering that part of the Work for which payment or reimbursement
is being requested and, if required by Lender, a search prepared by a title
company or licensed abstractor, or by other evidence satisfactory to Lender that
there has not been filed with respect to the applicable Individual Property any
mechanic’s or other lien or instrument for retention of title relating to any
part of the Work not discharged of record. Additionally, as to any personal
property covered by the request for payment, Lender shall be furnished with
evidence of having incurred a payment obligation therefor and such further
evidence reasonably satisfactory to assure Lender that UCC filings therefor
provide a valid first lien on the personal property.
(v)
Lender
shall have the right to inspect the Work at all reasonable times upon reasonable
prior notice and may condition any disbursement of Insurance Proceeds upon
satisfactory compliance by Mortgagor with the provisions hereof. Neither the
approval by Lender of any required plans and specifications for the Work nor the
inspection by Lender of the Work shall make Lender responsible for the
preparation of such plans and specifications, or the compliance of such plans
and specifications of the Work, with any applicable law, regulation, ordinance,
covenant or agreement.
(vi)
Insurance
Proceeds shall not be disbursed more frequently than once every thirty (30)
days.
(vii)
Until
such time as the Work has been substantially completed, Lender shall not be
obligated to disburse up to ten percent (10%) of the cost of the Work (the
“
Retention
Amount
”) to
Mortgagor. Upon substantial completion of the Work, Mortgagor shall send notice
thereof to Lender and, subject to the conditions of Section 3.04(b)(i)-(iv),
Lender shall disburse one-half of the Retention Amount to Mortgagor; provided,
however, that the remaining one-half of the Retention Amount shall be disbursed
to Mortgagor when Lender shall have received copies of any and all final
certificates of occupancy or other certificates, licenses and permits required
for the ownership, occupancy and operation of the Property in accordance with
all Legal Requirements. Mortgagor hereby covenants to diligently seek to obtain
any such certificates, licenses and permits. Notwithstanding the foregoing,
Lender will release the portion of the Retention Amount being held with respect
to any contractor, subcontractor or materialman engaged in the Work as of the
date upon which the Architect or Engineer certifies to Lender that the
contractor, subcontractor or materialman has satisfactorily completed all work
and has supplied all materials in accordance with the provisions of the
contractor’s, subcontractor’s or materialman’s contract, provided, (A) the
contractor, subcontractor or materialman delivers the lien waivers and evidence
of payment in full of all sums due to the contractor, subcontractor or
materialman as may be reasonably requested by Lender or by the title company
issuing the Lender’s title policy and (B) if required by Lender, the release of
any such portion of the Retention Amount shall be approved by the surety
company, if any, which has issued a payment or performance bond with respect to
the contractor, subcontractor or materialman.
(viii)
Upon
failure on the part of Mortgagor promptly to commence the Work as provided for
herein or to proceed diligently and continuously to completion of the Work,
subject to Force Majeure, not to exceed sixty (60) days, which failure shall
continue after notice for thirty (30) days, Lender may apply any Insurance
Proceeds or Condemnation Proceeds it then or thereafter holds to the payment of
the Debt in accordance with the provisions of the Note; provided, however, that
Lender shall be entitled to apply at any time all or any portion of the
Insurance Proceeds or Condemnation Proceeds it then holds to the extent
necessary to cure any Event of Default.
(c)
If
Mortgagor (i) within ninety (90) days after the occurrence of any damage to the
applicable Individual Property or any portion thereof (or such shorter period as
may be required under any Major Space Lease) shall fail to submit to Lender for
approval plans and specifications for the Work (approved by the Architect and by
all Governmental Authorities whose approval is required), (ii) after any such
plans and specifications are approved by all Governmental Authorities, the
Architect and Lender, shall fail to promptly commence such Work as provided for
herein or (iii) shall fail to diligently prosecute such Work to completion,
then, in addition to all other rights available hereunder, at law or in equity,
Lender, or any receiver of the Property or any portion thereof, upon five (5)
days’ prior notice to Mortgagor (except in the event of emergency in which case
no notice shall be required), may (but shall have no obligation to) perform or
cause to be performed such Work, and may take such other steps as it reasonably
deems advisable. Mortgagor hereby waives, for Mortgagor, any claim, other than
for gross negligence or willful misconduct, against Lender and any receiver
arising out of any act or omission of Lender or such receiver pursuant hereto,
and Lender may apply all or any portion of the Insurance Proceeds (without the
need to fulfill any other requirements of this Section 3.04) to reimburse Lender
and such receiver, for all reasonable costs not reimbursed to Lender or such
receiver upon demand together with interest thereon at the Default Rate from the
date such amounts are advanced until the same are paid to Lender or the
receiver.
(d)
Subject
to Section 3.04(a)(ii) above, Mortgagor hereby irrevocably appoints Lender as
its attorney-in-fact, coupled with an interest, to collect and receive any
Insurance Proceeds paid with respect to any portion of the Property or the
insurance policies required to be maintained hereunder, and to endorse any
checks, drafts or other instruments representing any Insurance Proceeds whether
payable by reason of loss thereunder or otherwise.
Section
3.05.
Compliance with Insurance
Requirements
.
Mortgagor promptly shall comply with, and shall cause the Property to comply
with, all Insurance Requirements, even if such compliance requires structural
changes or improvements or would result in interference with the use or
enjoyment of the Property or any portion thereof provided Mortgagor shall have a
right to contest in good faith and with diligence such Insurance Requirements
provided (a) no Event of Default shall be continuing during such contest and
such contest shall not subject the Property or any portion thereof to any lien
or affect the priority of the lien of this Security Instrument, (b) failure to
comply with such Insurance Requirements will not subject Lender or any of its
agents, employees, officers or directors to any civil or criminal liability, (c)
such contest will not cause any reduction in insurance coverage, (d) such
contest shall not affect the ownership, use or occupancy of the Property, (e)
the Property or any part thereof or any interest therein shall not be in any
danger of being sold, forfeited or lost by reason of such contest by Mortgagor,
(f) Mortgagor has given Lender prompt notice of such contest and, upon request
by Lender from time to time, notice of the status of such contest by Mortgagor
and/or information of the continuing satisfaction of the conditions set forth in
clauses (a) through (e) of this Section 3.05, (g) upon a final determination of
such contest, Mortgagor shall promptly comply with the requirements thereof, and
(h) prior to and during such contest, Mortgagor shall furnish to Lender security
satisfactory to Lender, in its reasonable discretion, against loss or injury by
reason of such contest or the non-compliance with such Insurance Requirement
(and if such security is cash, Lender shall deposit the same in an
interest-bearing account and interest accrued thereon, if any, shall be deemed
to constitute a part of such security for purposes of this Security Instrument,
but Lender (i) makes no representation or warranty as to the rate or amount of
interest, if any, which may accrue thereon and shall have no liability in
connection therewith and (ii) shall not be deemed to be a trustee or fiduciary
with respect to its receipt of any such security and any such security may be
commingled with other monies of Lender). Upon completion of any contest, Lender
shall return the security , if any, deposited with Lender pursuant to clause (h)
of this Section 3.05. If Mortgagor shall use the Property or any portion thereof
in any manner which could permit the insurer to cancel any insurance required to
be provided hereunder, Mortgagor immediately shall obtain a substitute policy
which shall satisfy the requirements of this Security Instrument and which shall
be effective on or prior to the date on which any such other insurance policy
shall be canceled. Mortgagor shall not by any action or omission invalidate any
insurance policy required to be carried hereunder unless such policy is replaced
as aforesaid, or materially increase the premiums on any such policy above the
normal premium charged for such policy. Mortgagor shall cooperate with Lender in
obtaining for Lender the benefits of any Insurance Proceeds lawfully or
equitably payable to Lender in connection with the transaction contemplated
hereby.
Section
3.06.
Event of Default During
Restoration
.
Notwithstanding anything to the contrary contained in this Security Instrument
including, without limitation, the provisions of this Article III, if, at the
time of any casualty affecting the Property or any part thereof, or at any time
during any Work, or at any time that Lender is holding or is entitled to receive
any Insurance Proceeds pursuant to this Security Instrument, a Default exists
and is continuing (whether or not it constitutes an Event of Default), Lender
shall then have no obligation to make such proceeds available for Work and
Lender shall have the right and option, to be exercised in its sole and absolute
discretion and election, with respect to the Insurance Proceeds, either to
retain and apply such proceeds in reimbursement for the actual costs, fees and
expenses incurred by Lender in accordance with the terms hereof in connection
with the adjustment of the loss and any balance toward payment of the Debt in
such priority and proportions as Lender, in its sole discretion, shall deem
proper, or towards the Work, upon such terms and conditions as Lender shall
determine, or to cure such Default, or to any one or more of the foregoing as
Lender, in its sole and absolute discretion, may determine. If Lender shall
receive and retain such Insurance Proceeds, the lien of this Security Instrument
shall be reduced only by the amount thereof received, after reimbursement to
Lender of expenses of collection, and actually applied by Lender in reduction of
the principal sum payable under the Note in accordance with the
Note.
Section
3.07.
Application of Proceeds to
Debt Reduction
.
(
a) No
damage to the Property, or any part thereof, by fire or other casualty
whatsoever, whether such damage be partial or total, shall relieve Mortgagor
from its liability to pay in full the Debt and to perform its obligations under
this Security Instrument and the other Loan Documents.
(b)
If any
Insurance Proceeds are applied to reduce the Debt, Lender shall apply the same
in accordance with the provisions of the Note.
ARTICLE
IV:
IMPOSITIONS
Section
4.01.
Payment of Impositions,
Utilities and Taxes, etc
.
(a)
Mortgagor
shall pay or cause to be paid all Impositions prior to the date upon which any
fine, penalty, interest or cost for nonpayment is imposed, and furnish to
Lender, upon request, receipted bills of the appropriate taxing authority or
other documentation reasonably satisfactory to Lender evidencing the payment
thereof. If Mortgagor shall fail to pay any Imposition in accordance with this
Section and is not contesting or causing a contesting of such Imposition in
accordance with Section 4.04 hereof, or if there are insufficient funds in the
Basic Carrying Costs Escrow Account to pay any Imposition, Lender shall have the
right, but shall not be obligated, to pay that Imposition, and Mortgagor shall
repay to Lender, on demand, any amount paid by Lender, with interest thereon at
the Default Rate from the date of the advance thereof to the date of repayment,
and such amount shall constitute a portion of the Debt secured by this Security
Instrument and the other Cross-collateralized Mortgage.
(b)
Mortgagor
shall, prior to the date upon which any fine, penalty, interest or cost for the
nonpayment is imposed, pay or cause to be paid all charges for electricity,
power, gas, water and other services and utilities in connection with the
Property, and shall, upon request, deliver to Lender receipts or other
documentation reasonably satisfactory to Lender evidencing payment thereof. If
Mortgagor shall fail to pay any amount required to be paid by Mortgagor pursuant
to this Section 4.01 and is not contesting such charges in accordance with
Section 4.04 hereof, Lender shall have the right, but shall not be obligated, to
pay that amount, and Mortgagor will repay to Lender, on demand, any amount paid
by Lender with interest thereon at the Default Rate from the date of the advance
thereof to the date of repayment, and such amount shall constitute a portion of
the Debt secured by this Security Instrument and the other Cross-collateralized
Mortgage.
(c)
Mortgagor
shall pay all taxes, charges, filing, registration and recording fees, excises
and levies imposed upon Lender by reason of or in connection with its ownership
of any Loan Document or any other instrument related thereto, or resulting from
the execution, delivery and recording of, or the lien created by, or the
obligation evidenced by, any of them, other than income, franchise and other
similar taxes imposed on Lender and shall pay all corporate stamp taxes, if any,
and other taxes, required to be paid on the Loan Documents. If Mortgagor shall
fail to make any such payment within ten (10) days after written notice thereof
from Lender, Lender shall have the right, but shall not be obligated, to pay the
amount due, and Mortgagor shall reimburse Lender therefor, on demand, with
interest thereon at the Default Rate from the date of the advance thereof to the
date of repayment, and such amount shall constitute a portion of the Debt
secured by this Security Instrument and the other the Cross-collateralized
Mortgage.
Section
4.02.
Deduction from
Value
. In the
event of the passage after the date of this Security Instrument of any Legal
Requirement deducting from the value of the Property for the purpose of
taxation, any lien thereon or changing in any way the Legal Requirements now in
force for the taxation of this Security Instrument, the other the
Cross-collateralized Mortgage and/or the Debt for federal, state or local
purposes, or the manner of the operation of any such taxes so as to adversely
affect the interest of Lender, or impose any tax or other charge on any Loan
Document, then Mortgagor will pay such tax, with interest and penalties thereon,
if any, within the statutory period; provided, however, such tax payments shall
not include such taxes incurred more than ninety (90) days prior to the date
Mortgagor receives Lender’s notice of payment. In the event the payment of such
tax or interest and penalties by Mortgagor would be unlawful, or taxable to
Lender or unenforceable or provide the basis for a defense of usury, then in any
such event, Lender shall have the option, by written notice of not less than
sixty (60) days, to declare the Debt immediately due and payable, with no
prepayment fee or charge of any kind.
Section
4.03.
No Joint
Assessment
.
Mortgagor shall not consent to or initiate the joint assessment of the Premises
or the Improvements (a) with any other real property constituting a separate tax
lot and Mortgagor represents and covenants that the Premises and the
Improvements are and shall remain a separate tax lot or (b) with any portion of
the Property which may be deemed to constitute personal property, or any other
procedure whereby the lien of any taxes which may be levied against such
personal property shall be assessed or levied or charged to the Property as a
single lien.
Section
4.04.
Right to
Contest
.
Mortgagor shall have the right, after prior notice to Lender, at its sole
expense, to contest by appropriate legal proceedings diligently conducted in
good faith, without cost or expense to Lender or any of its agents, employees,
officers or directors, the validity, amount or application of any Imposition or
any charge described in Section 4.01(b), provided that (a) no Default or Event
of Default shall exist during such proceedings and such contest shall not
(unless Mortgagor shall comply with clause (d) of this Section 4.04) subject the
Property or any portion thereof to any lien or affect the priority of the lien
of this Security Instrument, (b) failure to pay such Imposition or charge will
not subject Lender or any of its agents, employees, officers or directors to any
civil or criminal liability, (c) the contest suspends enforcement of the
Imposition or charge (unless Mortgagor first pays the Imposition or charge), (d)
prior to and during such contest, Mortgagor shall furnish to Lender security
satisfactory to Lender, in its reasonable discretion, against loss or injury by
reason of such contest or the non-payment of such Imposition or charge (and if
such security is cash, Lender may deposit the same in an interest-bearing
account and interest accrued thereon, if any, shall be deemed to constitute a
part of such security for purposes of this Security Instrument, but Lender (i)
makes no representation or warranty as to the rate or amount of interest, if
any, which may accrue thereon and shall have no liability in connection
therewith and (ii) shall not be deemed to be a trustee or fiduciary with respect
to its receipt of any such security and any such security may be commingled with
other monies of Lender), (e) such contest shall not affect the ownership, use or
occupancy of the Property, (f) the Property or any part thereof or any interest
therein shall not be in any danger of being sold, forfeited or lost by reason of
such contest by Mortgagor, (g) Mortgagor has given Lender notice of the
commencement of such contest and upon request by Lender, from time to time,
notice of the status of such contest by Mortgagor and/or confirmation of the
continuing satisfaction of clauses (a) through (f) of this Section 4.04, and (h)
upon a final determination of such contest, Mortgagor shall promptly comply with
the requirements thereof. Upon completion of any contest, Mortgagor shall
immediately pay the amount due, if any, and deliver to Lender proof of the
completion of the contest and payment of the amount due, if any, following which
Lender shall return the security, if any, deposited with Lender pursuant to
clause (d) of this Section 4.04. Mortgagor shall not pay any Imposition in
installments unless permitted by applicable Legal Requirements, and shall, upon
the request of Lender, deliver copies of all notices and bills relating to any
Imposition or other charge covered by this Article IV to Lender.
Section
4.05.
No Credits on Account of the
Debt
.
Mortgagor will not claim or demand or be entitled to any credit or credits on
account of the Debt for any part of the Impositions assessed against the
Property or any part thereof and no deduction shall otherwise be made or claimed
from the taxable value of the Property, or any part thereof, by reason of this
Security Instrument or the Debt. In the event such claim, credit or deduction
shall be required by Legal Requirements, Lender shall have the option, by
written notice of not less than forty-five (45) days, to declare the Debt
immediately due and payable, and Mortgagor hereby agrees to pay such amounts not
later than forty-five (45) days after such notice.
Section
4.06.
Documentary
Stamps
. If, at
any time, the United States of America, any State or Commonwealth thereof or any
subdivision of any such State shall require revenue or other stamps to be
affixed to the Note, this Security Instrument or any other Loan Document, or
impose any other tax or charges on the same, Mortgagor will pay the same, with
interest and penalties thereon, if any.
ARTICLE
V:
CENTRAL CASH
MANAGEMENT
Section
5.01.
Cash Flow
.
Mortgagor hereby acknowledges and agrees that (i) the Rents (which for the
purposes of this Section 5.01 shall not include security deposits from tenants
under Leases held by Mortgagor and not applied towards Rent) derived from the
Property and (ii) Loss Proceeds (other than Loss Proceeds that Lender has
elected to apply to reduce the Debt in accordance with the terms of Article III
hereof) shall be utilized (a) to fund the Basic Carrying Costs Sub-Account, (b)
to pay all amounts to become due and payable under the Note by funding the Debt
Service Payment Sub-Account, (c) to fund the Recurring Replacement Reserve
Sub-Account, (d) to fund the Reletting Reserve Sub-Account, (e) to fund the
Operation and Maintenance Expense Sub-Account and (f) to fund the Curtailment
Reserve Sub-Account, all to the extent provided for herein. Mortgagor shall
collect all security deposits from tenants under valid Leases, which shall be
held by Mortgagor, in accordance with applicable law and in a segregated demand
deposit bank account at such commercial or savings bank or banks as may be
reasonably satisfactory to Lender (the “
Security Deposit
Account
”).
Mortgagor shall notify Lender of any security deposits held as letters of credit
and, upon Lender’s request, such letters of credit shall be promptly delivered
to Lender. Mortgagor shall have no right to withdraw funds from the Security
Deposit Account;
provided
that,
prior to the occurrence of an Event of Default, Mortgagor may withdraw funds
from the Security Deposit Account to refund or apply security deposits as
required by the Leases or by applicable Legal Requirements. During the
continuance of an Event of Default, all withdrawals from the Security Deposit
Account must be approved by Lender. Mortgagor shall cause all Rent which is due
and payable to Mortgagor pursuant to the terms of the Leases (other than
security deposits under valid Leases which are held in the Security Deposit
Account) to be paid through automated clearing house funds (“
ACH
”), a
check drawn on an account in a bank located in the continental United States
which is a member of the New York Clearing House Association or by Federal wire
directly to the Rent Account. Mortgagor shall give each tenant under a Lease an
irrevocable direction in the form of Exhibit E attached hereto and made a part
hereof to deliver all rent payments made by tenants and other payments
constituting Rent directly to the Rent Account and shall deliver copies of such
letters to Lender, together with an Officer’s Certificate certifying that such
letters were delivered to each tenant under the Leases within five (5) days of
the Closing Date. Notwithstanding the foregoing, if any Rent is received by
Mortgagor or Manager, then (a) such amounts shall be held in trust for the
benefit, and as the property, of Lender, (b) such amounts shall not be
commingled with any other funds or property of Mortgagor or Manager and (c)
Mortgagor or Manager shall deposit such amounts in the Rent Account within one
(1) Business Day of receipt. Mortgagor shall, or shall cause Manager to, give to
the bank in which the Rent Account is located an irrevocable written
instruction, in form and substance acceptable to, and acknowledged by, Lender,
that all funds deposited in the Rent Account shall be automatically transferred
through ACH or by Federal wire to the Central Account prior to 2:00 p.m. (New
York City time) on each Business Day. Upon execution of any Space Lease after
the Closing Date, Mortgagor shall deliver to Lender a copy of the irrevocable
direction letter referred to above, the receipt of which has been acknowledged
by the tenant under such Space Lease. Lender may elect to change the financial
institution in which the Central Account or the Rent Account shall be
maintained;
however
, Lender
shall give Mortgagor and the bank in which the Rent Account is located not fewer
than ten (10) Business Days’ prior notice of such change. Neither Mortgagor nor
Manager shall change the bank in which the Rent Account is located or the Rent
Account without the prior written consent of Lender. All fees and charges of the
bank in which the Central Account is located shall be paid by
Mortgagor.
Section
5.02.
Establishment of
Accounts
. Lender
has established the Escrow Accounts and the Central Account in the name of
Lender as secured party and Mortgagor has established the Central Account in the
joint names of Lender, as secured party, and Mortgagor. The Central Account, the
Rent Account and the Escrow Accounts shall be under the sole dominion and
control of Lender and funds held therein shall not constitute trust funds.
Mortgagor hereby irrevocably directs and authorizes Lender to withdraw funds
from the Central Account, the Rent Account and the Escrow Accounts, all in
accordance with the terms and conditions of this Security Instrument. Mortgagor
shall have no right of withdrawal in respect of the Central Account, the Rent
Account or the Escrow Accounts. Each transfer of funds to be made hereunder
shall be made only to the extent that funds are on deposit in the Central
Account, the Rent Account or the affected Sub-Account or Escrow Account, and
Lender shall have no responsibility to make additional funds available in the
event that funds on deposit are insufficient. The Central Account shall contain
the Basic Carrying Costs Sub-Account, the Debt Service Payment Sub-Account, the
Recurring Replacement Reserve Sub-Account, the Reletting Reserve Sub-Account,
the Operation and Maintenance Expense Sub-Account and the Curtailment Reserve
Sub-Account, each of which accounts shall be Eligible Accounts or book entry
sub-accounts of an Eligible Account (each a “
Sub-Account
” and
collectively, the “
Sub-Accounts
”) to
which certain funds shall be allocated and from which disbursements shall be
made pursuant to the terms of this Security Instrument. In addition, on the date
hereof, the Central Account shall also contain (x) a Sub-Account entitled the
“Engineering Escrow Sub Account”, which shall be funded by Mortgagor at Closing
with the Initial Engineering Deposit set forth on Exhibit B attached hereto
(representing the sum applicable to the Required Engineering Work described in
Section 5.12 below and on Exhibit D attached hereto. Disbursements from the
Engineering Sub-Account shall be made in accordance with Section 5.12 hereof.
Sums held in the Escrow Accounts may be commingled with other monies held by
Lender.
Section
5.03.
Permitted
Investments
. All
sums deposited into the Curtailment Reserve Escrow Account, Recurring
Replacement Reserve Sub-Account, the Reletting Reserve Escrow Account and the
Operation and Maintenance Expense Escrow Account shall be held in an interest
bearing account but Mortgagor acknowledges that Lender makes no representation
or warranty as to the rate of return. Lender shall not have any liability for
any loss in investments of funds in the Curtailment Reserve Escrow Account,
Recurring Replacement Reserve Sub-Account, the Reletting Reserve Escrow and the
Operation and Maintenance Expense Escrow Account and no such loss shall affect
Mortgagor’s obligation to fund, or liability for funding, the Central Account
and each Sub-Account and Escrow Account, as the case may be. Mortgagor agrees
that Lender shall include all such earnings on the Curtailment Reserve Escrow
Account, Recurring Replacement Reserve Sub-Account, the Reletting Reserve Escrow
Account and the Operation and Maintenance Expense Escrow Account as income of
Mortgagor (and, if Mortgagor is a partnership, limited liability company or
other pass-through entity, the partners, members or beneficiaries of Mortgagor,
as the case may be) for federal and applicable state and local tax purposes. All
interest paid or other earnings on funds deposited into the Recurring
Replacement Reserve Sub-Account, the Reletting Reserve Escrow Account and the
Operation and Maintenance Expense Escrow Account made hereunder shall be
deposited into the Central Account and shall be allocated to the Curtailment
Reserve Escrow Account, Recurring Replacement Reserve Sub-Account, the Reletting
Reserve Escrow Account and the Operation and Maintenance Expense Escrow Account.
Mortgagor shall pay all costs, fees and expenses incurred in connection with the
establishment and maintenance of, or the disbursement from the Curtailment
Reserve Escrow Account, the Recurring Replacement Reserve Sub-Account, the
Reletting Reserve Escrow Account and the Operation and Maintenance Expense
Escrow Account, which sums shall be due and payable by Mortgagor upon demand and
may be deducted by Lender from amounts on deposit in the Central Account or the
Escrow Accounts.
Section
5.04.
Servicing
Fees
. At the
option of Lender, the Loan may be serviced by a servicer (the “
Servicer
”)
selected by Lender and Lender may delegate all or any portion of its
responsibilities under this Security Instrument to the Servicer. Provided that
no Default has occurred and is continuing, Mortgagor shall have no obligation to
reimburse Lender for servicing fees incurred in connection with the ordinary,
routine servicing of the Loan; provided, however, that Mortgagor shall reimburse
Lender for (a) any and all costs and expenses incurred after the occurrence of a
Default and (b) as otherwise provided for in this Security Instrument.
Additionally, Mortgagor shall pay all reasonable servicing fees of Servicer, if
any, not to exceed $500.00 per month, charged in connection with any
disbursement of funds from the Escrow Accounts pursuant to the Servicer’s then
standard conditions and rates.
Section
5.05.
Monthly Funding of
Sub-Accounts and Escrow Accounts
. (a) On
or before each Payment Date during the term of the Loan, commencing on the first
(1st) Payment Date occurring after the month in which the Loan is initially
funded, Mortgagor shall pay or cause to be paid to the Central Account, Basic
Carrying Costs Monthly Installment, the Required Debt Service Payment, the
Recurring Replacement Monthly Installment, the Reletting Reserve Monthly
Installment and all sums required to be deposited in the Operation and
Maintenance Expense Sub-Account and the Curtailment Reserve Sub-Account, if any,
pursuant to clauses (i) through (viii) of this Section 5.05(a) and all funds
transferred or deposited into the Central Account shall be allocated among the
Sub-Accounts as follows and in the following priority:
(i)
first, to
the Basic Carrying Costs Sub-Account, until an amount equal to the Basic
Carrying Costs Monthly Installment for such Current Month has been allocated to
the Basic Carrying Costs Sub-Account;
(ii)
second,
to the Debt Service Payment Sub-Account, until an amount equal to the Required
Debt Service Payment for the Payment Date occurring in such Current Month has
been allocated to the Debt Service Payment Sub-Account;
(iii)
third, to
the Recurring Replacement Reserve Sub-Account, until an amount equal to the
Recurring Replacement Monthly Installment for such Current Month has been
allocated to the Recurring Replacement Reserve Sub-Account;
(iv)
fourth,
to the Reletting Reserve Sub-Account, until an amount equal to the Reletting
Reserve Monthly Installment for such Current Month has been allocated to the
Reletting Reserve Sub-Account;
(v)
fifth,
but only during an O&M Operative Period, to the Operation and Maintenance
Expense Sub-Account in an amount equal to the Cash Expenses, other than
management fees payable to Affiliates of Mortgagor, for such Current Month
pursuant to the related Approved Annual Budget;
(vi)
sixth,
but only during an O&M Operative Period, to the Operation and Maintenance
Expense Sub-Account in an amount equal to the amount, if any, of the Net Capital
Expenditures for such Current Month pursuant to the related Approved Annual
Budget;
(vii)
seventh,
but only during an O&M Operative Period, to the Operation and Maintenance
Expense Sub-Account in an amount equal to the amount, if any, of the
Extraordinary Expenses approved by Lender for such Current Month;
(viii)
eighth,
but only during an O&M Operative Period, the balance, if any, to the
Curtailment Reserve Sub-Account.
Provided
that (I) no Event of Default has occurred and is continuing and (II) Lender has
received the Manager Certification referred to in Section 2.09(d) hereof for the
most recent period for which the same is due, Lender agrees that in each Current
Month any amounts deposited into or remaining in the Central Account after the
Sub-Accounts have been funded in accordance with clauses (i) through (viii)
above with respect to the Current Month and any periods prior thereto, shall be
disbursed by Lender to Mortgagor on the Payment Date and, to the extent that
funds are available for such purpose, on the fifteenth and twenty-fifth day of
each Current Month or, if such days are not Business Days, on the next
succeeding Business Day in accordance with Mortgagor’s irrevocable written
instruction delivered to Lender on the Closing Date. During the existence of an
Event of Default, no funds held in the Central Account shall be distributed to
Mortgagor and Lender shall have the right to apply all or any portion of the
funds held in the Central Account or any Sub-Account or any Escrow Account to
the Debt in Lender’s sole discretion.
(b)
On each
Payment Date, (i) sums held in the Basic Carrying Costs Sub-Account shall be
transferred to the Basic Carrying Costs Escrow Account, (ii) sums held in the
Debt Service Payment Sub-Account, together with any amounts deposited into the
Central Account that are either (x) Loss Proceeds that Lender has elected to
apply to reduce the Debt in accordance with the terms of Article III hereof or
(y) excess Loss Proceeds remaining after the completion of any restoration
required hereunder, shall be transferred to Lender to be applied towards the
Required Debt Service Payment, (iii) sums held in the Recurring Replacement
Reserve Sub-Account shall be transferred to the Recurring Replacement Reserve
Escrow Account, (iv) sums held in the Reletting Reserve Sub-Account shall be
transferred to the Reletting Reserve Escrow Account, (v) sums held in the
Operation and Maintenance Expense Sub-Account shall be transferred to the
Operation and Maintenance Expense Escrow Account; and (vi) sums held in the
Curtailment Reserve Sub-Account shall be transferred to the Curtailment Reserve
Escrow Account.
(c)
While
this Security Instrument is cross-collateralized with the other
Cross-collateralized Mortgage, the monies in the Central Account relating to all
of the Cross-collateralized Property(s) shall be commingled and the cash
management arrangements hereunder and under the other Cross-collateralized
Mortgage shall be administered as if it were under one waterfall.
Section
5.06.
Payment of Basic Carrying
Costs
.
Mortgagor hereby agrees to pay all Basic Carrying Costs (without regard to the
amount of money in the Basic Carrying Costs Sub-Account or the Basic Carrying
Costs Escrow Account). At least ten (10) Business Days prior to the due date of
any Basic Carrying Costs, and not more frequently than once each month,
Mortgagor may notify Lender in writing and request that Lender pay such Basic
Carrying Costs on behalf of Mortgagor on or prior to the due date thereof, and,
provided that no Event of Default has occurred and that there are sufficient
funds available in the Basic Carrying Costs Escrow Account, Lender shall make
such payments out of the Basic Carrying Costs Escrow Account before same shall
be delinquent. Together with each such request, Mortgagor shall furnish Lender
with bills and all other documents necessary, as reasonably determined by
Lender, for the payment of the Basic Carrying Costs which are the subject of
such request. Mortgagor’s obligation to pay (or cause Lender to pay) Basic
Carrying Costs pursuant to this Security Instrument shall include, to the extent
permitted by applicable law, Impositions resulting from future changes in law
which impose upon Lender an obligation to pay any property taxes or other
Impositions or which otherwise adversely affect Lender’s interests as provided
for in this Security Instrument.
Provided
that no Event of Default shall have occurred, all funds deposited into the Basic
Carrying Costs Escrow Account shall be held by Lender pursuant to the provisions
of this Security Instrument and shall be applied in payment of Basic Carrying
Costs in accordance with the terms hereof. Should an Event of Default occur, the
sums on deposit in the Basic Carrying Costs Sub-Account and the Basic Carrying
Costs Escrow Account may be applied by Lender in payment of any Basic Carrying
Costs or may be applied to the payment of the Debt or any other charges
affecting all or any portion of the Cross-collateralized Properties as Lender in
its sole discretion may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.07.
Reletting Reserve Escrow
Account
. (a)
Mortgagor hereby agrees to pay all Reletting Expenditures (without regard to the
amount of money then available in the Reletting Reserve Sub-Account or the
Reletting Reserve Escrow Account). Upon the execution of any Space Lease with
respect to which Mortgagor is obligated to undertake or pay for any Reletting
Expenditures, Mortgagor shall submit to Lender (i) an itemized line item budget
(a “
Budget
”)
reasonably acceptable to Lender outlining all of the Reletting Expenditures,
(ii) a copy of the signed Lease for which said Reletting Expenditures relate, in
each case which has an expiration date at least three (3) years after the
commencement thereof and which is otherwise in compliance with the provisions of
this Security Instrument, (iii) a copy of the plans and specifications, if any,
for the proposed Reletting Expenditures and (iv) an Officer’s Certificate with
respect to the items referred to in clauses (i) through (iii) and setting forth
an anticipated completion date for the Reletting Expenditures. Thereafter,
provided that no Event of Default has occurred and is continuing and that Lender
has received a written request from Mortgagor for payment or reimbursement of
any costs incurred in connection with any Reletting Expenditures, together with
(i) unconditional lien waivers (subject only to payment), (ii) a statement from
an Architect or Engineer, indicating that such portion of the Reletting
Expenditures for which payment or reimbursement is sought has been substantially
completed in compliance with all Legal Requirements, (iii) unless Mortgagor
requests disbursement by means of check payable jointly to Mortgagor and the
applicable vendor, copies of bills for such Reletting Expenditures marked “paid
in full” (or such other documentation reasonably satisfactory to Lender to
establish the payment of the Reletting Expenditures) for the portion due and for
which payment or reimbursement is sought, (iv) upon final completion of such
Reletting Expenditures, tenant estoppel certificates from the tenant leasing
space in the Premises for whom the Reletting Expenditures are being made which
indicate, among other things, that the tenant under such Space Lease has been in
occupancy and open for business for at least one full calendar month and paid
all rents due under the Space Lease without abatement, suspension, deferment,
diminution, reduction or other allowances for at least one full calendar month,
and (v) such other documentation as may be reasonably requested by Lender to
establish that the Reletting Expenditures or portion thereof which are the
subject of such request have been completed, all of which are reasonably
acceptable in form and substance to Lender, Lender shall disburse to Mortgagor,
to the extent of funds remaining in the Reletting Reserve Escrow Account, any
actual expenses incurred in connection with such Reletting Expenditures which
were set forth in the approved Budget provided that Mortgagor may make a request
for disbursement of sums from the Reletting Reserve Escrow Account no more than
once during any month and any request (other than the final request) shall be in
a minimum amount of $5,000. With respect to any Reletting Expenditures which
relate to brokerage commissions, upon the receipt of (i) copies of bills for
such Reletting Expenditures marked “paid in full”, (ii) tenant estoppel
certificates from the tenant leasing space in the Premises for which Lease the
brokerage commissions are due which indicate, among other things, that the
tenant under such Space Lease has been in occupancy and open for business for at
least one full calendar month and paid all rents due under the Space Lease
without abatement, suspension, deferment, diminution, reduction or other
allowances for at least one full calendar month and (iii) a copy of the signed
Lease for which said Reletting Expenditures relate, in each case which has an
expiration date at least three (3) years, all of which are reasonably acceptable
to Lender, Lender shall disburse to Mortgagor any actual expenses incurred in
connection with such Reletting Expenditures out of the Reletting Reserve Escrow
Account. Lender shall not be required to make any disbursements out of the
Reletting Reserve Escrow Account if an Event of Default shall have occurred and
is continuing, if more than one such request is made in any month or if
sufficient funds are not available in the Reletting Reserve Escrow
Account.
(b)
In
addition, Mortgagor shall pay to Lender for deposit with Lender all funds
received by Mortgagor in excess of $50,000 in connection with any cancellation,
termination or surrender of any Lease, including, but not limited to, any
surrender or cancellation fees, buyout fees, or reimbursements for tenant
improvements and leasing commissions (“Termination Payments”); provided, as long
as no Event of Default exists, when the applicable space is re-leased pursuant
to a Space Lease entered into in accordance with the terms of this Security
Instrument, any such Termination Payments on deposit with Lender and remaining
after payment of all tenant improvements and leasing commissions in connection
with such new Space Lease pursuant to 5.07(a) above shall be paid to Mortgagor
upon the occupancy and the payment of rents due under the new Space Lease for at
least one full calendar month
(c)
Provided
that no Event of Default shall have occurred, all funds deposited into the
Reletting Reserve Escrow Account relating to Reletting Expenditures shall be
held by Lender pursuant to the provisions of this Security Instrument and shall
be applied in payment of Reletting Expenditures. Should an Event of Default
occur, the sums on deposit in the Reletting Reserve Sub-Account and the
Reletting Reserve Escrow Account may be applied by Lender in payment of any
Reletting Expenditures or may be applied to the payment of the Debt or any other
charges affecting all or any portion of the Property, as Lender, in its sole
discretion, may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
(d)
In the
event that Mortgagor holds any letters of credit as security for obligations
under Leases, within thirty (30) days (or if any letters of credit may expire
within such thirty (30) day period, prior to the expiration of such letter of
credit) of the occurrence of a monetary event of default or a material
non-monetary event of default under the related Lease, Mortgagor shall present
for draw and use all commercially reasonable efforts to draw the full amount
which it is entitled to draw under such letter of credit; provided, however,
Mortgagor shall not be obliged to draw on such letter of credit if (i) Mortgagor
has submitted to Lender a plan of action to resolve any event of default which
gave rise to Mortgagor’s right to draw on the applicable letter of credit and
Lender shall, in its reasonable discretion, have consented to such plan or
Mortgagor is precluded from making a draw on the applicable letter of credit by
applicable law, and (ii) the term of such letter of credit will not expire prior
to the implementation of such submitted plan. Mortgagor shall deliver to Lender
all security deposits which are applied against sums due to Mortgagor under
Leases (including, without limitation, all sums drawn on letters of credits held
as security for obligations of tenants under Leases) and Rent paid by or on
behalf of any lessee under a Space Lease in whole or partial consideration for
the termination, cancellation or surrender of any Space Lease including, without
limitation, surrender or cancellation fees, buy-out fees or reimbursements for
tenant improvements or leasing commissions, within five (5) Business Days of
receipt thereof and all such sums shall be held in the Reletting Reserve Escrow
Account and shall be disbursed therefrom as set forth above.
Section
5.08.
Recurring Replacement
Reserve Escrow Account
.
Mortgagor hereby agrees to pay all Recurring Replacement Expenditures with
respect to the Property (without regard to the amount of money then available in
the Recurring Replacement Reserve Sub-Account or the Recurring Replacement
Reserve Escrow Account). Provided that Lender has received written notice from
Mortgagor at least five (5) Business Days prior to the due date of any payment
relating to Recurring Replacement Expenditures and not more frequently than once
each month, and further provided that no Event of Default has occurred and is
continuing, that there are sufficient funds available in the Recurring
Replacement Reserve Escrow Account and that Mortgagor shall have theretofore
furnished Lender with lien waivers, copies of bills, invoices and other
reasonable documentation as may be required by Lender to establish that the
Recurring Replacement Expenditures which are the subject of such request
represent amounts due for completed or partially completed capital work and
improvements performed at the Property, Lender shall make such payments out of
the Recurring Replacement Reserve Escrow Account.
Provided
that no Event of Default shall have occurred, all funds deposited into the
Recurring Replacement Reserve Escrow Account shall be held by Lender pursuant to
the provisions of this Security Instrument and shall be applied in payment of
Recurring Replacement Expenditures. Should an Event of Default occur, the sums
on deposit in the Recurring Replacement Reserve Sub-Account and the Recurring
Replacement Reserve Escrow Account may be applied by Lender in payment of any
Recurring Replacement Expenditures or may be applied to the payment of the Debt
or any other charges affecting all or any portion of the Cross-collateralized
Properties, as Lender in its sole discretion may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.09.
Operation and Maintenance
Expense Escrow Account
.
Mortgagor hereby agrees to pay all Operating Expenses with respect to the
Property (without regard to the amount of money then available in the Operation
and Maintenance Expense Sub-Account or the Operation and Maintenance Expense
Escrow Account). All funds allocated to the Operation and Maintenance Expense
Escrow Account shall be held by Lender pursuant to the provisions of this
Security Instrument. Any sums held in the Operation and Maintenance Expense
Escrow Account shall be disbursed to Mortgagor within five (5) Business Days of
receipt by Lender from Mortgagor of (a) a written request for such disbursement
which shall indicate the Operating Expenses (exclusive of Basic Carrying Costs
and any management fees payable to Mortgagor or to Affiliates of Mortgagor) for
which the requested disbursement is to pay and (b) an Officer’s Certificate
stating that no Operating Expenses with respect to the Property are more than
sixty (60) days past due;
provided
,
however
, in the
event that Mortgagor legitimately disputes any invoice for an Operating Expense,
and (i) no Event of Default has occurred and is continuing hereunder, (ii)
Mortgagor shall have set aside adequate reserves for the payment of such
disputed sums together with all interest and late fees thereon, (iii) Mortgagor
has complied with all the requirements of this Security Instrument relating
thereto, and (iv) the contesting of such sums shall not constitute a default
under any other instrument, agreement, or document to which Mortgagor is a
party, then Mortgagor may, after certifying to Lender as to items (i) through
(iv) hereof, contest such invoice. Together with each such request, Mortgagor
shall furnish Lender with bills and all other documents necessary for the
payment of the Operating Expenses which are the subject of such request.
Mortgagor may request a disbursement from the Operation and Maintenance Expense
Escrow Account no more than one (1) time per calendar month. Should an Event of
Default occur and be continuing, the sums on deposit in the Operation and
Maintenance Expense Sub-Account or the Operation and Maintenance Expense Escrow
Account may be applied by Lender in payment of any Operating Expenses for the
Property or may be applied to the payment of the Debt or any other charges
affecting all or any portion of the Property as Lender, in its sole discretion,
may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.10.
Intentionally
Deleted
Section
5.11.
Curtailment Reserve Escrow
Account
. Funds
deposited into the Curtailment Reserve Escrow Account during an O&M
Operative Period shall be held by Lender in the Curtailment Reserve Escrow
Account as additional security for the Loan until the Loan has been paid in
full. Notwithstanding anything herein to the contrary, provided that no Event of
Default and no O&M Operative Period has occurred and is continuing, Lender
shall, upon written request from Mortgagor, disburse all sums contained in the
Curtailment Reserve Escrow Account to Mortgagor. Should an Event of Default
occur, the sums on deposit in the Curtailment Reserve Sub-Account and the
Curtailment Reserve Escrow Account may be applied by Lender to the payment of
the Debt or other charges affecting all or any portion of the Property, as
Lender, in its sole discretion, may determine; provided, however, that no such
application shall be deemed to have been made by operation of law or otherwise
until actually made by Lender as herein provided. Lender shall calculate the
Debt Service Coverage as of the end of each fiscal quarter. Such calculation
shall be completed within ten (10) Business Days of Lender’s receipt of the
quarterly financial statements required under Section 2.09(b) with respect to
such fiscal quarter.
Section
5.12.
Performance of Engineering
Work
.
(a)
Mortgagor
shall promptly commence and diligently thereafter pursue to completion (without
regard to the amount of money then available in the Engineering Escrow Account)
the Required Engineering Work prior to the twelve (12) month anniversary of the
Closing Date. After Mortgagor completes an item of Required Engineering Work,
Mortgagor may submit to Lender an invoice therefor with lien waivers and a
statement from the Engineer, reasonably acceptable to Lender, indicating that
the portion of the Required Engineering Work in question has been completed in
compliance with all Legal Requirements, and Lender shall, within twenty (20)
days thereafter, although in no event more frequently than once each month,
reimburse such amount to Mortgagor from the Engineering Escrow Account;
provided
,
however
, that
Mortgagor shall not be reimbursed more than the amount set forth on Exhibit D
hereto as the amount allocated to the portion of the Required Engineering Work
for which reimbursement is sought.
(b)
From and
after the date all of the Required Engineering Work is completed, Mortgagor may
submit a written request, which request shall be delivered together with final
lien waivers and a statement from the Engineer, as the case may be, reasonably
acceptable to Lender, indicating that all of the Required Engineering Work has
been completed in compliance with all Legal Requirements, and Lender shall,
within twenty (20) days thereafter, disburse any balance of the Engineering
Escrow Account to Mortgagor. Should an Event of Default occur, the sums on
deposit in the Engineering Escrow Account may be applied by Lender in payment of
any Required Engineering Work or may be applied to the payment of the Debt or
any other charges affecting all or any portion of the Cross-collateralized
Property as Lender in its sole discretion may determine;
provided
,
however
, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.
Section
5.13.
Loss
Proceeds
. In the
event of a casualty to the Property, unless Lender elects or is required
pursuant to Article III hereof to make all of the Insurance Proceeds available
to Mortgagor for restoration, Lender and Mortgagor shall cause all such
Insurance Proceeds to be paid by the insurer directly to the Central Account,
whereupon Lender shall, after deducting Lender’s reasonable costs of recovering
and paying out such Insurance Proceeds, including without limitation, reasonable
attorneys’ fees, apply the same to reduce the Debt in accordance with the terms
of the Note;
provided
,
however
, that if
Lender elects, or is deemed to have elected, or is required to make the
Insurance Proceeds available for restoration, all Insurance Proceeds in respect
of rent loss, business interruption or similar coverage shall be maintained in
the Central Account, to be applied by Lender in the manner as Rent received with
respect to the operation of the Property;
provided
,
further
,
however
, that in
the event that the Insurance Proceeds with respect to rent loss, business
interruption or similar insurance policy are paid in a lump sum in advance,
Lender shall hold such Insurance Proceeds in a segregated interest-bearing
escrow account, which shall be an Eligible Account, shall estimate, in Lender’s
reasonable discretion, the number of months required for Mortgagor to restore
the damage caused by the casualty, shall divide the aggregate rent loss,
business interruption or similar Insurance Proceeds by such number of months,
and shall disburse from such bank account into the Central Account each month
during the performance of such restoration such monthly installment of said
Insurance Proceeds. In the event that Insurance Proceeds are to be applied
toward restoration, Lender shall hold such funds in a segregated bank account at
the Bank, which shall be an Eligible Account, and shall disburse same in
accordance with the provisions of Section 3.04 hereof. Unless Lender elects, or
is required pursuant to Section 6.01 hereof to make all of the Condemnation
Proceeds available to Mortgagor for restoration, Lender and Mortgagor shall
cause all such Condemnation Proceeds to be paid to the Central Account,
whereupon Lender shall, after deducting Lender’s reasonable costs of recovering
and paying out such Condemnation Proceeds, including without limitation,
reasonable attorneys’ fees, apply same to reduce the Debt in accordance with the
terms of the Note;
provided
,
however
, that
any Condemnation Proceeds received in connection with a temporary Taking shall
be maintained in the Central Account, to be applied by Lender in the same manner
as Rent received with respect to the operation of the Property;
provided
,
further
,
however
, that in
the event that the Condemnation Proceeds of any temporary Taking are paid in a
lump sum in advance, Lender shall hold such Condemnation Proceeds in a
segregated interest-bearing bank account, which shall be an Eligible Account,
shall estimate, in Lender’s reasonable discretion, the number of months that the
Property shall be affected by such temporary Taking, shall divide the aggregate
Condemnation Proceeds in connection with such temporary Taking by such number of
months, and shall disburse from such bank account into the Central Account each
month during the pendency of such temporary Taking such monthly installment of
said Condemnation Proceeds. In the event that Condemnation Proceeds are to be
applied toward restoration, Lender shall hold such funds in a segregated bank
account at the Bank, which shall be an Eligible Account, and shall disburse same
in accordance with the provisions of Section 3.04 hereof. If any Loss Proceeds
are received by Mortgagor, such Loss Proceeds shall be received in trust for
Lender, shall be segregated from other funds of Mortgagor, and shall be
forthwith paid into the Central Account, or paid to Lender to hold in a
segregated bank account at the Bank, in each case to be applied or disbursed in
accordance with the foregoing. Any Loss Proceeds made available to Mortgagor for
restoration in accordance herewith, to the extent not used by Mortgagor in
connection with, or to the extent they exceed the cost of, such restoration,
shall be paid to Mortgagor promptly following the completion of the
Work.
ARTICLE
VI:
CONDEMNATION
Section
6.01.
Condemnation
.
(a)
Mortgagor shall notify Lender promptly of the commencement or threat of any
Taking of any Individual Property or any portion thereof. Lender is hereby
irrevocably appointed as Mortgagor’s attorney-in-fact, coupled with an interest,
with exclusive power to collect, receive and retain the proceeds of any such
Taking and to make any compromise or settlement in connection with such
proceedings (subject to Mortgagor’s reasonable approval, except after the
occurrence of an Event of Default, in which event Mortgagor’s approval shall not
be required), subject to the provisions of this Security Instrument; provided,
however, that Mortgagor may participate in any such proceedings and shall be
authorized and entitled to compromise or settle any such proceeding with respect
to Condemnation Proceeds in an amount less than five percent (5%) of the
Allocated Loan Amount. Mortgagor shall execute and deliver to Lender any and all
instruments reasonably required in connection with any such proceeding promptly
after request therefor by Lender. Except as set forth above, Mortgagor shall not
adjust, compromise, settle or enter into any agreement with respect to such
proceedings without the prior consent of Lender. All Condemnation Proceeds are
hereby assigned to and shall be paid to Lender. With respect to Condemnation
Proceeds in an amount in excess of five percent (5%) of the Allocated Loan
Amount, Mortgagor hereby authorizes Lender to compromise, settle, collect and
receive such Condemnation Proceeds, and to give proper receipts and acquittance
therefor. Subject to the provisions of this Article VI, Lender may apply such
Condemnation Proceeds (less any cost to Lender of recovering and paying out such
proceeds, including, without limitation, reasonable attorneys’ fees and
disbursements and costs allocable to inspecting any repair, restoration or
rebuilding work and the plans and specifications therefor) toward the payment of
the Debt or to allow such proceeds to be used for the Work.
(b)
“
Substantial
Taking
” shall
mean (i) a Taking of such portion of the applicable Individual Property that
would, in Lender’s reasonable discretion, leave remaining a balance of the
applicable Individual Property which would not under then current economic
conditions, applicable Development Laws and other applicable Legal Requirements,
permit the restoration of the applicable individual Property so as to constitute
a complete, rentable facility of the same type as existed prior to the Taking,
having adequate ingress and egress to the applicable individual Property, the
Leases of which covering 75% of the square footage of the Individual Property
immediately prior to such Taking will not be terminated due to the Taking during
and following the restoration of such individual Property and being capable of
producing a projected Net Operating Income (as reasonably determined by Lender)
yielding a projected Debt Service Coverage therefrom for the next two (2) years
of not less than the Required Debt Service Coverage or (ii) a Taking which
occurs less than two (2) years prior to the Maturity Date or (iii) a Taking
which Lender is not reasonably satisfied could be repaired within twelve (12)
months and at least six (6) months prior to the Maturity Date or (iv) a Taking
of fifteen percent (15%) or more of the Individual Property.
(c)
In the
case of a Substantial Taking, Condemnation Proceeds shall be payable to Lender
in reduction of the Debt but without any prepayment fee or charge of any kind
and, if Mortgagor elects to apply any Condemnation Proceeds it may receive
pursuant to this Security Instrument to the payment of the Debt, Mortgagor may
prepay the balance of the Debt without any prepayment fee or charge of any
kind.
(d)
In the
event of a Taking which is less than a Substantial Taking, Mortgagor at its sole
cost and expense (whether or not the award shall have been received or shall be
sufficient for restoration) shall proceed diligently to restore, or cause the
restoration of, the remaining Improvements not so taken, to maintain a complete,
rentable, self-contained fully operational facility of the same sort as existed
prior to the Taking in as good a condition as is reasonably possible. In the
event of such a Taking, Lender shall receive the Condemnation Proceeds and shall
pay over the same:
(i)
first,
provided no Default shall have occurred and be continuing, to Mortgagor to the
extent of any portion of the award as may be necessary to pay the reasonable
cost of restoration of the Improvements remaining, and
(ii)
second,
to Lender, in reduction of the Debt without any prepayment premium or charge of
any kind.
If one or
more Takings in the aggregate create a Substantial Taking, then, in such event,
the sections of this Article VI above applicable to Substantial Takings shall
apply.
(e)
In the
event Lender is obligated to or elects to make Condemnation Proceeds available
for the restoration or rebuilding of the Property, such proceeds shall be
disbursed in the manner and subject to the conditions set forth in Section
3.04(b) hereof. If, in accordance with this Article VI, any Condemnation
Proceeds are used to reduce the Debt, they shall be applied in accordance with
the provisions of the Note and, with no prepayment fee or charge of any kind.
Mortgagor shall promptly execute and deliver all instruments requested by Lender
for the purpose of confirming the assignment of the Condemnation Proceeds to
Lender. Application of all or any part of the Condemnation Proceeds to the Debt
shall be made in accordance with the provisions of Sections 3.06 and 3.07
hereof. No application of the Condemnation Proceeds to the reduction of the Debt
shall have the effect of releasing the lien of this Security Instrument until
the remainder of the Debt has been paid in full. In the case of any Taking,
Lender, to the extent that Lender has not been reimbursed by Mortgagor, shall be
entitled, as a first priority out of any Condemnation Proceeds, to reimbursement
for all costs, fees and expenses reasonably incurred in the determination and
collection of any Condemnation Proceeds. All Condemnation Proceeds deposited
with Lender pursuant to this Section, until expended or applied as provided
herein, shall be held in accordance with Section 3.04(b) hereof and shall
constitute additional security for the payment of the Debt and the payment and
performance of Mortgagor’s obligations, but Lender shall not be deemed a trustee
or other fiduciary with respect to its receipt of such Condemnation Proceeds or
any part thereof. All awards so deposited with Lender shall be held by Lender in
an Eligible Account, but Lender makes no representation or warranty as to the
rate or amount of interest, if any, which may accrue on any such deposit and
shall have no liability in connection therewith. For purposes hereof, any
reference to the award shall be deemed to include interest, if any, which has
accrued thereon.
ARTICLE
VII:
LEASES AND
RENTS
Section
7.01.
Assignment
.
(a)
Mortgagor
does hereby bargain, sell, assign and set over unto Lender, all of Mortgagor’s
interest in the Leases and Rents. The assignment of Leases and Rents in this
Section 7. 01 is a collateral and conditional assignment from Mortgagor to
Lender and the existence or exercise of Mortgagor’s license (revocable by Lender
only during the continuance of an Event of Default) to collect Rent shall not
operate to subordinate this assignment to any subsequent assignment. The
exercise by Lender of any of its rights or remedies pursuant to this Section
7.01 shall not be deemed to make Lender a Lender-in-possession. In addition to
the provisions of this Article VII, Mortgagor shall comply with all terms,
provisions and conditions of the Assignment.
(b)
So long
as there shall exist and be continuing no Event of Default, Mortgagor shall have
a revocable license to take all actions with respect to all Leases and Rents,
present and future, including the right to collect and use the Rents, subject to
the terms of this Security Instrument and the Assignment.
(c)
In a
separate instrument Mortgagor shall, as requested from time to time by Lender,
assign to Lender or its nominee by specific or general assignment, any and all
Leases, such assignments to be in form and content reasonably acceptable to
Lender, but subject to the provisions of Section 7.01(b) hereof. Mortgagor
agrees to deliver to Lender, within thirty (30) days after Lender’s request, a
true and complete copy of every Lease and, within ten (10) Business Days after
Lender’s request, a complete list of the Leases, certified by Mortgagor to be
true, accurate and complete and stating the demised premises, the names of the
lessees, the Rent payable under the Leases, the date to which such Rents have
been paid, the material terms of the Leases, including, without limitation, the
dates of occupancy, the dates of expiration, any Rent concessions, work
obligations or other inducements granted to the lessees thereunder, and any
renewal options.
(d)
The
rights of Lender contained in this Article VII, the Assignment or any other
assignment of any Lease shall not result in any obligation or liability of
Lender to Mortgagor or any lessee under a Lease or any party claiming through
any such lessee or constitute an assumption by Lender of any such liability or
obligation.
(e)
At any
time during the continuance of an Event of Default, the license granted
hereinabove may be revoked by Lender, and Lender or a receiver appointed in
accordance with this Security Instrument may enter upon the Property, and
collect, retain and apply the Rents toward payment of the Debt in such priority
and proportions as Lender in its sole discretion shall deem proper.
(f)
In
addition to the rights which Lender may have herein, upon the occurrence and
during the continuance of any Event of Default, Lender, at its option, may
require Mortgagor to pay monthly in advance to Lender, or any receiver appointed
to collect the Rents, the fair and reasonable rental value for the use and
occupation of such part of the Property as may be used and occupied by Mortgagor
and may require Mortgagor to vacate and surrender possession of the Property to
Lender or to such receiver and, in default thereof, Mortgagor may be evicted by
summary proceedings or otherwise.
Section
7.02.
Management of
Property
.
(a)
Mortgagor
shall manage the Property or cause the Property to be managed in a manner which
is consistent with the Approved Manager Standard. The Manager (other than
Mortgagor) shall at all times meet the Minimum Manager Credentials. All Space
Leases shall provide for rental rates comparable to then existing local market
rates and terms and conditions which constitute good and prudent business
practice and are consistent with prevailing market terms and conditions, and
shall be arm’s length transactions. All Space Leases shall be on a form
previously approved by Lender with such commercially reasonable changes as are
consistent with the standards of other similarly situated owners when compared
with terms and conditions of leases in similarly situated industrial centers in
similar context at the time in question, taking into account,
inter
alia
, the
type, creditworthiness and bargaining power of the prospective tenant and the
location and size of the space covered by the proposed Lease, and shall provide
that they are subordinate to this Security Instrument and that the lessees
thereunder attorn to Lender. Mortgagor shall deliver copies of all Leases,
amendments, modifications and renewals thereof to Lender. All proposed Space
Leases for the Property shall be subject to the prior written approval of
Lender, not to be unreasonably withheld or delayed, provided, however that
Mortgagor may enter into new Space Leases with unrelated third parties without
obtaining the prior consent of Lender provided that: (i) the leases conform with
the requirements of this Section 7.02; (ii) the space to be leased pursuant to
such proposed Lease, together with any other space which is leased to the
proposed tenant or an Affiliate thereof, is not a Major Space Lease; and (iii)
the term of the proposed lease does not exceed six (6) years and, inclusive of
all extensions and renewals, does not exceed ten (10) years. Lender’s consent to
any Lease shall be deemed given, if the first correspondence from Mortgagor to
Lender requesting such approval is in an envelope marked “PRIORITY” and contains
a bold-faced, conspicuous legend at the top of the first page thereof stating
that “IF YOU FAIL TO RESPOND TO OR TO EXPRESSLY DENY THIS REQUEST FOR APPROVAL
IN WRITING WITHIN FIVE (5) BUSINESS DAYS, YOUR APPROVAL MAY BE DEEMED GIVEN”,
and is accompanied by the information and documents required above and any other
information reasonably requested by Lender in writing prior to the expiration of
such five (5) Business Day period in order to adequately review the same has
been delivered and, if Lender fails to respond or to expressly deny such request
for approval in writing within the five (5) Business Day period a second notice
is delivered to Lender from Mortgagor in an envelope marked “PRIORITY”
requesting approval containing a bold-faced, conspicuous legend at the top of
the first page thereof stating that “IF YOU FAIL TO RESPOND TO OR EXPRESSLY DENY
THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5) BUSINESS DAYS, YOUR
APPROVAL SHALL BE DEEMED GIVEN” and Lender fails to respond or to expressly deny
each request for approval within the five (5) Business Day period.
(b)
Mortgagor
(i) shall observe and perform all of its material obligations under the Leases
pursuant to applicable Legal Requirements and shall not do or permit to be done
anything to impair the value of the Leases as security for the Debt; (ii) shall
promptly send copies to Lender of all notices of default which Mortgagor shall
receive under the Leases; (iii) shall, consistent with the Approved Manager
Standard, enforce all of the terms, covenants and conditions contained in the
Leases to be observed or performed; (iv) shall not collect any of the Rents
under the Leases more than one (1) month in advance (except that Mortgagor may
collect in advance (A) such security deposits as are permitted pursuant to
applicable Legal Requirements and are commercially reasonable in the prevailing
market and (B) all rent deemed “additional rent” under the Leases); (v) shall
not execute any other assignment of lessor’s interest in the Leases or the Rents
except as otherwise expressly permitted pursuant to this Security Instrument;
(vi) shall not cancel or terminate any of the Space Leases or accept a surrender
thereof in any manner inconsistent with the Approved Manager Standard; (vii)
shall not convey, transfer or suffer or permit a conveyance or transfer of all
or any part of the Premises or the Improvements or of any interest therein so as
to effect a merger of the estates and rights of, or a termination or diminution
of the obligations of, lessees thereunder; (viii) shall not alter, modify
or change the terms of any guaranty of any Major Space Lease or cancel or
terminate any such guaranty in any manner inconsistent with the Approved Manager
Standard; (ix) shall, in accordance with the Approved Manager Standard, make all
reasonable efforts to seek lessees for space as it becomes vacant and enter into
Leases in accordance with the terms hereof; (x) shall not materially modify,
alter or amend any Major Space Lease or Property Agreement without Lender’s
consent, which consent will not be unreasonably withheld or delayed; (xi) shall
notify Lender promptly if any Pad Owner shall cease business operations or of
the occurrence of any event of which it becomes aware affecting a Pad Owner or
its property which might have any material effect on the Property; and (xii)
shall, without limitation to any other provision hereof, execute and deliver at
the reasonable request of Lender all such further assurances, confirmations and
assignments in connection with the Property as are required herein and as Lender
shall from time to time reasonably require.
(c)
All
security deposits of lessees, whether held in cash or any other form, shall be
treated by Mortgagor as trust funds, shall not be commingled with any other
funds of Mortgagor and, if cash, shall be deposited by Mortgagor in the Security
Deposit Account. Any bond or other instrument which Mortgagor is permitted to
hold in lieu of cash security deposits under applicable Legal Requirements shall
be maintained in full force and effect unless replaced by cash deposits as
hereinabove described shall, if permitted pursuant to Legal Requirements, at
Lender’s option, name Lender as payee or mortgagee thereunder or be fully
assignable to Lender and shall, in all respects, comply with applicable Legal
Requirements and otherwise be reasonably satisfactory to Lender. Mortgagor
shall, upon request, provide Lender with evidence reasonably satisfactory to
Lender of Mortgagor’s compliance with the foregoing. During the continuance of
any Event of Default, Mortgagor shall, upon Lender’s request, if permitted by
applicable Legal Requirements, turn over the security deposits (and any interest
thereon) to Lender to be held by Lender in accordance with the terms of the
Leases and all Legal Requirements.
(d)
Lender
shall, upon request of Mortgagor, enter into a subordination, nondisturbance and
attornment agreement (“
SNDA
”) with
respect to each proposed tenant entering into a Lease in compliance with the
requirements of this Security Instrument provided that such Lease is (i) with a
tenant under a Major Space Lease at an Individual Property or is with an
existing tenant pursuant to a Lease dated prior to the Closing Date which
provides that the tenant thereunder is entitled to an SNDA or with any tenant
which is renting space on a national basis which leases at least 2,000 square
feet of the Premises, (ii) with a tenant reasonably approved by Lender in
writing prior to Mortgagor’s execution of any such Lease and (iii) on the
standard form of Lease previously approved in writing by Lender with such
commercially reasonable changes as are consistent with the Approved Manager
Standard. Any SNDA executed by Lender shall be in Lender’s then standard form
with such changes as Lender shall agree to and provide that in the event Lender
or any purchaser at foreclosure shall succeed to Mortgagor’s interest in the
Property, the Leases of such tenants will remain in full force and effect and be
binding upon Lender or such purchaser and such tenant as though each were
original parties thereto.
(e)
Mortgagor
covenants and agrees with Lender that (i) the Property will be managed at all
times by Mortgagor in accordance with Mortgagor’s organizational documents or by
a Manager pursuant to a management agreement approved by Lender (the
“
Management
Agreement
”), (ii)
after Mortgagor has knowledge of a fifty percent (50%) or more change in control
of the ownership of Manager, Mortgagor will promptly give Lender notice thereof
(a “
Manager Control
Notice
”) and
(iii) the Management Agreement (or in the case Mortgagor is acting as Manager,
Mortgagor’s right to manage the Property) may be terminated by Lender at any
time for cause (including, but not limited to, Manager’s gross negligence,
misappropriation of funds, willful misconduct or fraud) or at any time following
(A) the occurrence of an Event of Default, or (B) the receipt of a Manager
Control Notice, or (C) the date upon which the Debt Service Coverage is 1.10:1.0
or less. In the event of any such termination, a substitute managing agent shall
be appointed by Mortgagor, subject to Lender’s prior written approval, which may
be given or withheld in Lender’s sole discretion and which may be conditioned
on, inter alia, a letter from each Rating Agency confirming that any rating
issued by the Rating Agency in connection with a Securitization will not, as a
result of the proposed change of Manager, be downgraded from the then current
ratings thereof, qualified or withdrawn. Mortgagor may from time to time appoint
a successor manager to manage the Property with Lender’s prior written consent
which consent shall not be unreasonably withheld or delayed, provided that any
such successor manager shall be a reputable management company which meets the
Minimum Manager Credentials and each Rating Agency shall have confirmed in
writing that any rating issued by the Rating Agency in connection with a
Securitization will not, as a result of the proposed change of Manager, be
downgraded from the then current ratings thereof, qualified or withdrawn.
Mortgagor further covenants and agrees that Mortgagor shall require Manager (or
any successor managers) to maintain at all times during the term of the Loan
worker’s compensation insurance as required by Governmental
Authorities.
ARTICLE
VIII:
MAINTENANCE AND
REPAIR
Section
8.01.
Maintenance
and Repair of the Property; Alterations; Replacement of Equipment. Mortgagor
hereby covenants and agrees:
(a)
Mortgagor
shall not (i) desert or abandon the Property, (ii) change the use of the
Property or cause or permit the use or occupancy of any part of the Property to
be discontinued if such discontinuance or use change would violate any zoning or
other law, ordinance or regulation; (iii) consent to or seek any lowering of the
zoning classification, or greater zoning restriction affecting the Property; or
(iv) take any steps whatsoever to convert the Property, or any portion thereof,
to a condominium or cooperative form of ownership.
(b)
Mortgagor
shall, at its expense, (i) take good care of the Property including grounds
generally, and utility systems and sidewalks, roads, alleys, and curbs therein,
and shall keep the same in good, safe and insurable condition and in compliance
with all applicable Legal Requirements, (ii) promptly make or cause to be made
all repairs to the Property, above grade and below grade, interior and exterior,
structural and nonstructural, ordinary and extraordinary, unforeseen and
foreseen, and maintain the Property in a manner appropriate for the facility and
(iii) not commit or suffer to be committed any waste of the Property or do or
suffer to be done anything which will increase the risk of fire or other hazard
to the Property or impair the value thereof. Mortgagor shall keep the sidewalks,
vaults, gutters and curbs comprising, or adjacent to, the Property, clean and
free from dirt, snow, ice, rubbish and obstructions. All repairs made by
Mortgagor shall be made with first-class materials, in a good and workmanlike
manner, shall be equal or better in quality and class to the original work and
shall comply with all applicable Legal Requirements and Insurance Requirements.
To the extent any of the above obligations are obligations of tenants under
Space Leases or other Persons under Property Agreements, Mortgagor may fulfill
its obligations hereunder by causing such tenants or other Persons, as the case
may be, to perform their obligations thereunder. As used herein, the terms
“repair” and “repairs” shall be deemed to include all necessary
replacements.
(c)
Mortgagor
shall, except in connection with tenant improvement work under Space Leases
entered into in accordance with the terms of this Security Instrument, not
demolish, remove, construct, or, except as otherwise expressly provided herein,
restore, or alter the Property or any portion thereof which could diminish the
value of the Property nor consent to or permit any such demolition, removal,
construction, restoration, addition or alteration which would diminish the value
of the Property without Lender’s prior written consent in each instance, which
consent shall not be unreasonably withheld or delayed.
(d)
Mortgagor
represents and warrants to Lender that (i) there are no fixtures, machinery,
apparatus, tools, equipment or articles of personal property attached or
appurtenant to, or located on the Property, except for the Equipment and
equipment leased by Mortgagor for the management, operation or maintenance of
the Property in accordance with the Loan Documents; (ii) the Equipment and the
leased equipment constitute all of the fixtures, machinery, apparatus, tools,
equipment and articles of personal property necessary to the proper operation
and maintenance of the Property; and (iii) all of the Equipment is free and
clear of all liens, except for the lien of this Security Instrument and the
Permitted Encumbrances. All right, title and interest of Mortgagor in and to all
extensions, improvements, betterments, renewals and appurtenances to the
Property hereafter acquired by, or released to, Mortgagor or constructed,
assembled or placed by Mortgagor in the Property, and all changes and
substitutions of the security constituted thereby, shall be and, in each such
case, without any further mortgage, encumbrance, conveyance, assignment or other
act by Lender or Mortgagor, shall become subject to the lien and security
interest of this Security Instrument as fully and completely, and with the same
effect, as though now owned by Mortgagor and specifically described in this
Security Instrument, but at any and all times Mortgagor shall execute and
deliver to Lender any documents Lender may reasonably deem necessary or
appropriate for the purpose of specifically subjecting the same to the lien and
security interest of this Security Instrument.
(e)
Notwithstanding
the provisions of this Security Instrument to the contrary, Mortgagor shall have
the right, at any time and from time to time, to remove and dispose of Equipment
which may have become obsolete or unfit for use or which is no longer useful in
the management, operation or maintenance of the Property. Mortgagor shall
promptly replace any such Equipment so disposed of or removed with other
Equipment of equal value and utility, free of any security interest or superior
title, liens or claims; except that, if replacement of the Equipment so removed
or disposed of is not necessary or desirable for the proper management,
operation or maintenance of the Property, Mortgagor shall not be required to
replace the same. All such replacements or additional equipment shall be deemed
to constitute “Equipment” and shall be covered by the security interest herein
granted.
(f)
Mortgagor
shall diligently take all actions required to cause the temporary certificate of
occupancy relating to the Property known as 5405 Bandera Road to be renewed
prior to each and every expiration thereof until the permanent, unconditional
certificate of occupancy is issued. Borrower shall provide quarterly updates to
Lender of the progress of the work required to obtain the permanent,
unconditional certificate of occupancy, inspections or approval processes and
shall promptly provide Lender with copies of evidence of the removal of any and
all violations affecting the Property, if any, and any new temporary
certificates of occupancy and the permanent, unconditional certificate of
occupancy upon issuance of same.
ARTICLE
IX:
TRANSFER OR ENCUMBRANCE OF
THE PROPERTY
Section
9.01.
Other
Encumbrances
.
Mortgagor shall not further encumber or permit the further encumbrance in any
manner (whether by grant of a pledge, security interest or otherwise) of the
Property or any part thereof or interest therein, including, without limitation,
of the Rents therefrom. In addition, Mortgagor shall not further encumber and
shall not permit the further encumbrance in any manner (whether by grant of a
pledge, security interest or otherwise) of Mortgagor or any direct or indirect
interest in Mortgagor except as expressly permitted pursuant to this Security
Instrument.
Section
9.02.
No
Transfer
. (a)
Mortgagor acknowledges that Lender has examined and relied on the expertise of
Mortgagor and, if applicable, each General Partner, in owning and operating
properties such as the Property in agreeing to make the Loan and will continue
to rely on Mortgagor’s ownership of the Property as a means of maintaining the
value of the Property as security for repayment of the Debt and Mortgagor
acknowledges that Lender has a valid interest in maintaining the value of the
Property. Mortgagor shall not Transfer, nor permit any Transfer, without the
prior written consent of Lender, which consent Lender may withhold in its sole
and absolute discretion other than pursuant to Space Leases as provided herein.
Lender shall not be required to demonstrate any actual impairment of its
security or any increased risk of default hereunder in order to declare the Debt
immediately due and payable upon a Transfer without Lender’s consent. This
provision shall apply to every Transfer regardless of whether voluntary or not,
or whether or not Lender has consented to any previous Transfer.
(b)
Notwithstanding
any provision of this Security Instrument to the contrary, no person or entity
may, after the date hereof, become an owner of a direct or indirect interest in
any entity comprising Mortgagor, which interest exceeds forty-nine percent
(49%), without Lender’s written consent in each instance and receipt by Lender
of (x) written confirmation that any rating issued by such Rating Agency in
connection with the Securitization will not, as a result of the proposed
Transfer, be downgraded from the then current ratings thereof, qualified or
withdrawn, and (y) a substantive non-consolidation opinion in form and
substance acceptable to Lender.
Section
9.03.
Due on
Sale
. Lender
may declare the Debt immediately due and payable upon any Transfer or further
encumbrance without Lender’s consent without regard to whether any impairment of
its security or any increased risk of default hereunder can be demonstrated.
This provision shall apply to every Transfer or further encumbrance of the
Property or any part thereof or interest in the Property or in Mortgagor
regardless of whether voluntary or not, or whether or not Lender has consented
to any previous Transfer or further encumbrance of the Property or interest in
Mortgagor.
Section
9.04.
Permitted
Transfer
.
Notwithstanding the foregoing provisions of this Article IX, the sale,
conveyance or transfer of the Cross-collateralized Properties in their entirety,
except as otherwise set forth in Section 9.04(B) (hereinafter, “
Sale
”) shall
be permitted hereunder provided that each of the following terms and conditions
are satisfied:
(a)
no Event
of Default is then continuing hereunder or under any of the other Loan Documents
and no O&M Operative Period shall have commenced and be
continuing;
(b)
Lender
shall have consented to the Sale, provided, however, such consent shall not be
unreasonably withheld and, if the proposed Sale is to occur at any time after a
Securitization, each Rating Agency shall have delivered written confirmation
that any rating issued by such Rating Agency in connection with the
Securitization will not, as a result of the proposed Sale, be downgraded from
the then current ratings thereof, qualified or withdrawn; provided, however,
that no request for consent to the Sale will be entertained by Lender if the
proposed Sale is to occur within sixty (60) days of any contemplated sale of the
Loan by Lender, whether in connection with a Securitization or
otherwise;
(c)
Mortgagor
gives Lender written notice of the terms of the proposed Sale not less than
forty-five (45) days before the date on which such Sale is scheduled to close
and, concurrently therewith, gives Lender (i) all such information concerning
the proposed transferee of the Property (hereinafter, “
Buyer
”) as
Lender would require in evaluating an initial extension of credit to a borrower
and Lender determines, in its reasonable discretion that the Buyer is acceptable
to Lender in all respects and (ii) a non-refundable application fee equal to
$7,500;
(d)
Mortgagor
pays Lender, concurrently with the closing of such Sale, a non-refundable
assumption fee in an amount equal to (x) one half of one percent (.5%) of the
then outstanding Loan Amount for the first such Sale and (y) one percent (1.0%)
of the then outstanding Loan Amount for each Sale thereafter, together with all
reasonable out-of-pocket costs and expenses, including, without limitation,
reasonable attorneys’ fees, incurred by Lender in connection with the
Sale;
(e)
Buyer
assumes all of the obligations under the Loan Documents and, prior to or
concurrently with the closing of such Sale, Buyer executes, without any cost or
expense to Lender, such documents and agreements as Lender shall reasonably
require to evidence and effectuate said assumption and delivers such legal
opinions as Lender may require;
(f)
Mortgagor
and Buyer execute, without any cost or expense to Lender, new financing
statements or financing statement amendments and any additional documents
reasonably requested by Lender;
(g)
Mortgagor
delivers to Lender, without any cost or expense to Lender, such endorsements to
Lender’s title insurance policy, hazard insurance policy endorsements or
certificates and other similar materials as Lender may deem necessary at the
time of the Sale, all in form and substance reasonably satisfactory to Lender,
including, without limitation, an endorsement or endorsements to Lender’s title
insurance policy insuring the lien of this Security Instrument, extending the
effective date of such policy to the date of execution and delivery (or, if
later, of recording) of the assumption agreement referenced above in
subparagraph (e) of this Section, with no additional exceptions added to such
policy, and insuring that fee simple title to the Property is vested in
Buyer;
(h)
Mortgagor
executes and delivers to Lender, without any cost or expense to Lender, a
release of Lender, its officers, directors, employees and agents, from all
claims and liability relating to the transactions evidenced by the Loan
Documents, through and including the date of the closing of the Sale, which
agreement shall be in form and substance reasonably satisfactory to Lender and
shall be binding upon Buyer;
(i)
subject
to the provisions of Section 18.32 hereof, such Sale is not construed so as to
relieve Mortgagor of any personal liability under the Note or any of the other
Loan Documents for any acts or events occurring or obligations arising prior to
or simultaneously with the closing of such Sale, and Mortgagor executes, without
any cost or expense to Lender, such documents and agreements as Lender shall
reasonably require to evidence and effectuate the ratification of said personal
liability; provided that, upon the closing of such Sale, if Mortgagor and Buyer
have satisfied each of the terms of this Section 9.04, as reasonably determined
by Lender, Lender shall release Mortgagor from all obligations arising after the
closing of such Sale. Additionally, if a replacement guarantor acceptable to
Lender in its reasonable discretion executes a guaranty identical in substance
to the Indemnity and Guaranty, Lender shall release the existing Guarantor from
any liabilities under the Indemnity and Guaranty arising after the closing of
such Sale;
(j)
such Sale
is not construed so as to relieve any Guarantor of its obligations under any
guaranty or indemnity agreement executed in connection with the Loan and each
such Guarantor executes, without any cost or expense to Lender, such documents
and agreements as Lender shall reasonably require to evidence and effectuate the
ratification of each such guaranty agreement, provided that if Buyer or a party
associated with Buyer approved by Lender in its sole discretion assumes the
obligations of the current Guarantor under its guaranty and Buyer or such party
associated with Buyer, as applicable, executes, without any cost or expense to
Lender, a new guaranty in similar form and substance to the existing guaranty
and otherwise satisfactory to Lender, then Lender shall release the current
Guarantor from all obligations arising under its guaranty after the closing of
such Sale; and
(k)
Buyer is
a Single Purpose Entity and Lender receives a non-consolidation opinion relating
to Buyer from Buyer’s counsel, which opinion is in form and substance acceptable
to Lender.
ARTICLE
X:
CERTIFICATES
Section
10.01.
Estoppel
Certificates
.
(a)
After
request by Lender, Mortgagor, within fifteen (15) days and at its expense, will
furnish Lender with a statement, duly acknowledged and certified, setting forth
(i) the amount of the original principal amount of the Note, and the unpaid
principal amount of the Note, (ii) the rate of interest of the Note, (iii) the
date payments of interest and/or principal were last paid, (iv) any offsets or
defenses to the payment of the Debt, and if any are alleged, the nature thereof,
(v) that the Note and this Security Instrument have not been modified or if
modified, giving particulars of such modification and (vi) to the best of
Mortgagor’s knowledge, that there has occurred and is then continuing no Default
or if such Default exists, the nature thereof, the period of time it has
existed, and the action being taken to remedy such Default.
(b)
Within
fifteen (15) days after written request by Mortgagor, Lender shall furnish to
Mortgagor a written statement confirming the amount of the Debt, the maturity
date of the Note and the date to which interest has been paid.
(c)
Mortgagor
shall use all commercially reasonable efforts to obtain estoppel certificates
from tenants in form and substance reasonably acceptable to Lender or in form
and substance as provided in the applicable Leases, but, provided no Event of
Default has occurred and is continuing, in no event shall Mortgagor be required
to deliver estoppel certificates more than twice during any Loan
Year.
ARTICLE
XI:
NOTICES
Section
11.01.
Notices
. Any
notice, demand, statement, request or consent made hereunder shall be in writing
and delivered personally or sent to the party to whom the notice, demand or
request is being made by Federal Express or other nationally recognized
overnight delivery service, as follows and shall be deemed given when delivered
personally or one (1) Business Day after being deposited with Federal Express or
such other nationally recognized delivery service:
If to
Lender:
To
Lender, at the address first written above,
|
with
a copy to:
|
Winston
& Strawn LLP
|
|
|
Attention:
Corey A. Tessler, Esq.
|
|
If
to Mortgagor:
|
To
Mortgagor
,
at the address first written above,
|
|
with
a copy to:
|
Herrick
Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Sheldon Chanales,
Esq.
|
|
and
|
c/o
The Lightstone Group
326 Third Street
Lakewood, New Jersey 08701
Attention: Joseph Teichman
Facsimile No.: (732)
363-7183
|
or such
other address as either Mortgagor or Lender shall hereafter specify by not less
than ten (10) days prior written notice as provided herein; provided, however,
that notwithstanding any provision of this Article to the contrary, such notice
of change of address shall be deemed given only upon actual receipt thereof.
Rejection or other refusal to accept or the inability to deliver because of
changed addresses of which no notice was given as herein required shall be
deemed to be receipt of the notice, demand, statement, request or
consent.
ARTICLE
XII:
INDEMNIFICATION
Section
12.01.
Indemnification Covering
Property
. In
addition, and without limitation, to any other provision of this Security
Instrument or any other Loan Document, Mortgagor shall protect, indemnify and
save harmless Lender and its successors and assigns, and each of their agents,
employees, officers, directors, stockholders, partners and members
(collectively, “
Indemnified
Parties
”) for,
from and against any claims, demands, penalties, fines, actual liabilities,
settlements, actual damages, actual costs and expenses of whatever kind or
nature, known or unknown, contingent or otherwise, whether incurred or imposed
within or outside the judicial process, including, without limitation,
reasonable attorneys’ fees and disbursements imposed upon or incurred by or
asserted against any of the Indemnified Parties by reason of (a) ownership of
this Security Instrument, the Assignment, the Property or any part thereof or
any interest therein or receipt of any Rents; (b) any accident, injury to or
death of any person or loss of or damage to property occurring in, on or about
the Property or any part thereof or on the adjoining sidewalks, curbs, parking
areas, streets or ways; (c) any use, nonuse or condition in, on or about, or
possession, alteration, repair, operation, maintenance or management of, the
Property or any part thereof or on the adjoining sidewalks, curbs, parking
areas, streets or ways; (d) any failure on the part of Mortgagor to perform or
comply with any of the terms of this Security Instrument or the Assignment; (e)
performance of any labor or services or the furnishing of any materials or other
property in respect of the Property or any part thereof; (f) any claim by
brokers, finders or similar Persons claiming to be entitled to a commission in
connection with any Lease or other transaction involving the Property or any
part thereof; (g) any Imposition including, without limitation, any Imposition
attributable to the execution, delivery, filing, or recording of any Loan
Document, Lease or memorandum thereof; (h) any lien, security interest, or claim
arising on or against the Property or any part thereof under any Legal
Requirement or any liability asserted against any of the Indemnified Parties
with respect thereto; (i) any claim arising out of or in any way relating to any
tax or other imposition on the making and/or recording of this Security
Instrument, the Note or any of the other Loan Documents unless otherwise set
forth herein; (j) a Default under Sections 2.02(f) or 2.02(g) hereof, (k) the
failure of any Person to file timely with the Internal Revenue Service an
accurate Form 1099-B, Statement for Recipients of Proceeds from Real Estate,
Broker and Barter Exchange Transactions, which may be required in connection
with the Loan, or to supply a copy thereof in a timely fashion to the recipient
of the proceeds of the Loan; or (l) the claims of any lessee or any Person
acting through or under any lessee or otherwise arising under or as a
consequence of any Lease prior to the time Lender may have taken possession of
the Property. Notwithstanding the foregoing provisions of this Section 12.01 to
the contrary, Mortgagor shall have no obligation to indemnify the Indemnified
Parties pursuant to this Section 12.01 for liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses relative to the
foregoing which result from Lender’s, and its successors’ or assigns’, willful
misconduct or gross negligence. Any amounts payable to Lender by reason of the
application of this Section 12.01 shall constitute a part of the Debt secured by
this Security Instrument and the other Loan Documents and shall become
immediately due and payable and shall bear interest at the Default Rate from the
date the liability, obligation, claim, cost or expense is sustained by Lender,
as applicable, until paid. The provisions of this Section 12.01 shall survive
the termination of this Security Instrument whether by repayment of the Debt,
foreclosure or delivery of a deed in lieu thereof, assignment or otherwise. In
case any action, suit or proceeding is brought against any of the Indemnified
Parties by reason of any occurrence of the type set forth in (a) through (l)
above, Mortgagor shall, at Mortgagor’s expense, resist and defend such action,
suit or proceeding or will cause the same to be resisted and defended by counsel
at Mortgagor’s expense for the insurer of the liability or by counsel designated
by Mortgagor (unless reasonably disapproved by Lender promptly after Lender has
been notified of such counsel);
provided
,
however
, that
nothing herein shall compromise the right of Lender (or any other Indemnified
Party) to appoint its own counsel at Mortgagor’s expense for its defense with
respect to any action which, in the reasonable opinion of Lender or such other
Indemnified Party, as applicable, presents a conflict or potential conflict
between Lender or such other Indemnified Party that would make such separate
representation advisable. Any Indemnified Party will give Mortgagor prompt
notice after such Indemnified Party obtains actual knowledge of any potential
claim by such Indemnified Party for indemnification hereunder. The Indemnified
Parties shall not settle or compromise any action, proceeding or claim as to
which it is indemnified hereunder without notice to, and provided that no Event
of Default has occurred and is continuing, consultation with,
Mortgagor.
ARTICLE
XIII:
DEFAULTS
Section
13.01.
Events of
Default
. The
Debt shall become immediately due at the option of Lender upon any one or more
of the following events (“
Event of
Default
”):
(a)
if the
final payment or prepayment premium, if any, due under the Note shall not be
paid on Maturity;
(b)
if any
monthly payment of interest and/or principal due under the Note (other than the
sums described in (a) above) shall not be fully paid on the date upon which the
same is due and payable thereunder;
(c)
if
payment of any sum (other than the sums described in (a) above or (b) above)
required to be paid pursuant to the Note, this Security Instrument or any other
Loan Document shall not be paid within seven (7) Business Days after Lender
delivers written notice to Mortgagor that same is due and payable thereunder or
hereunder;
(d)
if
Mortgagor, Guarantor or, if Mortgagor or Guarantor is a partnership, any general
partner of Mortgagor or Guarantor, or, if Mortgagor or Guarantor is a limited
liability company, any member of Mortgagor or Guarantor, shall institute or
cause to be instituted any proceeding for the termination or dissolution of
Mortgagor, Guarantor or any such general partner or member;
(e)
if the
insurance policies required hereunder are not kept in full force and effect, or
if the insurance policies are not assigned and delivered to Lender as herein
provided;
(f)
if
Mortgagor or Guarantor attempts to assign its rights under this Security
Instrument or any other Loan Document or any interest herein or therein, or if
any Transfer occurs other than in accordance with the provisions
hereof;
(g)
if any
representation or warranty of Mortgagor or Guarantor made herein or in any other
Loan Document or in any certificate, report, financial statement or other
instrument or agreement furnished to Lender shall prove false or misleading in
any material respect as of the date the representation or warranty was
made;
(h)
if
Mortgagor, Guarantor or any general partner of Mortgagor or Guarantor shall make
an assignment for the benefit of creditors or shall admit in writing its
inability to pay its debts generally as they become due;
(i)
if a
receiver, liquidator or trustee of Mortgagor, Guarantor or any general partner
of Mortgagor or Guarantor shall be appointed or if Mortgagor, Guarantor or their
respective general partners shall be adjudicated a bankrupt or insolvent, or if
any petition for bankruptcy, reorganization or arrangement pursuant to federal
bankruptcy law, or any similar federal or state law, shall be filed by or
against, consented to by, or acquiesced in by, Mortgagor, Guarantor or their
respective general partners or if any proceeding for the dissolution or
liquidation of Mortgagor, Guarantor or their respective general partners shall
be instituted; however, if such appointment, adjudication, petition or
proceeding was involuntary and not consented to by Mortgagor, Guarantor or their
respective general partners, as applicable, upon the same not being discharged,
stayed or dismissed within sixty (60) days or if Mortgagor, Guarantor or their
respective general partners shall generally not be paying its debts as they
become due;
(j)
if
Mortgagor shall be in default beyond any notice or grace period, if any, under
any other mortgage or deed of trust or security agreement covering any part of
the Property without regard to its priority relative to this Security
Instrument; provided, however, this provision shall not be deemed a waiver of
the provisions of Article IX prohibiting further encumbrances affecting the
Property or any other provision of this Security Instrument;
(k)
if the
Property becomes subject (i) to any lien or security interest which is superior
to the lien of this Security Instrument, other than a lien for real estate taxes
and assessments not due and payable, or (ii) to any mechanic’s, materialman’s or
other lien which is or is asserted to be superior to the lien of this Security
Instrument, and such lien shall remain undischarged (by payment, bonding, or
otherwise) for ten (10) days unless contested in accordance with the terms
hereof;
(l)
if
Mortgagor discontinues the operation of the Property or any part thereof for
reasons other than repair or restoration arising from a casualty or condemnation
for ten (10) days or more;
(m)
except as
permitted in this Security Instrument, any material alteration, demolition or
removal by, on behalf or with the consent of Mortgagor of any of the
Improvements without the prior consent of Lender;
(n)
if
Mortgagor consummates a transaction which would cause this Security Instrument
or Lender’s rights under this Security Instrument, the Note or any other Loan
Document to constitute a non-exempt prohibited transaction under ERISA or result
in a violation of a state statute regulating government plans subjecting Lender
to liability for a violation of ERISA or a state statute;
(o)
if an
Event of Default shall occur under the other the Cross-collateralized
Mortgage;
(p)
if
Mortgagor breaches any provision of Article IX or Section 2.02(g) of this
Security Instrument; or
(q)
if a
default shall occur under any of the other terms, covenants or conditions of the
Note, this Security Instrument or any other Loan Document, other than as set
forth in (a) through (p) above, for ten (10) days after notice from Lender in
the case of any default which can be cured by the payment of a sum of money, or
for thirty (30) days after notice from Lender in the case of any other default
or an additional ninety (90) days if Mortgagor is diligently and continuously
effectuating a cure of a curable non-monetary default, other than as set forth
in (a) through (p) above.
Section
13.02.
Remedies
.
(a) Upon
the occurrence and during the continuance of any Event of Default, Lender may,
in addition to any other rights or remedies available to it hereunder or under
any other Loan Document, at law or in equity, take such action, to the extent
permitted by law, without notice or demand, as it reasonably deems advisable to
protect and enforce its rights against Mortgagor and in and to any Property or
any one or more of the Cross-collateralized Properties including, but not
limited to, the following actions, each of which may be pursued singly,
concurrently or otherwise, at such time and in such order as Lender may
determine, in its sole discretion, without impairing or otherwise affecting any
other rights and remedies of Lender hereunder, at law or in equity: (i) declare
all or any portion of the unpaid Debt to be immediately due and payable;
provided, however, that upon the occurrence of any of the events specified in
Section 13.01(i), the entire Debt will be immediately due and payable without
notice or demand or any other declaration of the amounts due and payable; or
(ii) bring, an action to foreclose this Security Instrument and without applying
for a receiver for the Rents, but subject to the rights of the tenants under the
Leases, enter into or upon the Property or any part thereof, either personally
or by its agents, nominees or attorneys, and dispossess Mortgagor and its agents
and servants therefrom, and thereupon Lender may (A) use, operate, manage,
control, insure, maintain, repair, restore and otherwise deal with all and every
part of the Property and conduct the business thereat, (B) make alterations,
additions, renewals, replacements and improvements to or on the Property or any
part thereof, (C) exercise all rights and powers of Mortgagor with respect to
the Property or any part thereof, whether in the name of Mortgagor or otherwise,
including, without limitation, the right to make, cancel, enforce or modify
Leases, obtain and evict tenants, and demand, sue for, collect and receive all
earnings, revenues, rents, issues, profits and other income of the Property and
every part thereof, and (D) apply the receipts from the Property or any part
thereof to the payment of the Debt, after deducting therefrom all expenses
(including, without limitation, reasonable attorneys’ fees and disbursements)
reasonably incurred in connection with the aforesaid operations and all amounts
necessary to pay the Impositions, insurance and other charges in connection with
the Property or any part thereof, as well as just and reasonable compensation
for the services of Lender’s third-party agents; or (iii) have an appraisal or
other valuation of the Property or any part thereof performed by an Appraiser
(and Mortgagor covenants and agrees it shall cooperate in causing any such
valuation or appraisal to be performed) and any cost or expense incurred by
Lender in connection therewith shall constitute a portion of the Debt and be
secured by this Security Instrument and shall be immediately due and payable to
Lender with interest, at the Default Rate, until the date of receipt by Lender;
or (iv), sell the Property or institute , proceedings for the complete
foreclosure of this Security Instrument, or take such other action as may be
allowed pursuant to Legal Requirements, at law or in equity, for the enforcement
of this Security Instrument in which case the Property or any part thereof may
be sold for cash or credit in one or more parcels; or (v) with or without entry,
and to the extent permitted and pursuant to the procedures provided by
applicable Legal Requirements, institute proceedings for the partial foreclosure
of this Security Instrument, or take such other action as may be allowed
pursuant to Legal Requirements, at law or in equity, for the enforcement of this
Security Instrument for the portion of the Debt then due and payable, subject to
the lien of this Security Instrument continuing unimpaired and without loss of
priority so as to secure the balance of the Debt not then due; or (vi) sell the
Property or any part thereof and any or all estate, claim, demand, right, title
and interest of Mortgagor therein and rights of redemption thereof, pursuant to
power of sale or otherwise, at one or more sales, in whole or in parcels, in any
order or manner, at such time and place, upon such terms and after such notice
thereof as may be required or permitted by law, at the discretion of Lender, and
in the event of a sale, by foreclosure or otherwise, of less than all of the
Property, this Security Instrument shall continue as a lien on the remaining
portion of the Property; or (vii) institute an action, suit or proceeding in
equity for the specific performance of any covenant, condition or agreement
contained in the Loan Documents, or any of them; or (viii) recover judgment on
the Note or any guaranty either before, during or after (or in lieu of) any
proceedings for the enforcement of this Security Instrument; or (ix) apply,
ex
parte
, for the
appointment of a custodian, trustee, receiver, keeper, liquidator or conservator
of the Property or any part thereof, irrespective of the adequacy of the
security for the Debt and without regard to the solvency of Mortgagor or of any
Person liable for the payment of the Debt, to which appointment Mortgagor does
hereby consent and such receiver or other official shall have all rights and
powers permitted by applicable law and such other rights and powers as the court
making such appointment may confer, but the appointment of such receiver or
other official shall not impair or in any manner prejudice the rights of Lender
to receive the Rent with respect to any of the Property pursuant to this
Security Instrument or the Assignment; or (x) require, at Lender’s option,
Mortgagor to pay monthly in advance to Lender, or any receiver appointed to
collect the Rents, the fair and reasonable rental value for the use and
occupation of any portion of the Property occupied by Mortgagor and may require
Mortgagor to vacate and surrender possession to Lender of the Property or to
such receiver and Mortgagor may be evicted by summary proceedings or otherwise;
or (xi) without notice to Mortgagor (A) apply all or any portion of the cash
collateral in any Sub-Account and Escrow Account, including any interest and/or
earnings therein, to carry out the obligations of Mortgagor under this Security
Instrument and the other Loan Documents, to protect and preserve the Property
and for any other purpose permitted under this Security Instrument and the other
Loan Documents and/or (B) have all or any portion of such cash collateral
immediately paid to Lender to be applied against the Debt in the order and
priority set forth in the Note; or (xii) pursue any or all such other rights or
remedies as Lender may have under applicable law or in equity; provided,
however, that the provisions of this Section 13.02(a) shall not be construed to
extend or modify any of the notice requirements or grace periods provided for
hereunder or under any of the other Loan Documents. Mortgagor hereby waives, to
the fullest extent permitted by Legal Requirements, any defense Mortgagor might
otherwise raise or have by the failure to make any tenants parties defendant to
a foreclosure proceeding and to foreclose their rights in any proceeding
instituted by Lender.
(b)
Any time
after an Event of Default Lender, shall have the power, to the extent permitted
by applicable law, to sell the Property or any part thereof at public auction,
in such manner, at such time and place, upon such terms and conditions, and upon
such public notice as Lender may deem best for the interest of Lender, or as may
be required or permitted by applicable law, consisting of advertisement (if
required by law) in a newspaper of general circulation in the jurisdiction and
for such period as applicable law may require and at such other times and by
such methods, if any, as may be required or permitted by law to convey the
Property or portions thereof in one or more sales in fee simple by Lender's deed
to and at the cost of the purchaser, who shall not be liable to see to the
application of the purchase money. The proceeds or avails of any sale made under
or by virtue of this Section 13.02, together with any other sums which then may
be held by Lender under this Security Instrument, whether under the provisions
of this Section 13.02 or otherwise, shall, to the extent permitted by applicable
law, be applied as follows:
First: To
the payment of the third-party costs and expenses reasonably incurred in
connection with any such sale and to advances, fees and expenses, including,
without limitation, title service guaranty fees, reasonable fees and expenses of
Lender’s legal counsel as applicable, of the title company and of any judicial
proceedings wherein the same may be made, and of all expenses, liabilities and
advances reasonably made or incurred by Lender under this Security Instrument,
together with interest as provided herein on all such advances made by Lender,
and all Impositions, except any Impositions or other charges subject to which
the Property shall have been sold;
Second:
To the payment of the whole amount then due, owing and unpaid under the Note for
principal and interest thereon, with interest on such unpaid principal at the
Default Rate from the date of the occurrence of the earliest Event of Default
that formed a basis for such sale until the same is paid;
Third: To
the payment of any other portion of the Debt required to be paid by Mortgagor
pursuant to any provision of this Security Instrument, the Note, or any of the
other Loan Documents; and
Fourth:
The surplus, if any, to Mortgagor or such other Persons as may be legally
entitled thereto, unless otherwise required by Legal Requirements.
Lender
and any receiver or custodian of the Property or any part thereof shall be
liable to account for only those rents, issues, proceeds and profits actually
received by it.
(c)
Lender,
to the extent permitted by law, may adjourn from time to time any sale by it to
be made under or by virtue of this Security Instrument by announcement at the
time and place appointed for such sale or for such adjourned sale or sales and,
except as otherwise provided by any applicable provision of Legal Requirements,
Lender, without further notice or publication, may make such sale at the time
and place to which the same shall be so adjourned.
(d)
Upon the
completion of any sale or sales made by Lender under or by virtue of this
Section 13.02, Lender or any officer of any court empowered to do so, shall
execute and deliver to the accepted purchaser or purchasers a good and
sufficient instrument, or good and sufficient instruments, granting, conveying,
assigning and transferring all estate, right, title and interest in and to the
property and rights sold. Lender is hereby irrevocably appointed the true and
lawful attorney-in-fact of Mortgagor (coupled with an interest), in its name and
stead, to make all necessary conveyances, assignments, transfers and deliveries
of the property and rights so sold pursuant to this Section 13.02 and for that
purpose Lender may execute all necessary instruments of conveyance, assignment,
transfer and delivery, and may substitute one or more Persons with like power,
Mortgagor hereby ratifying and confirming all that its said attorney-in-fact or
such substitute or substitutes shall lawfully do by virtue hereof. Nevertheless,
Mortgagor, if so requested by Lender, shall ratify and confirm any such sale or
sales by executing and delivering to Lender, or to such purchaser or purchasers
all such instruments as may be advisable, in the sole judgment of Lender, for
such purpose, and as may be designated in such request. Any such sale or sales
made under or by virtue of this Section 13.02, whether made under or by virtue
of judicial proceedings or a judgment or decree of foreclosure and sale, shall
operate to divest all the estate, right, title, interest, claim and demand
whatsoever, whether at law or in equity, of Mortgagor in and to the property and
rights so sold, and shall, to the fullest extent permitted under Legal
Requirements, be a perpetual bar, both at law and in equity against Mortgagor
and against any and all Persons claiming or who may claim the same, or any part
thereof, from, through or under Mortgagor.
(e)
In the
event of any sale made under or by virtue of this Section 13.02 (whether made
under or by virtue of judicial proceedings or a judgment or decree of
foreclosure and sale), the entire Debt immediately thereupon shall, anything in
the Loan Documents to the contrary notwithstanding, become due and
payable.
(f)
Upon any
sale made under or by virtue of this Section 13.02 (whether made under or by
virtue of judicial proceedings or a judgment or decree of foreclosure and sale),
Lender may bid for and acquire the Property or any part thereof and in lieu of
paying cash therefor may make settlement for the purchase price by crediting
upon the Debt the net sales price after deducting therefrom the expenses of the
sale and the costs of the action.
(g)
No
recovery of any judgment by Lender and no levy of an execution under any
judgment upon the Property or any part thereof or upon any other property of
Mortgagor shall release the lien of this Security Instrument upon the Property
or any part thereof, or any liens, rights, powers or remedies of Lender
hereunder, but such liens, rights, powers and remedies of Lender shall continue
unimpaired until all amounts due under the Note, this Security Instrument and
the other Loan Documents are paid in full.
(h)
Upon the
exercise by Lender of any power, right, privilege, or remedy pursuant to this
Security Instrument which requires any consent, approval, registration,
qualification, or authorization of any Governmental Authority, Mortgagor agrees
to execute and deliver, or will cause the execution and delivery of, all
applications, certificates, instruments, assignments and other documents and
papers that Lender or any purchaser of the Property may be required to obtain
for such governmental consent, approval, registration, qualification, or
authorization and Lender is hereby irrevocably appointed the true and lawful
attorney-in-fact of Mortgagor (coupled with an interest), in its name and stead,
to execute all such applications, certificates, instruments, assignments and
other documents and papers.
Section
13.03.
Payment of Debt After
Default
. If,
following the occurrence of any Event of Default, Mortgagor shall tender payment
of an amount sufficient to satisfy the Debt in whole or in part at any time
prior to a foreclosure sale of the Property, and if at the time of such tender
prepayment of the principal balance of the Note is not permitted by the Note or
this Security Instrument, Mortgagor shall, in addition to the entire Debt, also
pay to Lender all amounts due Lender under Section 1.5(b) of the Note. If at the
time of such tender, prepayment of the principal balance of the Note is
permitted, such tender by Mortgagor shall be deemed to be a voluntary prepayment
of the principal balance of the Note and Mortgagor shall, in addition to the
entire Debt, also pay to Lender the applicable prepayment consideration
specified in the Note and this Security Instrument.
Section
13.04.
Possession of the
Property
. Upon
the occurrence of any Event of Default hereunder and the acceleration of the
Debt or any portion thereof, Mortgagor, if an occupant of the Property or any
part thereof, upon demand of Lender, shall immediately surrender possession of
the Property (or the portion thereof so occupied) to Lender, and if Mortgagor is
permitted to remain in possession, the possession shall be as a month-to-month
tenant of Lender and, on demand, Mortgagor shall pay to Lender monthly, in
advance, a reasonable rental for the space so occupied and in default thereof
Mortgagor may be dispossessed. The covenants herein contained may be enforced by
a receiver of the Property or any part thereof. Nothing in this Section 13.04
shall be deemed to be a waiver of the provisions of this Security Instrument
making the Transfer of the Property or any part thereof without Lender’s prior
written consent an Event of Default.
Section
13.05.
Interest After
Default
. If any
amount due under the Note, this Security Instrument or any of the other Loan
Documents is not paid within any applicable notice and grace period after same
is due, whether such date is the stated due date, any accelerated due date or
any other date or at any other time specified under any of the terms hereof or
thereof, then, in such event, Mortgagor shall pay interest on the amount not so
paid from and after the date on which such amount first becomes due at the
Default Rate; and such interest shall be due and payable at such rate until the
earlier of the cure of all Events of Default or the payment of the entire amount
due to Lender, whether or not any action shall have been taken or proceeding
commenced to recover the same or to foreclose this Security Instrument. All
unpaid and accrued interest shall be secured by this Security Instrument as part
of the Debt. Nothing in this Section 13.05 or in any other provision of this
Security Instrument shall constitute an extension of the time for payment of the
Debt.
Section
13.06.
Mortgagor’s Actions After
Default
. After
the happening of any Event of Default and immediately upon the commencement of
any action, suit or other legal proceedings by Lender to obtain judgment for the
Debt, or of any other nature in aid of the enforcement of the Loan Documents,
Mortgagor will (a) after receipt of notice of the institution of any such
action, waive the issuance and service of process and enter its voluntary
appearance in such action, suit or proceeding, and (b) if required by Lender,
consent to the appointment of a receiver or receivers of the Property or any
part thereof and of all the earnings, revenues, rents, issues, profits and
income thereof.
Section
13.07.
Control by Lender After
Default
.
Notwithstanding the appointment of any custodian, receiver, liquidator or
trustee of Mortgagor, or of any of its property, or of the Property or any part
thereof, to the extent permitted by Legal Requirements, Lender shall be entitled
to obtain possession and control of all property now and hereafter covered by
this Security Instrument and the Assignment following the occurrence of an Event
of Default in accordance with the terms hereof.
Section
13.08.
Right to Cure
Defaults
.
(a)
Upon the
occurrence of any Event of Default, Lender or its agents may, but without any
obligation to do so and without notice to or demand on Mortgagor and without
releasing Mortgagor from any obligation hereunder, make or do the same in such
manner and to such extent as Lender may deem necessary to protect the security
hereof. Lender and its agents are authorized to enter upon the Property or any
part thereof for such purposes, or appear in, defend, or bring any action or
proceedings to protect Lender’s interest in the Property or any part thereof or
to foreclose this Security Instrument or collect the Debt, and the cost and
expense thereof (including reasonable attorneys’ fees to the extent permitted by
law), with interest as provided in this Section 13.08, shall constitute a
portion of the Debt and shall be immediately due and payable to Lender upon
demand. All such costs and expenses incurred by Lender or its agents in
remedying such Event of Default or in appearing in, defending, or bringing any
such action or proceeding shall bear interest at the Default Rate, for the
period from the date so demanded to the date of payment to Lender. All such
costs and expenses incurred by Lender or its agents together with interest
thereon calculated at the above rate shall be deemed to constitute a portion of
the Debt and be secured by this Security Instrument.
(b)
If Lender
makes any payment or advance that Lender is authorized by this Security
Instrument to make in the place and stead of Mortgagor (i) relating to the
Impositions or tax liens asserted against the Property, Lender may do so
according to any bill, statement or estimate procured from the appropriate
public office without inquiry into the accuracy of the bill, statement or
estimate or into the validity of any of the Impositions or the tax liens or
claims thereof; (ii) relating to any apparent or threatened adverse title, lien,
claim of lien, encumbrance, claim or charge, Lender will be the sole judge of
the legality or validity of same; or (iii) relating to any other purpose
authorized by this Security Instrument but not enumerated in this Section 13.08,
Lender may do so whenever, in its judgment and discretion, the payment or
advance seems necessary or desirable to protect the Property and the full
security interest intended to be created by this Security Instrument. In
connection with any payment or advance made pursuant to this Section 13.08,
Lender has the option and is authorized, but in no event shall be obligated, to
obtain a continuation report of title prepared by a title insurance company. The
payments and the advances made by Lender pursuant to this Section 13.08 and the
cost and expenses of said title report will be due and payable by Mortgagor on
demand, together with interest at the Default Rate, and will be secured by this
Security Instrument.
Section
13.09.
Late Payment
Charge
. If any
portion of the Debt is not paid in full on or before the day on which it is due
and payable hereunder Mortgagor shall pay to Lender an amount equal to five
percent (5%) of such unpaid portion of the Debt (“
Late
Charge
”) to
defray the expense incurred by Lender in handling and processing such delinquent
payment, and such amount shall constitute a part of the Debt; provided, that no
late charge shall be due and payable if Mortgagor fails to repay the Loan
evidenced hereby upon the Maturity Date (whether by acceleration or
otherwise).
Section
13.10.
Recovery of Sums Required to
Be Paid
. Lender
shall have the right from time to time to take action to recover any sum or sums
which constitute a part of the Debt as the same become due and payable hereunder
(after the expiration of any grace period or the giving of any notice herein
provided, if any), without regard to whether or not the balance of the Debt
shall be due, and without prejudice to the right of Lender thereafter to bring
an action of foreclosure, or any other action, for a default or defaults by
Mortgagor existing at the time such earlier action was commenced.
Section
13.11.
Marshalling and Other
Matters
.
Mortgagor hereby waives, to the fullest extent permitted by law, the benefit of
all appraisement, valuation, stay, extension, reinstatement, redemption (both
equitable and statutory) and homestead laws now or hereafter in force and all
rights of marshalling in the event of any sale hereunder of the Property or any
part thereof or any interest therein. Nothing herein or in any other Loan
Document shall be construed as requiring Lender to resort to any particular
Cross-collateralized Property for the satisfaction of the Debt in preference or
priority to any other Cross-collateralized Property but Lender may seek
satisfaction out of all the Cross-collateralized Properties or any part thereof
in its absolute discretion. Further, Mortgagor hereby expressly waives any and
all rights of redemption from sale under any order or decree of foreclosure of
this Security Instrument on behalf of Mortgagor, whether equitable or statutory
and on behalf of each and every Person acquiring any interest in or title to the
Property or any part thereof subsequent to the date of this Security Instrument
and on behalf of all Persons to the fullest extent permitted by applicable
law.
Section
13.12.
Tax Reduction
Proceedings
. After
an Event of Default, Mortgagor shall be deemed to have appointed Lender as its
attorney-in-fact to seek a reduction or reductions in the assessed valuation of
the Property for real property tax purposes or for any other purpose and to
prosecute any action or proceeding in connection therewith. This power, being
coupled with an interest, shall be irrevocable for so long as any part of the
Debt remains unpaid and any Event of Default shall be continuing.
Section
13.13.
General Provisions Regarding
Remedies
.
(a)
Right to Terminate
Proceedings
. Lender
may terminate or rescind any proceeding or other action brought in connection
with its exercise of the remedies provided in Section 13.02 at any time before
the conclusion thereof, as determined in Lender’s sole discretion and without
prejudice to Lender.
(b)
No Waiver or
Release
. The
failure of Lender to exercise any right, remedy or option provided in the Loan
Documents shall not be deemed a waiver of such right, remedy or option or of any
covenant or obligation contained in the Loan Documents. No acceptance by Lender
of any payment after the occurrence of an Event of Default and no payment by
Lender of any payment or obligation for which Mortgagor is liable hereunder
shall be deemed to waive or cure any Event of Default. No sale of all or any
portion of the Property, no forbearance on the part of Lender, and no extension
of time for the payment of the whole or any portion of the Debt or any other
indulgence given by Lender to Mortgagor or any other Person, shall operate to
release or in any manner affect the interest of Lender in the Property or the
liability of Mortgagor to pay the Debt. No waiver by Lender shall be effective
unless it is in writing and then only to the extent specifically
stated.
(c)
No Impairment; No
Releases
. The
interests and rights of Lender under the Loan Documents shall not be impaired by
any indulgence, including (i) any renewal, extension or modification which
Lender may grant with respect to any of the Debt; (ii) any surrender,
compromise, release, renewal, extension, exchange or substitution which Lender
may grant with respect to the Property or any portion thereof; or (iii) any
release or indulgence granted to any maker, endorser, guarantor or surety of any
of the Debt.
(d)
Effect on
Judgment
. No
recovery of any judgment by Lender and no levy of an execution under any
judgment upon any Property or any portion thereof shall affect in any manner or
to any extent the lien of the other Cross-collateralized Mortgage upon the
remaining Cross-collateralized Properties or any portion thereof, or any rights,
powers or remedies of Lender hereunder or thereunder. Such lien, rights, powers
and remedies of Lender shall continue unimpaired as before.
ARTICLE
XIV:
COMPLIANCE WITH
REQUIREMENTS
Section
14.01.
Compliance with Legal
Requirements
.
(a)
Mortgagor
shall promptly comply with all present and future Legal Requirements, foreseen
and unforeseen, ordinary and extraordinary, whether requiring structural or
nonstructural repairs or alterations including, without limitation, all zoning,
subdivision, building, safety and environmental protection, land use and
development Legal Requirements, all Legal Requirements which may be applicable
to the curbs adjoining the Property or to the use or manner of use thereof, and
all rent control, rent stabilization and all other similar Legal Requirements
relating to rents charged and/or collected in connection with the Leases.
Mortgagor represents and warrants that the Property to the best of Mortgagor’s
knowledge is in compliance in all material respects with all Legal Requirements
as of the date hereof, no notes or notices of violations of any Legal
Requirements have been entered or received by Mortgagor and there is no basis
for the entering of such notes or notices.
(b)
Mortgagor
shall have the right to contest by appropriate legal proceedings diligently
conducted in good faith, without cost or expense to Lender, the validity or
application of any Legal Requirement and to suspend compliance therewith if
permitted under applicable Legal Requirements, provided (i) failure to comply
therewith may not subject Lender to any civil or criminal liability, (ii) prior
to and during such contest, Mortgagor shall furnish to Lender security
reasonably satisfactory to Lender, in its discretion, against loss or injury by
reason of such contest or non-compliance with such Legal Requirement, (iii) no
Default or Event of Default shall exist during such proceedings and such contest
shall not otherwise violate any of the provisions of any of the Loan Documents,
(iv) such contest shall not (unless Mortgagor shall comply with the provisions
of clause (ii) of this Section 14.01(b)) subject the Property to any lien or
encumbrance the enforcement of which is not suspended or otherwise affect the
priority of the lien of this Security Instrument; (v) such contest shall not
affect the ownership, use or occupancy of the Property; (vi) the Property or any
part thereof or any interest therein shall not be in any danger of being sold,
forfeited or lost by reason of such contest by Mortgagor; (vii) Mortgagor shall
give Lender prompt notice of the commencement of such proceedings and, upon
request by Lender, notice of the status of such proceedings and/or confirmation
of the continuing satisfaction of the conditions set forth in clauses (i) - (vi)
of this Section 14.01(b); and (viii) upon a final determination of such
proceeding, Mortgagor shall take all steps necessary to comply with any
requirements arising therefrom.
(c)
Mortgagor
shall at all times comply with all applicable Legal Requirements with respect to
the construction, use and maintenance of any vaults adjacent to the Property. If
by reason of the failure to pay taxes, assessments, charges, permit fees,
franchise taxes or levies of any kind or nature, the continued use of the vaults
adjacent to Property or any part thereof is discontinued, Mortgagor nevertheless
shall, with respect to any vaults which may be necessary for the continued use
of the Property, take such steps (including the making of any payment) to ensure
the continued use of vaults or replacements.
Section
14.02.
Compliance with Recorded
Documents; No Future Grants
.
Mortgagor shall promptly perform and observe or cause to be performed and
observed, all of the terms, covenants and conditions of all Property Agreements
and all things necessary to preserve intact and unimpaired any and all
appurtenances or other interests or rights affecting the Property.
ARTICLE
XV:
PREPAYMENT
Section
15.01.
Prepayment
.
Except as
set forth in Section 1.5 of the Note, no prepayment of the Debt may be made in
whole or in part.
ARTICLE
XVI:
ENVIRONMENTAL
COMPLIANCE
Section
16.01.
Covenants, Representations
and Warranties
.
(a)
Mortgagor
has not, at any time, and, to Mortgagor’s best knowledge after due inquiry and
investigation, except as set forth in the Environmental Report, no other Person
has at any time, handled, buried, stored, retained, refined, transported,
processed, manufactured, generated, produced, spilled, allowed to seep, leak,
escape or leach, or pumped, poured, emitted, emptied, discharged, injected,
dumped, transferred or otherwise disposed of or dealt with Hazardous Materials
on, to or from the Premises or any other real property owned and/or occupied by
Mortgagor (other than in compliance with all Legal Requirements), and Mortgagor
does not intend to and shall not use the Property or any part thereof or any
such other real property for the purpose of handling, burying, storing,
retaining, refining, transporting, processing, manufacturing, generating,
producing, spilling, seeping, leaking, escaping, leaching, pumping, pouring,
emitting, emptying, discharging, injecting, dumping, transferring or otherwise
disposing of or dealing with Hazardous Materials, except for use and storage for
use of heating oil, cleaning fluids, pesticides and other substances customarily
used in the operation of properties that are being used for the same purposes as
the Property is presently being used, provided such use and/or storage for use
is in compliance with the requirements hereof and the other Loan Documents and
does not give rise to liability under applicable Legal Requirements or
Environmental Statutes or be the basis for a lien against the Property or any
part thereof. In addition, without limitation to the foregoing provisions,
Mortgagor represents and warrants that, to the best of its knowledge, after due
inquiry and investigation, except as previously disclosed in writing to Lender
or in the Environmental Report or Engineering Report, there is no asbestos in,
on, over, or under all or any portion of the fire-proofing or any other portion
of the Property.
(b)
Mortgagor,
after due inquiry and investigation, knows of no seepage, leak, escape, leach,
discharge, injection, release, emission, spill, pumping, pouring, emptying or
dumping of Hazardous Materials into waters on, under or adjacent to the Property
or any part thereof or any other real property owned and/or occupied by
Mortgagor, or onto lands from which such Hazardous Materials might seep, flow or
drain into such waters, except as disclosed in the Environmental
Report.
(c)
Mortgagor
shall not permit any Hazardous Materials to be handled, buried, stored,
retained, refined, transported, processed, manufactured, generated, produced,
spilled, allowed to seep, leak, escape or leach, or to be pumped, poured,
emitted, emptied, discharged, injected, dumped, transferred or otherwise
disposed of or dealt with on, under, to or from the Property or any portion
thereof at any time, except for use and storage for use of heating oil, ordinary
cleaning fluids, pesticides and other substances customarily used in the
operation of properties that are being used for the same purposes as the
Property is presently being used, provided such use and/or storage for use is in
compliance with the requirements hereof and the other Loan Documents and does
not give rise to liability under applicable Legal Requirements or be the basis
for a lien against the Property or any part thereof.
(d)
Mortgagor
represents and warrants that no actions, suits, or proceedings have been
commenced, or are pending, or to the best knowledge of Mortgagor, are threatened
with respect to any Legal Requirement governing the use, manufacture, storage,
treatment, transportation, or processing of Hazardous Materials with respect to
the Property or any part thereof. Mortgagor has received no notice of, and,
except as disclosed in the Environmental Report, after due inquiry, has no
knowledge of any fact, condition, occurrence or circumstance which with notice
or passage of time or both would give rise to a claim under or pursuant to any
Environmental Statute pertaining to Hazardous Materials on, in, under or
originating from the Property or any part thereof or any other real property
owned or occupied by Mortgagor or arising out of the conduct of Mortgagor,
including, without limitation, pursuant to any Environmental
Statute.
(e)
Mortgagor
has not waived any Person’s liability with regard to Hazardous Materials in, on,
under or around the Property, nor has Mortgagor retained or assumed,
contractually or by operation of law, any other Person’s liability relative to
Hazardous Materials or any claim, action or proceeding relating
thereto.
(f)
In the
event that there shall be filed a lien against the Property or any part thereof
pursuant to any Environmental Statute pertaining to Hazardous Materials,
Mortgagor shall, within sixty (60) days or, in the event that the applicable
Governmental Authority has commenced steps to cause the Premises or any part
thereof to be sold pursuant to the lien, within fifteen (15) days, from the date
that Mortgagor receives notice of such lien, either (i) pay the claim and remove
the lien from the Property, or (ii) furnish (A) a bond satisfactory to Lender in
the amount of the claim out of which the lien arises, (B) a cash deposit in the
amount of the claim out of which the lien arises, or (C) other security
reasonably satisfactory to Lender in an amount sufficient to discharge the claim
out of which the lien arises.
(g)
Mortgago
r
represents and warrants that (i) except as disclosed in the Environmental
Report, Mortgagor has no knowledge of any violation of any Environmental Statute
or any Environmental Problem in connection with the Property, nor has Mortgagor
been requested or required by any Governmental Authority to perform any remedial
activity or other responsive action in connection with any Environmental Problem
and (ii) neither the Property nor any other property owned by Mortgagor is
included or, to Mortgagor’s best knowledge, after due inquiry and investigation,
proposed for inclusion on the National Priorities List issued pursuant to CERCLA
by the United States Environmental Protection Agency (the “
EPA
”) or on
the inventory of other potential “Problem” sites issued by the EPA and has not
otherwise been identified by the EPA as a potential CERCLA site or included or,
to Mortgagor’s knowledge, after due inquiry and investigation, proposed for
inclusion on any list or inventory issued pursuant to any other Environmental
Statute, if any, or issued by any other Governmental Authority. Mortgagor
covenants that Mortgagor will comply with all Environmental Statutes affecting
or imposed upon Mortgagor or the Property.
(h)
Mortgagor
covenants that it shall promptly notify Lender of the presence and/or release of
any Hazardous Materials and of any request for information or any inspection of
the Property or any part thereof by any Governmental Authority with respect to
any Hazardous Materials and provide Lender with copies of such request and any
response to any such request or inspection. Mortgagor covenants that it shall,
in compliance with applicable Legal Requirements, conduct and complete all
investigations, studies, sampling and testing (and promptly shall provide Lender
with copies of any such studies and the results of any such test) and all
remedial, removal and other actions necessary to clean up and remove all
Hazardous Materials in, on, over, under, from or affecting the Property or any
part thereof in accordance with all such Legal Requirements applicable to the
Property or any part thereof to the satisfaction of Lender.
(i)
Following
the occurrence of an Event of Default that is continuing hereunder, and without
regard to whether Lender shall have taken possession of the Property or a
receiver has been requested or appointed or any other right or remedy of Lender
has or may be exercised hereunder or under any other Loan Document, Lender shall
have the right (but no obligation) to conduct such investigations, studies,
sampling and/or testing of the Property or any part thereof as Lender may, in
its discretion, determine to conduct, relative to Hazardous Materials. All costs
and expenses incurred in connection therewith including, without limitation,
consultants’ fees and disbursements and laboratory fees, shall constitute a part
of the Debt and shall, upon demand by Lender, be immediately due and payable and
shall bear interest at the Default Rate from the date so demanded by Lender
until reimbursed. Mortgagor shall, at its sole cost and expense, fully and
expeditiously cooperate in all such investigations, studies, samplings and/or
testings including, without limitation, providing all relevant information and
making knowledgeable people available for interviews.
(j)
Mortgagor
represents and warrants that, except as disclosed in the Environmental Report,
all paint and painted surfaces existing within the interior or on the exterior
of the Improvements are not flaking, peeling, cracking, blistering, or chipping,
and do not contain lead or are maintained in a condition that prevents exposure
of young children to lead-based paint, as of the date hereof, and that the
current inspections, operation, and maintenance program at the Property with
respect to lead-based paint is consistent with FNMA guidelines and sufficient to
ensure that all painted surfaces within the Property shall be maintained in a
condition that prevents exposure of tenants to lead-based paint. To Mortgagor’s
knowledge, there have been no claims for adverse health effects from exposure on
the Property to lead-based paint or requests for the investigation, assessment
or removal of lead-based paint at the Property.
(k)
Mortgagor
represents and warrants that except in accordance with all applicable
Environmental Statutes and as disclosed in the Environmental Report, (i) no
underground treatment or storage tanks or pumps or water, gas, or oil wells are
or have been located about the Property, (ii) no PCBs or transformers,
capacitors, ballasts or other equipment that contain dielectric fluid containing
PCBs are located about the Property, (iii) no insulating material
containing urea formaldehyde is located about the Property and (iv) no
asbestos-containing material is located about the Property.
(l)
For the
properties known as 100 James Drive, 120 Mallard Street, 6565 Exchequer Drive,
7042 Alamo Downs Parkway, 11301 Industriplex Blvd., 11441 Industriplex Blvd. and
1701-1759 Grandstand Drive,
Mortgagor
covenants and agrees to institute, within thirty (30) days after the date
hereof, an operations and maintenance program (the "Maintenance Program")
designed by an environmental consultant, satisfactory to the Lender, with
respect to asbestos containing materials ("ACM's"), consistent with "Guidelines
for Controlling Asbestos-Containing Materials in Buildings" (USEPA, 1985) and
other relevant guidelines, and such Maintenance Program will hereafter
continuously remain in effect until the indebtedness secured hereby is repaid in
full. In furtherance of the foregoing, Mortgagor shall inspect and maintain all
ACM's on a regular basis and ensure that all ACM's shall be maintained in a
condition that prevents exposure of residents to ACM's at all times. Without
limiting the generality of the preceding sentence, Lender may reasonably require
(i) periodic notices or reports to Lender in form, substance and at such
intervals as Lender may specify, (ii) an amendment to such Maintenance Program
to address changing circumstances, laws or other matters, (iii) at Mortgagor's
sole expense, supplemental examination of the Property by consultants specified
by Lender, and (iv) variation of the Maintenance Program in response to the
reports provided by any such consultants.
Section
16.02.
Environmental
Indemnification
.
Mortgagor shall defend, indemnify and hold harmless the Indemnified Parties for,
from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, known or
unknown, contingent or otherwise, whether incurred or imposed within or outside
the judicial process, including, without limitation, reasonable attorneys’ and
consultants’ fees and disbursements and investigations and laboratory fees
arising out of, or in any way related to any Environmental Problem, including
without limitation:
(a)
the
presence, disposal, escape, seepage, leakage, spillage, discharge, emission,
release or threat of release of any Hazardous Materials in, on, over, under,
from or affecting the Property or any part thereof whether or not disclosed by
the Environmental Report;
(b)
any
personal injury (including wrongful death, disease or other health condition
related to or caused by, in whole or in part, any Hazardous Materials) or
property damage (real or personal) arising out of or related to any Hazardous
Materials in, on, over, under, from or affecting the Property or any part
thereof whether or not disclosed by the Environmental Report;
(c)
any
action, suit or proceeding brought or threatened, settlement reached, or order
of any Governmental Authority relating to such Hazardous Material whether or not
disclosed by the Environmental Report; and/or
(d)
any
violation of the provisions, covenants, representations or warranties of Section
16.01 hereof or of any Legal Requirement which is based on or in any way related
to any Hazardous Materials in, on, over, under, from or affecting the Property
or any part thereof including, without limitation, the cost of any work
performed and materials furnished in order to comply therewith whether or not
disclosed by the Environmental Report.
Notwithstanding
the foregoing provisions of this Section 16.02 to the contrary, Mortgagor shall
have no obligation to indemnify Lender for liabilities, claims, damages,
penalties, causes of action, costs and expenses relative to the foregoing which
result directly from Lender’s willful misconduct or gross negligence. Any
amounts payable to Lender by reason of the application of this Section 16.02
shall be secured by this Security Instrument and shall, upon demand by Lender,
become immediately due and payable and shall bear interest at the Default Rate
from the date so demanded by Lender until paid.
This
indemnification shall survive the termination of this Security Instrument
whether by repayment of the Debt, foreclosure or deed in lieu thereof,
assignment, or otherwise. The indemnity provided for in this Section 16.02 shall
not be included in any exculpation of Mortgagor or its principals from personal
liability provided for in this Security Instrument or in any of the other Loan
Documents. Nothing in this Section 16.02 shall be deemed to deprive Lender of
any rights or remedies otherwise available to Lender, including, without
limitation, those rights and remedies provided elsewhere in this Security
Instrument or the other Loan Documents. The foregoing indemnity shall
specifically not include any such costs relating to Hazardous Materials which
are initially placed on, in or under any of the Properties after foreclosure or
other taking of title of such Properties by Lender or its successors or
assigns.
ARTICLE
XVII:
ASSIGNMENTS
Section
17.01.
Participations and
Assignments
. Lender
shall have the right to assign this Security Instrument and/or any of the Loan
Documents, and to transfer, assign or sell participations and subparticipations
(including blind or undisclosed participations and subparticipations) in the
Loan Documents and the obligations hereunder to any Person; provided, however,
that no such participation shall increase, decrease or otherwise affect either
Mortgagor’s or Lender’s obligations under this Security Instrument or the other
Loan Documents or increase the Debt.
ARTICLE
XVIII:
MISCELLANEOUS
Section
18.01.
Right of
Entry
. Lender
and its agents shall have the right to enter and inspect the Property or any
part thereof at all reasonable times, and, except in the event of an emergency,
upon reasonable notice and to inspect Mortgagor’s books and records and to make
abstracts and reproductions thereof (but in no event more frequently than two
(2) times per calendar year provided no Event of Default has
occurred).
Section
18.02.
Cumulative
Rights
. The
rights of Lender under this Security Instrument shall be separate, distinct and
cumulative and none shall be given effect to the exclusion of the others. No act
of Lender shall be construed as an election to proceed under any one provision
herein to the exclusion of any other provision. Lender shall not be limited
exclusively to the rights and remedies herein stated but shall be entitled,
subject to the terms of this Security Instrument, to every right and remedy now
or hereafter afforded by law.
Section
18.03.
Liability
. If
Mortgagor consists of more than one Person, the obligations and liabilities of
each such Person hereunder shall be joint and several.
Section
18.04.
Exhibits
Incorporated
. The
information set forth on the cover hereof, and the Exhibits annexed hereto, are
hereby incorporated herein as a part of this Security Instrument with the same
effect as if set forth in the body hereof.
Section
18.05.
Severable
Provisions
. If any
term, covenant or condition of the Loan Documents including, without limitation,
the Note or this Security Instrument, is held to be invalid, illegal or
unenforceable in any respect, such Loan Document shall be construed without such
provision.
Section
18.06.
Duplicate
Originals
. This
Security Instrument may be executed in any number of duplicate originals and
each such duplicate original shall be deemed to constitute but one and the same
instrument.
Section
18.07.
No Oral
Change
. The
terms of this Security Instrument, together with the terms of the Note and the
other Loan Documents, constitute the entire understanding and agreement of the
parties hereto and supersede all prior agreements, understandings and
negotiations between Mortgagor and Lender with respect to the Loan. This
Security Instrument, and any provisions hereof, may not be modified, amended,
waived, extended, changed, discharged or terminated orally or by any act on the
part of Mortgagor or Lender, but only by an agreement in writing signed by the
party against whom enforcement of any modification, amendment, waiver,
extension, change, discharge or termination is sought.
Section
18.08.
Waiver of Counterclaim,
Etc
.
MORTGAGOR HEREBY WAIVES THE RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A
COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY
LENDER OR ITS AGENTS, AND WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR IN ANY COUNTERCLAIM
MORTGAGOR MAY BE PERMITTED TO ASSERT HEREUNDER OR WHICH MAY BE ASSERTED BY
LENDER OR ITS AGENTS, AGAINST MORTGAGOR, OR IN ANY MATTERS WHATSOEVER ARISING
OUT OF OR IN ANY WAY CONNECTED WITH THIS SECURITY INSTRUMENT OR THE
DEBT.
Section
18.09.
Headings; Construction of
Documents; etc
. The
table of contents, headings and captions of various paragraphs of this Security
Instrument are for convenience of reference only and are not to be construed as
defining or limiting, in any way, the scope or intent of the provisions hereof.
Mortgagor acknowledges that it was represented by competent counsel in
connection with the negotiation and drafting of this Security Instrument and the
other Loan Documents and that neither this Security Instrument nor the other
Loan Documents shall be subject to the principle of construing the meaning
against the Person who drafted same.
Section
18.10.
Sole Discretion of
Lender
.
Whenever Lender exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to Lender, the decision of Lender to
approve or disapprove or to decide that arrangements or terms are satisfactory
or not satisfactory shall be in the sole discretion of Lender and shall be final
and conclusive, except as may be otherwise specifically provided
herein.
Section
18.11.
Waiver of
Notice
.
Mortgagor shall not be entitled to any notices of any nature whatsoever from
Lender except with respect to matters for which this Security Instrument
specifically and expressly provides for the giving of notice by Lender to
Mortgagor and except with respect to matters for which Mortgagor is not,
pursuant to applicable Legal Requirements, permitted to waive the giving of
notice.
Section
18.12.
Covenants Run with the
Land
. All of
the grants, covenants, terms, provisions and conditions herein shall run with
the Premises, shall be binding upon Mortgagor and shall inure to the benefit of
Lender, subsequent holders of this Security Instrument and their successors and
assigns. Without limitation to any provision hereof, the term “Mortgagor” shall
include and refer to Mortgagor named herein, any subsequent owner of the
Property, and its respective heirs, executors, legal representatives, successors
and assigns. The representations, warranties and agreements contained in this
Security Instrument and the other Loan Documents are intended solely for the
benefit of the parties hereto, shall confer no rights hereunder, whether legal
or equitable, in any other Person and no other Person shall be entitled to rely
thereon.
Section
18.13.
Applicable
Law
.
THIS
SECURITY INSTRUMENT WAS NEGOTIATED IN NEW YORK, AND MADE BY MORTGAGOR AND
ACCEPTED BY LENDER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE NOTE WERE
DISBURSED FROM NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL
RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY,
AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. THIS SECURITY
INSTRUMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED
STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION,
PERFECTION, PRIORITY, ENFORCEMENT AND FORECLOSURE OF THE LIENS AND SECURITY
INTERESTS CREATED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE
LAW OF THE STATE IN WHICH THE PREMISES IS LOCATED, IT BEING UNDERSTOOD THAT, TO
THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF
NEW YORK SHALL GOVERN THE VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS, AND
THE DEBT OR OBLIGATIONS ARISING HEREUNDER.
Section
18.14.
Security
Agreement
.
(a)
(i)
This
Security Instrument is both a real property mortgage, deed to secure debt or
deed of trust, as applicable, and a “security agreement” within the meaning of
the UCC. The Property includes both real and personal property and all other
rights and interests, whether tangible or intangible in nature, of Mortgagor in
the Property, and Mortgagor hereby grants to Lender a security interest in all
portions of the Property constituting personal property or fixtures under the
UCC. This Security Instrument is filed as a fixture filing and covers goods
which are or are to become fixtures on the Property. Mortgagor by executing and
delivering this Security Instrument has granted to Lender, as security for the
Debt, a security interest in the Property to the full extent that the Property
may be subject to the UCC (said portion of the Property so subject to the UCC
being called in this Section 18.14 the “
Collateral
”). If an
Event of Default shall occur, Lender, in addition to any other rights and
remedies which it may have, shall have and may exercise immediately and without
demand, any and all rights and remedies granted to a secured party upon default
under the UCC, including, without limiting the generality of the foregoing, to
the extent allowed by Legal Requirements. the right to take possession of the
Collateral or any part thereof, and to take such other measures as Lender may
deem necessary for the care, protection and preservation of the Collateral. Upon
request or demand of Lender following an Event of Default, Mortgagor shall, at
its expense, assemble the Collateral and make it available to Lender at a
convenient place acceptable to Lender. Mortgagor shall pay to Lender on demand
any and all expenses, including reasonable legal expenses and attorneys’ fees,
incurred or paid by Lender in protecting its interest in the Collateral and in
enforcing its rights hereunder with respect to the Collateral. Any disposition
pursuant to the UCC of so much of the Collateral as may constitute personal
property shall be considered commercially reasonable if made pursuant to a
public sale which is advertised at least twice in a newspaper in which sheriff’s
sales are advertised in the county where the Premises is located. Any notice of
sale, disposition or other intended action by Lender with respect to the
Collateral given to Mortgagor in accordance with the provisions hereof at least
ten (10) days prior to such action, shall constitute reasonable notice to
Mortgagor. The proceeds of any disposition of the Collateral, or any part
thereof, may be applied by Lender to the payment of the Debt in such priority
and proportions as Lender in its discretion shall deem proper. It is not
necessary that the Collateral be present at any disposition thereof. Lender
shall have no obligation to clean-up or otherwise prepare the Collateral for
disposition.
(ii)
The
mention in a financing statement filed in the records normally pertaining to
personal property of any portion of the Property shall not derogate from or
impair in any manner the intention of this Security Instrument. Lender hereby
declares that all items of Collateral are part of the real property encumbered
hereby to the fullest extent permitted by law, regardless of whether any such
item is physically attached to the Improvements or whether serial numbers are
used for the better identification of certain items. Specifically, the mention
in any such financing statement of any items included in the Property shall not
be construed to alter, impair or impugn any rights of Lender as determined by
this Security Instrument or the priority of Lender’s lien upon and security
interest in the Property in the event that notice of Lender’s priority of
interest as to any portion of the Property is required to be filed in accordance
with the UCC to be effective against or take priority over the interest of any
particular class of persons, including the federal government or any subdivision
or instrumentality thereof. No portion of the Collateral constitutes or is the
proceeds of “Farm Products”, as defined in the UCC.
(iii)
If
Mortgagor is at any time a beneficiary under a letter of credit now or hereafter
issued in favor of Mortgagor, Mortgagor shall promptly notify Lender thereof
and, at the request and option of Lender, Mortgagor shall, pursuant to an
agreement in form and substance satisfactory to Lender, either (A) arrange for
the issuer and any confirmer of such letter of credit to consent to an
assignment to Lender of the proceeds of any drawing under the letter of credit
or (B) arrange for Lender to become the transferee beneficiary of the letter of
credit, with Lender agreeing, in each case, that the proceeds of any drawing
under the letter to credit are to be applied as provided in this Security
Instrument.
(iv)
Mortgagor
and Lender acknowledge that for the purposes of Article 9 of the UCC, the law of
the State of New York shall be the law of the jurisdiction of the bank in which
the Central Account is located.
(v)
Lender
may comply with any applicable Legal Requirements in connection with the
disposition of the Collateral, and Lender’s compliance therewith will not be
considered to adversely affect the commercial reasonableness of any sale of the
Collateral.
(vi)
Lender
may sell the Collateral without giving any warranties as to the Collateral.
Lender may specifically disclaim any warranties of title, possession, quiet
enjoyment or the like. This procedure will not be considered to adversely affect
the commercial reasonableness of any sale of the Collateral.
(vii)
If Lender
sells any of the Collateral upon credit, Mortgagor will be credited only with
payments actually made by the purchaser, received by Lender and applied to the
indebtedness of Mortgagor. In the event the purchaser of the Collateral fails to
fully pay for the Collateral, Lender may resell the Collateral and Mortgagor
will be credited with the proceeds of such sale.
(b)
Mortgagor
hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an
interest, to file with the appropriate public office on its behalf any financing
or other statements signed only by Lender, as secured party, or, to the extent
permitted under the UCC, unsigned, in connection with the Collateral covered by
this Security Instrument.
Section
18.15.
Actions and
Proceedings
. Lender
has the right to appear in and defend any action or proceeding brought with
respect to the Property in its own name or, if required by Legal Requirements
or, if in Lender’s reasonable judgment, it is necessary, in the name and on
behalf of Mortgagor, which Lender believes will adversely affect the Property or
this Security Instrument and to bring any action or proceedings, in its name or
in the name and on behalf of Mortgagor, which Lender, in its reasonable
discretion, decides should be brought to protect its interest in the
Property.
Section
18.16.
Usury
Laws
. This
Security Instrument and the Note are subject to the express condition, and it is
the expressed intent of the parties, that at no time shall Mortgagor be
obligated or required to pay interest on the principal balance due under the
Note at a rate which could subject the holder of the Note to either civil or
criminal liability as a result of being in excess of the maximum interest rate
which Mortgagor is permitted by law to contract or agree to pay. If by the terms
of this Security Instrument or the Note, Mortgagor is at any time required or
obligated to pay interest on the principal balance due under the Note at a rate
in excess of such maximum rate, such rate of interest shall be deemed to be
immediately reduced to such maximum rate and the interest payable shall be
computed at such maximum rate and all prior interest payments in excess of such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance of the Note. No application to the principal
balance of the Note pursuant to this Section 18.16 shall give rise to any
requirement to pay any prepayment fee or charge of any kind due hereunder, if
any.
Section
18.17.
Remedies of
Mortgagor
. In the
event that a claim or adjudication is made that Lender has acted unreasonably or
unreasonably delayed acting in any case where by law or under the Note, this
Security Instrument or the Loan Documents, it has an obligation to act
reasonably or promptly, Lender shall not be liable for any monetary damages, and
Mortgagor’s remedies shall be limited to injunctive relief or declaratory
judgment.
Section
18.18.
Offsets, Counterclaims and
Defenses
. Any
assignee of this Security Instrument, the Assignment and the Note shall take the
same free and clear of all offsets, counterclaims or defenses which are
unrelated to the Note, the Assignment or this Security Instrument which
Mortgagor may otherwise have against any assignor of this Security Instrument,
the Assignment and the Note and no such unrelated counterclaim or defense shall
be interposed or asserted by Mortgagor in any action or proceeding brought by
any such assignee upon this Security Instrument, the Assignment or the Note and
any such right to interpose or assert any such unrelated offset, counterclaim or
defense in any such action or proceeding is hereby expressly waived by
Mortgagor.
Section
18.19.
No Merger
. If
Mortgagor’s and Lender’s estates become the same including, without limitation,
upon the delivery of a deed by Mortgagor in lieu of a foreclosure sale, or upon
a purchase of the Property by Lender in a foreclosure sale, this Security
Instrument and the lien created hereby shall not be destroyed or terminated by
the application of the doctrine of merger and in such event Lender shall
continue to have and enjoy all of the rights and privileges of Lender as to the
separate estates; and, as a consequence thereof, upon the foreclosure of the
lien created by this Security Instrument, any Leases or subleases then existing
and created by Mortgagor shall not be destroyed or terminated by application of
the law of merger or as a result of such foreclosure unless Lender or any
purchaser at any such foreclosure sale shall so elect. No act by or on behalf of
Lender or any such purchaser shall constitute a termination of any Lease or
sublease unless Lender or such purchaser shall give written notice thereof to
such lessee or sublessee.
Section
18.20.
Restoration of
Rights
. In case
Lender shall have proceeded to enforce any right under this Security Instrument
by foreclosure sale, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined
adversely, then, in every such case, Mortgagor and Lender shall be restored to
their former positions and rights hereunder with respect to the Property subject
to the lien hereof.
Section
18.21.
Waiver of Statute of
Limitations
. The
pleadings of any statute of limitations as a defense to any and all obligations
secured by this Security Instrument are hereby waived to the full extent
permitted by Legal Requirements.
Section
18.22.
Advances
. This
Security Instrument shall cover any and all advances made pursuant to the Loan
Documents, rearrangements and renewals of the Debt and all extensions in the
time of payment thereof, even though such advances, extensions or renewals be
evidenced by new promissory notes or other instruments hereafter executed and
irrespective of whether filed or recorded. Likewise, the execution of this
Security Instrument shall not impair or affect any other security which may be
given to secure the payment of the Debt, and all such additional security shall
be considered as cumulative. The taking of additional security, execution of
partial releases of the security, or any extension of time of payment of the
Debt shall not diminish the force, effect or lien of this Security Instrument
and shall not affect or impair the liability of Mortgagor and shall not affect
or impair the liability of any maker, surety, or endorser for the payment of the
Debt.
Section
18.23.
Application of Default Rate
Not a Waiver
.
Application of the Default Rate shall not be deemed to constitute a waiver of
any Default or Event of Default or any rights or remedies of Lender under this
Security Instrument, any other Loan Document or applicable Legal Requirements,
or a consent to any extension of time for the payment or performance of any
obligation with respect to which the Default Rate may be invoked.
Section
18.24.
Intervening
Lien
. To the
fullest extent permitted by law, any agreement hereafter made pursuant to this
Security Instrument shall be superior to the rights of the holder of any
intervening lien or security interest.
Section
18.25.
No Joint Venture or
Partnership
.
Mortgagor and Lender intend that the relationship created hereunder be solely
that of mortgagor and mortgagee or grantor and beneficiary or borrwoer and
lender, as the case may be. Nothing herein is intended to create a joint
venture, partnership, tenancy-in-common, or joint tenancy relationship between
Mortgagor and Lender nor to grant Lender any interest in the Property other than
that of mortgagee, beneficiary or lender.
Section
18.26.
Time of the
Essence
. Time
shall be of the essence in the performance of all obligations of Mortgagor
hereunder.
Section
18.27.
Mortgagor’s Obligations
Absolute
.
Mortgagor acknowledges that Lender and/or certain Affiliates of Lender are
engaged in the business of financing, owning, operating, leasing, managing, and
brokering real estate and in other business ventures which may be viewed as
adverse to or competitive with the business, prospect, profits, operations or
condition (financial or otherwise) of Mortgagor. Except as set forth to the
contrary in the Loan Documents, all sums payable by Mortgagor hereunder shall be
paid without notice or demand, counterclaim, set-off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Mortgagor hereunder shall in no way be released,
discharged, or otherwise affected (except as expressly provided herein) by
reason of: (a) any damage to or destruction of or any Taking of the Property or
any portion thereof or any other
Cross-collateralized
Property; (b) any restriction or prevention of or interference with any use of
the Property or any portion thereof or any other Cross-collateralized Property;
(c) any title defect or encumbrance or any eviction from the Premises or any
portion thereof by title paramount or otherwise; (d) any bankruptcy proceeding
relating to Mortgagor, any General Partner, or any guarantor or indemnitor, or
any action taken with respect to this Security Instrument or any other Loan
Document by any trustee or receiver of Mortgagor or any other
Cross-collateralized Mortgagor or any such General Partner, guarantor or
indemnitor, or by any court, in any such proceeding; (e) any claim which
Mortgagor has or might have against Lender; (f) any default or failure on the
part of Lender to perform or comply with any of the terms hereof or of any other
agreement with Mortgagor or any other Cross-collateralized Mortgagor; or (g) any
other occurrence whatsoever, whether similar or dissimilar to the foregoing,
whether or not Mortgagor shall have notice or knowledge of any of the
foregoing.
Section
18.28.
Publicity
. All
promotional news releases, publicity or advertising by Manager, Mortgagor or
their respective Affiliates through any media intended to reach the general
public shall not refer to the Loan Documents or the financing evidenced by the
Loan Documents, or to Lender or to any of its Affiliates without the prior
written approval of Lender or such Affiliate, as applicable, in each instance,
such approval not to be unreasonably withheld or delayed. Lender shall be
authorized to provide information relating to the Property, the Loan and matters
relating thereto to rating agencies, underwriters, potential securities
investors, auditors, regulatory authorities and to any Persons which may be
entitled to such information by operation of law.
Section
18.29.
Securitization
Opinions
. In the
event the Loan is included as an asset of a Securitization by Lender or any of
its Affiliates, Mortgagor shall, within fifteen (15) Business Days after
Lender’s written request therefor, at Lender’s sole cost and expense, deliver
opinions in form and substance and delivered by counsel reasonably acceptable to
Lender and each Rating Agency, as may be reasonably required by Lender and/or
each Rating Agency in connection with such securitization. Mortgagor’s failure
to deliver the opinions required hereby within such ten (10) Business Day period
shall constitute an “Event of Default” hereunder.
Section
18.30.
Intentionally
Deleted
.
Section
18.31.
Securitization
Financials
.
Mortgagor covenants and agrees that, upon Lender’s written request therefor in
connection with a Securitization, Mortgagor shall, at Lender’s sole cost and
expense, promptly deliver audited financial statements and related documentation
prepared by an Independent certified public accountant that satisfy securities
laws and requirements for use in a public registration statement (which may
include up to three (3) years of historical audited financial
statements).
Section
18.32.
Exculpation
.
Notwithstanding anything herein or in any other Loan Document to the contrary,
except as otherwise set forth in this Section 18.32 to the contrary, Lender
shall not enforce the liability and obligation of Mortgagor or (a) if Mortgagor
is a partnership, its constituent partners or any of their respective partners,
(b) if Mortgagor is a trust, its beneficiaries or any of their respective
Partners (as hereinafter defined), (c) if Mortgagor is a corporation, any of its
shareholders, directors, principals, officers or employees, or (d) if Mortgagor
is a limited liability company, any of its members, managers, officers or
directors (the Persons described in the foregoing clauses (a) - (d), as the case
may be, are hereinafter referred to as the “
Partners
”) to
perform and observe the obligations contained in this Security Instrument or any
of the other Loan Documents by any action or proceeding wherein a money judgment
shall be sought against Mortgagor or the Partners, except that Lender may bring
a foreclosure action, action for specific performance, or other appropriate
action or proceeding (including, without limitation, an action to obtain a
deficiency judgment) solely for the purpose of enabling Lender to realize upon
(i) Mortgagor’s interest in the Property, (ii) the Rent to the extent received
by Mortgagor (or received by its Partners) after the occurrence of an Event of
Default and not either delivered to Lender (or Lender’s agent) or applied to
ordinary and necessary expenses of owning and operating the Property (the
“
Recourse
Distributions
”) and
(iii) any other collateral given to Lender under the Loan Documents (the
collateral described in the foregoing clauses (i) - (iii) is hereinafter
referred to as the “
Default
Collateral
”);
provided
,
however
, that
any judgment in any such action or proceeding shall be enforceable against
Mortgagor or the Partners, as the case may be, only to the extent of any such
Default Collateral. The provisions of this Section shall not, however, (a)
impair the validity of the Debt evidenced by the Note or in any way affect or
impair the lien of this Security Instrument or any of the other Loan Documents
or the right of Lender to foreclose this Security Instrument following the
occurrence of an Event of Default; (b) impair the right of Lender to name
Mortgagor as a party defendant in any action or suit for judicial foreclosure
and sale under this Security Instrument; (c) affect the validity or
enforceability of the Note, this Security Instrument, or any of the other Loan
Documents, or impair the right of Lender to seek a personal judgment against the
Guarantor; (d) impair the right of Lender to obtain the appointment of a
receiver; (e) impair the enforcement of the Assignment; (f) impair the right of
Lender to bring suit for a monetary judgment against Mortgagor with respect to
any losses resulting from fraud, material misrepresentation, or failure to
disclose a material fact, any untrue statement of a material fact or omission to
state a material fact in the written materials and/or information provided to
Lender or any of its affiliates by or on behalf of Mortgagor, Guarantor or any
of their Affiliates in connection with this Security Instrument, the Note or the
other Loan Documents, and the foregoing provisions shall not modify, diminish or
discharge the liability of Mortgagor, Guarantor or any of their Affiliates with
respect to same; (g) impair the right of Lender to bring suit for a monetary
judgment against Mortgagor to obtain the Recourse Distributions received by
Mortgagor including, without limitation, the right to bring suit for a monetary
judgment to proceed against Guarantor to the extent of Guarantor’s liability
under any guaranty delivered by Guarantor and the foregoing provisions shall not
modify, diminish or discharge the liability of Mortgagor or Guarantor with
respect to same; (h) impair the right of Lender to bring suit for a monetary
judgment against Mortgagor with respect to any losses resulting from Mortgagor’s
misappropriation of tenant security deposits or Rent (other than rent deemed
“additional rent” under the Leases) collected more than one (1) month in
advance, and the foregoing provisions shall not modify, diminish or discharge
the liability of Mortgagor with respect to same; (i) impair the right of Lender
to obtain Loss Proceeds due to Lender pursuant to this Security Instrument to
the extent actually paid by the insurer; (j) impair the right of Lender to
enforce the provisions of Sections 2.02(g), 16.01 or 16.02, inclusive of this
Security Instrument, even after repayment in full by Mortgagor of the Debt or to
bring suit for a monetary judgment against Mortgagor with respect to any losses
resulting from any obligation set forth in said Sections; (k) prevent or in any
way hinder Lender from exercising, or constitute a defense, or counterclaim, or
other basis for relief in respect of the exercise of, any other remedy against
any or all of the collateral securing the Note as provided in the Loan
Documents; (l) impair the right of Lender to bring suit for a monetary judgment
against Mortgagor with respect to any losses resulting from any misappropriation
or conversion of Loss Proceeds, and the foregoing provisions shall not modify,
diminish or discharge the liability of Mortgagor with respect to same; (m)
impair the right of Lender to sue for, seek or demand a deficiency judgment
against Mortgagor solely for the purpose of foreclosing the Property or any part
thereof, or realizing upon the Default Collateral;
provided
,
however
, that
any such deficiency judgment referred to in this clause (m) shall be enforceable
against Mortgagor and Guarantor only to the extent of any of the Default
Collateral; (n) impair the ability of Lender to bring suit for a monetary
judgment against Mortgagor with respect to any losses resulting from arson or
physical waste to or of the Property or damage to the Property in each case
resulting from the intentional acts or intentional omissions of Mortgagor,
Guarantor or any of their Affiliates; (o) impair the right of Lender to bring a
suit for a monetary judgment against Mortgagor in the event of the exercise of
any right or remedy under any federal, state or local forfeiture laws resulting
in the loss of the lien of this Security Instrument, or the priority thereof,
against the Property; (p) be deemed a waiver of any right which Lender may have
under Sections 506(a), 506(b), 1111(b) or any other provision of the Bankruptcy
Code to file a claim for the full amount of the Debt or to require that all
collateral shall continue to secure all of the Debt; (q) impair the right of
Lender to bring suit for monetary judgment against Mortgagor with respect to any
losses resulting from any claims, actions or proceedings initiated by Mortgagor
(or any Affiliate of Mortgagor) alleging that the relationship of Mortgagor and
Lender is that of joint venturers, partners, tenants in common, joint tenants or
any relationship other than that of debtor and creditor; (r) impair the right of
Lender to bring suit for a monetary judgment with respect to any losses
resulting from a Transfer in violation of the provisions of Article IX hereof;
or (s) impair the right of Lender to bring suit against Mortgagor for
Mortgagor’s failure to pay any valid taxes, assessments, mechanic’s liens,
materialmen’s liens or other liens which could create liens on any portion of
the Property superior to the lien or security title of this Security Instrument
or the other Loan Documents, except, (1) with respect to any such taxes or
assessments, to the extent that funds have been deposited with Lender pursuant
to the terms of this Security Instrument specifically for the applicable taxes
or assessments and not applied by Lender to pay such taxes and assessments, and
(2) to the extent that there is insufficient available cash flow at any time to
enable Mortgagor to pay all operating expenses (including taxes and assessments)
then due and payable
,
necessary property improvement expenditures and amounts due and payable under
the Loan Documents (as demonstrated to the reasonable satisfaction of Lender)
and Mortgagor applies all available cash flow to the payment of any one or more
of the foregoing item
s. The
provisions of this Section 18.32 shall be inapplicable to Mortgagor if (a) any
proceeding, action, petition or filing under the Bankruptcy Code, or any similar
state or federal law now or hereafter in effect relating to bankruptcy,
reorganization or insolvency, or the arrangement or adjustment of debts, shall
be filed by, consented to or acquiesced in by or with respect to Mortgagor, or
if Mortgagor shall institute any proceeding for its dissolution or liquidation,
or shall make an assignment for the benefit of creditors or (b) Mortgagor or any
Affiliate contests or interferes with Lender’s enforcement of its rights and
remedies hereunder or under the Loan Documents by asserting any defense (x) as
to the validity of the obligations under the Loan Documents or in any way
relating to the structure of the Mortgagor or the enforceability of Lender’s
rights and remedies under the Loan Documents, or (y) for the purpose of
delaying, hindering or impairing Lender’s rights and remedies under the Loan
Documents (collectively, a “
Contest
”)
(provided that if any such Person obtains a non-appealable order successfully
asserting a Contest, Mortgagor shall have no liability under this clause (b)),
in which event Lender shall have recourse against all of the assets of Mortgagor
including, without limitation, any right, title and interest of Mortgagor in and
to the Property.
Section
18.33.
Intentionally
Deleted
Section
18.34.
Intentionally
Deleted
Section
18.35.
Release of Security
Instrument
. If all
of the Debt is paid, then and in that event only, all rights under this Security
Instrument, except for those provisions hereof which by their terms survive,
shall terminate and the Property shall become wholly clear of the liens,
security interests, conveyances and assignments evidenced hereby, which shall be
promptly released of record by Lender at Grantor’s sole cost and
expense.
Section
18.36.
Cooperation
. (a)
Mortgagor covenants and agrees that in the event the Loan is to be included as
an asset of a Securitization, Mortgagor shall (a) gather any information
reasonably required by the Rating Agencies in connection with such a
Securitization, (b) at Lender’s request, meet with representatives of the Rating
Agency to discuss the business and operations of the Property, and (c) cooperate
with the reasonable requests of each Rating Agency and Lender in connection with
all of the foregoing as well as in connection with all other matters and the
preparation of any offering documents with respect thereof, including, without
limitation, entering into any amendments or modifications to this Security
Instrument or to any other Loan Document which may be requested by Lender to
conform to Rating Agency or market standards for a Securitization provided that
no such modification shall modify (a) the interest rate payable under the Note,
(b) the stated maturity of the Note, (c) the amortization of principal under the
Note, (d) Section 18.32 hereof, (e) any other material economic term of the Loan
or (f) any provision, the effect of which would materially increase Mortgagor’s
obligations or materially decrease Mortgagor’s rights under the Loan Documents.
Mortgagor acknowledges that the information provided by Mortgagor to Lender may
be incorporated into the offering documents for a Securitization. Lender and
each Rating Agency shall be entitled to rely on the information supplied by, or
on behalf of, Mortgagor and Mortgagor indemnifies and holds harmless the
Indemnified Parties, their Affiliates and each Person who controls such Persons
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as same may be amended from time to time, for,
from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, known or
unknown, contingent or otherwise, whether incurred or imposed within or outside
the judicial process, including, without limitation, reasonable attorneys’ fees
and disbursements (including, without limitation, reasonable attorney’s fees and
expenses, whether incurred within or outside the judicial process) that arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in such information or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated in such information or necessary in order to make the statements in such
information, or in light of the circumstances under which they were made, not
misleading.
(b)
Further,
Mortgagor shall cooperate at no cost to Mortgagor, with Lender and its
affiliates in connection with any such sale of the Loan by mortgage backed pass
through certificates, participations, securities or pari passu notes evidencing
whole or component interests therein through one of more public or private
offerings, including, but not limited to:
(i)
separating
the Loan into two or more separate notes (or components that correspond to one
or more tranches of the certificates/securities created in a Securitization) or
participation interests. Such notes or components or participation interests may
be assigned different interest rates, so long as the weighted average of such
interest rates equals the interest rate on the Note. Additionally, Lender may
split the Loan into a senior/subordinated participation structure;
(ii)
obtaining
ratings from two or more Rating Agencies;
(iii)
making or
causing to be made reasonable changes or modifications to the loan
documentation, organizational documentation, opinion letters and other
documentation;
(iv)
reviewing
prepared offering materials relating to the Property, Mortgagor, Guarantor and
the Loan;
(v)
delivering
updated information on the Mortgagor, Guarantor and the Property;
(vi)
participating
in investor or Rating Agency meetings if requested by Lender;
(vii)
permitting
adjustment of Lender’s security interest to permit a senior/subordinate or other
structure to enhance a Securitization, participation interest or a distribution
of the Loan;
(viii)
restructuring
of the Loan and/or a reduction of the Loan Amount with the imposition of a
mezzanine loan in the corresponding amount to be reduced, which mezzanine loan
shall be secured by a pledge of ownership interests in Mortgagor or the members
of Mortgagor. Such notes or components may be assigned different interest rates,
so long as the weighted average of such interest rates equals the interest rate
on the Note; and
(ix)
uncrossing
the Loan and each Cross-collateralized Mortgage to two (2) or more separate
loans.
Section
18.37.
Regulation
A/B
.
(a)
If requested by Lender, Mortgagor shall furnish, or shall cause the applicable
tenant to furnish, to Lender financial data and/or financial statements in
accordance with Regulation AB (as defined herein) for any tenant of any Property
if, in connection with a securitization, Lender expects there to be, with
respect to such tenant or group of affiliated tenants, a concentration within
all of the mortgage loans included or expected to be included, as applicable, in
such securitization such that such tenant or group of affiliated tenants would
constitute a Significant Obligor (as defined herein); provided, however, that in
the event the related lease does not require the related tenant to provide the
foregoing information, Mortgagor shall use commercially reasonable efforts to
cause the applicable tenant to furnish such information.
(b)
If,
at the time one or more Disclosure Documents are being prepared for a
securitization, Lender expects that Mortgagor alone or Mortgagor and one or more
affiliates of Mortgagor collectively, or the Property alone or the Property and
any other parcel(s) of real property, together with improvements thereon and
personal property related thereto, that is “related”, within the meaning of the
definition of Significant Obligor, to the Property (a “Related Property”)
collectively, will be a Significant Obligor, Mortgagor shall furnish to Lender
upon request (i) the selected financial data or, if applicable, net operating
income, required under Item 1112(b)(1) of Regulation AB and meeting the
requirements thereof, if Lender expects that the principal amount of the Loan,
together with any loans made to an affiliate of Mortgagor or secured by a
Related Property that is included in a securitization with the Loan (a “Related
Loan”), as of the cut-off date for such securitization may, or if the principal
amount of the Loan together with any Related Loans as of the cut-off date for
such securitization and at any time during which the Loan and any Related Loans
are included in a securitization does, equal or exceed ten percent (10%) (but
less than twenty percent (20%)) of the aggregate principal amount of all
mortgage loans included or expected to be included, as applicable, in the
securitization or (ii) the financial statements required under Item 1112(b)(2)
of Regulation AB and meeting the requirements thereof, if Lender expects that
the principal amount of the Loan together with any Related Loans as of the
cut-off date for such securitization may, or if the principal amount of the Loan
together with any Related Loans as of the cut-off date for such securitization
and at any time during which the Loan and any Related Loans are included in a
securitization does, equal or exceed twenty percent (20%) of the aggregate
principal amount of all mortgage loans included or expected to be included, as
applicable, in the securitization. Such financial data or financial statements
shall be furnished to Lender (A) within ten (10) Business Days after notice from
Lender in connection with the preparation of Disclosure Documents for the
securitization, (B) not later than thirty (30) days after the end of each fiscal
quarter of Mortgagor and (C) not later than seventy-five (75) days after the end
of each fiscal year of Mortgagor; provided, however, that Mortgagor shall not be
obligated to furnish financial data or financial statements pursuant to clauses
(B) or (C) of this sentence with respect to any period for which a filing
pursuant to the Securities Exchange Act of 1934 in connection with or relating
to the securitization (an “Exchange Act Filing”) is not required. As used
herein, “Regulation AB” shall mean Regulation AB under the Securities Act of
1933 and the Securities Exchange Act of 1934 (as amended). As used herein,
“Disclosure Document” shall mean a prospectus, prospectus supplement, private
placement memorandum, or similar offering memorandum or offering circular, in
each case in preliminary or final form, used to offer securities in connection
with a securitization. As used herein, “Significant Obligor” shall have the
meaning set forth in Item 1101(k) of Regulation AB.
ARTICLE
XIX:
STATE SPECIFIC
PROVISIONS
Section
19.01.
Louisiana
Remedies
. If any
Event of Default shall occur and be continuing, Lender may, in addition to and
not in lieu of any other rights and remedies hereunder or provided by law,
exercise any and all remedies provided in any of the other Loan Documents, or
exercise one or more of the following rights and remedies:
(a)
Acceleration;
Foreclosure.
Lender
shall have the right, at its sole option, to accelerate the maturity and demand
payment in full of the secured indebtedness. Lender shall then have the right to
commence appropriate foreclosure proceedings against the Property as provided in
this Mortgage.
(b)
Seizure and Sale of
Property.
In the
event that the Lender elects to commence appropriate Louisiana foreclosure
proceedings under this Mortgage, Lender may cause the Property, or any part or
parts thereof, to be immediately seized and sold, whether in term of court or in
vacation, under ordinary or executory process, in accordance with applicable
Louisiana law, to the highest bidder for cash, with or without appraisement, and
without the necessity of making additional demand upon or notifying Mortgagor or
placing Mortgagor in default, all of which are expressly waived.
(c)
Confession of Judgment.
For
purposes of foreclosure under Louisiana executory process procedures, Mortgagor
confesses judgment and acknowledges to be indebted unto and in favor of the
Lender, up to the full amount of the secured indebtedness, in principal,
interest, costs, expenses, and attorneys’ fees. To the extent permitted under
applicable Louisiana law, Mortgagor additionally waives: (a) the benefit of
appraisal as provided in Articles 2332, 2336, 2723 and 2724 of the Louisiana
Code of Civil Procedure, and all other laws with regard to appraisal upon
judicial sale; (b) the demand and three (3) days' delay as provided under
Article 2721 of the Louisiana Code of Civil Procedure; (c) the notice of seizure
as provided under Articles 2293 and 2721 of the Louisiana Code of Civil
Procedure; (d) the three (3) days' delay provided under Articles 2331 and 2722
of the Louisiana Code of Civil Procedure; and (e) all other benefits provided
under Articles 2331, 2722 and 2723 of the Louisiana Code of Civil Procedure and
all other Articles not specifically mentioned above.
(d)
Keeper.
Should
any or all of the Property be seized as an incident to an action for the
recognition or enforcement of this Mortgage, by executory process,
sequestration, attachment, writ of fieri facias or otherwise, Mortgagor hereby
agrees that the court issuing any such order shall, if requested by Lender,
appoint Lender, or any agent designated by Lender, or any person or entity named
by Lender at the time such seizure is requested, or any time thereafter, as
Keeper of the Property as provided under La. R.S. 9:5136
et seq
. Such a
Keeper shall be entitled to reasonable compensation. Mortgagor agrees to pay the
reasonable fees of such Keeper, which are hereby fixed at the greater of market
rate or $50.00 per hour, which compensation to the Keeper shall also be secured
by this Mortgage.
(e)
Declaration of
Fact.
Should
it become necessary for Lender to foreclose under this Mortgage, all
declarations of fact, which are made under an authentic act before a Notary
Public in the presence of two witnesses, by a person declaring such facts to lie
within his or her knowledge, shall constitute authentic evidence for purposes of
executory process and also for purposes of La. R.S. 9:3509.1, La. R.S.
9:3504(D)(6) and La. R.S. 10:9-629, where applicable.
(f)
Specific
Performance.
Lender
may, in addition to the foregoing remedies, or in lieu thereof, in Lender’s sole
discretion, pursuant to Louisiana Civil Code Article 1986, commence an
appropriate action against Mortgagor seeking specific performance of any
covenant contained herein, or in aid of the execution or enforcement of any
power herein granted.
(g)
Cumulative
Remedies.
Lender’s
remedies as provided herein shall be cumulative in nature and nothing under this
Mortgage shall be construed as to limit or restrict the options and remedies
available to Lender following any Event of Default, or to in any way limit or
restrict the rights and ability of Lender to proceed directly against Mortgagor
and/or any guarantor or endorser of Mortgagor's secured indebtedness, or to
proceed against other collateral directly or indirectly securing any such
secured indebtedness.
(h)
Assignment of
Leases.
Upon the
occurrence of an Event of Default hereunder, then the assignment of Rents and
Profits granted in this Mortgage shall automatically become absolute as provided
in La. R.S. 9:4401, and Lender, without in any way waiving such default, at its
option, upon notice and without regard to the adequacy of the security for the
secured indebtedness or to whether it has exercised any of its other rights or
remedies hereunder, shall have the right to directly collect and receive all
rents and any other proceeds and/or payments arising under or in any way
accruing under the leases assigned herein, as such amounts become due and
payable and to apply the same to the secured indebtedness as provided herein.
Nothing herein shall be construed to limit the exercise of any remedies
otherwise granted to Lender in this instrument. Mortgagor unconditionally agrees
to deliver to Lender, immediately following demand, any and all of Mortgagor’s
records, ledger sheets, and other documentation, in the form requested by
Lender, with regard to the Leases and the Rents and any and all proceeds and/or
payments applicable thereto. Lender shall have the further right, upon the
occurrence of an Event of Default, where appropriate and within Lender’s sole
discretion, to file suit, either in Mortgagor’s own name or in the name of
Lender, to collect any and all Rents and other proceeds and payments that may
then and/or in the future be due and owing under and/or as a result of the
Leases assigned herein. Where it is necessary for Lender to attempt to collect
any such Rents and other proceeds and/or payments from the obligors therefor,
Lender may compromise, settle, extend, or renew for any period (whether or not
longer than the original period) any obligation or indebtedness thereunder or
evidenced thereby, or surrender, release, or exchange all or any part of said
obligation or indebtedness, without affecting the liability of Lender under this
Mortgage or under the Debt. To that end, Mortgagor hereby irrevocably
constitutes and appoints Lender as its attorney-in-fact, coupled with an
interest and with full power of substitution, to take any and all such actions
and any and all other actions permitted hereby, either in the name of Mortgagor
or Lender. In order to permit the foregoing, Lender shall have the additional
irrevocable right, coupled with an interest, to: (a) remove any and all of
Mortgagor’s documents, instruments, files and records relating or pertaining to
the Leases and/or the Rents from any premises where the same shall then be
located; (b) at Mortgagor’s sole cost and expense, use such of Mortgagor’s
personnel, supplies and space at Mortgagor’s place or places of business as may
be necessary and proper within Lender’s sole discretion, to administer
collection of such proceeds and/or payments; (c) receive, open and dispose of
all mail addressed to Mortgagor pertaining to any of the Leases and/or the Rents
and proceeds and/or payments thereunder; (d) notify the postal authorities to
change the address the delivery of mail addressed to Mortgagor pertaining to any
of the Leases and/or Rents and proceeds and/or payments thereunder, to such
address as Lender may designate; (e) endorse Mortgagor’s name on any and all
notes, acceptances, checks, drafts, money orders, or other evidences of payment
of such proceeds and/or payments that may come into Lender’s possession, and to
deposit or otherwise collect the same; (f) prepare and mail invoices and/or
statements to such obligors and/or debtors; (g) send verifications of amounts
owed to such obligors; and (h) execute in Mortgagor’s name affidavits and/or
notices with regard to lien rights available to Mortgagor in connection with
such Leases and/or Rents. In the event that Mortgagor should, for any reason
whatsoever, receive any proceeds derived from the sale, lease, insurance loss,
damage and/or condemnation, of all or any part of said premises and/or the
Leases or Rents, or should Mortgagor receive any other payments under the Leases
or Rents as provided hereunder (with such proceeds and/or payments being
hereinafter individually, collectively and interchangeably referred to as
Mortgagor’s “
Rent Funds
”),
following notice to the obligors thereunder to make their respective payments
directly to Mortgagor, Mortgagor shall hold such Rent Funds in trust for and on
behalf of Lender, and Mortgagor hereby unconditionally agrees to remit or to
otherwise turn over such Rent Funds to Lender immediately following demand.
Should Mortgagor deposit any such Rent Funds into one or more of Mortgagor’s
deposit accounts, no matter where located, Lender shall have the additional
right to attach any and all of Mortgagor’s deposit accounts in which Lender may
prove such Rent Funds were deposited, whether or not such Rent Funds are or were
commingled with other moneys of Mortgagor, and whether or not such Rent Funds
then remain on deposit in such an account or accounts. Anything to the contrary
in this Mortgage notwithstanding, Lender will not be deemed or construed to have
taken possession of said premises or to be managing it by reason of its exercise
of any of its rights or remedies under this Paragraph.
The term
“lien” will also mean a privilege, mortgage, security interest, assignment, or
other encumbrance. The term “real property” will mean “immovable property” as
that term is used in the Louisiana Civil Code. The term “personal property” will
mean “movable property” as that term is used in the Louisiana Civil Code. The
term “easement” will mean “servitude” as that term is used in the Louisiana
Civil Code. The term “building” will also include “other constructions” as that
term is used in the Louisiana Civil Code. The term “tangible” will mean
“corporeal” as that term is used in the Louisiana Civil Code. The term
“intangible” will mean “incorporeal” as that term is used in the Louisiana Civil
Code. The term “Uniform Commercial Code” will mean Louisiana Commercial Laws,
La. R.S. 10:1-101
et seq
. The
term “fee estate” will mean “full ownership interest” as that term is used in
the Louisiana Civil Code. The term “condemnation” will include “expropriation”
as that term is used in Louisiana law. The term “receiver” will include “keeper”
as that term is used in Louisiana law. The term “conveyance in lieu of
foreclosure” or “action in lieu thereof” will mean “giving in payment” as that
term is used in the Louisiana Civil Code and “dation en paiment”. The term
“joint and several” will mean “solidary” as that term is used in the Louisiana
Civil Code. The term “county” will mean “parish” as that term is used in
Louisiana.
(i)
Automatic Transfer of
Rights
. In the
event of foreclosure under this Mortgage, or other transfer of title or
assignment of the Property, or any part or parts thereof, in lieu of payment of
the Debt, whether in whole or in part, all policies of insurance and other
incorporeal rights applicable to the foreclosed upon or transferred Property
(collectively, the “Rights”) shall automatically inure to the benefit of and
shall pass to the purchaser(s) or transferee)s) thereof, subject to the rights
of the purchaser(s) or transferee(s) to reject such insurance coverage and/or
Rights at its or their sole option and election.
(j)
Public or Private Sale of
Collateral
. To the
extent that any of the Property is then in Lender’s possession, Lender shall
have full power to sell, lease, transfer, or otherwise deal with the Property or
proceeds thereof in its own name or that of Mortgagor. Lender may sell the
Property at public auction or private sale. Unless the Property threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Lender will give Mortgagor reasonable notice of the time after which any
private sale or any other intended disposition of the Property is to be made.
All expenses relating to the disposition of the Property, including without
limitation the expenses of retaking, holding, insuring, preparing for sale and
selling the Property, shall become a part of the Debt secured hereby and shall
be payable on demand, with interest at the Default Interest Rate from date of
expenditure until repaid. Mortgagor agrees that any such sale shall be
conclusively deemed to be conducted in a commercially reasonable manner if it is
made consistent with the standard of similar sales of collateral by commercial
banks in Louisiana.
(k)
Collect Revenues, Apply
Accounts
. Lender
shall have the right, at its sole option and election, to directly collect and
receive all proceeds and/or payments arising under or in any way accruing from
the Property, as such amounts become due and payable. In order to permit the
foregoing, Mortgagor unconditionally agrees to deliver to Lender, immediately
following demand, any and all of Mortgagor’s records, ledger sheets, and other
documentation, in the form requested by Lender, with regard to the Property and
any and all proceeds and/or payments applicable thereto. Lender shall have the
further right within Lender’s sole discretion, to file suit, either in Lender’s
own name or in the name of Mortgagor, to collect any and all proceeds and
payments that may then and/or in the future be due and owing under this
Mortgage, and if as a result of such it is necessary for Lender to attempt to
collect any such proceeds and/or payments from the obligors therefor, Lender may
compromise, settle, extend, or renew for any period (whether or not longer than
the original period) any obligation or indebtedness thereunder or evidenced
thereby, or surrender, release, or exchange all or any part of said obligation
or indebtedness, without affecting the liability of Mortgagor under this
Mortgage or under the Obligations. To that end, Mortgagor hereby irrevocably
constitutes and appoints Lender as its attorney-in-fact, coupled with an
interest and with full power of substitution, to take any and all such actions
and any and all other actions permitted hereby, either in the name of Mortgagor
or Lender.
(l)
Additional
Expenses
. In the
event that it should become necessary for Lender to conduct a search for any of
the Property in connection with any foreclosure action, or should it be
necessary to remove the Property, or any part or parts thereof, from the
premises in which or on which the Property is then located, and/or to store
and/or refurbish such Property, Mortgagor agrees to reimburse Lender for the
cost of conducting such a search and/or removing and/or storing and/or
refurbishing such Property, which additional expense shall also be secured by
the lien of this Mortgage and the assignments and security interests created
herein.
Section
19.02.
Waiver and
Release
. The
parties to this Security Instrument hereby waive the production of mortgage,
conveyance, tax, paving and other certificates and relive and release the Notary
Public before whom this Security Instrument was passed from all responsibilities
and liabilities in connection therewith.
Section
19.03.
No Paraph
.
Mortgagor declares that none of the secured indebtedness secured by this
Mortgage has been “paraphed” for identification with this Mortgage.
Section
19.04.
The
parties to this Security Instrument hereby waive the production of mortgage,
conveyance, tax, paying, assignment of accounts receivable and other
certificates and relieve and release the Notary before whom this Mortgage was
passed from all responsibilities and liabilities in connection
therewith
Section
19.05.
This
Security Instrument secures any and all present and future loans, advances,
and/or other extensions of credit or other indebtedness now owing or which
hereafter be owing by Mortgagor to Lender, as well as Lender’s successors and
assigns, from time to time, one or more times, now and in the future, and any
and all promissory notes evidencing such present and/or future loans, advances
and/or other extensions of credit, as well as any and all other obligations,
including, without limitation, Mortgagor’s covenants and agreements in any
present or future loan or credit agreement or any other agreement, document or
instrument executed by Mortgagor, and liabilities that Mortgagor may now and/or
in the future owe to and/or incur in favor of Lender, as well as Lender’s
successors and assigns, whether direct or indirect, or by way of assignment or
purchase of a participation interest, and whether related or unrelated, or
whether committed or purely discretionary, however and whenever incurred or
evidenced, whether express or implied, direct or indirect, absolute or
contingent, or due or to become due, and all renewals, modifications,
consolidations, replacements and extensions thereof, whether Mortgagor is
obligated alone or with others on a “solidary” or “joint and several” basis, as
a principal obligor or as a surety, guarantor, or endorser, of every nature and
kind whatsoever, whether or not any such indebtedness may be barred under any
statute of limitations or prescriptive period or may be or become otherwise
unenforceable or voidable for any reason whatsoever, up to the Maximum Amount.
Notwithstanding any other provision of this Mortgage, the maximum amount of
indebtedness secured hereby at any time and from time to time shall be limited
to the Maximum Amount.
Section
19.06.
This
Security Instrument has been executed by Mortgagor pursuant to Article 3298 of
the Louisiana Civil Code and other applicable law for the purpose of securing
the secured indebtedness that may now be existing and/or that may arise in the
future as provided herein, with the preferences and priorities provided under
applicable Louisiana law. However, nothing under this Security Instrument shall
be construed as limiting the duration of this Mortgage or the purpose or
purposes for which the secured indebtedness may be requested or
extended.
Section
19.07.
Forfeiture
. There
has not been and shall never be committed by Mortgagor or any other person in
occupancy of or involved with the operation or use of the Property any act or
omission affording the federal government or any state or local government the
right of forfeiture as against the Property or any part thereof o
r any
monies paid in performance of Mortgagor’s obligations under any of the Loan
Document.
Section
19.08.
Rents and
Leases
. In
order to secure the secured indebtedness up to the Maximum Amount and to the
extent permitted by La. R.S. 9:4401 et seq., as additional and collateral
security for the payment of the Debt and cumulative of any and all rights and
remedies herein provided for, Mortgagor hereby collaterally and conditionally
assigns to Lender all existing and future Rents and Leases, such assignment to
become absolute upon the occurrence of an Event of Default.
Section
19.09.
As used
in this Security Instrument, the definition of "Environmental Statutes" includes
the Louisiana Environmental Quality Act (Louisiana Revised Statutes § 30:2001,
et seq.), as amended and any other laws of the State of Louisiana governing the
handling of hazardous materials, and the regulations promulgated thereunder as
used in this Security Instrument the term "Environmental Statute"
included.
Section
19.10.
Foreclosure
. At any
time after an Event of Default, Lender has immediately commence an action to
foreclose this Mortgage or to specifically enforce its provisions or any of the
indebtedness secured hereby pursuant to the statutes in such case made and
provided and sell the Property or cause the Property to be sold in accordance
with the requirements and procedures provided by said statutes in a single
parcel or in several parcels at the option of Lender.
(1)
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In
the event foreclosure proceedings are filed by Lender, all expenses
incident to such proceeding, including, but not limited to, reasonable
attorneys' fees and costs, shall be paid by Mortgagor and secured by this
Mortgage and by all of the other Loan Documents securing all or any part
of the indebtedness evidenced by the Note. The secured indebtedness and
all other obligations secured by this Mortgage, including, without
limitation, interest at the Default Interest Rate (as defined in the
Note), any prepayment charge, fee or premium required to be paid under the
Note in order to prepay principal (to the extent permitted by applicable
law), attorneys' fees and any other amounts due and unpaid to Lender under
the Loan Documents, may be bid by Lender in the event of a foreclosure
sale hereunder. In the event of a judicial sale pursuant to a foreclosure
decree, it is understood and agreed that Lender or its assigns may become
the purchaser of the Property or any part
thereof.
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(2)
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Lender
may, by following the procedures and satisfying the requirements
prescribed by applicable law, foreclose on only a portion of the Property
and, in such event, said foreclosure shall not affect the lien of this
Mortgage on the remaining portion of the Property
foreclosed.
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[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
THUS DONE AND
SIGNED
in
________________, ________________on this 31
st
day of
January, 2007, in the presence of the undersigned witnesses and Notary Public
after due reading of the whole.
LVP GULF
COAST INDUSTRIAL
PORTFOLIO
LLC, a Delaware limited liability company
By:
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/s/ Michael
Schurer
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Name: Michael Schurer
Title: Vice President
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EXHIBIT
A-1
(Legal
Description)
PARCEL 1
100 JAMES DRIVE
EAST.
THAT
CERTAIN PORTION OF GROUND, situated in the State of Louisiana, Parish of St.
Charles, in that part thereof know as James Business Park, and shown on a plan
of resubdivision of J.J. Krebs & Sons, Inc., dated April 14, 1983, approved
by the St. Charles Parish Planning Commission on June 1, 1983, and registered in
COB 298, folio 297 on June 2, 1983, and identified as Lot 15-A, Square 4, and
said lot is more particularly described as follows:
Commence
at the intersection of the northerly right of way of James Drive East and the
easterly right of way of James Drive West a near point of curvature on James
Drive East, thence along the northerly right of way line of James Drive East
North 72 degrees 46 minutes 00 seconds East a distance of 175.38 feet to the
point of beginning;
Thence
North 00 degrees 11 minutes 00 seconds West a distance of 564.18 feet to a point
on the line common to Lots 15-A and 15-B;
Thence
along said common line North 89 degrees 49 minutes 00 seconds East a distance of
466.87 feet tot a point;
Thence
South 00 degrees 11 minutes 00 seconds East a distance of 421.00 feet to a point
on the northerly right of way of James Drive East;
Thence
South 72 degrees 46 minutes 00 seconds West along said right of way line a
distance of 488.33 feet to the point of beginning.
Lot 15-A
is a portion of former Lot 15, James Business Park.
The
improvements thereon bear the municipal no. 100 James Drive East.
EXHIBIT
A-2
PARCEL 2
120 MALLARD
STREET
THAT
CERTAIN PORTION OF GROUND, situated in the State of Louisiana, Parish of St.
Charles, in that part thereof known as James Business Park, and shown on a plan
of resubdivision of J.J. Krebs & Sons, Inc., dated April 14, 1983, approved
by the St. Charles Parish Planning Commission on June 1, 1983, and registered in
COB 298, folio 297 on June 2, 1983, and identified as Lot 15-B, Square 4, and
said lot is more particularly described as follows:
Lot 15-B
begins 133.13 feet from the near point of curvature of the intersection of the
easterly right of way of James Drive West and the southerly right of way of
Mallard Street and measures thence along the southerly right of way of Mallard
Street North 89 degrees 49 minutes 00 seconds East a distance of 440 feet to a
point;
Thence
South 00 degrees 11 minutes 00 seconds East, a distance of 200 feet to a
point;
Thence
North 89 degrees 49 minutes 00 seconds East, a distance of 26.87 feet to a
point;
Thence
South 00 degrees 11 minutes 00 seconds East, a distance of 129.00 feet to the
line common to Lots 15-A and 15-B;
Thence
South 89 degrees 49 minutes 00 seconds West along said common line a distance of
466.87 feet to a point;
Thence
North 00 degrees 11 minutes 00 seconds West a distance of 329.00 feet to the
point of beginning.
Said Lot
15-B is composed of a portion of former Lot 15 and all of Lots 6, 7, 8 and 9,
Square 4, James Business Park.
The
improvements thereon bear the municipal no. 120 Mallard Street.
EXHIBIT
A-3
PARCEL 3
150 CANVASBACK
DRIVE
THAT
CERTAIN PORTION OF GROUND, situated in the Parish of St. Charles, State
Louisiana, in that part thereof known as James Business Park Extension No. 2 in
Square No. 11 thereof, bounded by James Drive East, Pintail Street, James West
and Canvasback Drive, designated as Lot 10-A, according to a resubdivision plan
made by J.J. Krebs & Sons, Inc., dated December 9, 1986, approved by St.
Charles Parish Planning Director April 10, 1987, recorded at Entry No. 127655,
COB 371, folio 8 on April 23, 1987, and which lot is described as
follows:
Begin at
the intersection of the westerly right of way of James Drive East and the
southerly right of way of Canvasback Drive, the point of curvature on James
Drive East;
Thence
South 00 degrees 11 minutes 00 seconds East, a distance of 329.53 feet to a
point;
Thence
South 89 degrees 49 minutes 00 seconds West, a distance of 325.00 feet to a
point;
Thence
North 00 degrees 11 minutes 00 seconds West a distance of 354.53 feet to a point
on the southerly right of way of Canvasback Drive;
Thence
along said right of way North 89 degrees 49 minutes 00 seconds East a distance
of 300.00 feet to a point of curve;
Thence
along a curve to the right having a radius of 25.00 feet, a distance of 39.27
feet to the Point of Beginning.
Improvements
thereon bear Municipal Number
150
Canvasback Drive
.
Together
with those certain servitudes established as follows:
1.
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COB
366, folio 626 - Servitude by Destination of Owner as established by St.
Charles Three, Limited Partnership, by act before Frank J. Stitch, Jr.,
N.P. , dated January 13, 1987, filed January 14, 1987, under Entry No.
125464, as shown on the Lot 10-A
Survey.
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(the
“Insured Servitudes”)
EXHIBIT
A-4
PARCEL 4
107 MALLARD
STREET
THAT
CERTAIN PORTION OF GROUND, situated in the State of Louisiana, Parish of St.
Charles, in that part thereof known as James Business Park, in accordance with a
plan of resubdivision prepared by J. J. Krebs & Sons, Inc., dated June 13,
1978, last revised August 14, 1979, approved under St. Charles Parish Policy
Jury Ordinance No. 66-3-544 and registered in COB 234, folio 490 on October 2,
1979, and identified as Lots 1, 2, and 3, Square 5, and said lots are more
particularly described as follows:
Begin at
a near point of curvature at the northeast intersection of Mallard Street and
James Drive West; thence along the east right of way of James Drive West North
00 degrees 11 minutes 00 seconds West a distance of 175.00 feet to a
point;
Thence
North 89 degrees 49 minutes 00 seconds East a distance of 325.00 feet to a point
on the line common to Lots 3 and 4;
Thence
South 00 degrees 11 minutes 00 seconds East a distance of 200.00 feet to the
northerly right of way of Mallard Street;
Thence
along said right of way South 89 degrees 49 minutes 00 seconds West a distance
of 300 feet to a point on a curve to the right at the northeast intersection of
Mallard Street and James Drive West;
Thence
along said curve, having a radius of 25.00 feet a distance of 39.27 feet to the
point of beginning.
The
improvements thereon bear the municipal no. 107 Mallard Street.
Together
with those servitudes benefiting the land and established as
follows:
1.
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COB
305, folio 4 - Destination of the Owner with Respect to Driveway, dated
October 20,
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2.
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1983
and establishing non-exclusive driveway servitudes across Lots 1 through
18, Square 5, filed October 20,
1983.
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3.
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COB
305, folio 8 - Destination of the Owner with Respect to Non-Exclusive
Parking Areas dated October 20, 1983, and establishing non-exclusive
parking areas across Lots 1 through 18, Square 5, filed October 20,
1983.
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4.
|
COB
507, folio 148 - Supplement to Act of Destination by T.L. James &
Company, Inc., dated April 9, 1996.
|
(the
“Insured Servitudes”)
EXHIBIT
A-5
PARCEL 5
143 MALLARD
STREET
THAT
CERTAIN PORTION OF GROUND, situated in the State of Louisiana, Parish of St.
Charles, in that part thereof known as James Business Park, in accordance with a
plan of resubdivision prepared by J. J. Krebs & Sons, Inc., dated June 13,
1978, last revised August 14, 1979, approved under St. Charles Parish Police
Jury Ordinance No. 66-3-544 and registered in COB 234, folio 490 on October 2,
1979, and identified as Lots 7, 8 and 9, Square 5, and said lots are more
particularly described as follows:
Begin at
the northwest intersection of James Drive East and Mallard Street, a near point
of curvature on Mallard Street;
Thence
along the northerly right of way of Mallard Street South 89 degrees 49 minutes
00 West a distance of 300.00 feet to a point on the line common to Lots 6 and
7;
Thence
along said line North 00 degrees 11 minutes 00 seconds West a distance of 200.00
feet to a point;
Thence
North 89 degrees 49 minutes 00 seconds East a distance of 325.00 feet to a point
on the westerly right of way of James Drive East;
Thence
along said right of way South 00 degrees 11 minutes 00 seconds East a distance
of 175.00 feet to a point of curve;
Thence
along the arc of a curve to the right having a radius of 25.00 feet a distance
of 39.27 feet to the point of beginning.
The
improvements thereon bear municipal no. 143 Mallard Street.
Together
with those servitudes benefiting the land and established as
follows:
1.
|
COB
305, folio 4 - Destination of the Owner with Respect to Driveway, dated
October 20, 1983, and establishing non-exclusive driveway servitudes
across Lots 1 through 18, Square 5, filed October 20,
1983.
|
2.
|
COB
305, folio 8 - Destination of the Owner with Respect to Non-Exclusive
Parking Areas dated October 20, 1983, and establishing non-exclusive
parking areas across Lots 1 through 18, Square 5, filed October 20,
1983.
|
3.
|
COB
507, folio 148 - Supplement to Act of Destination by T.L. James &
Company, Inc., dated April 9, 1996.
|
(the
“Insured Servitudes”).
EXHIBIT
A-6
PARCEL 6
150 TEAL STREET
A CERTAIN
PIECE OR PORTION OF GROUND, situated in Section 39, Township 12 South, Range 9
East, St. Charles Parish, La., that part thereof known as James Business Park,
designated as Lot 10-A, Square 5, on a plan of Resubdivision by Krebs, LaSalle,
LeMieuz Consultants, Inc. entitled Resubdivision of Lots 10, 11, 12, 13, 14, 15
& 16, Square 5 into Lot 10-A, James Business Park in Section 39, Township 12
South, Range 9 East, dated October 29, 1998, approved by Director, St. Charles
Parish Planning and Zoning on November 2, 1998, filed November 10, 1998,
registered at COB 546, folio 226, Parish of St. Charles, State of Louisiana, and
Lot 10-A is more particularly described as follows:
Commence
at the point of curvature on the southerly right of way line of Teal Street at
the intersection of James Drive West;
Thence
along the southerly right of way line of Teal Street, North 89 degrees 49
minutes 00 seconds East a distance of 200.00 feet to the Point of
beginning;
Thence
continue along the southerly right of way line of Teal Street, North 89 degrees
49 minutes 00 seconds East, a distance of 700.00 feet to a point of
curvature;
Thence
along a curve to the right, having a radius of 25.00 feet, an arc length of
39.27 feet, a chord bearing of South 45 degrees 11 minutes 00 seconds East, a
chord distance of 35.36 feet to a point on the westerly right of way line of
James Drive East;
Thence
along the westerly right of way line of James Drive East, South 00 degrees 11
minutes 00 seconds East, a distance of 175.00 feet to a point;
Thence
South 89 degrees 49 minutes 00 seconds West, a distance of 725.00 to a
point;
Thence
North 00 degrees 11 minutes 00 seconds West a distance of 200.00 feet to a point
of beginning.
Improvements
bear municipal number 150 Teal Street.
Together
with those servitudes benefiting the land and established as
follows:
1.
|
COB
305, folio 4 - Destination of the Owner with Respect to Driveway, dated
October 20, 1983, and establishing non-exclusive driveway servitudes
across Lots 1 through 18, Square 5, filed October 20,
1983.
|
2.
|
COB
305, folio 8 - Destination of the Owner with Respect to Non-Exclusive
Parking Areas, dated October 20, 1983, and establishing non-exclusive
parking areas across Lots 1 through 18, Square 5, filed October 20,
1983.
|
3.
|
COB
507, folio 148 - Supplement to Act of Destination by T.L. James &
Company, Inc., dated April 9, 1996.
|
(the
“Insured Servitudes”)
EXHIBIT
A-7
PARCEL 7
520 AND 524 ELMWOOD PARK
BOULEVARD
A CERTAIN
PIECE OR PORTION OF GROUND, situated in the Parish of Jefferson, State of
Louisiana, in that portion thereof known as Elmwood Industrial Park, designated
as Parcel 16-C-2, per plan of Michael W. Flores, C.E. and L.S., dated April 3,
1985 last revised November 21, 1985, approved by Jefferson Parish Council
Ordinance No. 16704 on December 18, 1985 filed in COB 1396, folio 307. Parcel
16-C-2 is described as follows:
Commence
at the intersection of the west right of way line of Jefferson Highway and the
south right of way line of Elmwood Park Boulevard, thence North 47 degrees 25
minutes 41 seconds West along the south right of way line of Elmwood Park
Boulevard, a distance of 405.37 feet to the Point of Beginning; thence South 42
degrees 33 minutes 47 seconds West a distance of 521.05 feet to a point; thence
North 47 degrees 26 minutes 11 seconds West, a distance of 445.00 feet to the
point; thence North 42 degrees 33 minutes 47 seconds East a distance of 521.12
feet to a point on the south right of way line of Elmwood Park Boulevard; thence
along said right of way line South 47 degrees 25 minutes 41 seconds East a
distance of 445.00 feet to the Point of Beginning.
Address:
520 and 524 Elmwood Park Boulevard.
Together
with those certain servitudes benefiting the land and established as
follows:
1.
|
COB
1916, folio 275 - Servitude of Destination of the Owner as established by
Crow-Coleman, New Orleans, #1, a Louisiana General Partnership by act
dated March 21, 1988, registered as Entry No. 88-12359. This is a
non-exclusive servitude of common drive and passage, affecting a portion
of Parcels 16-C-2 and 16-C-3.
|
2.
|
COB
1913, folio 221 - Servitude of Destination of the Owner established by
Crow-Coleman New Orleans #1, a Louisiana General Partnership, by act last
dated March 16, 1988, filed as Entry No. 88-11515. This is a non-exclusive
servitude of common drive affecting a portion of Parcels 16-C-1 and
16-C-2. (Collectively the “Insured
Servitudes”)
|
EXHIBIT
A-8
PARCEL 8
11301 INDUSTRIPLEX
BOULEVARD
A CERTAIN
PIECE OR PORTION OF GROUND, situated in that subdivision of East Baton Rouge
Parish, Louisiana, known as Baton Rouge Industriplex Subdivision, Fourth Filing,
and designated as Lot No. 99-A, and according to Map Showing Resubdivision of
Lots 98-101, Baton Rouge Industriplex Subdivision, Fourth Filing, creating Lots
99-A and 101-A, by James R. Clary, Sr., P.L.S., dated March 3, 1988, approved by
East Baton Rouge Planning Commissions on March 9, 1988, recorded as Original 85,
Bundle 9987, Lot 99-A is more particularly described as follows:
Begin at
the intersection of the northerly right of way of Industriplex Boulevard and the
easterly right of way of Fieldstone Drive;
Thence
North 13 degrees 14 minutes 11 seconds East along the east right of way of
Fieldstone Drive, a distance of 291.70 feet to a point;
Thence
South 81 degrees 13 minutes 20 seconds East a distance of 377.15 feet to a
point;
Thence
South 13 degrees 14 minutes 11 seconds West a distance of 321.02 feet to a point
on the north right of way of Industriplex Boulevard;
Thence
North 76 degrees 45 minutes 49 seconds West along the north right of way of
Industriplex Boulevard a distance of 376.01 feet to the Point of
Beginning.
Improvements
thereon bear Municipal No. 11301 Industriplex Boulevard.
Together
with those certain servitudes established as follows:
1.
|
Original
586, Bundle 9988 - Servitude of Destination of the Owner as established by
Baton Rouge Trade Center Partnership by act dated March 21, 1988, filed
March 22, 1988. This is a non-exclusive servitude of common drive and
passage, affecting a portion of Lots 99-A and
101-A.
|
(the
“Insured Servitude”)
EXHIBIT
A-9
PARCEL 9
11441 INDUSTRIPLEX
BOULEVARD
A CERTAIN
PIECE OR PORTION OF GROUND, situated in the that subdivision of East Baton Rouge
Parish known as Baton Rouge Industriplex Subdivision, Fourth Filing and Baton
Rouge Industriplex Subdivision, Fifth Filing and designated as Lot 104-A-1, and
according to Map Showing Resubdivision of Lots 103, 104-A and 105 Baton Rouge
Industriplex Subdivision Fourth Filing and Lots 106-A and 107-A, Baton Rouge
Industriplex Subdivision, Fifth Filing, creating Lots 103-A, 104-A-1 and
107-A-1, by James R. Clary, Sr., P.L.S., dated March 7, 1988, approved by East
Baton Rouge Planning Commission March 9, 1988, recorded as Original 86, Bundle
9987, said Lot 104-A-1 is more described as follows:
Begin at
the northeast intersection of Industriplex Boulevard and Sunbelt
Court:
Thence
along the northeasterly right of way of Industriplex Boulevard along a curve
having a radius of 290.20 feet, a distance of 286.42 feet to point;
Thence
continue along said right of way line North 76 degrees 45 minutes 49 seconds
West a distance of 10.49 feet to a point;
Thence
North 13 degrees 14 minutes 11 seconds East a distance of 343.42 feet to a
point;
Thence
South 81 degrees 13 minutes 20 seconds East a distance of 239.57 feet to a
point;
Thence
South 09 degrees 04 minutes 39 seconds West a distance of 275.02 feet to a
point;
Thence
South 19 degrees 56 minutes 22 seconds East a distance of 8.89 feet to a
point;
Thence
South 50 degrees 55 minutes 59 seconds East a distance of 165.01 feet to a
point;
Thence
South 34 degrees 24 minutes 55 seconds East a distance of 28.62 feet to a point
on the north right of way line of Sunbelt Court;
Thence
South 69 degrees 47 minutes 07 seconds West the north right of way line of
Sunbelt Court a distance of 216.58 feet to the Point of Beginning.
Improvements
thereon bear Municipal No. 11441 Industriplex Boulevard.
EXHIBIT
A-10
PARCEL
10
6565 EXCHEQUER
DRIVE
TWO (2)
CERTAIN PIECES OR PORTIONS OF GROUND, situated in the subdivision of East Baton
Rouge Parish, Louisiana known as Baton Rouge Industriplex Subdivision, First and
Second Filing, designated as Lot Nos. 33-A and 34-A and according to a map
prepared by Dawson Engineers Incorporated, Consulting Civil Engineers, dated
August 2, 1982, entitled “Map Showing Survey of a Resubdivision of Lot 18 of the
Baton Rouge Industriplex Subdivision (First filing) into Lot 18A and Lot 33 of
the Baton Rouge Industriplex Subdivision (Second filing) into Lot 33-A and Lot
34 of the Baton Rouge Industriplex Subdivision (Second Filing) into Lot 34-A,
located in Section 6, T8S, R2E, Greensburg Land District, Parish of East Baton
Rouge, Louisiana”, approved by East Baton Rouge Planning Commission August 11,
1982, recorded on Original 557, Bundle 9514, said Lots 33-A and 34-A are more
particularly described as follows:
Commence
at the north right of way line of Industriplex Boulevard and last right of way
line of Exchequer Drive;
Thence
North 18 degrees 17 minutes 07 seconds East along the east right of way of
Exchequer Drive a distance of 300.00 feet to the Point of
Beginning;
Thence
continuing along the east right of way of Exchequer Drive North 18 degrees 17
minutes 07 seconds East a distance of 291.13 feet to a point;
Thence
North 89 degrees 41 minutes 35 seconds East a distance of 456.21 feet to a
point;
Thence
South 36 degrees 53 minutes 09 seconds East a distance of 327.29 feet to a
point;
Thence
South 01 degrees 22 minutes 42 seconds West a distance of 260.94 feet to a
point;
Thence
North 71 degrees 42 minutes 53 seconds West a distance of 776.95 feet to the
Point of Beginning.
Improvements
thereon bear Municipal No. 6565 Exchequer Drive.
EXHIBIT
B
SUMMARY OF
RESERVES
Reserve
Items
|
Initial
Deposit Amount
|
Monthly
Installment Amount
|
Basic
Carrying Costs
·
Taxes
·
Insurance
Premiums
|
·
Taxes
$139,237,51
·
Insurance
Premium
$139,422.18
|
·
Taxes
$59,132.84
·
Insurance
Premiums
12,582.09
|
Initial
Engineering/Environmental Deposits
·
Immediate
Repairs
·
Environmental
Remediation
|
·
Immediate
Repairs
$843,241.25
·
Environmental
Remediation
|
N/A
|
Recurring
Monthly Replacement Reserve Deposit
|
N/A
|
$12,584.40
Capped at $528,544.80
|
Reletting
Reserve
|
N/A
|
$29,363.61
Capped at 1,233,271.20
|
EXHIBIT
C
CASH FLOW
STATEMENT
|
|
Property:____________________________
|
|
|
Location:____________________________
|
Cash Flow Statement for Month of:____________
|
|
Year:
|
|
Current
Month
|
Year
to
Date
|
REVENUE
Net
Rental Revenue
Other
Revenue
Effective
Gross Income
|
________
|
________
|
OPERATING
EXPENSES
Common
Area Maintenance
Payroll
Administration
Leasing
Service
Clean
& Decorate
Utilities
Repairs
& Maintenance
Taxes
Insurance
Management
Fees
Other
Total
Operating Expenses
Net
Operating Income
|
________
________
|
________
________
|
RECURRING
EXPENSES
To
Include Expenses for: Carpet Replacement, Appliance Replacement,
HVAC/Water Heater Replacement; Miniblinds/Drapes/Ceiling
Fans:
|
________
|
________
|
NON-RECURRING
EXPENSES
To
Include Capital Expenses for: Playground, Major Signage,
Lawns/Trees/Shrubs, Paving/Parking, Roof Replacement,
Carpentry/Siding/Balconies, Exterior Paint, Major Concrete/Sidewalks,
Foundations, Major Exterior, Boiler Replacement, Major HVAC Replacement,
Plumbing Replace, Electrical Replace, Other Major, Fire & Storm, Ins.
Loss Recovery:
Net
Cash Flow
|
________
|
________
|
Certified
By:_____________________________
Name:_____________________________
Title:_____________________________
Management Company:_____________________________
EXHIBIT
D
Required
Engineering Work for100 James Drive
ITEM
|
|
AMOUNT
|
|
|
|
|
|
|
|
$
|
0.00
|
|
2.
Concrete
Pavement Repair
|
|
$
|
0.00
|
|
3.
Roof
Surfacing
|
|
$
|
150,693.00
|
|
Subtotal
|
|
$
|
150,693.00
|
|
Plus
25% Contingency
|
|
|
|
|
TOTAL
|
|
$
|
188,366.25
|
|
Required
Engineering Work for120 Mallard Street
ITEM
|
|
AMOUNT
|
|
|
|
|
|
1.
Replace
Roof
|
|
$
|
36,000.00
|
|
2.
Striping
of Parking Lot
|
|
$
|
0.00
|
|
3.
Replace
4-Ton Heat Pumps
|
|
$
|
144,000.00
|
|
Subtotal
|
|
$
|
180,000.00
|
|
Plus
25% Contingency
|
|
|
|
|
TOTAL
|
|
$
|
225,000.00
|
|
Required
Engineering Work 1700 Grandstand Drive
ITEM
|
|
AMOUNT
|
|
|
|
|
|
1.
Remove
and Replace Exterior Sealants
|
|
$
|
0.00
|
|
2.
Allowance
for roof repair indicated in the roof inspection report provided for our
review. The opinion of cost is based upon estimated repair budget reported
in the inspection report
|
|
$
|
15,000.00
|
|
Subtotal
|
|
$
|
15,000.00
|
|
Plus
25% Contingency
|
|
|
|
|
TOTAL
|
|
$
|
18,750.00
|
|
Required
Engineering Work 5405 Bandera Road
ITEM
|
|
AMOUNT
|
|
|
|
|
|
1.
Remove
and Replace Exterior Sealants
|
|
$
|
0.00
|
|
2.
Allowance
to have concrete wall panel cracking issue evaluated by a structural
engineer. This allowance does not include any repairs that may be required
based upon the results of the evaluation.
|
|
$
|
10,000.00
|
|
3.
Allowance
to repair the distressed stairs in the loading dock area.
|
|
$
|
2,500.00
|
|
4.
Allowance
to seal creaking and replace distressed sections in the concrete
pavement.
|
|
$
|
0.00
|
|
5.
Allowance
to have the fire sprinkler system inspected. This allowance does not
include any repairs that may be required based upon the results of the
inspection.
|
|
|
Routine
Maintenance
|
|
Subtotal
|
|
$
|
12,500.00
|
|
Plus
25% Contingency
|
|
|
|
|
TOTAL
|
|
$
|
15,625.00
|
|
Required
Engineering Work 7402-7648 Reindeer Trail
ITEM
|
|
AMOUNT
|
|
|
|
|
|
1.
Remove
and Replace Exterior Sealants
|
|
$
|
0.00
|
|
2.
Allowance
to seal cracks and repair distressed sections of the concrete
pavements
|
|
$
|
0.00
|
|
3.
Allowance
to make fence repairs.
|
|
|
Routine
Maintenance
|
|
4.
Allowance
for roof repairs indicated in the roof inspection report provided for our
review. The opinion of cost is based upon the estimated repair budget
reported in the inspection report.
|
|
$
|
16,400.00
|
|
5.
Replace
roof of 7402-7424 building. Estimate is based upon replacement cost
indicated in roof condition report provided for our
review.
|
|
$
|
300,000.00
|
|
Subtotal
|
|
$
|
316,400.00
|
|
Plus
25% Contingency
|
|
|
|
|
TOTAL
|
|
$
|
395,500.00
|
|
EXHIBIT
E
Form
of Direction Letter
[Letterhead
of Landlord]
[Name and
Address of tenant]
Re:
[Address of Premises]
Dear
tenant:
You are
hereby directed to make all future payments of rent and other sums due to
Landlord under the Lease payable as follows:
Payable
To:
[____________]
and Wachovia Bank, National Association
|
If by federal wire
transfer
:
|
|
|
|
|
|
Bank:
|
Wachovia Bank, NA
|
|
ABA #:
|
053-000-219
|
|
Acct Name:
|
[__________]
|
|
Acct #:
|
|
|
Ref Loan #:
|
___________________
|
|
If by US
Mail
:
|
|
|
|
_________________
|
|
PO Box _____
|
|
Charlotte, NC
28260-1443
|
|
|
|
If by Overnight
Courier
:
|
|
|
|
Wachovia
Bank, NA
1525
West WT Harris Blvd
Bldg
2C2 (Ref # ______)
Charlotte,
NC 28262
Ref
Loan #:_____________________
|
Please
take particular care in making the check payable only to the above-mentioned
names because only checks made payable to the referenced names will be credited
against sums due by you to landlord. Until otherwise advised in writing by
Landlord
and
the
above-mentioned bank (or its successor), you should continue to make your
payments for rent and other sums as directed by the terms of this
letter.
Thank you
in advance for your cooperation with this change in payment
procedures.
|
By:
_________________________________
|
|
_______________________________
|
EXHIBIT
F
Allocated
Loan Amount and
Individual
Properties
Individual Property
|
|
The
Allocated Loan Amount
|
|
100
James Drive
|
|
$
|
2,025,000
|
|
5405
Bandera Road
|
|
$
|
5,475,000
|
|
120
Mallard Street
|
|
$
|
3,112,500
|
|
150
Canvasback Drive
|
|
$
|
1,612,500
|
|
107
Mallard Street
|
|
$
|
2,062,500
|
|
143
Mallard Street
|
|
$
|
1,762,500
|
|
150
Teal Street
|
|
$
|
3,787,500
|
|
520-524
Elmwood Park
|
|
$
|
7,912,500
|
|
7042
Alamo Drive
|
|
$
|
1,837,500
|
|
7402-7648
Reindeer Trail
|
|
$
|
9,375,000
|
|
11301
Industriplex Blvd.
|
|
$
|
2,662,500
|
|
11441
Industriplex Blvd.
|
|
$
|
2,962,500
|
|
1700
Grandstand Drive
|
|
$
|
3,975,000
|
|
6565
Exchequer Dr.
|
|
$
|
4,462,500
|
|
EXHIBIT
G-1
(Legal
Description)
PARCEL 1
100 JAMES DRIVE
EAST.
THAT
CERTAIN PORTION OF GROUND, situated in the State of Louisiana, Parish of St.
Charles, in that part thereof know as James Business Park, and shown on a plan
of resubdivision of J.J. Krebs & Sons, Inc., dated April 14, 1983, approved
by the St. Charles Parish Planning Commission on June 1, 1983, and registered in
COB 298, folio 297 on June 2, 1983, and identified as Lot 15-A, Square 4, and
said lot is more particularly described as follows:
Commence
at the intersection of the northerly right of way of James Drive East and the
easterly right of way of James Drive West a near point of curvature on James
Drive East, thence along the northerly right of way line of James Drive East
North 72 degrees 46 minutes 00 seconds East a distance of 175.38 feet to the
point of beginning;
Thence
North 00 degrees 11 minutes 00 seconds West a distance of 564.18 feet to a point
on the line common to Lots 15-A and 15-B;
Thence
along said common line North 89 degrees 49 minutes 00 seconds East a distance of
466.87 feet tot a point;
Thence
South 00 degrees 11 minutes 00 seconds East a distance of 421.00 feet to a point
on the northerly right of way of James Drive East;
Thence
South 72 degrees 46 minutes 00 seconds West along said right of way line a
distance of 488.33 feet to the point of beginning.
Lot 15-A
is a portion of former Lot 15, James Business Park.
The
improvements thereon bear the municipal no. 100 James Drive East.
EXHIBIT
G-2
PARCEL 2
120 MALLARD
STREET
THAT
CERTAIN PORTION OF GROUND, situated in the State of Louisiana, Parish of St.
Charles, in that part thereof known as James Business Park, and shown on a plan
of resubdivision of J.J. Krebs & Sons, Inc., dated April 14, 1983, approved
by the St. Charles Parish Planning Commission on June 1, 1983, and registered in
COB 298, folio 297 on June 2, 1983, and identified as Lot 15-B, Square 4, and
said lot is more particularly described as follows:
Lot 15-B
begins 133.13 feet from the near point of curvature of the intersection of the
easterly right of way of James Drive West and the southerly right of way of
Mallard Street and measures thence along the southerly right of way of Mallard
Street North 89 degrees 49 minutes 00 seconds East a distance of 440 feet to a
point;
Thence
South 00 degrees 11 minutes 00 seconds East, a distance of 200 feet to a
point;
Thence
North 89 degrees 49 minutes 00 seconds East, a distance of 26.87 feet to a
point;
Thence
South 00 degrees 11 minutes 00 seconds East, a distance of 129.00 feet to the
line common to Lots 15-A and 15-B;
Thence
South 89 degrees 49 minutes 00 seconds West along said common line a distance of
466.87 feet to a point;
Thence
North 00 degrees 11 minutes 00 seconds West a distance of 329.00 feet to the
point of beginning.
Said Lot
15-B is composed of a portion of former Lot 15 and all of Lots 6, 7, 8 and 9,
Square 4, James Business Park.
The
improvements thereon bear the municipal no. 120 Mallard Street.
EXHIBIT
G-3
PARCEL 3
150 CANVASBACK
DRIVE
THAT
CERTAIN PORTION OF GROUND, situated in the Parish of St. Charles, State
Louisiana, in that part thereof known as James Business Park Extension No. 2 in
Square No. 11 thereof, bounded by James Drive East, Pintail Street, James West
and Canvasback Drive, designated as Lot 10-A, according to a resubdivision plan
made by J.J. Krebs & Sons, Inc., dated December 9, 1986, approved by St.
Charles Parish Planning Director April 10, 1987, recorded at Entry No. 127655,
COB 371, folio 8 on April 23, 1987, and which lot is described as
follows:
Begin at
the intersection of the westerly right of way of James Drive East and the
southerly right of way of Canvasback Drive, the point of curvature on James
Drive East;
Thence
South 00 degrees 11 minutes 00 seconds East, a distance of 329.53 feet to a
point;
Thence
South 89 degrees 49 minutes 00 seconds West, a distance of 325.00 feet to a
point;
Thence
North 00 degrees 11 minutes 00 seconds West a distance of 354.53 feet to a point
on the southerly right of way of Canvasback Drive;
Thence
along said right of way North 89 degrees 49 minutes 00 seconds East a distance
of 300.00 feet to a point of curve;
Thence
along a curve to the right having a radius of 25.00 feet, a distance of 39.27
feet to the Point of Beginning.
Improvements
thereon bear Municipal Number 150 Canvasback Drive.
Together
with those certain servitudes established as follows:
2.
|
COB
366, folio 626 - Servitude by Destination of Owner as established by St.
Charles Three, Limited Partnership, by act before Frank J. Stitch, Jr.,
N.P. , dated January 13, 1987, filed January 14, 1987, under Entry No.
125464, as shown on the Lot 10-A
Survey.
|
(the
“Insured Servitudes”)
EXHIBIT
G-4
PARCEL 4
107 MALLARD
STREET
THAT
CERTAIN PORTION OF GROUND, situated in the State of Louisiana, Parish of St.
Charles, in that part thereof known as James Business Park, in accordance with a
plan of resubdivision prepared by J. J. Krebs & Sons, Inc., dated June 13,
1978, last revised August 14, 1979, approved under St. Charles Parish Policy
Jury Ordinance No. 66-3-544 and registered in COB 234, folio 490 on October 2,
1979, and identified as Lots 1, 2, and 3, Square 5, and said lots are more
particularly described as follows:
Begin at
a near point of curvature at the northeast intersection of Mallard Street and
James Drive West; thence along the east right of way of James Drive West North
00 degrees 11 minutes 00 seconds West a distance of 175.00 feet to a
point;
Thence
North 89 degrees 49 minutes 00 seconds East a distance of 325.00 feet to a point
on the line common to Lots 3 and 4;
Thence
South 00 degrees 11 minutes 00 seconds East a distance of 200.00 feet to the
northerly right of way of Mallard Street;
Thence
along said right of way South 89 degrees 49 minutes 00 seconds West a distance
of 300 feet to a point on a curve to the right at the northeast intersection of
Mallard Street and James Drive West;
Thence
along said curve, having a radius of 25.00 feet a distance of 39.27 feet to the
point of beginning.
The
improvements thereon bear the municipal no. 107 Mallard Street.
Together
with those servitudes benefiting the land and established as
follows:
5.
|
COB
305, folio 4 - Destination of the Owner with Respect to Driveway, dated
October 20,
|
6.
|
1983
and establishing non-exclusive driveway servitudes across Lots 1 through
18, Square 5, filed October 20,
1983.
|
7.
|
COB
305, folio 8 - Destination of the Owner with Respect to Non-Exclusive
Parking Areas dated October 20, 1983, and establishing non-exclusive
parking areas across Lots 1 through 18, Square 5, filed October 20,
1983.
|
8.
|
COB
507, folio 148 - Supplement to Act of Destination by T.L. James &
Company, Inc., dated April 9, 1996.
|
(the
“Insured Servitudes”)
EXHIBIT
G-5
PARCEL 5
143 MALLARD
STREET
THAT
CERTAIN PORTION OF GROUND, situated in the State of Louisiana, Parish of St.
Charles, in that part thereof known as James Business Park, in accordance with a
plan of resubdivision prepared by J. J. Krebs & Sons, Inc., dated June 13,
1978, last revised August 14, 1979, approved under St. Charles Parish Police
Jury Ordinance No. 66-3-544 and registered in COB 234, folio 490 on October 2,
1979, and identified as Lots 7, 8 and 9, Square 5, and said lots are more
particularly described as follows:
Begin at
the northwest intersection of James Drive East and Mallard Street, a near point
of curvature on Mallard Street;
Thence
along the northerly right of way of Mallard Street South 89 degrees 49 minutes
00 West a distance of 300.00 feet to a point on the line common to Lots 6 and
7;
Thence
along said line North 00 degrees 11 minutes 00 seconds West a distance of 200.00
feet to a point;
Thence
North 89 degrees 49 minutes 00 seconds East a distance of 325.00 feet to a point
on the westerly right of way of James Drive East;
Thence
along said right of way South 00 degrees 11 minutes 00 seconds East a distance
of 175.00 feet to a point of curve;
Thence
along the arc of a curve to the right having a radius of 25.00 feet a distance
of 39.27 feet to the point of beginning.
The
improvements thereon bear municipal no. 143 Mallard Street.
Together
with those servitudes benefiting the land and established as
follows:
4.
|
COB
305, folio 4 - Destination of the Owner with Respect to Driveway, dated
October 20, 1983, and establishing non-exclusive driveway servitudes
across Lots 1 through 18, Square 5, filed October 20,
1983.
|
5.
|
COB
305, folio 8 - Destination of the Owner with Respect to Non-Exclusive
Parking Areas dated October 20, 1983, and establishing non-exclusive
parking areas across Lots 1 through 18, Square 5, filed October 20,
1983.
|
6.
|
COB
507, folio 148 - Supplement to Act of Destination by T.L. James &
Company, Inc., dated April 9, 1996.
|
(the
“Insured Servitudes”).
EXHIBIT
G-6
PARCEL 6
150 TEAL STREET
A CERTAIN
PIECE OR PORTION OF GROUND, situated in Section 39, Township 12 South, Range 9
East, St. Charles Parish, La., that part thereof known as James Business Park,
designated as Lot 10-A, Square 5, on a plan of Resubdivision by Krebs, LaSalle,
LeMieuz Consultants, Inc. entitled Resubdivision of Lots 10, 11, 12, 13, 14, 15
& 16, Square 5 into Lot 10-A, James Business Park in Section 39, Township 12
South, Range 9 East, dated October 29, 1998, approved by Director, St. Charles
Parish Planning and Zoning on November 2, 1998, filed November 10, 1998,
registered at COB 546, folio 226, Parish of St. Charles, State of Louisiana, and
Lot 10-A is more particularly described as follows:
Commence
at the point of curvature on the southerly right of way line of Teal Street at
the intersection of James Drive West;
Thence
along the southerly right of way line of Teal Street, North 89 degrees 49
minutes 00 seconds East a distance of 200.00 feet to the Point of
beginning;
Thence
continue along the southerly right of way line of Teal Street, North 89 degrees
49 minutes 00 seconds East, a distance of 700.00 feet to a point of
curvature;
Thence
along a curve to the right, having a radius of 25.00 feet, an arc length of
39.27 feet, a chord bearing of South 45 degrees 11 minutes 00 seconds East, a
chord distance of 35.36 feet to a point on the westerly right of way line of
James Drive East;
Thence
along the westerly right of way line of James Drive East, South 00 degrees 11
minutes 00 seconds East, a distance of 175.00 feet to a point;
Thence
South 89 degrees 49 minutes 00 seconds West, a distance of 725.00 to a
point;
Thence
North 00 degrees 11 minutes 00 seconds West a distance of 200.00 feet to a point
of beginning.
Improvements
bear municipal number 150 Teal Street.
Together
with those servitudes benefiting the land and established as
follows:
4.
|
COB
305, folio 4 - Destination of the Owner with Respect to Driveway, dated
October 20, 1983, and establishing non-exclusive driveway servitudes
across Lots 1 through 18, Square 5, filed October 20,
1983.
|
5.
|
COB
305, folio 8 - Destination of the Owner with Respect to Non-Exclusive
Parking Areas, dated October 20, 1983, and establishing non-exclusive
parking areas across Lots 1 through 18, Square 5, filed October 20,
1983.
|
6.
|
COB
507, folio 148 - Supplement to Act of Destination by T.L. James &
Company, Inc., dated April 9, 1996.
|
(the
“Insured Servitudes”)
EXHIBIT
G-7
PARCEL 7
520 AND 524 ELMWOOD PARK
BOULEVARD
A CERTAIN
PIECE OR PORTION OF GROUND, situated in the Parish of Jefferson, State of
Louisiana, in that portion thereof known as Elmwood Industrial Park, designated
as Parcel 16-C-2, per plan of Michael W. Flores, C.E. and L.S., dated April 3,
1985 last revised November 21, 1985, approved by Jefferson Parish Council
Ordinance No. 16704 on December 18, 1985 filed in COB 1396, folio 307. Parcel
16-C-2 is described as follows:
Commence
at the intersection of the west right of way line of Jefferson Highway and the
south right of way line of Elmwood Park Boulevard, thence North 47 degrees 25
minutes 41 seconds West along the south right of way line of Elmwood Park
Boulevard, a distance of 405.37 feet to the Point of Beginning; thence South 42
degrees 33 minutes 47 seconds West a distance of 521.05 feet to a point; thence
North 47 degrees 26 minutes 11 seconds West, a distance of 445.00 feet to the
point; thence North 42 degrees 33 minutes 47 seconds East a distance of 521.12
feet to a point on the south right of way line of Elmwood Park Boulevard; thence
along said right of way line South 47 degrees 25 minutes 41 seconds East a
distance of 445.00 feet to the Point of Beginning.
Address:
520 and 524 Elmwood Park Boulevard.
Together
with those certain servitudes benefiting the land and established as
follows:
3.
|
COB
1916, folio 275 - Servitude of Destination of the Owner as established by
Crow-Coleman, New Orleans, #1, a Louisiana General Partnership by act
dated March 21, 1988, registered as Entry No. 88-12359. This is a
non-exclusive servitude of common drive and passage, affecting a portion
of Parcels 16-C-2 and 16-C-3.
|
4.
|
COB
1913, folio 221 - Servitude of Destination of the Owner established by
Crow-Coleman New Orleans #1, a Louisiana General Partnership, by act last
dated March 16, 1988, filed as Entry No. 88-11515. This is a non-exclusive
servitude of common drive affecting a portion of Parcels 16-C-1 and
16-C-2. (Collectively the “Insured
Servitudes”)
|
EXHIBIT
G-8
PARCEL 8
11301 INDUSTRIPLEX
BOULEVARD
A CERTAIN
PIECE OR PORTION OF GROUND, situated in that subdivision of East Baton Rouge
Parish, Louisiana, known as Baton Rouge Industriplex Subdivision, Fourth Filing,
and designated as Lot No. 99-A, and according to Map Showing Resubdivision of
Lots 98-101, Baton Rouge Industriplex Subdivision, Fourth Filing, creating Lots
99-A and 101-A, by James R. Clary, Sr., P.L.S., dated March 3, 1988, approved by
East Baton Rouge Planning Commissions on March 9, 1988, recorded as Original 85,
Bundle 9987, Lot 99-A is more particularly described as follows:
Begin at
the intersection of the northerly right of way of Industriplex Boulevard and the
easterly right of way of Fieldstone Drive;
Thence
North 13 degrees 14 minutes 11 seconds East along the east right of way of
Fieldstone Drive, a distance of 291.70 feet to a point;
Thence
South 81 degrees 13 minutes 20 seconds East a distance of 377.15 feet to a
point;
Thence
South 13 degrees 14 minutes 11 seconds West a distance of 321.02 feet to a point
on the north right of way of Industriplex Boulevard;
Thence
North 76 degrees 45 minutes 49 seconds West along the north right of way of
Industriplex Boulevard a distance of 376.01 feet to the Point of
Beginning.
Improvements
thereon bear Municipal No. 11301 Industriplex Boulevard.
Together
with those certain servitudes established as follows:
2.
|
Original
586, Bundle 9988 - Servitude of Destination of the Owner as established by
Baton Rouge Trade Center Partnership by act dated March 21, 1988, filed
March 22, 1988. This is a non-exclusive servitude of common drive and
passage, affecting a portion of Lots 99-A and
101-A.
|
(the
“Insured Servitude”)
EXHIBIT
G-9
PARCEL 9
11441 INDUSTRIPLEX
BOULEVARD
A CERTAIN
PIECE OR PORTION OF GROUND, situated in the that subdivision of East Baton Rouge
Parish known as Baton Rouge Industriplex Subdivision, Fourth Filing and Baton
Rouge Industriplex Subdivision, Fifth Filing and designated as Lot 104-A-1, and
according to Map Showing Resubdivision of Lots 103, 104-A and 105 Baton Rouge
Industriplex Subdivision Fourth Filing and Lots 106-A and 107-A, Baton Rouge
Industriplex Subdivision, Fifth Filing, creating Lots 103-A, 104-A-1 and
107-A-1, by James R. Clary, Sr., P.L.S., dated March 7, 1988, approved by East
Baton Rouge Planning Commission March 9, 1988, recorded as Original 86, Bundle
9987, said Lot 104-A-1 is more described as follows:
Begin at
the northeast intersection of Industriplex Boulevard and Sunbelt
Court:
Thence
along the northeasterly right of way of Industriplex Boulevard along a curve
having a radius of 290.20 feet, a distance of 286.42 feet to point;
Thence
continue along said right of way line North 76 degrees 45 minutes 49 seconds
West a distance of 10.49 feet to a point;
Thence
North 13 degrees 14 minutes 11 seconds East a distance of 343.42 feet to a
point;
Thence
South 81 degrees 13 minutes 20 seconds East a distance of 239.57 feet to a
point;
Thence
South 09 degrees 04 minutes 39 seconds West a distance of 275.02 feet to a
point;
Thence
South 19 degrees 56 minutes 22 seconds East a distance of 8.89 feet to a
point;
Thence
South 50 degrees 55 minutes 59 seconds East a distance of 165.01 feet to a
point;
Thence
South 34 degrees 24 minutes 55 seconds East a distance of 28.62 feet to a point
on the north right of way line of Sunbelt Court;
Thence
South 69 degrees 47 minutes 07 seconds West the north right of way line of
Sunbelt Court a distance of 216.58 feet to the Point of Beginning.
Improvements
thereon bear Municipal No. 11441 Industriplex Boulevard.
EXHIBIT
G-10
PARCEL
10
6565 EXCHEQUER
DRIVE
TWO (2)
CERTAIN PIECES OR PORTIONS OF GROUND, situated in the subdivision of East Baton
Rouge Parish, Louisiana known as Baton Rouge Industriplex Subdivision, First and
Second Filing, designated as Lot Nos. 33-A and 34-A and according to a map
prepared by Dawson Engineers Incorporated, Consulting Civil Engineers, dated
August 2, 1982, entitled “Map Showing Survey of a Resubdivision of Lot 18 of the
Baton Rouge Industriplex Subdivision (First filing) into Lot 18A and Lot 33 of
the Baton Rouge Industriplex Subdivision (Second filing) into Lot 33-A and Lot
34 of the Baton Rouge Industriplex Subdivision (Second Filing) into Lot 34-A,
located in Section 6, T8S, R2E, Greensburg Land District, Parish of East Baton
Rouge, Louisiana”, approved by East Baton Rouge Planning Commission August 11,
1982, recorded on Original 557, Bundle 9514, said Lots 33-A and 34-A are more
particularly described as follows:
Commence
at the north right of way line of Industriplex Boulevard and last right of way
line of Exchequer Drive;
Thence
North 18 degrees 17 minutes 07 seconds East along the east right of way of
Exchequer Drive a distance of 300.00 feet to the Point of
Beginning;
Thence
continuing along the east right of way of Exchequer Drive North 18 degrees 17
minutes 07 seconds East a distance of 291.13 feet to a point;
Thence
North 89 degrees 41 minutes 35 seconds East a distance of 456.21 feet to a
point;
Thence
South 36 degrees 53 minutes 09 seconds East a distance of 327.29 feet to a
point;
Thence
South 01 degrees 22 minutes 42 seconds West a distance of 260.94 feet to a
point;
Thence
North 71 degrees 42 minutes 53 seconds West a distance of 776.95 feet to the
Point of Beginning.
Improvements
thereon bear Municipal No. 6565 Exchequer Drive.
EXHIBIT
G-11
(Legal
Description)
5405 BANDERA ROAD
TRACT
I (WEST LOOP PARK):
Lot
4, Block 1, West Loop Park, City of Leon Valley, an addition in Bexar County,
Texas, according to the map or plat thereof, recorded in Volume
1
9100,
Page 150, Deed and Plat Records of Bexar County, Texas, being more particularly
described as follows:
BEGINNING
at the most Southerly corner of Lot 4, said point being North 67 degrees 03
minutes 09 seconds West, 522.91 feet from the point of intersection of the
Northeast line of Bandera Road and the Northwest line of Hodges
Drive;
THENCE
North 67 degrees 25 minutes 37 seconds West, 208.69 feet along the Northeast
line of Bandera Road to a found THD Monument for an angle point;
THENCE
North 67 degrees 07 minutes 44 seconds West, 69,71 feet along the Northeast line
of Bandera Road to an iron pin found for the Southwest corner of Lot
4;
THENCE
along the Westerly line of Lot 4, the following courses and distances: North 30
degrees 52 minutes 54 seconds East, 806.84 feet to a found iron pin. North 61
degrees 37 minutes 28 seconds West, 67.49 feet to a found iron pin,
North
44 degrees 16 minutes 59 seconds East, 493.79 feet to an iron pin in the
Southwest line of Evers Road for the Northwest corner of Lot 4;
THENCE
South 48 degrees 44 minutes 00 seconds East, 232.74 feet along the Southwest
line of Evers Road to an iron pipe found for the Northeast corner of the herein
described tract;
THENCE
along the Easterly line of Lot 4, the following courses and distances: South 30
degrees 57 minutes 36 seconds West, 693.00 feet to a found iron pin, South 30
degrees 37 minutes 51 seconds West, 159.42 feet to a found iron
pin.
South
30 degrees 54 minutes 31 seconds West, 34 9.99 feet to a found iron pipe, said
iron pipe being the POINT OP BEGINNING.
EXHIBIT
G-12
(Legal
Description)
7402-7648 REINDEER
TRAIL
TRACT
II (NORTHWEST BUSINESS PARK, PHASE 5):
A
14.216 acre tract out of Lot 1, Block 2, North Valley Unit 5, and Lot 6, Block
2, Northwest Business Park Phase 5, an addition in Bexar County, Texas,
according to the map or plat thereof, recorded in Volume 7500, Page 241 and
Volume 9507, Page 189, respectively, Deed and Plat Records of Bexar County,
Texas, and being described as follows:
BEGINNING
at a found 1/2" iron pin on the South Right-of-Way line of Reindeer Trail, in a
Westerly direction, 851.07 feet from the West Right-of-Way line of Bandera Road,
said pin being the Northernmost corner of this tract and the POINT OP
BEGINNING;
THENCE
departing the South Right-of-Way line of Reindeer Trail, South 46 degrees 05
minutes 06 seconds East, a distance of 380.00 feet to a found "X on concrete for
an angle point;
THENCE
South 46 degrees 11 minutes 19 seconds East, a distance of 163.92 feet to a
found "X" on concrete, and said "X" on concrete being the Easternmost corner of
this tract;
THENCE
South 40 degrees 43 minutes 11 seconds West, a distance of 1061.87 feet to a
found 1/2" iron pin for an angle point;
THENCE
North 80 degrees 44 minutes 12 seconds West, a distance of 364.73 feet to a
found 1/2" iron pin on the South Right-of-Way line of Reindeer Trail, said pin
being the Northwest corner of this tract;
THENCE
along the South Right-of-Way line of Reindeer Trail, North 09 degrees 15 minutes
48 seconds East, a distance of 153.91 feet to a found 1/2" iron pin for a
P.C.,
THENCE
along the South Right-of-Way line of Reindeer Trail on a curve to the right
whose radius is 1670.73 feet and length is 418.53 feet to a found 1/2" iron pin
for a P.C.C. ,
THENCE
along the South Right-of-Way line of Reindeer Trail on a curve to the right
whose radius is 370.00 feet and length is 131.09 feet to a found 1/2" iron pin
for a P.T.,
THENCE
continuing along the South Right-of-Way line of Reindeer Trail North 43 degrees
54 minutes 54 seconds East, a distance of 641.99 feet to the POINT OF BEGINNING
and containing 14.216 acres of land.
NOTE:
COMPANY DOES NOT REPRESENT THAT THE ABOVE ACREAGE AND/OR SQUARE FOOTAGE
CALCULATIONS ARE CORRECT.
EXHIBIT
G-13
(Legal
Description)
7042 ALAMO DOWNS
PARKWAY
TRACT
III (COMMERCE BUSINESS PARK)s
A
2.855 acre
(124,394
square feet) tract of land being all of Lot 4, Block 4, New City Block 16115,
Commerce Center at Alamo Downs Subdivision, an addition to the City of San
Antonio, Bexar County, Texas according to the map or plat thereof, recorded in,
Volume 9200,Page 103, Deed and Plat Records of Bexar County, Texas and being
more particularly described as follows:
BEGINNING
at a found 1/2 inch iron pin in the North Right-of-Way line of Alamo Downs
Parkway at the cutback to Grandstand Drive, said point being at the Southeast
corner of said Lot 4;
THENCE
South 54 degrees 02 minutes 38 seconds West for a distance of 311.00 feet along
the North Right-of-Way line of Alamo Downs Parkway to a set "X" in concrete and
the South most corner of said Lot 4;
THENCE
North 35 degrees 57 minutes 22 seconds West for a distance of 442.00 feet along
the West line of said Lot 4 to a set X" in concrete;
THENCE
North 54 degrees 02 minutes 38 seconds East for a distance of 210.67 feet along
the North line of said Lot 4 to a found "X" in concrete, said point being in the
South Right-of-Way line of Grandstand Drive and a point on the curve of a
cul-de-sac;
THENCE
116.59 feet along a curve to the left said curve having a radius of 100 feet, a
delta angle of 66 degrees 48 minutes 10 seconds and a chord bearing and distance
of South 75 degrees 05 minutes 59 seconds East, 110.10 feet and also along the
cul-de-sac and Right-of-Way line of Grandstand Drive to a found 1/2 inch iron
pin;
THENCE
South 35 degrees 57 minutes 22 seconds East for a distance of 152.56 feet along
the West Right-of-Way line of Grandstand to a found 1/2 inch iron pin and point
of curvature;
THENCE
100.01 feet along a curve to the left, said curve having a radius of 205.00
feet, a delta angle of 27 degrees 57 minutes 04 seconds and a chord bearing and
distance of South 49 degrees 55 minutes 54 seconds East, 99.02 feet and also
along the West Right-of-Way line of Grandstand Drive to a found 1/2 inch iron
pin and a point of reverse curvature;
THENCE
70.74 feet along a curve to the right, said curve having a radius of 145.00
feet, a delta angle of 27 degrees 57 minutes 04 seconds and a chord bearing and
distance of South 49 degrees 55 minutes 54 seconds East, 70.04 feet and also
along the West Right-of-Way line of Grandstand Drive to a found 1/2 inch iron
pin and a point of tangency;
THENCE
South 35 degrees 57 minutes 22 seconds East for a distance of 30.00 feet along
the West Right-of-Way line of Grandstand Drive and the East line of said Lot 4
to a found 1/2 inch iron pin and a point of curvature;
THENCE
15.71 feet along a curve to the right, said curve having a radius of 10.00 feet,
a delta angle of 90 degrees 01 minutes 10 seconds, and a chord bearing and
distance of South 09 degrees 02 minutes 57 seconds West 14.14 feet and also
along the cutback Right-of-Way line at the Northwest intersection of Grandstand
Drive and Alamo Downs Parkway to the POINT OF BEGINNING and containing 2.855
acres (124,394 square feet) of land.
NOTE:
COMPANY DOES NOT REPRESENT THAT THE ABOVE ACREAGE AND/OR SQUARE FOOTAGE
CALCULATIONS ARE CORRECT.
EXHIBIT
G-14
(Legal
Description)
1700 GRANDSTAND
DRIVE
TRACT
IV (WESTWAY SERVICE CENTER):
A
6.803 acres {296,374 square feet) tract of land being all of Lot 8, Block 4, New
City Block 16115, Lincoln Service Center Phase III, at Alamo Downs, an addition
to the City of San Antonio, Bexar County, Texas according to the map or plat
thereof, recorded in Volume 9400, Page 129, Deed and Plat Records of Bexar
County, Texas, being more particularly described as follows:
BEGINNING
at a found 1/2 inch iron pin at the South most corner of said Lot
8;
THENCE
North 53 degrees 59 minutes 08 seconds West for a distance of 460.56 feet along
the Southwest line of said Lot 8 to a found 1/2 inch iron pin;
THENCE
North 35 degrees 56 minutes 21 seconds East for a distance of 599.21 feet along
the Northwest line of said Lot 8 to a found "X" in concrete;
THENCE
North 38 degrees 40 minutes 49 seconds East for a distance of 75.75 feet along
the Northwest line of said Lot 8 to a found 1/2 inch iron pin, said point being
the North corner of said Lot 8;
THENCE
South 54 degrees 02 minutes 40 seconds East for a distance of 381.19 feet along
the Northeast line of said Lot 8 to a set 1/2 inch iron pin with Vickery &
Associates property corner cap, said point being in the West Right-of-Way line
and cul-de-sac of Grandstand;
THENCE
233.79 feet along a curve to the left said curve having a radius of 100 feet, a
delta angle of 133 degrees 57 minutes 03 seconds and a chord bearing and
distance of South 11 degrees 36 minutes 43 seconds West, 184.07 feet and along
the West Right-of-Way line and cul-de-sac of Grandstand and the East line of
said Lot 8 to a set 1/2 inch iron pin with Vickery &. Associates property
corner cap;
THENCE
South 35 degrees 56 minutes 53 seconds for a distance of 507.65 feet along the
East line of said Lot 8 to the POINT OF BEGINNING and containing 6.803 acres
(296,374 square feet) of land.
NOTE:
COMPANY DOES NOT REPRESENT THAT THE ABOVE ACREAGE AND/OR SQUARE FOOTAGE
CALCULATIONS ARE CORRECT.
SCHEDULE
1
"Texas
Borrowers"
LIGHT
5405 BANDERA LLC
LIGHT
1700 GRANDSTAND LLC
LVP 7042
ALAMO DOWNS LLC
LVP 7402
REINDEER LLC
"Louisiana
Borrower":
LVP GULF
COAST INDUSTRIAL PORTFOLIO LLC
EXHIBIT
10.30
Loan No.: 502859389
|
Sealy Portfolio C
|
PROMISSORY
NOTE
$53,025,000.00
|
as of February 1,
2007
|
FOR VALUE
RECEIVED, each of the undersigned Delaware limited liability companies listed on
Schedule 1 annexed hereto (hereinafter collectively, "
Borrower
"), each
having an address
c/o
The Lightstone Group, 326 Third Street, Lakewood, New Jersey 08701
,
jointly
and severally
promises
to pay to the order of WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association (together with its successors and assigns, “
Lender
”), at
the office of Lender at Commercial Real Estate Services, 8739 Research Drive URP
- 4, NC 1075, Charlotte, North Carolina 28262, or at such other place as Lender
may designate to Borrower in writing from time to time, the principal sum of
FIFTY-THREE
MILLION TWENTY-FIVE THOUSAND AND 00/100 DOLLARS ($53,025,000.00)
,
together with interest on so much thereof as is from time to time outstanding
and unpaid, from the date of the advance of the principal evidenced hereby, at
the rate of five and eighty-three hundredths percent (5.83%) (the “
Note Rate
”),
together with all other amounts due hereunder or under the other Loan Documents
(as defined herein), in lawful money of the United States of America, which
shall at the time of payment be legal tender in payment of all debts and dues,
public and private.
ARTICLE I
TERMS AND
CONDITIONS
Section
1.1
Computation of
Interest
.
Interest shall be computed hereunder based on a 360-day year and based on the
actual number of days elapsed for any period in which interest is being
calculated. Interest shall accrue from the date on which funds are advanced
hereunder (regardless of the time of day) through and including the day on which
funds are credited pursuant to Section 1.2 hereof.
Section
1.2
Payment of Principal and
Interest
.
Payments in federal funds immediately available at the place designated for
payment received by Lender prior to 2:00 p.m. eastern time on a day on which
Lender is open for business at said place of payment shall be credited prior to
close of business, while other payments, at the option of Lender, may not be
credited until immediately available to Lender in federal funds at the place
designated for payment prior to 2:00 p.m. eastern time on the next day on which
Lender is open for business. Interest only shall be payable in sixty (60)
consecutive monthly installments in the amount set forth on Schedule 2,
beginning on March 11, 2007 (the “
First Payment
Date
”), and
continuing on the eleventh (11th) day of each and every calendar month
thereafter through and including February 11, 2012 and, thereafter, principal
and interest shall be payable in equal consecutive monthly installments of
$312,139.54 each, beginning on March 11, 2012 and continuing on the eleventh
(11th) day of each and every calendar month thereafter through and including
January 11, 2017 (each, a “
Payment
Date
”). On
February 11, 2017 (the “
Maturity
Date
”)
(provided that in the event that there is a Defeasance of the Loan pursuant to
Section 1.5(d) hereof, the Maturity Date shall automatically be the Lockout
Expiration Date), the entire outstanding principal balance hereof, together with
all accrued but unpaid interest thereon, shall be due and payable in
full.
Section
1.3
Application of
Payments
. So long
as no Event of Default (as hereinafter defined) exists hereunder or under any
other Loan Document, each such monthly installment shall be applied, first, to
any amounts hereafter advanced by Lender hereunder or under any other Loan
Document, second, to any late fees and other amounts payable to Lender, third,
to the payment of accrued interest and last to reduction of
principal.
Section
1.4
Payment of “Short
Interest”
. If the
advance of the principal amount evidenced by this Note is made on a date other
than a Payment Date, Borrower shall pay to Lender contemporaneously with the
execution hereof interest at the Note Rate for a period from the date hereof
through and including the tenth (10
th
) day of
either (x) this month, in the event that the date hereof is on or prior to the
11th of the month, and (y) the immediately succeeding month, in the event that
the date hereof is after the 11
th
of the
month.
Section
1.5
Prepayment;
Defeasance
.
(a)
This Note
may not be prepaid, in whole or in part (except as otherwise specifically
provided herein), at any time prior to the Payment Date occurring five (5)
Payment Dates immediately prior to the Maturity Date (the “
Lockout Expiration
Date
”). In
the event that Borrower wishes to have the Property (as defined in the Security
Instrument) or any Individual Property (as defined in the Security Instrument)
released from the lien of the Security Instrument prior to the Lockout
Expiration Date, Borrower’s sole option shall be a Defeasance (as hereinafter
defined) upon satisfaction of the terms and conditions set forth in
Section
1.5(d)
hereof.
Notwithstanding anything contained in this Note or any of the other Loan
Documents to the contrary, this Note may be prepaid in whole but not in part
without premium or penalty on any Payment Date (subject to the proviso below)
occurring from and after the Lockout Expiration Date provided (i) written notice
of such prepayment is received by Lender not more than ninety (90) days and not
less than thirty (30) days prior to the date of such prepayment, and (ii) such
prepayment is accompanied by all interest accrued hereunder through the date of
such prepayment and all other sums due hereunder or under the other Loan
Documents; provided, however, that if such prepayment is received on a day that
is not a Payment Date, Borrower shall pay interest on the outstanding principal
balance hereof immediately preceding such prepayment at the Note Rate for a
period from the date of such payment through and including the tenth (10th) day
of either (x) the month in which the prepayment occurs if such payment is made
prior to the 11th day of such month, and (y) the immediately succeeding month in
which the prepayment occurs if such payment is made after the 11th day of such
month. If, upon any such permitted prepayment on any Payment Date occurring on
or after the Lockout Expiration Date, the aforesaid prior written notice has not
been timely received by Lender, there shall be due a prepayment fee equal to the
lesser of (i) thirty (30) days’ interest computed at the Note Rate on the
outstanding principal balance of this Note so prepaid and (ii) interest computed
at the Note Rate on the outstanding principal balance of this Note so prepaid
that would have been payable for the period from, and including, the date of
prepayment through the Maturity Date, as though such prepayment had not
occurred.
(b)
If, prior
to the Lockout Expiration Date, the indebtedness evidenced by this Note shall
have been declared due and payable by Lender pursuant to Article II hereof or
the provisions of any other Loan Document due to an Event of Default by
Borrower, then, in addition to the indebtedness evidenced by this Note being
immediately due and payable, there shall also then be immediately due and
payable a prepayment fee in an amount equal to the Yield Maintenance Premium (as
hereinafter defined) based on the entire indebtedness on the date of such
acceleration. In addition to the amounts described in the preceding sentence, in
the event of any such acceleration or tender of payment of such indebtedness
occurs or is made on or prior to the first (1st) anniversary of the date of this
Note, there shall also then be immediately due and payable an additional
prepayment fee of three percent (3%) of the principal balance of this Note. The
term “
Yield Maintenance
Premium
” shall
mean an amount equal to the greater of (A) two percent (2.0%) of the principal
amount being prepaid, and (B) the present value of a series of payments each
equal to the Payment Differential (as hereinafter defined) and payable on each
Payment Date over the remaining original term of this Note and on the Maturity
Date, discounted at the Reinvestment Yield (as hereinafter defined) for the
number of months remaining as of the date of such prepayment to each such
Payment Date and the Maturity Date. The term “
Payment
Differential
” shall
mean an amount equal to (i) the Note Rate less the Reinvestment Yield, divided
by (ii) twelve (12) and multiplied by (iii) the principal sum outstanding under
this Note after application of the constant monthly payment due under this Note
on the date of such prepayment, provided that the Payment Differential shall in
no event be less than zero. The term “
Reinvestment
Yield
” shall
mean an amount equal to the lesser of (i) the yield on the U.S. Treasury issue
(primary issue) with a maturity date closest to the Maturity Date, or (ii) the
yield on the U.S. Treasury issue (primary issue) with a term equal to the
remaining average life of the indebtedness evidenced by this Note, with each
such yield being based on the bid price for such issue as published in the Wall
Street Journal on the date that is fourteen (14) days prior to the date of such
prepayment (or, if such bid price is not published on that date, the next
preceding date on which such bid price is so published) and converted to a
monthly compounded nominal yield. In the event that any prepayment fee is due
hereunder, Lender shall deliver to Borrower a statement setting forth the amount
and determination of the prepayment fee, and, provided that Lender shall have in
good faith applied the formula described above, Borrower shall not have the
right to challenge the calculation or the method of calculation set forth in any
such statement in the absence of manifest error, which calculation may be made
by Lender on any day during the fifteen (15) day period preceding the date of
such prepayment. Lender shall not be obligated or required to have actually
reinvested the prepaid principal balance at the Reinvestment Yield or otherwise
as a condition to receiving the prepayment fee.
(c)
Partial
prepayments of this Note shall not be permitted, except for partial prepayments
resulting from Lender’s election to apply insurance or condemnation proceeds to
reduce the outstanding principal balance of this Note as provided in the
Security Instrument, in which event no prepayment fee or premium shall be due
unless, at the time of either Lender’s receipt of such proceeds or the
application of such proceeds to the outstanding principal balance of this Note,
an Event of Default exists, which Event of Default is unrelated to the
applicable casualty or condemnation, in which event the applicable prepayment
fee or premium shall be due and payable based upon the amount of the prepayment.
No notice of prepayment shall be required under the circumstances specified in
the preceding sentence. No principal amount repaid may be reborrowed. Any such
partial prepayments of principal shall be applied to the unpaid principal
balance evidenced hereby but such application shall not reduce the amount of the
fixed monthly installments required to be paid pursuant to Section 1.2 above.
Except as otherwise expressly provided in this Section, the prepayment fees
provided above shall be due, to the extent permitted by applicable law, under
any and all circumstances where all or any portion of this Note is paid prior to
the Maturity Date, whether such prepayment is voluntary or involuntary,
including, without limitation, if such prepayment results from Lender’s exercise
of its rights upon the occurrence of an Event of Default and acceleration of the
Maturity Date of this Note (irrespective of whether foreclosure proceedings have
been commenced), and shall be in addition to any other sums due hereunder or
under any of the other Loan Documents. No tender of a prepayment of this Note
with respect to which a prepayment fee is due shall be effective unless such
prepayment is accompanied by the applicable prepayment fee.
(d)
(i)
On any
Payment Date on or after the earlier to occur of (x) three (3) years following
the first Payment Date hereunder, and (y) the day immediately following the date
which is two (2) years after the “startup day,” within the meaning of Section
860G(a) (9) of the Internal Revenue Code of 1986, as amended from time to time
or any successor statute (the “
Code
”), of a
“real estate mortgage investment conduit,” within the meaning of Section 860D of
the Code (a “
REMIC
Trust
”), that
holds this Note, and provided no Event of Default has occurred and is continuing
hereunder or under any of the other Loan Documents, at Borrower’s option, Lender
shall cause the release of the Property or an Individual Property from the lien
of the Security Instrument and the other Loan Documents (a “
Defeasance
”) upon
the satisfaction of the following conditions:
(A)
Borrower
shall give not more than ninety (90) days’ or less than thirty (30) days’ prior
written notice to Lender specifying the date Borrower intends for the Defeasance
to be consummated (the “
Release
Date
”), which
date shall be a Payment Date.
(B)
All
accrued and unpaid interest and all other sums due under this Note and under the
other Loan Documents up to and including the Release Date shall be paid in full
on or prior to the Release Date.
(C)
In the
event only a portion of the Loan is the subject of a partial defeasance to
release an Individual Property (a “Partial Defeasance”), Borrower, at Borrower's
expense, shall prepare all necessary documents to modify the Security Instrument
and to amend and restate this Note and issue two substitute notes, one note
having a principal balance equal to the defeased portion of the original Note
(the “Defeased Note”) and the other note having a principal balance equal to the
undefeased portion of the Note (the “Undefeased Note”). The Defeased Note and
the Undefeased Note shall have identical terms as the Note except for the
principal balance. The principal balance of the Defeased Note shall equal the
Adjusted Release Amount (as hereinafter defined) for the applicable Individual
Property. A Defeased Note cannot be the subject of any further
defeasance.
As used
herein, "Adjusted Release Amount" shall mean the greater of:
(a)
110% of
the Allocated Loan Amount ; and
(b)
An amount
such that, after giving effect to such Partial Defeasance, (i) the Debt Service
Coverage Ratio (as defined in the Security Instrument) for the Undefeased Note,
based on income from the Property which will remain subject to the lien of the
Security Instrument (the "Remaining Parcel") shall not be less than the greater
of (1) 1.16:1 and (2) the Debt Service Coverage Ratio for the twelve (12) full
calendar months immediately preceding the Partial Defeasance; and (ii) the
Loan-to-Value Ratio (as hereinafter defined) for the Remaining Parcel shall not
exceed the lesser of (x) 75% and (y) the Loan-to-Value for both the parcel being
released from the lien of the Security Instrument and the Remaining Parcel
determined prior to the Partial Defeasance Date.
As used
herein, with respect to the Undefeased Note, “Debt Service Coverage Ratio” shall
mean the ratio, expressed as a percentage, of (a) the net operating income
derived from operation of the Remaining Parcel, as reasonably determined by
Lender in accordance with then-current underwriting standards for the twelve
(12) month period ending prior to Lender’s receipt of the notice of Partial
Defeasance pursuant to Section 1.5(d)(i)(A), to (b) the annual debt service
payments on the Undefeased Note immediately after the date of such partial
defeasance.
With
respect to this Note, “Debt Service Coverage Ratio” shall mean the ratio,
expressed as a percentage, of (a) the net operating income derived from
operation of the parcel being released from the lien of the Security Instrument
and the Remaining Parcel, as reasonably determined by Lender in accordance with
then-current underwriting standards, for the twelve (12) month period ending
prior to Lender’s receipt of the notice of partial defeasance pursuant to
Section 1.5(d)(i) (A), to (b) the annual debt service payments on this Note
immediately prior to the date of such Partial Defeasance.
As used
herein, “Loan-to-Value Ratio” shall mean the ratio of the outstanding principal
amount of the indebtedness to the value of the collateral securing the loan
evidenced hereby (as determined by Lender in its discretion).
(D)
Borrower
shall deliver to Lender on or prior to the Release Date:
(1)
a
sum of money in immediately available funds (the “
Defeasance
Deposit
”)
equal to the outstanding principal balance of this Note plus an amount, if any,
which together with the outstanding principal balance of this Note, shall be
sufficient to enable Lender to purchase, through means and sources customarily
employed and available to Lender,
or at the
election of Borrower to enable a third party defeasance company selected by
Borrower and reasonably acceptable to Lender to purchase on behalf of Lender
for
the account of Borrower, (x) direct, non-callable, fixed rate obligations of the
United States of America or (y) non-callable, fixed rate obligations, other than
U.S. Treasury Obligations, that are “government securities” within the meaning
of Section 2(a)(16) of the Investment Company Act of 1940, as amended, that
provide for payments prior, but as close as possible, to all successive monthly
Payment Dates occurring after the Release Date and to the
Lockout
Expiration
Date, with each such payment being equal to or greater than the amount of the
corresponding installment of principal and/or interest required to be paid under
this Note (or, in the event of a Partial Defeasance, the corresponding
installment of principal and interest due on the Defeased Note, including, but
not limited to,
the
scheduled outstanding principal balance of the Note and Defeased Note, as
applicable
,
due on the Maturity Date
based upon payments of principal and interest through the Lockout Expiration
Date
)
for the balance of the term hereof (the “
Defeasance
Collateral
”),
each of which shall be duly endorsed by the holder thereof as directed by Lender
or accompanied by a written instrument of transfer in form and substance
satisfactory to Lender in its sole discretion (including, without limitation,
such instruments as may be required by the depository institution holding such
securities or the issuer thereof, as the case may be, to effectuate book-entry
transfers and pledges through the book-entry facilities of such institution) in
order to perfect upon the delivery of the Defeasance Security Agreement (as
hereinafter defined) the first priority security interest in the Defeasance
Collateral in favor of Lender in conformity with all applicable state and
federal laws governing granting of such security interests
.
(2)
a pledge
and security agreement, in form and substance reasonably satisfactory to Lender,
creating a first priority security interest in favor of Lender in the Defeasance
Collateral (the “
Defeasance Security
Agreement
”);
(3)
a
certificate of Borrower certifying that all of the requirements set forth in
this subsection 1.5(d)(i) have been satisfied;
(4)
one or
more opinions of counsel for Borrower in form and substance and delivered by
counsel which would be reasonably satisfactory to Lender stating, among other
things, that (i) Lender has a perfected first priority security interest in the
Defeasance Collateral and that the Defeasance Security Agreement is enforceable
against Borrower in accordance with its terms, (ii) in the event of a bankruptcy
proceeding or similar occurrence with respect to Borrower, none of the
Defeasance Collateral nor any proceeds thereof will be property of Borrower’s
estate under Section 541 of the U.S. Bankruptcy Code, as amended, or any similar
statute and the grant of security interest therein to Lender shall not
constitute an avoidable preference under Section 547 of the U.S. Bankruptcy
Code, as amended, or applicable state law, (iii) the release of the lien of the
Security Instrument and the pledge of Defeasance Collateral will not directly or
indirectly result in or cause any REMIC Trust that then holds this Note (or, if
applicable, the Defeased Note) to fail to maintain its status as a REMIC Trust
and (iv) the defeasance will not cause any REMIC Trust to be an “investment
company” under the Investment Company Act of 1940;
(5)
evidence
in writing from any applicable Rating Agency (as defined in the Security
Instrument) to the effect that the Defeasance will not result in a downgrading,
withdrawal or qualification of the respective ratings in effect immediately
prior to such Defeasance for any Securities (as hereinafter defined) issued in
connection with the securitization which are then outstanding;
provided
,
however
, no
evidence from a Rating Agency shall be required if this Note does not meet the
then-current review requirements of such Rating Agency.
(6)
a
certificate in form and scope acceptable to Lender in its reasonable discretion
from an independent accountant reasonably acceptable to Lender certifying that
the Defeasance Collateral will generate amounts sufficient to make all payments
of principal and interest due under this Note (or, if applicable, the Defeased
Note)
through
the Lockout Expiration Date and
the outstanding principal balance of the Loan due on the Maturity
Date
based upon payments of principal and interest through the Lockout Expiration
Date
;
(7)
Borrower
and any guarantor or indemnitor of Borrower’s obligations under the Loan
Documents for which Borrower has personal liability executes and delivers to
Lender such documents and agreements as Lender shall reasonably require to
evidence and effectuate the ratification of such personal liability and guaranty
or indemnity, respectively for any acts, omissions, liabilities or obligations
arising on or prior to the Release Date;
(8)
such
other certificates, documents or instruments as Lender may reasonably require;
and
(9)
payment
of all reasonable fees, costs, expenses and charges actually incurred by Lender
in connection with the Defeasance of the Property and the purchase of the
Defeasance Collateral, including, without limitation, all reasonable legal fees
and costs and expenses incurred by Lender or its agents in connection with
release of the Property, review of the proposed Defeasance Collateral and
preparation of the Defeasance Security Agreement and related documentation, any
revenue, documentary, stamp, intangible or other taxes, charges or fees due in
connection with transfer of the Note, assumption of the Note, or substitution of
collateral for the Property shall be paid on or before the Release Date. Without
limiting Borrower’s obligations with respect thereto, Lender shall be entitled
to deduct all such fees, costs, expenses and charges from the Defeasance Deposit
to the extent of any portion of the Defeasance Deposit which exceeds the amount
necessary to purchase the Defeasance Collateral.
(E)
In
connection with the Defeasance Deposit, unless Borrower shall make satisfactory
arrangements with a third party provider reasonably acceptable to Lender,
Borrower hereby authorizes and directs Lender using the means and sources
customarily employed and available to Lender to use the Defeasance Deposit to
purchase for the account of Borrower the Defeasance Collateral. Furthermore, the
Defeasance Collateral shall be arranged such that payments received from such
Defeasance Collateral shall be paid directly to Lender to be applied on account
of the indebtedness of this Note. Any part of the Defeasance Deposit in excess
of the amount necessary to purchase the Defeasance Collateral and to pay the
other and related costs Borrower is obligated to pay under this
Section
1.5
shall be
promptly refunded to Borrower.
(F)
Lender
shall, at Borrower's request permit the release of an Individual Property from
the lien of the Security Instrument (and related Loan Documents) only upon
Borrower's delivery to Lender, at Borrower's sole cost and expense, of an
endorsement to Lender's lender’s policy of title insurance (or an irrevocable
commitment to issue such endorsement), in form and substance satisfactory to
Lender and insuring the priority of Lender's remaining liens created by the
Security Instrument on the Individual Property by a result of the partial
defeasance.
(ii)
Upon
compliance with the requirements of subsection 1.5(d)(i), the entire Property,
or in the case of a Partial Defeasance, the applicable Individual Property,
shall be released from the lien of the Security Instrument and the other Loan
Documents, and the Defeasance Collateral shall constitute collateral which shall
secure this Note, or in the case of Partial Defeasance, the Defeased Note and
all other obligations under the Loan Documents. Lender will, at Borrower’s
expense, execute and deliver any agreements reasonably requested by Borrower to
release the lien of the Security Instrument from the entire Property or the
applicable Individual Property, as the case may be
.
(iii)
Upon the
release of the entire Property or the applicable Individual Property, as the
case may be, in accordance with this Section 1.5(d), Borrower shall assign all
its obligations and rights under this Note, or, in the case of a Partial
Defeasance, under the Defeased Note, together with the pledged Defeasance
Collateral, to a newly created entity which complies with the terms of Section
2.02(g) of the Security Instrument designated by Borrower and approved by Lender
in its sole discretion. Such successor entity shall execute an assumption
agreement in form and substance satisfactory to Lender in its sole discretion
pursuant to which it shall assume Borrower's obligations under this Note or the
Defeased Note and the Defeasance Security Agreement. As conditions to such
assignment and assumption, Borrower shall (x) deliver to Lender an opinion
of counsel in form and substance and delivered by counsel satisfactory to a
prudent lender stating, among other things, that such assumption agreement is
enforceable against Borrower and such successor entity in accordance with its
terms and that this Note and the Defeasance Security Agreement as so assumed,
are enforceable against such successor entity in accordance with their
respective terms, and (y) pay all costs and expenses (including, but not
limited to, legal fees) incurred by Lender or its agents in connection with such
assignment and assumption (including, without limitation, the review of the
proposed transferee and the preparation of the assumption agreement and related
documentation). Upon such assumption of the Note, Borrower and any guarantor
shall be relieved of its obligations hereunder, under the other Loan Documents
other than as specified in Section 1.5(d)(i)(C)(7) above and under the
Defeasance Security Agreement.
Section
1.6
Security
. The
indebtedness evidenced by this Note and the obligations created hereby are
secured by, among other things, that certain deed of trust and that certain
mortgage from Borrower to and for the benefit of Lender, dated of even date
herewith, covering the Property. The deed of trust and mortgage (which secures
the indebtedness evidenced by this Note and the obligations created hereby) are
collectively, the “Security Instrument.” The Security Instrument, together with
this Note and all other documents to or of which Lender is a party or
beneficiary now or hereafter evidencing, securing, guarantying, modifying or
otherwise relating to the indebtedness evidenced hereby, are herein referred to
collectively as the “Loan Documents”. All terms not otherwise defined herein
shall have the meanings ascribed to such terms in the Security Instrument. For
purposes of this Note, the term Property shall mean the Cross-collateralized
Property as defined in the Security Instrument. All of the terms and provisions
of the Loan Documents are incorporated herein by reference. Some of the Loan
Documents are to be filed for record on or about the date hereof in the
appropriate public records.
ARTICLE II
DEFAULT
Section
2.1
Events of
Default
. It is
hereby expressly agreed that should any default occur in the payment of
principal or interest as stipulated above and such payment is not made on the
date such payment is due, or should any other default occur under any other Loan
Document and not be cured within any applicable grace, cure or notice period (if
any), then an Event of Default (an “
Event of
Default
”) shall
exist hereunder, and in such event the indebtedness evidenced hereby, including
all sums advanced or accrued hereunder or under any other Loan Document, and all
unpaid interest accrued thereon, shall, at the option of Lender and without
notice to Borrower, at once become due and payable and may be collected
forthwith, whether or not there has been a prior demand for payment and
regardless of the stipulated date of maturity.
Section
2.2
Late
Charges
. In the
event that any payment (other than the final payment due on the Maturity Date)
is not received by Lender on the date when due (subject to any applicable grace
period), then, in addition to any default interest payments due hereunder,
Borrower shall also pay to Lender a late charge in an amount equal to five
percent (5%) of the amount of such overdue payment.
Section
2.3
Default Interest
Rate
. So long
as any Event of Default exists hereunder or under any other Loan Document,
regardless of whether or not there has been an acceleration of the indebtedness
evidenced hereby, and at all times after maturity of the indebtedness evidenced
hereby (whether by acceleration or otherwise), interest shall accrue on the
outstanding principal balance of this Note, from the date due until the date
credited, at a rate per annum equal to four percent (4%) in excess of the Note
Rate, or, if such increased rate of interest may not be collected under
applicable law, then at the maximum rate of interest, if any, which may be
collected from Borrower under applicable law (as applicable, the “
Default Interest
Rate
”), and
such default interest shall be immediately due and payable.
Section
2.4
Borrower’s
Agreements
.
Borrower acknowledges that it would be extremely difficult or impracticable to
determine Lender’s actual damages resulting from any late payment or default,
and such late charges and default interest are reasonable estimates of those
damages and do not constitute a penalty. The remedies of Lender in this Note or
in the Loan Documents, or at law or in equity, shall be cumulative and
concurrent, and to the extent permitted by applicable law may be pursued singly,
successively or together, in Lender’s discretion.
Section
2.5
Borrower to Pay
Costs
. In the
event that this Note, or any part hereof, is collected by or through an
attorney-at-law, Borrower agrees to pay all costs of collection, including, but
not limited to, reasonable attorneys’ fees.
Section
2.6
Exculpation
.
Notwithstanding anything to the contrary contained in this Note or the other
Loan Documents, the obligations of Borrower hereunder shall be non-recourse
except with respect to the Property and as otherwise provided in Section 18.32
of the Security Instrument, the terms of which are incorporated
herein.
ARTICLE III
GENERAL
CONDITIONS
Section
3.1
No Waiver;
Amendment
. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a partial or past due payment, or indulgences granted
from time to time shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Lender thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by any applicable
laws; and to the fullest extent permitted by law, Borrower hereby expressly
waives the benefit of any statute or rule of law or equity now provided, or
which may hereafter be provided, which would produce a result contrary to or in
conflict with the foregoing. No extension of the time for the payment of this
Note or any installment due hereunder made by agreement with any person now or
hereafter liable for the payment of this Note shall operate to release,
discharge, modify, change or affect the original liability of Borrower under
this Note, either in whole or in part, unless Lender agrees otherwise in
writing. This Note 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.
Section
3.2
Waivers
.
Presentment for payment, demand, protest and notice of demand, protest and
nonpayment and all other notices are hereby waived by Borrower. Borrower hereby
further waives and renounces, to the fullest extent permitted by law, all rights
to the benefits of any moratorium, reinstatement, marshaling, forbearance,
valuation, stay, extension, redemption, appraisement, exemption and homestead
now or hereafter provided by the Constitution and laws of the United States of
America and of each state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Note or the other Loan Documents.
Section
3.3
Limit of
Validity
. The
provisions of this Note and of all agreements between Borrower and Lender,
whether now existing or hereafter arising and whether written or oral,
including, but not limited to, the Loan Documents, are hereby expressly limited
so that in no contingency or event whatsoever, whether by reason of demand or
acceleration of the maturity of this Note or otherwise, shall the amount
contracted for, charged, taken, reserved, paid or agreed to be paid
(“
Interest
”) to
Lender for the use, forbearance or detention of the money loaned under this Note
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, performance or fulfillment of any provision hereof or
of any agreement between Borrower and Lender shall, at the time performance or
fulfillment of such provision shall be due, exceed the limit for Interest
prescribed by law or otherwise transcend the limit of validity prescribed by
applicable law, then, ipso facto, the obligation to be performed or fulfilled
shall be reduced to such limit, and if, from any circumstance whatsoever, Lender
shall ever receive anything of value deemed Interest by applicable law in excess
of the maximum lawful amount, an amount equal to any excessive Interest shall be
applied to the reduction of the principal balance owing under this Note in the
inverse order of its maturity (whether or not then due) or, at the option of
Lender, be paid over to Borrower, and not to the payment of Interest. All
Interest (including any amounts or payments judicially or otherwise under the
law deemed to be Interest) contracted for, charged, taken, reserved, paid or
agreed to be paid to Lender shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of this Note,
including any extensions and renewals hereof until payment in full of the
principal balance of this Note so that the Interest thereon for such full term
will not exceed at any time the maximum amount permitted by applicable law. To
the extent United States federal law permits a greater amount of interest than
is permitted under the law of the State of New York, Lender will rely on United
States federal law for the purpose of determining the maximum amount permitted
by applicable law. Additionally, to the extent permitted by applicable law now
or hereafter in effect, Lender may, at its option and from time to time,
implement any other method of computing the maximum lawful rate under the law of
the State of New York or under other applicable law by giving notice, if
required, to Borrower as provided by applicable law now or hereafter in effect.
This Section 3.3 will control all agreements between Borrower and
Lender.
Section
3.4
Use of
Funds
.
Borrower hereby warrants, represents and covenants that no funds disbursed
hereunder shall be used for personal, family or household purposes.
Section
3.5
Unconditional
Payment
. Subject
to Section 2.6 above, Borrower is and shall be obligated to pay principal,
interest and any and all other amounts which become payable hereunder or under
the other Loan Documents absolutely and unconditionally and without any
abatement, postponement, diminution or deduction and without any reduction for
counterclaim or setoff. In the event that at any time any payment received by
Lender hereunder shall be deemed by a court of competent jurisdiction to have
been a voidable preference or fraudulent conveyance under any bankruptcy,
insolvency or other debtor relief law, then the obligation to make such payment
shall survive any cancellation or satisfaction of this Note or return thereof to
Borrower and shall not be discharged or satisfied with any prior payment thereof
or cancellation of this Note, but shall remain a valid and binding obligation
enforceable in accordance with the terms and provisions hereof, and such payment
shall be immediately due and payable upon demand.
Section
3.6
Governing
Law
. This
Note shall be governed by and construed in accordance with the laws of the State
of New York and the applicable laws of the United States of America. Borrower
hereby irrevocably submits to the jurisdiction of any court of competent
jurisdiction located in the State of New York in connection with any proceeding
out of or relating to this Note.
Section
3.7
Waiver of Jury
Trial
.
BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY
AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES,
RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THE DEBT
EVIDENCED BY THIS NOTE OR ANY CONDUCT, ACT OR OMISSION OF LENDER OR BORROWER, OR
ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES,
AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, IN
EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.
ARTICLE IV
MISCELLANEOUS
PROVISIONS
Section
4.1
Successors and Assigns;
Joint and Several; Interpretation
. The
terms and provisions hereof shall be binding upon and inure to the benefit of
Borrower and Lender and their respective heirs, executors, legal
representatives, successors, successors in title and assigns, whether by
voluntary action of the parties or by operation of law. As used herein, the
terms “Borrower” and “Lender” shall be deemed to include their respective heirs,
executors, legal representatives, successors, successors in title and assigns,
whether by voluntary action of the parties or by operation of law. If Borrower
consists of more than one person or entity, each shall be jointly and severally
liable to perform the obligations of Borrower under this Note. All personal
pronouns used herein, whether used in the masculine, feminine or neuter gender,
shall include all other genders; the singular shall include the plural and vice
versa. Titles of articles and sections are for convenience only and in no way
define, limit, amplify or describe the scope or intent of any provisions hereof.
Time is of the essence with respect to all provisions of this Note. This Note
and the other Loan Documents contain the entire agreements between the parties
hereto relating to the subject matter hereof and thereof and all prior
agreements relative hereto and thereto which are not contained herein or therein
are terminated.
Section
4.2
Taxpayer
Identification
. The Tax
Identification Numbers of each Borrower are set forth on Schedule 1 annexed
hereto.
Section 4
.3
Upon
payment in full of the loan secured hereby and the satisfaction in full of all
of Borrower's obligations under the Loan Documents, Lender, at Borrower's
request and sole cost and expense, provide a satisfaction of the Loan
Documents.
[THE
BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, Borrower has executed this Note under seal as of the date first
written above.
|
|
|
|
BORROWERS:
|
|
|
|
|
|
LIGHT
5405 BANDERA LLC,
a
Delaware limited liability company
|
|
|
|
|
|
By:
|
/s/
Michael Schurer
|
|
Name:
Michael Schurer
Title:
Vice President
|
|
|
|
|
|
|
LIGHT
1700 GRANDSTAND LLC,
a
Delaware limited liability company
|
|
|
|
|
By:
|
/s/
Michael Schurer
|
|
Name:
Michael Schurer
Title:
Vice President
|
|
|
|
|
|
|
LVP
7042 ALAMO DOWNS LLC,
a
Delaware limited liability company
|
|
|
|
|
By:
|
/s/
Michael Schurer
|
|
Name:
Michael
Schurer
Title:
Vice President
|
|
|
|
|
|
|
LVP
7402 REINDEER LLC,
a
Delaware limited liability company
|
|
|
|
|
By:
|
/s/
Michael Schurer
|
|
Name:
Michael
Schurer
Title:
Vice President
|
|
|
|
|
|
|
LVP GULF COAST INDUSTRIAL PORTFOLIO LLC, a
Delaware limited liability company
|
|
|
|
|
By:
|
/s/ Michael Schurer
|
|
Name:
Michael Schurer
Title:
Vice President
|
SCHEDULE
1
Borrower
Name:
|
Tax
ID Number:
|
Light
5405 Bandera LLC
|
20-8175039
|
Light
1700 Grandstand LLC
|
20-8175000
|
LVP
7042 Alamo Downs LLC
|
20-8187113
|
LVP
7402 Reindeer LLC
|
20-8187113
|
LVP
Gulf Coast Industrial Portfolio LLC
|
20-8175292
|
SCHEDULE
2
INTEREST
ONLY SCHEDULE
Pay Date
|
|
|
Scheduled
Payment
|
|
3/11/2007
|
|
|
240,438.92
|
|
4/11/2007
|
|
|
266,200.23
|
|
5/11/2007
|
|
|
257,613.13
|
|
6/11/2007
|
|
|
266,200.23
|
|
7/11/2007
|
|
|
257,613.13
|
|
8/11/2007
|
|
|
266,200.23
|
|
9/11/2007
|
|
|
266,200.23
|
|
10/11/2007
|
|
|
257,613.13
|
|
11/11/2007
|
|
|
266,200.23
|
|
12/11/2007
|
|
|
257,613.13
|
|
1/11/2008
|
|
|
266,200.23
|
|
2/11/2008
|
|
|
266,200.23
|
|
3/11/2008
|
|
|
249,026.02
|
|
4/11/2008
|
|
|
266,200.23
|
|
5/11/2008
|
|
|
257,613.13
|
|
6/11/2008
|
|
|
266,200.23
|
|
7/11/2008
|
|
|
257,613.13
|
|
8/11/2008
|
|
|
266,200.23
|
|
9/11/2008
|
|
|
266,200.23
|
|
10/11/2008
|
|
|
257,613.13
|
|
11/11/2008
|
|
|
266,200.23
|
|
12/11/2008
|
|
|
257,613.13
|
|
1/11/2009
|
|
|
266,200.23
|
|
2/11/2009
|
|
|
266,200.23
|
|
3/11/2009
|
|
|
240,438.92
|
|
4/11/2009
|
|
|
266,200.23
|
|
5/11/2009
|
|
|
257,613.13
|
|
6/11/2009
|
|
|
266,200.23
|
|
7/11/2009
|
|
|
257,613.13
|
|
8/11/2009
|
|
|
266,200.23
|
|
9/11/2009
|
|
|
266,200.23
|
|
10/11/2009
|
|
|
257,613.13
|
|
11/11/2009
|
|
|
266,200.23
|
|
12/11/2009
|
|
|
257,613.13
|
|
1/11/2010
|
|
|
266,200.23
|
|
2/11/2010
|
|
|
266,200.23
|
|
3/11/2010
|
|
|
240,438.92
|
|
4/11/2010
|
|
|
266,200.23
|
|
5/11/2010
|
|
|
257,613.13
|
|
6/11/2010
|
|
|
266,200.23
|
|
7/11/2010
|
|
|
257,613.13
|
|
8/11/2010
|
|
|
266,200.23
|
|
9/11/2010
|
|
|
266,200.23
|
|
10/11/2010
|
|
|
257,613.13
|
|
11/11/2010
|
|
|
266,200.23
|
|
12/11/2010
|
|
|
257,613.13
|
|
1/11/2011
|
|
|
266,200.23
|
|
2/11/2011
|
|
|
266,200.23
|
|
3/11/2011
|
|
|
240,438.92
|
|
4/11/2011
|
|
|
266,200.23
|
|
5/11/2011
|
|
|
257,613.13
|
|
6/11/2011
|
|
|
266,200.23
|
|
7/11/2011
|
|
|
257,613.13
|
|
8/11/2011
|
|
|
266,200.23
|
|
9/11/2011
|
|
|
266,200.23
|
|
10/11/2011
|
|
|
257,613.13
|
|
11/11/2011
|
|
|
266,200.23
|
|
12/11/2011
|
|
|
257,613.13
|
|
1/11/2012
|
|
|
266,200.23
|
|
2/11/2012
|
|
|
266,200.23
|
|
SCHEDULE
3
Allocated Loan
Amounts
100
James Drive
|
|
$
|
2,025,000
|
|
5405
Bandera Road
|
|
$
|
5,475,000
|
|
120
Mallard Street
|
|
$
|
3,112,500
|
|
150
Canvasback Drive
|
|
$
|
1,612,500
|
|
107
Mallard Street
|
|
$
|
2,062,500
|
|
143
Mallard Street
|
|
$
|
1,762,500
|
|
150
Teal Street
|
|
$
|
3,787,500
|
|
520-524
Elmwood Park
|
|
$
|
7,912,500
|
|
7042
Alamo Drive
|
|
$
|
1,837,500
|
|
7402-7648
Reindeer Trail
|
|
$
|
9,375,000
|
|
11301
Industriplex Blvd.
|
|
$
|
2,662,500
|
|
11441
Industriplex Blvd.
|
|
$
|
2,962,500
|
|
1700
Grandstand Drive
|
|
$
|
3,975,000
|
|
6565
Exchequer Dr.
|
|
$
|
4,462,500
|
|
EXHIBIT 10.31
FORM OF
LIMITED LIABILITY COMPANY
AGREEMENT
OF
1407 BROADWAY MEZZ II LLC
THIS
LIMITED LIABILITY COMPANY AGREEMENT (this “
Agreement”
) of
1407
BROADWAY MEZZ II LLC
(the
“
Company
”), is
entered into by Lightstone 1407 Manager LLC, a Delaware limited liability
company, as the managing member (the “
Managing
Member
”), and
LVP 1407 Broadway LLC, a Delaware limited liability company (”
LVP
”;
together with the Managing Member, collectively, the “
Members
” and
individually, a “
Member
”), and
MICHELLE A. DREYER, as the Special Member (as defined on
Schedule
A
hereto).
LVP shall sometimes hereinafter also be referred to as the “
Non-Managing
Member
”.
Capitalized terms used and not otherwise defined herein have the meanings set
forth on
Schedule
A
hereto.
RECITALS
WHEREAS,
the Company was formed on November 28, 2006
as a
limited liability company under the Delaware Limited Liability Company Act, as
amended from time to time (the “Act”); and
WHEREAS,
the Members desire to state the terms and conditions of the
Company.
NOW
THEREFORE, in consideration of the premises and the agreements herein contained,
the Members and the Special Member hereby agree as follows:
Section
1.
Name
.
The name
of the limited liability company formed hereby is 1407 BROADWAY MEZZ II
LLC.
Section
2.
Principal Business
Office
.
The
principal business office of the Company shall be located at 326 Third Street,
Lakewood, NJ 08701, or such other location as may hereafter be determined by the
Member.
Section
3.
Registered
Office
.
The
address of the registered office of the Company in the State of Delaware is c/o
Registered Agents Legal Services, LLC, 1220 N. Market Street, Suite 806,
Wilmington, DE 19801.
Section
4.
Registered
Agent
.
The name
and address of the registered agent of the Company for service of process on the
Company in the State of Delaware York is c/o Registered Agents Legal Services,
LLC, 1220 N. Market Street, Suite 806, Wilmington, DE 19801.
Section
5.
Members
.
The
mailing address of each Member is set forth on
Schedule
B
attached
hereto. The Members were admitted to the Company as members of the Company upon
their execution of counterpart signature pages to this Agreement.
Subject
to
Section
9(d)
, the
Members may act by written consent.
Upon the
occurrence of any event that causes the
last
remaining
Member to
cease to be a member of the Company (other than (i) upon an assignment by the
last remaining Member of all of its limited liability company interest in the
Company and the admission of the transferee pursuant to
Sections 21 and
23
, or (ii)
the resignation of the last remaining Member and the admission of an additional
member of the Company pursuant to
Sections 22 and
23
), the
person acting as an Independent Manager pursuant to
Section
10
shall,
without any action of any Person and simultaneously with the last remaining
Member ceasing to be a member of the Company, automatically be admitted to the
Company as a Special Member and shall continue the Company without dissolution.
No Special Member may resign from the Company or transfer its rights as Special
Member unless (i) a successor Special Member has been admitted to the Company as
Special Member by executing a counterpart to this Agreement, and (ii) such
successor has also accepted its appointment as Independent Manager pursuant to
Section
10
;
provided, however, each Special Member shall automatically cease to be a member
of the Company upon the admission to the Company of a substitute Member. Each
Special Member shall be a member of the Company that has no interest in the
profits, losses and capital of the Company and has no right to receive any
distributions of Company assets. Pursuant to Section 18-301 of the Act, a
Special Member shall not be required to make any capital contributions to the
Company and shall not receive a limited liability company interest in the
Company. A Special Member, in its capacity as Special Member, may not bind the
Company. Except as required by any mandatory provision of the Act, each Special
Member, in its capacity as Special Member, shall have no right to vote on,
approve or otherwise consent to any action by, or matter relating to, the
Company, including, without limitation, the merger, consolidation or conversion
of the Company. In order to implement the admission to the Company of each
Special Member, each person acting as an Independent Manager pursuant to
Section
10
shall
execute a counterpart to this Agreement. Prior to its admission to the Company
as Special Member, the person acting as an Independent Manager pursuant to
Section
10
shall
not be a member of the Company.
Section
6.
Certificates
.
Nancy
Bergmann is hereby designated as an “authorized person” within the meaning of
the Act, and executed, delivered and filed the Certificate of Formation of the
Company with the Secretary of State of the State of Delaware, and such
execution, delivery and filing is hereby approved and ratified. Upon the filing
of the Certificate of Formation with the Delaware Secretary of State, her powers
as an “authorized person” ceased, and the Managing Member thereupon became the
designated “authorized person” and shall continue as the designated “authorized
person” within the meaning of the Act. The Managing Member or an Officer shall
execute, deliver and file any other certificates (and any amendments and/or
restatements thereof) necessary for the Company to qualify to do business in any
jurisdiction in which the Company may wish to conduct business.
The
existence of the Company as a separate legal entity shall continue until
cancellation of the Certificate of Formation as provided in the
Act.
Section
7.
Purposes
. The
purpose conducted or promoted by the Company has been since its formation and
will continue to be to engage in the following activities:
(a)
(i)
to
acquire
and own hold, sell, transfer or otherwise dispose of a 100% limited liability
company interest (the “
Membership
Interest
”) in,
and to be and act as the sole member of, 1407 Broadway Mezz LLC, a Delaware
limited liability company (“
Mezz LLC
”)
, to
cause Mezz LLC to acquire and own, hold, sell, transfer or otherwise dispose of
a 100% limited liability company interest in, and to be and act as the sole
member of, 1407 Broadway Real Estate LLC, a Delaware limited liability company
(“
Property
Owner
”), and
to cause Property Owner to acquire, improve, finance, hold, own, operate, rent,
redevelop, sell, mortgage, exchange, convey, or otherwise dispose of the
Property, and to engage, and to cause the Subsidiaries to engage, in all actions
necessary and appropriate to accomplish the foregoing;
(ii)
to pledge
its Membership Interest in Mezz LLC to Lehman Brothers Holdings Inc.
(“
Lehman
”), in
connection with the Mezzanine Loan made by Lehman to Mezz LLC, and to execute
and deliver any documents and certificates or engage in any actions necessary or
desirable in connection therewith on behalf of itself and Mezz LLC;
and
(iii)
to engage
in any lawful act or activity and to exercise any powers permitted to limited
liability companies organized under the laws of the State of Delaware that are
related or incidental to and necessary, convenient or advisable for the
accomplishment of the above-mentioned purposes.
(b)
The
Company, by or through the Managing Member, or any Officer on behalf of the
Company, may enter into and perform the Basic Documents, and without any further
act, vote or approval of any other Person notwithstanding any other provision of
this Agreement, the Act or applicable law, rule or regulation. The foregoing
authorization shall not be deemed a restriction on the powers of the Managing
Member or any Officer to enter into other agreements on behalf of the
Company.
Section
8.
Powers
.
Subject
to
Section
9(d)
, the
Company, the Managing Member and the Officers of the Company on behalf of the
Company, (i) shall have and exercise all powers necessary, convenient or
incidental to accomplish its purposes as set forth in
Section 7
and (ii)
shall have and exercise all of the powers and rights conferred upon limited
liability companies formed pursuant to the Act.
Section
9.
Management
.
(a)
Subject
to
Sections 9(d) and
9(e),
the
business and affairs of the Company shall be managed by or under the direction
of the Managing Member. Subject to
Section
10,
the
Managing Member may determine at any time in its sole and absolute discretion
the number of Independent Managers. The initial number of Independent Managers
shall be one. The initial Independent Manager designated by the Managing Member
is Michelle A. Dreyer.
(b)
Powers
. Subject
to
Sections 9(d) and
9(e)
, the
Managing Member shall have the power to do any and all acts necessary,
convenient or incidental to or for the furtherance of the purposes described
herein, including all powers, statutory or otherwise. Subject to
Sections 7 and
9,
the
Managing Member has the authority to bind the Company. Notwithstanding the
foregoing, the parties expressly acknowledge that
the
adoption, modification or revocation of a Major Decision requires the Approval
of the Non-Managing Member. If the Managing Member proposes to adopt, modify or
revoke a Major Decision, it shall deliver notice to the Non-Managing Member
describing the proposal, which notice shall contain a sentence in bold type
stating that if the Non-Managing Member fails to respond to the Managing Member
within ten (10) business days after notice of such proposal, then such proposal
shall be deemed to have been Approved. If the Non-Managing Member fails to
respond to the Managing Member within ten (10) business days after notice of
such proposal, then such proposal shall be deemed to have been
Approved.
(c)
Managing Member as
Agent
. To the
extent of its powers set forth in this Agreement and subject to
Section
9(d),
the
Managing Member is an agent of the Company for the purpose of the Company's
business, and the actions of the Managing Member taken in accordance with such
powers set forth in this Agreement shall bind the Company.
(d)
Limitations on the Company's
Activities
.
(i)
This
Section
9(d)
is being
adopted in order to comply with certain provisions of the Loan Documents
required in order to qualify the Company as a “special purpose”
entity.
(ii)
The
Managing Member shall not, so long as any Obligation is outstanding, amend,
alter, change or repeal
Sections
5
,
7
,
8
,
9
,
10
,
16
,
20
,
21
,
22
,
23
,
24
,
25
,
26
or
31
or
Schedule
A
of this
Agreement without the unanimous written consent of the Members and the
Independent Manager, and, after securitization of the Loan, only if the Company
receives confirmation that the Rating Agency Condition is satisfied. Subject to
this
Section
9(d)
, the
Managing Member reserves the right to amend, alter, change or repeal any
provisions contained in this Agreement in accordance with
Section
31
.
(iii)
A.
Notwithstanding
any other provision of this Agreement and any provision of law that otherwise so
empowers the Company, the Managing Member, any Officer or any other Person,
neither the Managing Member nor any Officer nor any other Person shall be
authorized or empowered, nor shall they permit the Company to, and the Company
shall not, with respect to itself, without the prior unanimous written vote of
the Members and the Independent Manager take any Bankruptcy Action provided,
however
, that
the Members may not vote on, or authorize the taking of, any Bankruptcy Action,
unless there is at least one Independent Manager then serving in such
capacity.
B.
Notwithstanding
any other provision of this Agreement and any provision of law that otherwise so
empowers the Company, the Managing Member, any Officer or any other Person, so
long as any Obligations remain outstanding, neither the Managing Member nor any
Officer nor any other Person shall be authorized or empowered, nor shall they
permit the Company, to take any Material Action without the consent of Lender
(which consent will not be withheld if such Material Action would result in
proceeds which would indefeasibly satisfy the Obligations in full in accordance
with the Basic Documents).
(iv)
The
Managing Member shall cause the Company to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(charter and statutory) and franchises;
provided,
however
, that
the Company shall not be required to preserve any such right or franchise if:
(1) the Managing Member shall determine that the preservation thereof is no
longer desirable for the conduct of its business and that the loss thereof is
not disadvantageous in any material respect to the Company and (2) the
Rating Agency Condition is satisfied. The Managing Member has not caused or
permitted the Company since its formation to and shall not cause or permit the
Company to, and the Company shall not:
A.
engage in
any business or activity other than as provided in Section 7 above;
B.
acquire
or own any assets other than as provided in Section 7 above;
C.
to the
fullest extent permitted by law, merge into or consolidate with any Person or
dissolve, wind-up, terminate or liquidate in whole or in part, sell, transfer or
otherwise dispose of all or substantially all of its assets or change its legal
structure, transfer or permit the direct or indirect transfer of any interest,
as applicable, other than as permitted in the Loan Documents or seek to
accomplish any of the foregoing;
D.
fail to
preserve its existence as a limited liability company duly formed, validly
existing and in good standing under the laws of the State of Delaware, fail to
remain qualified to do business and in good standing in each state in which the
conduct of its business will so require, amend, modify, terminate or fail to
comply with the single purpose entity provisions contained herein;
E.
own any
subsidiary, other than Mezz LLC, or make any investment in, any Person without
the consent of Lender or acquire obligations or securities of its members (other
than the Membership Interests);
F.
commingle
its assets with the assets of any other Person;
G.
incur any
debt, secured or unsecured, direct or contingent (including guaranteeing any
obligation), other than customary unsecured trade payables incurred in the
ordinary course of business provided the same (x) do not exceed, in the
aggregate, at any time a maximum amount of two percent (2%) of the outstanding
principal amount of the Note evidencing the Loan, and (y) are paid within sixty
(60) days of the date incurred;
H.
fail to
maintain its records, books of account, bank accounts, financial statements,
accounting records and other entity documents separate and apart from those of
any other Person and the Company shall not permit any affiliate independent
access to its bank accounts;
I.
enter
into any contract or agreement with any general partner, member, shareholder,
principal or affiliate of the Company, Guarantor or Indemnitor, or any general
partner, member, principal or affiliate thereof, except upon terms and
conditions that are intrinsically fair and substantially similar to those that
would be available on an arms-length basis with third parties other than any
general partner, member, shareholder, principal or affiliate of the Company,
Guarantor or Indemnitor, or any general partner, member, principal or affiliate
thereof;
J.
maintain
its assets in such a manner that it will be costly or difficult to segregate,
ascertain or identify its individual assets from those of any other
Person;
K.
assume or
guaranty the debts of any other Person, hold itself out to be responsible for
the debts of another person or otherwise pledge its assets for the benefit of
any other Person or hold out its credit as being available to satisfy the
obligations of any other Person except to the extent provided in the Loan
Documents;
L.
make any
loans or advances to any third party, including, without limitation, any member
or affiliate of the Company, or any general partner, member, principal or
affiliate thereof;
M.
(i) if
required by applicable law, fail to file its own tax returns (subject to any
permitted extensions), or (ii) if the Company is part of a consolidated group
for purposes of filing tax returns, fail to cause the Company to be shown as a
separate member of such group whose assets are not available to satisfy the
obligations of such group and whose liabilities remain separate from such group,
or (iii) if the Company is identified in any of its member’s tax returns, fail
to cause the Company to be identified as a separate entity whose assets are not
available to satisfy the obligations of any such members and whose liabilities
remain separate from such members;
N.
fail
either to hold itself out to the public as a legal entity separate and distinct
from any other entity or person or to conduct its business solely in its own
name or fail to correct any known misunderstanding regarding its separate
identity and the Company shall not identify itself as being a department or
division of any other Person;
O.
fail to
maintain adequate capital for the normal obligations reasonably foreseeable in a
business of its size and character and in light of its contemplated business
operations;
P.
fail to
pay its expenses and liabilities (including, without limitation, salaries of its
employees) only out of its own funds to the extent such funds are available and
the Company shall maintain a sufficient number of employees in light of its
contemplated business operations;
Q.
fail to
allocate shared expenses (including, without limitation, shared office space)
and use separate stationary, invoices and checks; or
R.
acquire
any business assets from, or capital stock, or other ownership interest of, or
be a party to, any acquisition.
Failure
of the Company, or the Managing Member on behalf of the Company, to comply with
any of the foregoing covenants or any other covenants contained in this
Agreement shall not affect the status of the Company as a separate legal entity
or the limited liability of the Managing Member or the Independent Manager. In
addition, none of the foregoing provisions shall require the Managing Member to
make any additional capital contributions to the Company.
(v)
So long
as any Obligation is outstanding, the Managing Member shall not cause or permit
the Company to and the Company shall not:
A.
except as
contemplated by the Loan Documents, guarantee any obligation of any Person,
including any Affiliate or become obligated for the debts of any Person or hold
out its credit as being available to pay the obligations of any other
Person;
B.
engage,
directly or indirectly, in any business other than the actions required or
permitted to be performed under
Section 7
, the
Basic Documents or this
Section
9(d)
;
C.
incur,
create or assume any indebtedness or liabilities other than as expressly
permitted under the Loan Documents;
D.
make or
permit to remain outstanding any loan or advance to, or own or acquire any stock
or securities of, any Person;
E.
to the
fullest extent permitted by law, engage in, seek or consent to any dissolution,
winding up, liquidation, consolidation, merger, asset sale or transfer of
ownership interests other than such activities as are expressly permitted
pursuant to any provision of the Basic Documents; or
F.
other
than with respect to Mezz LLC, form, acquire or hold any subsidiary (whether
corporate, partnership, limited liability company or other) or own any equity
interest in any Person,.
(e)
Major
Decisions
.
Notwithstanding any other provisions of this Agreement, the Company and/or the
Managing Member may not, without the approval of the Non-Managing Member of the
Company take any of the following actions or cause Mezz LLC or Property Owner to
take any of the following actions (each, a “
Major
Decision
”):
(i)
borrow
money (whether on a secured or unsecured basis, and whether senior, on par or
subordinate to the Loans, but excluding trade debt or amend the terms and
conditions of any financing of the Company or any of its Subsidiaries, including
the Loans, in any material respect or make elections with respect to interest
periods, interest rates or other material provisions under any such
financing;
(ii)
lend
money (whether on a secured or unsecured basis, but excluding trade
debt);
(iii)
grant any
mortgage, security interest or any other lien on any Property or any other
assets of the Company or any of its Subsidiaries;;
(iv)
subject
all or any part of any Property to a condominium statute or convert any Property
to condominium or cooperative form of ownership;
(v)
except as
otherwise provided herein, sell all or any portion of any Property;
(vi)
seek or
consent to any change in the zoning or other land use regulations affecting any
Property or any permits or approvals granted thereunder if such change will
materially adversely affect the value of the Property or the rights, interests
or obligations of the parties under this Agreement;
(vii)
rebuild
or reconstruct the improvements on the Property if they are substantially
damaged by a fire or other casualty, except to the extent the Company or any of
its Subsidiaries is required to do so pursuant to the Loan Documents or except
to the extent that the cost to rebuild or reconstruct the improvements is less
than $1,000,000;
(viii)
acquire
any real property (other than the Property), any direct or indirect interest in
real property, or any interest in any Person other than the
Subsidiaries;
(ix)
adopt the
annual operating budget of the Company and its Subsidiaries, which must be
submitted to the Non-Managing Member for its Approval by November 30 of the
preceding year (each such annual budget, as Approved, an “Approved
Budget”);
(x)
incur any
single capital expenditure in excess of $50,000, other than capital expenditures
which are (i) set forth in an Approved Budget, or (ii) otherwise specifically
Approved by the Non-Managing Member;
(xi)
assign,
transfer, pledge, compromise or release any of the claims of or debts or
insurance or condemnation proceeds due the Company exceeding $50,000 except in
connection with the receipt by the Company of payment in full of such claims or
debts;
(xii)
enter
into any lease for a portion of the Property in excess of 25,000 square
feet;
(xiii)
change
the Company’s or any Subsidiaries’ accounting method, either for financial or
tax reporting purposes or otherwise;
(xiv)
dissolve
the Company or any Subsidiary;
(xv)
effect
any merger, consolidation or restructuring of the Company or any Subsidiary;
(xvi)
purchase
or redeem all or any portion of the limited liability company interest of any
Member in the Company, except as provided herein with respect to permitted
transfers;
(xvii)
form,
directly or indirectly, any subsidiary other than the Subsidiaries;
(xviii)
other
than in connection with the Loans, sell, assign, transfer, pledge, hypothecate
or otherwise dispose of or encumber all or any portion of any of the Company’s
interest in any Subsidiary or permit any Subsidiary to sell, assign, transfer,
pledge, hypothecate or otherwise dispose of or encumber all or any portion of
its assets or cause or permit any additional equity interests to be issued by or
new members to be admitted to any Subsidiary;
(xix)
amend or
otherwise modify any of the organizational documents of the Company or any
Subsidiary in any material respect or take any action which would result in the
Company not being able to manage or exercise control over any Subsidiary;
(xx)
enter
into or conduct any business or operations other than in connection with the
business of the Company as contemplated by Section 7 hereof or otherwise herein,
or take any action which would cause the Company or any Subsidiary to cease
being a “special purpose” entity as provided in Section 9(d) above;
(xxi)
employ
any Member or any Affiliate of any Member on behalf of the Company or any
Subsidiary or otherwise deal with the Company or any Subsidiary (whether as a
buyer, seller, lessor, lessee, manager, broker, agent, furnisher of services,
lender or otherwise) and pay to or receive from the Company, its Subsidiaries,
any Member and any of their Affiliates any compensation, price, fee, commission
or other payment therefore, except as contemplated by this Agreement or as set
forth on
Schedule
D
hereto;
(xxii)
employ
any accountants for the Company or any attorneys for the Company (except that
the Members specifically approve Herrick, Feinstein LLP and Cozen O’Connor being
retained as attorneys for the Company and Amper, Politziner, Mattia and/or
Schonbraun McCann Group being retained as accountants for the
Company);
(xxiii)
settle
any casualty loss (except to the extent fully covered by insurance less any
deductible) or condemnation claim in excess of $250,000;
(xxiv)
settle
any material litigation or threatened litigation, including without limitation
that certain litigation regarding the sub-leasehold interest in the
Property;
(xxv)
enter
into any material contract or amendment;
(xxvi)
issue
additional equity interests in itself or any Subsidiary; and
(xxvii)
take any
other actions which, pursuant to the terms of this Agreement, require Approval
of all of the Members.
(f)
Deadlock
Regarding Significant Decisions; Buy/Sell Option
. In the
event there is not a unanimous vote of the Members with respect to any Major
Decision or Bankruptcy Action (a "
Deadlock
"),
whether at a meeting of the Members or by an action by written consent in
accordance with this Section 9 of this Agreement, then within two (2) business
days after such vote (or such consent is requested by a Member) each Member
shall provide to the other Member a written notice describing in reasonable
detail the reason for its position with respect to the Major Decision or
Bankruptcy Action at issue. The Members shall then enter into good faith
negotiations to amicably resolve such Deadlock and continue such negotiations
for a period of at least five (5) business days (such period being the
"
Cooling-Off
Period
"). If a
Deadlock is not resolved during the Cooling-Off Period, then commencing on the
business day following the date that the Cooling-Off Period shall have
terminated (the "
Termination
Date
"), each
of the Members shall have the following rights:
(i)
either
Member (the "
Initiating
Member
") shall
be entitled to deliver a written notice (the "
Offer
Notice
") to the
other (the "
Deciding
Member
")
specifying in such notice that the Initiating Member offers to purchase all, but
not less than all, of the limited liability company interest in the Company of
the Deciding Member upon the terms and conditions specified in reasonable detail
in the Offer Notice; and
(ii)
upon
receipt of an Offer Notice, the Deciding Member shall have three (3) business
days to deliver a written notice (the "
Response
Notice
") to the
Initiating Member specifying in the Response Notice either that:
A.
the
Deciding Member has elected to sell all of its limited liability company
interest in the Company to the Initiating Member at the price and upon the terms
and conditions specified in the Offer Notice, in which case, the Initiating
Member shall purchase, and the Deciding Member shall sell, all of the Deciding
Member's limited liability company interest in the Company at the price and upon
the terms and conditions specified in the Offer Notice; or
B.
the
Deciding Member has elected to purchase all of the Initiating Member's limited
liability company interest in the Company at the Offer Price (as defined below)
and upon the terms and conditions specified in the Offer Notice, in which case
the Deciding Member shall purchase, and the Initiating Member shall sell, all of
the Initiating Member's limited liability company interest in the Company at the
Offer Price and upon the terms and conditions specified in the Offer
Notice.
(iii)
An Offer
Notice shall only be valid if delivered on or after the Termination Date, and
any Offer Notice delivered prior to such time shall be deemed null and void and
have no force or effect. Each Member agrees that if an Offer Notice is not sent
within five (5) business days following the Termination Date, then the Deadlock
shall be deemed to have been amicably resolved and the proposed action that is
the subject of the Deadlock shall be deemed to have been adopted by the
Members.
(iv)
Upon
delivery of an Offer Notice to either Member, then the Deciding Member shall not
be permitted to deliver a subsequent Offer Notice and any such subsequent Offer
Notice shall be deemed null and void and have no force or effect;
provided
,
however
, that in
the event that each Member shall have delivered to the other an Offer Notice on
the same day (without regard to the time of day such Offer Notice is received)
then, in such event, the Offer Notice which contains the lowest purchase price
for the other's limited liability company interest in the Company shall be
deemed null and void and have no force or effect.
(v)
Notwithstanding
any provision contained herein to the contrary, in the event that the Deciding
Member has not delivered a Response Notice within the three (3) business day
period provided for in Section 9(f)(ii) above, then for purposes of this
Agreement the Deciding Member shall be deemed to have made the election
specified in Section 9(f)(ii)(A) above and thereafter the Deciding Member shall
sell all of its limited liability company interest in the Company to the
Initiating Member at the price and upon the terms and conditions specified in
the Offer Notice.
(vi)
The
Members agree that irreparable damage would occur in the event any of the
provisions of this Section 9(f) were not performed in accordance with the terms
hereof and that the Members shall be entitled to specific performance of the
terms and provisions of this Section 9(f), in addition to any other remedy at
law or equity. The Members further agree that time is of the essence with
respect to any time periods set forth in this Section 9(f).
(vii)
For
purposes of this Section 9(f), the "
Offer
Price
" means
the product obtained when multiplying (i) the quotient obtained when dividing
(x) the dollar amount of the price offered by the Initiating Member in the Offer
Notice by (y) the Percentage of limited liability company interest in the
Company of the Deciding Member multiplied by 100, and (ii) the Percentage of
limited liability company interest in the Company of the Initiating Member
multiplied by 100.
Section
10.
Independent
Manager
.
As long
as any Obligation is outstanding, the Managing Member shall cause the Company at
all times to have at least one Independent Manager who will be appointed by the
Managing Member. To the fullest extent permitted by law, including Section
18-1101(c) of the Act, the Independent Manager shall consider only the interests
of the Company, including its respective creditors, in acting or otherwise
voting on the matters referred to in
Section
9(d)(iii)
. No
resignation or removal of an Independent Manager, and no appointment of a
successor Independent Manager, shall be effective until such successor shall
have executed a counterpart to this Agreement. In the event of a vacancy in the
position of Independent Manager, the Managing Member shall, as soon as
practicable, appoint a successor Independent Manager. All right, power and
authority of the Independent Manager shall be limited to the extent necessary to
exercise those rights and perform those duties specifically set forth in this
Agreement and the Independent Manager shall have no authority to bind the
Company. Except as provided in the second sentence of this
Section
10
, in
exercising their rights and performing their duties under this Agreement, any
Independent Manager shall have a fiduciary duty of loyalty and care similar to
that of a director of a business corporation organized under the General
Corporation Law of the State of Delaware. No Independent Manager shall at any
time serve as trustee in bankruptcy for any Affiliate of the
Company.
Section
11.
Officers
.
(a)
Officers
. The
initial Officers of the Company shall be designated by the Managing Member and
shall consist of at least a President and a Secretary. The Managing Member may
also choose one or more Vice Presidents, Assistant Secretaries and Assistant
Treasurers. Any number of offices may be held by the same person. The Managing
Member may appoint such other Officers and agents as it shall deem necessary or
advisable who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Managing Member. The salaries of all Officers and agents of the Company shall be
fixed by or in the manner prescribed by the Managing Member. The Officers of the
Company shall hold office until their successors are chosen and qualified. Any
Officer may be removed at any time, with or without cause, by the affirmative
vote of the Managing Member. Any vacancy occurring in any office of the Company
shall be filled by the Managing Member. The initial Officers of the Company
designated by the Managing Member are listed on
Schedule
E
hereto.
(b)
President
. The
President shall be the chief executive officer of the Company, shall be
responsible for the general and active management of the business of the Company
and shall see that all orders and resolutions of the Company are carried into
effect. The President or any other Officer authorized by the President or the
Managing Member shall execute all bonds, mortgages and other contracts, except:
(i) where required or permitted by law or this Agreement to be otherwise signed
and executed, including
Section
7(b
) (ii)
where signing and execution thereof shall be expressly delegated by the Managing
Member to some other Officer or agent of the Company, and (iii) as otherwise
permitted in
Section
11(c)
.
(c)
Vice
President
. In the
absence of the President or in the event of the President's inability to act,
the Vice President, if any (or in the event there be more than one Vice
President, the Vice Presidents in the order designated by the Managing Member,
or in the absence of any designation, then in the order of their election),
shall perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. The
Vice Presidents, if any, shall perform such other duties and have such other
powers as the Managing Member may from time to time prescribe.
(d)
Secretary and Assistant
Secretary
. The
Secretary shall be responsible for filing legal documents and maintaining
records for the Company. The Secretary shall attend all meetings of the Company
and record all the proceedings of the meetings of the Company in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. The Secretary shall give, or shall cause to be given, notice of
all meetings of the Member, if any, and shall perform such other duties as may
be prescribed by the President, under whose supervision the Secretary shall
serve. The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Managing Member (or if there be no
such determination, then in order of their election), shall, in the absence of
the Secretary or in the event of the Secretary's inability to act, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Managing Member may from time to time
prescribe
(e)
Officers as
Agents
. The
Officers, to the extent of their powers set forth in this Agreement or otherwise
vested in them by action of the Managing Member not inconsistent with this
Agreement, are agents of the Company for the purpose of the Company's business
and, subject to
Section
9(d)
, the
actions of the Officers taken in accordance with such powers shall bind the
Company.
(f)
Duties of
Officers
. Except
to the extent otherwise provided herein, each Independent Manager and Officer
shall have a fiduciary duty of loyalty and care similar to that of directors and
officers of business corporations organized under the General Corporation Law of
the State of Delaware.
Section
12.
Limited
Liability
.
Except as
otherwise expressly provided by the Act, the debts, obligations and liabilities
of the Company, whether arising in contract, tort or otherwise, shall be the
debts, obligations and liabilities solely of the Company, and neither the
Members nor the Special Member nor the Independent Manager shall be obligated
personally for any such debt, obligation or liability of the Company solely by
reason of being a Member, Special Member or Independent Manager of the
Company.
Section
13.
Capital
Contributions
.
The
Members have contributed to the Company property of an agreed value as listed on
Schedule
B
attached
hereto in consideration of their respective Percentage Interests (hereinafter
defined) in the Company.
“Percentage Interest” means
the
ownership
interest of each
Member
in the
Company (the
“
Membership
Interests
”)
,
expressed as a percentage, as set forth on
Schedule
B
. In
accordance with
Section 5
, the
Special Member shall not be required to make any capital contributions to the
Company.
Section
14.
Additional
Contributions
.
The
Members are not required to make any additional capital contribution to the
Company. However, the Members may make additional capital contributions to the
Company at any time upon the written consent of the Members. To the extent that
a Member makes an additional capital contribution to the Company, the Managing
Member shall revise
Schedule
B
of this
Agreement. The provisions of this Agreement, including this
Section
14
, are
intended to benefit the Members and the Special Member and, to the fullest
extent permitted by law, shall not be construed as conferring any benefit upon
any creditor of the Company (other than Lender for so long as any Obligation is
outstanding) (and no such creditor of the Company shall be a third-party
beneficiary of this Agreement, except as provided in Section 29) and the Members
and the Special Member shall not have any duty or obligation to any creditor of
the Company to make any contribution to the Company or to issue any call for
capital pursuant to this Agreement.
Section
15.
Allocation of Profits and
Losses
.
All items of Company profit,
loss, gain, deduction and credit shall be allocated among the Members in
proportion to their respective Percentage Interests
.
Section
16.
Distributions
.
Distributions
of Available Cash
shall be
distributed to the Members from time to time, as determined by the Managing
Member. All
distributions shall be
made on
a
pro
rata
basis
in
accordance with
each
Member’s
respective
Percentage Interest. The Managing Member shall use its commercially reasonable
efforts to distribute sufficient Available Cash to permit Lightstone Value Plus
Real Estate Investment Trust, Inc. (the “REIT”), the indirect parent of LVP, to
distribute annually to its stockholders all of its taxable income.
Notwithstanding
any provision to the contrary contained in this Agreement, the Company shall not
be required to make a distribution to any Member on account of its interest in
the Company if such distribution would violate the Act or any other applicable
law or any Basic Document.
Section
17.
Books and
Records
.
(a)
The
Managing Member shall keep or cause to be kept complete and accurate books of
account and records with respect to the Company's business. The books of the
Company shall at all times be maintained by the Managing Member. The Members and
their duly authorized representatives shall have the right to examine the
Company books, records and documents during normal business hours. The Company,
and the Managing Member on behalf of the Company, shall not have the right to
keep confidential from the other Member any information that the Managing Member
would otherwise be permitted to keep confidential from the Member pursuant to
Section 18-305(c) of the Act. The Company's books of account shall be kept using
the method of accounting determined by the Managing Member in accordance with
generally accepted accounting principles in the United States of America and in
a manner that will permit the REIT to satisfy any reporting requirements that
state regulators may impose upon it. The Company's independent auditor, if any,
shall be an independent public accounting firm selected by the Managing
Member.
(b)
All funds
of the Company shall be deposited in a bank account or accounts in the Company's
name.
Section
18.
Intentionally
Omitted.
Section
19.
Other
Business
.
The
Members, the Special Member and any Affiliate of the Members or the Special
Member may engage in or possess an interest in other business ventures
(unconnected with the Company) of every kind and description, independently or
with others notwithstanding any other duty existing at law or in equity. The
Company shall not have any rights in or to such independent ventures or the
income or profits therefrom by virtue of this Agreement.
Section
20.
Exculpation and
Indemnification
.
(a)
Neither
the Members nor the Special Member nor any Officer, Independent Manager,
employee or agent of the Company nor any employee, representative, agent or
Affiliate of the Members or the Special Member nor any member of the Board of
Directors of the REIT (collectively, the “
Covered
Persons
”) shall,
to the fullest extent permitted by law, be liable to the Company or any other
Person who is bound by this Agreement for any loss, damage or claim incurred by
reason of any act or omission performed or omitted by such Covered Person in
good faith on behalf of the Company and in a manner reasonably believed to be
within the scope of the authority conferred on such Covered Person by this
Agreement, except that a Covered Person shall be liable for any such loss,
damage or claim incurred by reason of such Covered Person's gross negligence or
willful misconduct.
(b)
To the
fullest extent permitted by applicable law, a Covered Person shall be entitled
to indemnification from the Company for any loss, damage or claim incurred by
such Covered Person by reason of any act or omission performed or omitted by
such Covered Person in good faith on behalf of the Company and in a manner
reasonably believed to be within the scope of the authority conferred on such
Covered Person by this Agreement, except that no Covered Person shall be
entitled to be indemnified in respect of any loss, damage or claim incurred by
such Covered Person by reason of such Covered Person's gross negligence or
willful misconduct with respect to such acts or omissions;
provided,
however
, that
any indemnity under this
Section
20
by the
Company shall be provided out of and to the extent of Company assets only, and
the Members and the Special Member shall not have personal liability on account
thereof and
provided
further
, that so
long as any Obligation is outstanding, any indemnity payment from funds of the
Company (as distinct from funds from other sources, such as insurance) of any
indemnity under this
Section
20
shall be
subordinate to payments then due pursuant to the Basic Documents.
(c)
To the
fullest extent permitted by applicable law, expenses (including reasonable legal
fees) incurred by a Covered Person defending any claim, demand, action,
suit or
proceeding shall, from time to time, be advanced by the Company prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Company of an undertaking by or on behalf of the Covered Person to repay
such amount if it shall be determined that the Covered Person is not entitled to
be indemnified as authorized in this
Section
20
.
(d)
A Covered
Person shall be fully protected in relying in good faith upon the records of the
Company and upon such information, opinions, reports or statements presented to
the Company by any Person as to matters the Covered Person reasonably believes
are within such other Person's professional or expert competence and who has
been selected with reasonable care by or on behalf of the Company, including
information, opinions, reports or statements as to the value and amount of the
assets, liabilities, or any other facts pertinent to the existence and amount of
assets from which distributions to the Members might properly be
paid.
(e)
To the
extent that, at law or in equity, a Covered Person has duties (including
fiduciary duties) and liabilities relating thereto to the Company or to any
other Covered Person, a Covered Person acting under this Agreement shall not be
liable to the Company or to any other Covered Person for its good faith reliance
on the provisions of this Agreement or any approval or authorization granted by
the Company or any other Covered Person. The provisions of this Agreement, to
the extent that they restrict the duties and liabilities of a Covered Person
otherwise existing at law or in equity, are agreed by the Members and the
Special Member to replace such other duties and liabilities of such Covered
Person.
(f)
The
foregoing provisions of this
Section
20
shall
survive any termination of this Agreement.
Section
21.
Assignments;
Transfers
.
(a)
Except as
otherwise provided in this Agreement, (i) no Member may sell, transfer, assign,
hypothecate, pledge or otherwise dispose of or encumber (including the grant of
an option with respect to any of the foregoing), directly or indirectly
(“
Transfer
”), all
or any part of its limited liability company interest in the Company or withdraw
from the Company, and (ii) no Transfer of any direct or indirect interest in a
Member shall be permitted, except (in the case of both clauses (i) and (ii))
with the prior written approval of the Managing Member, which approval may be
granted or withheld by the Managing Member in its sole and absolute discretion.
(b)
To the
fullest extent permitted by law, any Transfer not in compliance with the
requirements of this
Section
21
shall be
void as against the Company and the other Members and shall be disregarded by
all of the Members and the Company for all purposes of allocations and
distributions hereunder. The Company shall be entitled to treat the record owner
of a limited liability company interest in the Company as the absolute owner
thereof for all purposes and shall incur no liability to any purported
transferee or any other Person for distributions of money or other property in
good faith made to the record owner of such limited liability company interest
in the Company, unless and until all conditions of any Transfer shall have been
fulfilled in accordance herewith to the satisfaction of the Company, subject to
the prior written approval of the Managing Member which approval may be granted
or withheld by the Managing Member in its sole and absolute
discretion.
(c)
Unless a
transferee is substituted as a Member in accordance with this Section 21(c), the
transferee shall not be entitled to any of the rights of a Member hereunder with
respect to the limited liability company interest in the Company transferred. A
transferee of a limited liability company interest in the Company may be
substituted as a Member and shall thereupon be entitled to the rights of a
Member with respect to such limited liability company interest in the Company,
only upon satisfaction of the following conditions:
(i)
the
transferor shall have granted the transferee the right to be substituted as a
Member in its place;
(ii)
the
Managing Member has approved the Transfer in writing, which it may refuse to do
for any reason or for no reason;
(iii)
the
transferee shall have paid, or made arrangement satisfactory to the Managing
Member to pay, to the Company all costs and expenses incurred by the Company in
connection with such substitution, including any costs incurred in amending this
Agreement, the certificate of formation, if necessary, or any other document
filed with respect to the Company in any jurisdiction;
(iv)
the
transferee shall have executed and delivered such instruments, in form and
substance satisfactory to the Managing Member, as the Managing Member may deem
to be necessary or desirable to effect such substitution and to confirm the
agreement of the transferee to be bound by and subject to all of the terms and
provisions of this Agreement and any other relevant agreements relating to the
Company to which the Transferor and the Company or other Members are
parties;
(v)
such
Transfer shall not result in the termination of the Company or any of its
Subsidiaries pursuant to Code Section 708;
(vi)
the
Managing Member has received an opinion of the Company’s counsel that the
proposed Transfer is permissible under all applicable federal or state
securities laws and will not cause the Company to be classified other than as a
partnership for federal income tax purposes or cause the Company to terminate
for federal income tax purposes; and
(vii)
such
assignment shall not result in a default or event of default under any of the
Loan Documents or any other material instruments or agreements to which the
Company or any of the Subsidiaries is a party or to which the Property is
subject and the Company and the Managing Member shall have obtained all consents
to such assignment required pursuant to the Loan Documents.
(d)
Right to
Force Sale of Property. Notwithstanding any provision contained herein to the
contrary, at any time after seven years from the date hereof, the Non-Managing
Member shall have the right to force the Company to dispose of the Property by
delivering written notice thereof (a “
Sale
Notice
”) to the
Managing Member. Any Sale Notice shall indicate the appraised value of the
Property, as determined by an independent, third party appraiser selected by the
Board of Directors of the REIT (the “
Appraised
Value
”). Upon
receipt of a Sale Notice, the Managing Member shall have the right to elect to
either (i) initiate a sale of the Property for the Appraised Value or (ii)
within ninety (90) days of receipt of a Sale Notice, purchase the Non-Managing
Member’s Membership Interest in the Company for an amount equal to the amount of
cash that would be distributed to the Non-Managing Member under Article 16, if
the Property were sold for the Appraised Value, assuming that all Company
indebtedness were repaid in full (including prepayment penalties that would be
then due and payable) and transaction costs equal to the sum of (i) the transfer
taxes that would be due upon such sale and (ii) two and one-half percent (2.5%)
of the Appraised Value were to be paid prior to the hypothecated liquidation
distributions.
(e)
Right of
First Refusal; Tag-Along Right. Notwithstanding any provision contained herein
to the contrary, if at any time
a Member
shall
desire to sell all or any portion of its limited liability company interest in
the Company to an unaffiliated third party purchaser (the “
Third Party
Purchaser
”), then
before any such sale may be consummated, the terms and provisions of this
Section 11(e) must be complied with.
(i)
In the
event that a Member intends to accept a bona fide written offer received from a
Third Party Purchaser to purchase all or any portion of its limited liability
company interest in the Company (the “
Selling
Member
”), then
such Selling Member shall promptly give written notice (the “
Sale
Notice
”)
thereof to the remaining Member (the “
Remaining
Member
”)
setting forth the terms of the offer and the identity of the Third Party
Purchaser and include therewith copies of all relevant documents, to the extent
such documentation exists. For a period of ten (10) business days (the
“
Ten Day
Period
”) after
receipt of the Sale Notice, the Remaining Member shall have the right by
delivering the written notice provided in Section 11(e)(ii)(A) or Section
11(e)(iii)(A) below to either:
A.
purchase
that portion of the Selling Member’s limited liability company interest in the
Company which the Third Party Purchaser intends to acquire (the “
Offered Company
Interest
”) in
accordance with Section 11(e)(ii) below at an aggregate purchase price (the
“
First Refusal Purchase
Price
”) equal
to the purchase price offered in writing by the Third Party Purchaser for the
Offered Company Interest (the “
First Refusal
Right
”);
or
B.
sell to
the Third Party Purchaser in accordance with Section 11(e)(iii) below that
portion of Remaining Member’s limited liability company interest in the Company
(the “
Tag-Along
Portion
”) equal
to the product obtained when multiplying: (I) the Remaining Member’s
limited liability company interest in the Company immediately prior to the sale
to the Third Party Purchaser, and (II) the aggregate amount of limited liability
company interest in the Company the Third Party Purchaser desires to acquire
from the Selling Member and that the Selling Member desires to sell to the Third
Party Purchaser at an aggregate purchase price (the “
Tag-Along Purchase
Price
”) equal
to the product obtained when multiplying (I) the purchase price offered in
writing by the Third Party Purchaser for the Offered Company Interest, and (II)
the Remaining Member’s Percentage Interest in the Company immediately prior to
the sale to the Third Party Purchaser (the “
Tag-Along
Right
”).
(ii)
A. If the
Remaining Member shall elect to exercise the First Refusal Right pursuant to
Section 11(e)(i)(A) above, then within the Ten Day Period the Remaining
Member: (x) shall send a written notice (the “
First Refusal
Notice
”) to the
Selling Member specifying the date on which the purchase and sale of the Offered
Company Interest (the “
First Refusal
Closing
”) shall
occur, which date shall not be earlier than ten (10) calendar days nor later
than sixty (60) calendar days from the date such notice is delivered; and (y)
shall pay to the Selling Member in immediately available funds by bank wire
transfer, certified check or bank cashier’s check a non refundable deposit in an
amount equal to the
lesser
of (a)
$500,000, (b) the dollar amount of the First Refusal Purchase Price, or (c) the
dollar amount of any deposit offered or made by the Third Party Purchaser (the
“
First Refusal
Deposit
”), which
First Refusal Deposit, in any event, shall be credited against the First Refusal
Purchase Price if the First Refusal Closing shall occur.
B.
At the
First Refusal Closing: (i) the Remaining Member shall pay to the Selling
Member the First Refusal Purchase Price less the First Refusal Deposit in cash
in immediately available funds by bank wire transfer, certified check or bank
cashier’s check; and (ii) the Selling Member shall transfer and assign to the
Remaining Member the Offered Company Interest free and clear of any encumbrance
and shall execute and deliver to the Company all necessary documentation
reasonably required in order to effectuate the transfer and sale of the Offered
Company Interest. In the event the Remaining Member does not consummate the
First Refusal Closing as aforesaid as a result of the Remaining Member’s breach
or default of its obligations hereunder, the First Refusal Deposit shall be
retained by the Selling Member as liquidated damages and not as a
penalty.
(iii)
A. If the
Remaining Member shall elect to exercise the Tag-Along Right pursuant to Section
11(e)(i)(B) above, then within the Ten Day Period the Remaining Member shall
send a written notice (the “
Tag-Along
Notice
”) to the
Selling Member which notice: (x) shall specify the Remaining Member’s desire to
exercise the Tag-Along Right pursuant to Section 11(e)(i)(B) above; and (y)
shall contain a covenant and undertaking by the Remaining Member to transfer and
assign the Tag-Along Portion to the Third Party Purchaser at a closing (the
“
Tag-Along
Closing
”)
determined by the Selling Member and the Third Party Purchaser and to execute
and deliver documentation substantively and substantially identical to the
documentation that the Selling Member is executing and delivering in connection
with the sale to the Third Party Purchaser.
B.
At the
Tag-Along Closing: (i) the Third Party Purchaser shall pay the Tag-Along
Purchase Price to the Remaining Member in the same manner as the Third Party
Purchaser pays the remaining portion of the purchase price for that portion of
the Selling Member’s limited liability company interest in the Company which is
subject to the Third Party Purchaser’s offer, and (ii) the Remaining Member
shall transfer and assign to the Third Party Purchaser the Tag-Along Portion of
the Remaining Member’s limited liability company interest in the Company to the
Third Party Purchaser free and clear of any encumbrance, and shall execute and
deliver to the Third Party Purchaser all necessary documentation reasonably
required by the Selling Member in order to effectuate the transfer and sale of
the Tag-Along Portion to the Third Party Purchaser;
provided
,
however
, that
the Remaining Member shall only be required to execute documentation
substantively and substantially identical to the documentation that the Selling
Member is executing and delivering in connection with the Selling Member’s sale
of its limited liability company interest in the Company to the Third Party
Purchaser.
(iv)
The
failure of the Remaining Member to give either (x) a First Refusal Notice and to
fund the First Refusal Deposit provided for in Section 11(e)(ii)(A) above within
the time period required pursuant to Section 11(e)(ii)(A), or (y) the Tag-Along
Notice provided for in Section 11(e)(iii)(A) above within the time period
required pursuant to Section 11(e)(iii)(A) shall be deemed to be an election by
the Remaining Member not to exercise the First Refusal Right or the Tag-Along
Right, as the case may be, as to such offer. The election by the Remaining
Member not to exercise the First Refusal Right or the Tag-Along Right, as the
case may be, as to any offer shall not affect the Remaining Member’s First
Refusal Right or the Tag-Along Right as to any subsequent offer. If the
Remaining Member elects not to exercise the First Refusal Right or the Tag-Along
Right, then the Selling Member may proceed to transfer the Offered Company
Interest in accordance with the terms of the third party offer within a period
of one hundred and eighty (180) days after the date of the Sale Notice; but if
such sale is not consummated within such one hundred and eighty (180) day
period, then the limited liability company interest in the Company covered by
the offer will be again be subject to the First Refusal Right and Tag-Along
Right provided by this Section 11(e);
provided
,
however
, that if
the Remaining Member shall timely deliver the First Refusal Notice and fund the
First Refusal Deposit in accordance with Section 11(e)(ii)(A) but later fails to
consummate the acquisition of the Offered Company Interest at the First Refusal
Closing, then, in addition to retaining the First Refusal Deposit as liquidated
damages (and not as a penalty) the Selling Member shall have a period of an
additional ninety (90) days from the date of the First Refusal Closing to
consummate the sale of the Offered Company Interest that was subject to the
First Refusal Right to the Third Party Purchaser; and
provided
further
,
however
, that if
the Remaining Member shall timely deliver the Tag-Along Notice in accordance
with Section 11(e)(iii)(A) but later fails to sell the Tag-Along Portion to the
Third Party Purchaser at the Tag-Along Closing, then the Selling Member shall
have a period of an additional ninety (90) days from the date of the Tag-Along
Closing to consummate the sale of the entire amount of limited liability company
interest in the Company that the Third Party Purchaser originally intended to
acquire from the Selling Member.
(v)
Any Third
Party Purchaser to whom the Offered Company Interest or the Tag-Along Portion is
transferred under this Section 11(e) shall hold such limited liability company
interest in the Company subject to all terms and conditions of this Agreement
and shall, as a condition of receiving such limited liability company interest
in the Company, execute and deliver any and all documentation, and comply with
any and all terms and conditions, reasonably requested by the Managing
Member.
Section
22.
Resignation
.
Except as
expressly provided in this Agreement, the Managing Member shall not resign or
withdraw as managing member of the Company without the prior written approval of
the other Members, which approval may be withheld by such Members in their sole
discretion.
Section
23.
Admission of Additional
Members
.
One or
more additional Members of the Company may be admitted to the Company with the
written consent of the Managing Member;
provided
,
however
, that,
notwithstanding the foregoing, so long as any Obligation remains outstanding, no
additional Member may be admitted to the Company unless the Rating Agency
Condition is satisfied.
Section
24.
Dissolution
.
(a)
Subject
to
Section
9(d)
, the
Company shall be dissolved, and its affairs shall be wound up upon the first to
occur of the following: (i) the termination of the legal existence of the last
remaining member of the Company or the occurrence of any other event which
terminates the continued membership of the last remaining member of the Company
in the Company unless the Company is continued without dissolution in a manner
permitted by this Agreement or the Act or (ii) the entry of a decree of judicial
dissolution under Section 18-802 of the Act. Upon the occurrence of any event
that causes the last remaining member of the Company to cease to be a member of
the Company or that causes the last remaining Member to cease to be a member of
the Company (other than (i) upon an assignment by the last remaining Member of
all of its limited liability company interest in the Company and the admission
of the transferee pursuant to
Sections 21 and
23
, or (ii)
the resignation of the last remaining Member and the admission of an additional
member of the Company pursuant to
Sections 22 and
23
), to the
fullest extent permitted by law, the personal representative of such member is
hereby authorized to, and shall, within 90 days after the occurrence of the
event that terminated the continued membership of such member in the Company,
agree in writing (i) to continue the Company and (ii) to the admission of the
personal representative or its nominee or designee, as the case may be, as a
substitute member of the Company, effective as of the occurrence of the event
that terminated the continued membership of the last remaining Member in the
Company.
(b)
Notwithstanding
any other provision of this Agreement, the Bankruptcy of a Member or the Special
Member shall not cause such Member or Special Member, respectively, to cease to
be a member of the Company or cause the Company to be dissolved or its affairs
to be wound up and upon the occurrence of such an event, the Company shall
continue without dissolution. Except as otherwise required by law,
notwithstanding any other provision of this Agreement, the dissolution of a
Member or the Special Member shall not, by itself, cause the Company to be
dissolved or its affairs to be wound up and upon the occurrence of such an
event, the Company shall continue without dissolution.
(c)
Notwithstanding
any other provision of this Agreement, each Member and the Special Member waives
any right it might have to agree in writing to dissolve the Company upon the
Bankruptcy of a Member or the Special Member, or the occurrence of an event that
causes a Member or the Special Member to cease to be a member of the
Company.
(d)
In the
event of dissolution, the Company shall conduct only such activities as are
necessary to wind up its affairs (including the sale of the assets of the
Company in an orderly manner), and the assets of the Company shall be applied in
the manner, and in the order of priority, set forth in Section 18-804 of the
Act.
(e)
The
Company shall terminate when (i) all of the assets of the Company, after payment
of or due provision for all debts, liabilities and obligations of the Company
shall have been distributed to the Members in the manner provided for in this
Agreement and (ii) the Certificate of Formation shall have been canceled in the
manner required by the Act.
Section
25.
Waiver of Partition; Nature
of Interest
.
Except as
otherwise expressly provided in this Agreement, to the fullest extent permitted
by law, each Member and the Special Member hereby irrevocably waives any right
or power that such Person might have to cause the Company or any of its assets
to be partitioned, to cause the appointment of a receiver for all or any portion
of the assets of the Company, to compel any sale of all or any portion of the
assets of the Company pursuant to any applicable law or to file a complaint or
to institute any proceeding at law or in equity to cause the dissolution,
liquidation, winding up or termination of the Company. The Members shall not
have any interest in any specific assets of the Company, and the Members shall
not have the status of a creditor with respect to any distribution pursuant to
Section
16
hereof.
The interest of the Members in the Company are personal property.
Section
26.
Benefits of Agreement; No
Third-Party Rights
.
None of
the provisions of this Agreement shall be for the benefit of or enforceable by
any creditor of the Company other than the Lender (for so long as any Obligation
is outstanding) or by any creditor of the Members or the Special Member. Nothing
in this Agreement shall be deemed to create any right in any Person (other than
Covered Persons and for so long as any Obligation is outstanding, the Lender)
not a party hereto, and this Agreement shall not be construed in any respect to
be a contract in whole or in part for the benefit of any third Person (except as
provided in
Section
29)
.
Section
27.
Severability of
Provisions
.
Each
provision of this Agreement shall be considered severable and if for any reason
any provision or provisions herein are determined to be invalid, unenforceable
or illegal under any existing or future law, such invalidity, unenforceability
or illegality shall not impair the operation of or affect those portions of this
Agreement which are valid, enforceable and legal.
Section
28.
Entire
Agreement
.
This
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof.
Section
29.
Binding
Agreement
.
Notwithstanding
any other provision of this Agreement, the Members agree that this Agreement,
including, without limitation,
Sections
5
,
7
,
8
,
9
,
10
,
16
,
20
,
21
,
22
,
23
,
24
,
25
,
26
,
29
and
31
,
constitutes a legal, valid and binding agreement of the Members, and is
enforceable against the Members by the Independent Manager in accordance with
its terms. In addition, the Independent Manager and Lender (so long as any
Obligations are outstanding) shall be intended beneficiaries of this
Agreement.
Section
30.
Governing
Law
.
This
Agreement shall be governed by and construed under the laws of the State of
Delaware (without regard to conflict of laws principles), all rights and
remedies being governed by said laws.
Section
31.
Amendments
.
Subject
to
Section
9(d)
, this
Agreement may be modified, altered, supplemented or amended pursuant to a
written agreement executed and delivered by the Managing Member. Notwithstanding
anything to the contrary in this Agreement, so long as any Obligation is
outstanding, this Agreement may not be modified, altered, supplemented or
amended unless the Lender consents in writing and the Rating Agency Condition is
satisfied except: (i) to cure any ambiguity or (ii) to convert or supplement any
provision in a manner consistent with the intent of this Agreement and the other
Basic Documents.
Section
32.
Counterparts
.
This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original of this Agreement and all of which together shall constitute
one and the same instrument.
Any
notices required to be delivered hereunder shall be in writing and personally
delivered, mailed or sent by telecopy, electronic mail or other similar form of
rapid transmission, and shall be deemed to have been duly given upon receipt (a)
in the case of the Company, to the Company at its address in
Section 2
, (b) in
the case of a Member, to such Member at its address as listed on
Schedule
B
attached
hereto and (c) in the case of either of the foregoing, at such other address as
may be designated by written notice to the other party.
Section
34.
Tax
Matters
. It is
the intention of the Members that the Company shall be taxed as a "partnership"
for federal, state, local and foreign income tax purposes. The Members shall
take all reasonable actions, including the amendment of this Agreement and the
execution of other documents, as may reasonably be required in order for the
Company to qualify for and receive "partnership" treatment for Federal, state,
local and foreign income tax purposes. The books and records of the Company
shall be maintained by the Managing Member in accordance with generally accepted
accounting principles, consistently applied, and Section 704(b) of the Internal
Revenue Code of 1986, as amended (the “
Code
”) and
the Regulations promulgated thereunder.
A capital
account shall be established and maintained by the Managing Member on behalf of
each Member in accordance with the Treasury Regulation issued pursuant to
Section 704(b) of the Code. The Managing Member shall be the “tax matters
partner” as defined in Section 6231(a)(6) of the Code, with respect to the
Company.
Section
35.
Subsidiaries
. Any and
all references herein to the Company or any Member or Managing Member causing or
directing any action on behalf of a Subsidiary shall be deemed to refer to the
Company causing (or such Member or Managing Member causing the Company to
cause), in its capacity as a direct or indirect manager or member of such
Subsidiary, such action to be taken for and on behalf of such
Subsidiary.
Section
36.
Effectiveness
.
Pursuant
to the Act, this Agreement shall be effective as of the execution of this
Agreement.
[SIGNATURE PAGE
FOLLOWS]
IN
WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, has duly
executed this Limited Liability Company Agreement as of the __ day of January,
2007.
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MEMBERS:
LVP 1407 BROADWAY
LLC,
a
Delaware limited liability company
By:
Lightstone
Value Plus REIT LP,
its
sole member
By:
Lightstone Value Plus Real Estate Investment Trust, Inc.,
a Maryland corporation, its general partner
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By:
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Name:
Michael Schurer
Title:
Chief Financial Officer
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LIGHTSTONE 1407 MANAGER
LLC,
a
Delaware limited liability company
By:
Lightstone
Holdings LLC,
its
managing member
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By:
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Name:
David Lichtenstein
Title:
President
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SPECIAL MEMBER/INDEPENDENT
MANAGER:
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Michelle A. Dreyer
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SCHEDULE
A
Definitions
A.
Definitions
When used
in this Agreement, the following terms not otherwise defined herein have the
following meanings:
“
Act
” has the
meaning set forth in the preamble to this Agreement.
“
Affiliate
” means,
with respect to any Person, any other Person directly or indirectly Controlling
or Controlled by or under direct or indirect common Control with such
Person.
“
Agreement
” means
this Limited Liability Company Agreement of the Company, together with the
schedules attached hereto, as amended, restated or supplemented or otherwise
modified from time to time.
“
Certificate of
Formation
” means
the Certificate of Formation of the Company filed with the Secretary of State of
the State of Delaware on November 28, 2006, as amended or amended and restated
from time to time.
“
Available
Cash
” means,
at any particular time, all cash and cash items (from whatever source received)
held by the Company at such time, to the extent such cash is not reasonably
necessary (in the judgement of the Managing Member) to cover (a) obligations or
expenses of the Company at such time, or reserves for working capital and
capital expenditures (taking into account expected revenues) anticipated within
a reasonable period thereafter.
“
Bankruptcy
” means,
with respect to any Person, if such Person (i) makes an assignment for the
benefit of creditors, (ii) files a voluntary petition in bankruptcy, (iii) is
adjudged a bankrupt or insolvent, or has entered against it an order for relief,
in any bankruptcy or insolvency proceedings, (iv) files a petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation or similar relief under any statute, law or regulation, (v) files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against it in any proceeding of this nature,
(vi) seeks, consents to or acquiesces in the appointment of a trustee, receiver
or liquidator of the Person or of all or any substantial part of its properties,
or (vii) if 120 days after the commencement of any proceeding against the Person
seeking reorganization, arrangement, composition, readjustment, liquidation or
similar relief under any statute, law or regulation, if the proceeding has not
been dismissed, or if within 90 days after the appointment without such Person's
consent or acquiescence of a trustee, receiver or liquidator of such Person or
of all or any substantial part of its properties, the appointment is not vacated
or stayed, or within 90 days after the expiration of any such stay, the
appointment is not vacated. The foregoing definition of “Bankruptcy” is intended
to replace and shall supersede and replace the definition of “Bankruptcy” set
forth in Sections 18-101(1) and 18-304 of the Act.
“
Bankruptcy
Action
” means
to institute proceedings to have the Company be adjudicated bankrupt or
insolvent, or consent to the institution of bankruptcy or insolvency proceedings
against the Company or file a petition seeking, or consent to, reorganization or
relief with respect to the Company under any applicable federal or state law
relating to bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Company or a
substantial part of its property, or make any assignment for the benefit of
creditors of the Company, or admit in writing the Company's inability to pay its
debts generally as they become due, or declare or effectuate a moratorium on the
payment of any obligation, or take action in furtherance of any such
action.
“
Basic
Documents
” means
this Agreement and the Loan Documents to which the Company is a party and all
documents and certificates contemplated thereby or delivered in connection
therewith.
“
Company
” means
1407 Broadway Mezz II LLC, a Delaware limited liability company.
“
Control
” means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities or general partnership or managing member
interests, by contract or otherwise. “Controlling” and “Controlled” shall have
correlative meanings. Without limiting the generality of the foregoing, a Person
shall be deemed to Control any other Person in which it owns, directly or
indirectly, ten percent (10%) or more of the ownership interests.
“
Covered
Persons
” has the
meaning set forth in
Section
20(a)
.
“
Guarantor
” has the
meaning assigned to that term in the Loan Documents.
“
Indemnitor
” has the
meaning assigned to that term in the Loan Documents.
"
Independent
Manager
" means a
natural person who, for the five-year period prior to his or her appointment as
Independent Manager has not been, and during the continuation of his or her
service as Independent Manager is not: (i) an employee, manager, stockholder,
partner or officer of the Company or any of its Affiliates (other than his or
her service as an Independent Manager or similar capacity of the Company or any
of its Affiliates); (ii) a customer or supplier of the Company or any of its
Affiliates (other than an Independent Manager provided by a corporate services
company that provides independent managers in the ordinary course of its
business); or (iii) any member of the immediate family of a person described in
(i) or (ii). Each Independent Manager is hereby designated as a “manager” of the
Company within the meaning of the Act.
“
Lender
” shall
mean Lehman Brothers Holdings Inc., a Delaware corporation
,
its
successors and assigns.
“
Loan
Documents
” means
the documents evidencing, securing or otherwise relating to the Senior Loan
and/or the Mezzanine loan.
“
Loans
” means
collectively, the Senior Loan and the Mezzanine Loan.
“
Management
Agreement
” means
the agreement of the Independent Manager in the form attached hereto as
Schedule
C
. The
Management Agreement shall be deemed incorporated into, and a part of, this
Agreement
“
Material
Action
” means
to consolidate or merge the Company with or into any Person, or sell, transfer,
dispose of or encumber (except with respect to the Lender) all or substantially
all of the assets of the Company or, to the fullest extent permitted by law,
dissolve, wind-up, or liquidate the Company or acquire all or substantially all
of the assets of any Person.
“
Members
” means,
collectively, Lightstone 1407 Manager LLC and LVP 1407 Broadway LLC, each a
Delaware limited liability company, as the initial members of the Company, and
includes any Person admitted as an additional member of the Company or a
substitute member of the Company pursuant to the provisions of this Agreement,
each in its capacity as a member of the Company; provided, however, the term
“Member” shall not include the Special Member. Each Member is hereby designated
as a “manager” of the Company within the meaning of the Act.
“
Mezzanine
Loan
” means
that certain mezzanine loan made by Lender to Mezz LLC.
“
Mezzanine
Note
” means
that certain mezzanine promissory note in the original principal amount of
$__________________ made by Mezz LLC to Lender in connection with the Mezzanine
Loan.
“
Notes
” means
collectively, the Senior Note and the Mezzanine Note.
“
Obligations
” shall
mean the indebtedness, liabilities and obligations of the Company, as the sole
member of Mezz LLC under or in connection with the Loan Documents or any related
document in effect as of any date of determination.
“
Officer
” means
an officer of the Company described in
Section
11
.
“
Person
” means
any individual, corporation, partnership, joint venture, limited liability
company, limited liability partnership, association, joint stock company, trust,
unincorporated organization, or other organization, whether or not a legal
entity, and any governmental authority.
“
Property
” means
that certain real property located at 1407 Broadway, New York, New
York.
“
Rating
Agency
” has the
meaning assigned to that term in the Loan Documents.
“
Rating Agency
Condition
” means,
with respect to any action, that each Rating Agency shall have been given ten
days prior notice thereof and that each of the Rating Agencies shall have
notified the Company in writing that such action will not result in a reduction
or withdrawal, downgrade or qualification of the then current rating by such
Rating Agency of the Loan or any pool or loans of which the Loan forms a part,
or of any of the securities issued in connection with the Securitization (as
defined in the Loan Documents).
“
Special
Member
” means,
upon such person's admission to the Company as a member of the Company pursuant
to
Section 5
, a
person acting as Independent Manager, in such person's capacity as a member of
the Company. A Special Member shall only have the rights and duties expressly
set forth in this Agreement.
“
Senior
Loan
” means
that certain mortgage loan made by Lender to Property Owner.
“
Senior
Note
” means
that certain promissory note in the original principal amount of
$__________________ made by Property Owner to Lender in connection with the
Senior Loan.
“
Subsidiaries
” means
collectively, Mezz LLC and Property Owner. Each individually is also a
“
Subsidiary
”.
B.
Rules of
Construction
Definitions
in this Agreement apply equally to both the singular and plural forms of the
defined terms. The words “include” and “including” shall be deemed to be
followed by the phrase “without limitation.” The terms “herein,” “hereof' and
“hereunder” and other words of similar import refer to this Agreement as a whole
and not to any particular Section, paragraph or subdivision. The Section titles
appear as a matter of convenience only and shall not affect the interpretation
of this Agreement. All Section, paragraph, clause, Exhibit or Schedule
references not attributed to a particular document shall be references to such
parts of this Agreement.
SCHEDULE
B
Members
Name
|
|
Mailing
Address
|
|
Agreed
Value of Capital Contribution
|
|
Percentage
Interest
|
Lightstone
1407 Manager LLC
|
|
326
Third Street
Lakewood,
NJ 08701
|
|
$_____
|
|
51%
|
LVP
1407 Broadway LLC
|
|
326
Third Street
Lakewood,
NJ 08701
|
|
$_____
|
|
49%
|
SCHEDULE
C
Management
Agreement
January
____, 2007
______________________
c/o The
Lightstone Group LLC
326 Third
Street
Lakewood,
NJ 08701
RE:
Management Agreement - 1407
Broadway Mezz II LLC
Ladies
and Gentlemen:
For good
and valuable consideration, each of the undersigned Persons, who have been
designated as the Managing Member and Independent Manager of 1407 Broadway Mezz
II LLC, a Delaware limited liability company (the “
Company
”), in
accordance with the Limited Liability Company Agreement of the Company, dated as
of the date hereof, as it may be amended or restated from time to time (the
“
LLC
Agreement
”),
hereby agree as follows:
1.
Each of
the undersigned accepts such Person's rights and authority as the Managing
Member or Independent Manager (as applicable) under the LLC Agreement and agrees
to perform and discharge such Person's duties and obligations as the Managing
Member or Independent Manager (as applicable) under the LLC Agreement, and
further agrees that such rights, authorities, duties and obligations under the
LLC Agreement shall continue until such Person's successor as the Managing
Member or Independent Manager (as applicable) is designated or until such
Person's resignation or removal as the Managing Member or Independent Manager
(as applicable) in accordance with the LLC Agreement. Each of the undersigned
agrees and acknowledges that it has been designated as a “manager” of the
Company within the meaning of the Delaware Limited Liability Company
Act.
2.
So long
as any Obligation is outstanding, each of the undersigned agrees, solely in its
capacity as a creditor of the Company on account of any indemnification or other
payment owing to the undersigned by the Company, not to acquiesce, petition or
otherwise invoke or cause the Company to invoke the process of any court or
governmental authority for the purpose of commencing or sustaining a case
against the Company under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Company or any substantial part of
the property of the Company, or ordering the winding up or liquidation of the
affairs of the Company.
3.
THIS
MANAGEMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE, AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY
SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
Initially
capitalized terms used and not otherwise defined herein have the meanings set
forth in the LLC Agreement.
This
Management Agreement may be executed in any number of counterparts, each of
which shall be deemed an original of this Management Agreement and all of which
together shall constitute one and the same instrument.
IN
WITNESS WHEREOF, the undersigned have executed this Management Agreement as of
the day and year first above written.
|
|
|
|
LIGHTSTONE
1407 MANAGER LLC
By:
Lightstone Holdings LLC,
its
managing member
|
|
|
|
|
By:
|
|
|
David
Lichtenstein
President
|
|
|
SCHEDULE
D
INDEPENDENT
MANAGER
Michelle
A. Dreyer
SCHEDULE
E
OFFICERS
OFFICERS
|
|
TITLE
|
|
|
|
David
Lichtenstein
|
|
President
|
|
|
|
Michael
Schurer
|
|
Secretary
|
EXHIBIT
10.32
Prepared by, recorded and return
to
:
Cassin
Cassin & Joseph LLP
711
Third Avenue, 20
th
Floor
New
York, New York 10017
Attn:
Carol M. Joseph, Esq.
|
|
County:
Hillsborough
|
|
|
|
(Reserved)
MULTIFAMILY
MORTGAGE,
ASSIGNMENT OF
RENTS
AND SECURITY
AGREEMENT
(FLORIDA)
Isles Apartments
6202 and 6210 N. Sheldon
Road
Tampa, Florida
|
|
|
|
|
|
FANNIE MAE MULTIFAMILY SECURITY
INSTRUMENT -
|
Form
4010
|
11/01
|
FLORIDA
|
|
|
©
1997-2001 Fannie Mae
|
TABLE OF
CONTENTS
|
|
|
PAGE
|
1.
|
DEFINITIONS.
|
|
1
|
2.
|
UNIFORM
COMMERCIAL CODE SECURITY AGREEMENT.
|
|
6
|
3.
|
ASSIGNMENT
OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION.
|
|
7
|
4.
|
ASSIGNMENT
OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY.
|
|
9
|
5.
|
PAYMENT
OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT
PREMIUM.
|
|
11
|
6.
|
EXCULPATION.
|
|
11
|
7.
|
DEPOSITS
FOR TAXES, INSURANCE AND OTHER CHARGES.
|
|
11
|
8.
|
COLLATERAL
AGREEMENTS.
|
|
12
|
9.
|
APPLICATION
OF PAYMENTS.
|
|
12
|
10.
|
COMPLIANCE
WITH LAWS.
|
|
13
|
11.
|
USE
OF PROPERTY.
|
|
13
|
12.
|
PROTECTION
OF LENDER’S SECURITY.
|
|
13
|
13.
|
INSPECTION.
|
|
14
|
14.
|
BOOKS
AND RECORDS; FINANCIAL REPORTING.
|
|
14
|
15.
|
TAXES;
OPERATING EXPENSES.
|
|
16
|
16.
|
LIENS;
ENCUMBRANCES.
|
|
16
|
17.
|
PRESERVATION,
MANAGEMENT AND MAINTENANCE OF MORTGAGED PROPERTY.
|
|
17
|
18.
|
ENVIRONMENTAL
HAZARDS.
|
|
17
|
19.
|
PROPERTY
AND LIABILITY INSURANCE.
|
|
23
|
20.
|
CONDEMNATION.
|
|
24
|
21.
|
TRANSFERS
OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.
|
|
25
|
22.
|
EVENTS
OF DEFAULT.
|
|
28
|
23.
|
REMEDIES
CUMULATIVE.
|
|
29
|
24.
|
FORBEARANCE.
|
|
29
|
25.
|
LOAN
CHARGES.
|
|
30
|
26.
|
WAIVER
OF STATUTE OF LIMITATIONS.
|
|
30
|
27.
|
WAIVER
OF MARSHALLING.
|
|
30
|
28.
|
FURTHER
ASSURANCES.
|
|
31
|
29.
|
ESTOPPEL
CERTIFICATE.
|
|
31
|
30.
|
GOVERNING
LAW; CONSENT TO JURISDICTION AND VENUE.
|
|
31
|
31.
|
NOTICE.
|
|
32
|
32.
|
SALE
OF NOTE; CHANGE IN SERVICER.
|
|
32
|
33.
|
SINGLE
ASSET BORROWER.
|
|
32
|
34.
|
SUCCESSORS
AND ASSIGNS BOUND.
|
|
32
|
35.
|
JOINT
AND SEVERAL LIABILITY.
|
|
33
|
36.
|
RELATIONSHIP
OF PARTIES; NO THIRD PARTY BENEFICIARY.
|
|
33
|
37.
|
SEVERABILITY;
AMENDMENTS.
|
|
33
|
38.
|
CONSTRUCTION.
|
|
33
|
39.
|
LOAN
SERVICING.
|
|
33
|
40.
|
DISCLOSURE
OF INFORMATION.
|
|
34
|
41.
|
NO
CHANGE IN FACTS OR CIRCUMSTANCES.
|
|
34
|
42.
|
SUBROGATION.
|
|
34
|
43.
|
ACCELERATION;
REMEDIES; WAIVER OF PERMISSIVE COUNTERCLAIMS.
|
|
34
|
44.
|
RELEASE.
|
|
34
|
45.
|
FUTURE
ADVANCES.
|
|
35
|
46.
|
WAIVER
OF TRIAL BY JURY.
|
|
35
|
THIS IS A BALLOON MORTGAGE AND THE
FINAL PRINCIPAL PAYMENT OR THE PRINCIPAL BALANCE DUE UPON MATURITY IS
$26,204,468.90, TOGETHER WITH ACCRUED INTEREST, IF ANY, AND ALL ADVANCEMENTS
MADE BY THE MORTGAGEE (LENDER) UNDER THE TERMS OF THIS
MORTGAGE
MULTIFAMILY
MORTGAGE,
ASSIGNMENT OF
RENTS
AND SECURITY
AGREEMENT
THIS
MULTIFAMILY MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (the
“Instrument”) is dated as of the 16
th
day of
November, 2007, between
LVP TAMPA ISLES
LLC,
a
limited liability company organized and existing under the laws of Delaware,
whose address is c/o The Lightstone Group, 326 Third Street, Lakewood, New
Jersey 08701, as mortgagor (“Borrower”), and
WACHOVIA MULTIFAMILY CAPITAL,
INC.
, a
corporation organized and existing under the laws of Delaware, whose address is
The Seagram Building, 375 Park Avenue - NY4060, New York, New York 10152, as
mortgagee (“Lender”).
Borrower
is indebted to Lender in the principal amount of
$27,712,300.00
, as
evidenced by Borrower’s Multifamily Note payable to Lender dated as of the date
of this Instrument, and maturing on
December 1, 2014
.
TO SECURE
TO LENDER the repayment of the Indebtedness, and all renewals, extensions and
modifications of the Indebtedness, and the performance of the covenants and
agreements of Borrower contained in the Loan Documents, Borrower mortgages,
warrants, grants, conveys and assigns to Lender the Mortgaged Property,
including the Land located in
Hillsborough County, State of
Florida
and
described in
Exhibit
A
attached
to this Instrument.
Borrower
represents and warrants that Borrower is lawfully seized of the Mortgaged
Property and has the right, power and authority to mortgage, grant, convey,
bargain, sell, transfer and assign the Mortgaged Property, and that the
Mortgaged Property is unencumbered. Borrower covenants that Borrower will
warrant and defend generally the title to the Mortgaged Property against all
claims and demands, subject to any easements and restrictions listed in a
schedule of exceptions to coverage in any title insurance policy issued to
Lender contemporaneously with the execution and recordation of this Instrument
and insuring Lender’s interest in the Mortgaged Property.
Covenants.
Borrower
and Lender covenant and agree as follows:
1.
DEFINITIONS.
The
following terms, when used in this Instrument (including when used in the above
recitals), shall have the following meanings:
(a)
“Borrower”
means all persons or entities identified as “Borrower” in the first paragraph of
this Instrument, together with their successors and assigns.
(b)
“Collateral
Agreement” means any separate agreement between Borrower and Lender for the
purpose of establishing replacement reserves for the Mortgaged Property,
establishing a fund to assure completion of repairs or improvements specified in
that agreement, or assuring reduction of the outstanding principal balance of
the Indebtedness if the occupancy of or income from the Mortgaged Property does
not increase to a level specified in that agreement, or any other agreement or
agreements between Borrower and Lender which provide for the establishment of
any other fund, reserve or account.
(c)
“Environmental
Permit” means any permit, license, or other authorization issued under any
Hazardous Materials Law with respect to any activities or businesses conducted
on or in relation to the Mortgaged Property.
(d)
“Event of
Default” means the occurrence of any event listed in Section 22.
(e)
“Fixtures”
means all property which is so attached to the Land or the Improvements as to
constitute a fixture under applicable law, including: machinery, equipment,
engines, boilers, incinerators, installed building materials; systems and
equipment for the purpose of supplying or distributing heating, cooling,
electricity, gas, water, air, or light; antennas, cable, wiring and conduits
used in connection with radio, television, security, fire prevention, or fire
detection or otherwise used to carry electronic signals; telephone systems and
equipment; elevators and related machinery and equipment; fire detection,
prevention and extinguishing systems and apparatus; security and access control
systems and apparatus; plumbing systems; water heaters, ranges, stoves,
microwave ovens, refrigerators, dishwashers, garbage disposers, washers, dryers
and other appliances; light fixtures, awnings, storm windows and storm doors;
pictures, screens, blinds, shades, curtains and curtain rods; mirrors; cabinets,
paneling, rugs and floor and wall coverings; fences, trees and plants; swimming
pools; and exercise equipment.
(f)
“Governmental
Authority” means any board, commission, department or body of any municipal,
county, state or federal governmental unit, or any subdivision of any of them,
that has or acquires jurisdiction over the Mortgaged Property or the use,
operation or improvement of the Mortgaged Property.
(g)
“Hazardous
Materials” means petroleum and petroleum products and compounds containing them,
including gasoline, diesel fuel and oil; explosives; flammable materials;
radioactive materials; polychlorinated biphenyls (“PCBs”) and compounds
containing them; lead and lead-based paint; asbestos or asbestos containing
materials in any form that is or could become friable; underground or
above-ground storage tanks, whether empty or containing any substance; any
substance the presence of which on the Mortgaged Property is prohibited by any
federal, state or local authority; any substance that requires special handling;
and any other material or substance now or in the future defined as a “hazardous
substance,” “hazardous material,” “hazardous waste,” “toxic substance,” “toxic
pollutant,” “contaminant,” or “pollutant” within the meaning of any Hazardous
Materials Law.
(h)
“Hazardous
Materials Laws” means all federal, state, and local laws, ordinances and
regulations and standards, rules, policies and other governmental requirements,
administrative rulings and court judgments and decrees in effect now or in the
future and including all amendments, that relate to Hazardous Materials and
apply to Borrower or to the Mortgaged Property. Hazardous Materials Laws
include, but are not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the Toxic
Substance Control Act, 15 U.S.C. Section 2601, et seq., the Clean Water Act, 33
U.S.C. Section 1251, et seq., and the Hazardous Materials Transportation Act, 49
U.S.C. Section 5101, et seq., and their state analogs.
(i)
“Impositions”
and “Imposition Deposits” are defined in Section 7(a).
(j)
“Improvements”
means the buildings, structures, improvements, and alterations now constructed
or at any time in the future constructed or placed upon the Land, including any
future replacements and additions.
(k)
“Indebtedness”
means the principal of, interest on, and all other amounts due at any time
under, the Note, this Instrument or any other Loan Document, including
prepayment premiums, late charges, default interest, and advances as provided in
Section 12 to protect the security of this Instrument.
(l)
[Intentionally
omitted]
(m)
“Key
Principal” means the natural person(s) or entity identified as such at the foot
of this Instrument, and any person or entity who becomes a Key Principal after
the date of this Instrument and is identified as such in an amendment or
supplement to this Instrument.
(n)
“Land”
means the land described in Exhibit A.
(o)
“Leases”
means all present and future leases, subleases, licenses, concessions or grants
or other possessory interests now or hereafter in force, whether oral or
written, covering or affecting the Mortgaged Property, or any portion of the
Mortgaged Property (including proprietary leases or occupancy agreements if
Borrower is a cooperative housing corporation), and all modifications,
extensions or renewals.
(p)
“Lender”
means the entity identified as “Lender” in the first paragraph of this
Instrument and its successors and assigns, or any subsequent holder of the
Note.
(q)
“Loan
Documents” means the Note, this Instrument, all guaranties, all indemnity
agreements, all Collateral Agreements, O&M Programs, and any other documents
now or in the future executed by Borrower, Key Principal, any guarantor or any
other person in connection with the loan evidenced by the Note, as such
documents may be amended from time to time.
(r)
“Loan
Servicer” means the entity that from time to time is designated by Lender to
collect payments and deposits and receive notices under the Note, this
Instrument and any other Loan Document, and otherwise to service the loan
evidenced by the Note for the benefit of Lender. Unless Borrower receives notice
to the contrary, the Loan Servicer is the entity identified as “Lender” in the
first paragraph of this Instrument.
(s)
“Mortgaged
Property” means all of Borrower’s present and future right, title and interest
in and to all of the following:
|
(5)
|
all
current and future rights, including air rights, development rights,
zoning rights and other similar rights or interests, easements, tenements,
rights of way, strips and gores of land, streets, alleys, roads, sewer
rights, waters, watercourses, and appurtenances related to or benefitting
the Land or the Improvements, or both, and all rights-of-way, streets,
alleys and roads which may have been or may in the future be
vacated;
|
|
(6)
|
all
proceeds paid or to be paid by any insurer of the Land, the Improvements,
the Fixtures, the Personalty or any other part of the Mortgaged Property,
whether or not Borrower obtained the insurance pursuant to Lender’s
requirement;
|
|
(7)
|
all
awards, payments and other compensation made or to be made by any
municipal, state or federal authority with respect to the Land, the
Improvements, the Fixtures, the Personalty or any other part of the
Mortgaged Property, including any awards or settlements resulting from
condemnation proceedings or the total or partial taking of the Land, the
Improvements, the Fixtures, the Personalty or any other part of the
Mortgaged Property under the power of eminent domain or otherwise and
including any conveyance in lieu
thereof;
|
|
(8)
|
all
contracts, options and other agreements for the sale of the Land, the
Improvements, the Fixtures, the Personalty or any other part of the
Mortgaged Property entered into by Borrower now or in the future,
including cash or securities deposited to secure performance by parties of
their obligations;
|
|
(9)
|
all
proceeds from the conversion, voluntary or involuntary, of any of the
above into cash or liquidated claims, and the right to collect such
proceeds;
|
|
(10)
|
all
Rents and Leases;
|
|
(11)
|
all
earnings, royalties, accounts receivable, issues and profits from the
Land, the Improvements or any other part of the Mortgaged Property, and
all undisbursed proceeds of the loan secured by this Instrument and, if
Borrower is a cooperative housing corporation, maintenance charges or
assessments payable by shareholders or residents;
|
|
(12)
|
all
Imposition Deposits;
|
|
(13)
|
all
refunds or rebates of Impositions by any municipal, state or federal
authority or insurance company (other than refunds applicable to periods
before the real property tax year in which this Instrument is
dated);
|
|
(14)
|
all
tenant security deposits which have not been forfeited by any tenant under
any Lease; and
|
|
(15)
|
all
names under or by which any of the above Mortgaged Property may be
operated or known, and all trademarks, trade names, and goodwill relating
to any of the Mortgaged Property.
|
(t)
“Note”
means the Multifamily Note described on page 1 of this Instrument, including the
Acknowledgment and Agreement of Key Principal to Personal Liability for
Exceptions to Non-Recourse Liability (if any), and all schedules, riders,
allonges and addenda, as such Multifamily Note may be amended from time to time.
(u)
“O&M
Program” is defined in Section 18(a).
(v)
“Personalty”
means all equipment, inventory, general intangibles which are used now or in the
future in connection with the ownership, management or operation of the Land or
the Improvements or are located on the Land or in the Improvements, including
furniture, furnishings, machinery, building materials, appliances, goods,
supplies, tools, books, records (whether in written or electronic form),
computer equipment (hardware and software) and other tangible personal property
(other than Fixtures) which are used now or in the future in connection with the
ownership, management or operation of the Land or the Improvements or are
located on the Land or in the Improvements, and any operating agreements
relating to the Land or the Improvements, and any surveys, plans and
specifications and contracts for architectural, engineering and construction
services relating to the Land or the Improvements and all other intangible
property and rights relating to the operation of, or used in connection with,
the Land or the Improvements, including all governmental permits relating to any
activities on the Land.
(w)
“Property
Jurisdiction” is defined in Section 30(a).
(x)
“Rents”
means all rents (whether from residential or non-residential space), revenues
and other income of the Land or the Improvements, including subsidy payments
received from any sources (including, but not limited to payments under any
Housing Assistance Payments Contract), parking fees, laundry and vending machine
income and fees and charges for food, health care and other services provided at
the Mortgaged Property, whether now due, past due, or to become due, and
deposits forfeited by tenants.
(y)
“Taxes”
means all taxes, assessments, vault rentals and other charges, if any, general,
special or otherwise, including all assessments for schools, public betterments
and general or local improvements, which are levied, assessed or imposed by any
public authority or quasi-public authority, and which, if not paid, will become
a lien, on the Land or the Improvements.
(z)
“Transfer”
means (A) a sale, assignment, transfer or other disposition (whether voluntary,
involuntary or by operation of law); (B) the granting, creating or attachment of
a lien, encumbrance or security interest (whether voluntary, involuntary or by
operation of law); (C) the issuance or other creation of an ownership interest
in a legal entity, including a partnership interest, interest in a limited
liability company or corporate stock; (D) the withdrawal, retirement, removal or
involuntary resignation of a partner in a partnership or a member or manager in
a limited liability company; or (E) the merger, dissolution, liquidation, or
consolidation of a legal entity. “Transfer” does not include (i) a conveyance of
the Mortgaged Property at a judicial or non-judicial foreclosure sale under this
Instrument or (ii) the Mortgaged Property becoming part of a bankruptcy estate
by operation of law under the United States Bankruptcy Code. For purposes of
defining the term “Transfer,” the term “partnership” shall mean a general
partnership, a limited partnership, a joint venture and a limited liability
partnership, and the term “partner” shall mean a general partner, a limited
partner and a joint venturer.
2.
UNIFORM COMMERCIAL CODE SECURITY
AGREEMENT.
This
Instrument is also a security agreement under the Uniform Commercial Code for
any of the Mortgaged Property which, under applicable law, may be subject to a
security interest under the Uniform Commercial Code, whether acquired now or in
the future, and all products and cash and non-cash proceeds thereof
(collectively, “UCC Collateral”), and Borrower hereby grants to Lender a
security interest in the UCC Collateral. Borrower hereby authorizes Lender to
file financing statements, continuation statements and financing statement
amendments in such form as Lender may require to perfect or continue the
perfection of this security interest and Borrower agrees, if Lender so requests,
to execute and deliver to Lender such financing statements, continuation
statements and amendments. Borrower shall pay all filing costs and all costs and
expenses of any record searches for financing statements that Lender may
require. Without the prior written consent of Lender, Borrower shall not create
or permit to exist any other lien or security interest in any of the UCC
Collateral. If an Event of Default has occurred and is continuing, Lender shall
have the remedies of a secured party under the Uniform Commercial Code, in
addition to all remedies provided by this Instrument or existing under
applicable law. In exercising any remedies, Lender may exercise its remedies
against the UCC Collateral separately or together, and in any order, without in
any way affecting the availability of Lender’s other remedies. This Instrument
constitutes a financing statement with respect to any part of the Mortgaged
Property which is or may become a Fixture.
3.
ASSIGNMENT OF RENTS; APPOINTMENT OF
RECEIVER; LENDER IN POSSESSION.
(a)
As part
of the consideration for the Indebtedness, Borrower absolutely and
unconditionally assigns and transfers to Lender all Rents. It is the intention
of Borrower to establish a present, absolute and irrevocable transfer and
assignment to Lender of all Rents and to authorize and empower Lender to collect
and receive all Rents without the necessity of further action on the part of
Borrower. Promptly upon request by Lender, Borrower agrees to execute and
deliver such further assignments as Lender may from time to time require.
Borrower and Lender intend this assignment of Rents to be immediately effective
and to constitute an absolute present assignment and not an assignment for
additional security only. For purposes of giving effect to this absolute
assignment of Rents, and for no other purpose, Rents shall not be deemed to be a
part of the “Mortgaged Property,” as that term is defined in Section 1(s).
However, if this present, absolute and unconditional assignment of Rents is not
enforceable by its terms under the laws of the Property Jurisdiction, then the
Rents shall be included as a part of the Mortgaged Property and it is the
intention of the Borrower that in this circumstance this Instrument create and
perfect a lien on Rents in favor of Lender, which lien shall be effective as of
the date of this Instrument.
(b)
After the
occurrence of an Event of Default, Borrower authorizes Lender to collect, sue
for and compromise Rents and directs each tenant of the Mortgaged Property to
pay all Rents to, or as directed by, Lender, and Borrower shall, upon Borrower’s
receipt of any Rents from any sources (including, but not limited to subsidy
payments under any Housing Assistance Payments Contract), pay the total amount
of such receipts to the Lender. However, until the occurrence of an Event of
Default, Lender hereby grants to Borrower a revocable license to collect and
receive all Rents, to hold all Rents in trust for the benefit of Lender and to
apply all Rents to pay the installments of interest and principal then due and
payable under the Note and the other amounts then due and payable under the
other Loan Documents, including Imposition Deposits, and to pay the current
costs and expenses of managing, operating and maintaining the Mortgaged
Property, including utilities, Taxes and insurance premiums (to the extent not
included in Imposition Deposits), tenant improvements and other capital
expenditures. So long as no Event of Default has occurred and is continuing, the
Rents remaining after application pursuant to the preceding sentence may be
retained by Borrower free and clear of, and released from, Lender’s rights with
respect to Rents under this Instrument. From and after the occurrence of an
Event of Default, and without the necessity of Lender entering upon and taking
and maintaining control of the Mortgaged Property directly, or by a receiver,
Borrower’s license to collect Rents shall automatically terminate and Lender
shall without notice be entitled to all Rents as they become due and payable,
including Rents then due and unpaid. Borrower shall pay to Lender upon demand
all Rents to which Lender is entitled. At any time on or after the date of
Lender’s demand for Rents, Lender may give, and Borrower hereby irrevocably
authorizes Lender to give, notice to all tenants of the Mortgaged Property
instructing them to pay all Rents to Lender, no tenant shall be obligated to
inquire further as to the occurrence or continuance of an Event of Default, and
no tenant shall be obligated to pay to Borrower any amounts which are actually
paid to Lender in response to such a notice. Any such notice by Lender shall be
delivered to each tenant personally, by mail or by delivering such demand to
each rental unit. Borrower shall not interfere with and shall cooperate with
Lender’s collection of such Rents.
(c)
Borrower
represents and warrants to Lender that Borrower has not executed any prior
assignment of Rents (other than an assignment of Rents securing indebtedness
that will be paid off and discharged with the proceeds of the loan evidenced by
the Note), that Borrower has not performed, and Borrower covenants and agrees
that it will not perform, any acts and has not executed, and shall not execute,
any instrument which would prevent Lender from exercising its rights under this
Section 3, and that at the time of execution of this Instrument there has been
no anticipation or prepayment of any Rents for more than two months prior to the
due dates of such Rents. Borrower shall not collect or accept payment of any
Rents more than two months prior to the due dates of such Rents.
(d)
If an
Event of Default has occurred and is continuing, Lender may, regardless of the
adequacy of Lender’s security or the solvency of Borrower and even in the
absence of waste, enter upon and take and maintain full control of the Mortgaged
Property in order to perform all acts that Lender in its discretion determines
to be necessary or desirable for the operation and maintenance of the Mortgaged
Property, including the execution, cancellation or modification of Leases, the
collection of all Rents, the making of repairs to the Mortgaged Property and the
execution or termination of contracts providing for the management, operation or
maintenance of the Mortgaged Property, for the purposes of enforcing the
assignment of Rents pursuant to Section 3(a), protecting the Mortgaged Property
or the security of this Instrument, or for such other purposes as Lender in its
discretion may deem necessary or desirable. Alternatively, if an Event of
Default has occurred and is continuing, regardless of the adequacy of Lender’s
security, without regard to Borrower’s solvency and without the necessity of
giving prior notice (oral or written) to Borrower, Lender may apply to any court
having jurisdiction for the appointment of a receiver for the Mortgaged Property
to take any or all of the actions set forth in the preceding sentence. If Lender
elects to seek the appointment of a receiver for the Mortgaged Property at any
time after an Event of Default has occurred and is continuing, Borrower, by its
execution of this Instrument, expressly consents to the appointment of such
receiver, including the appointment of a receiver ex parte if permitted by
applicable law. Lender or the receiver, as the case may be, shall be entitled to
receive a reasonable fee for managing the Mortgaged Property. Immediately upon
appointment of a receiver or immediately upon the Lender’s entering upon and
taking possession and control of the Mortgaged Property, Borrower shall
surrender possession of the Mortgaged Property to Lender or the receiver, as the
case may be, and shall deliver to Lender or the receiver, as the case may be,
all documents, records (including records on electronic or magnetic media),
accounts, surveys, plans, and specifications relating to the Mortgaged Property
and all security deposits and prepaid Rents. In the event Lender takes
possession and control of the Mortgaged Property, Lender may exclude Borrower
and its representatives from the Mortgaged Property. Borrower acknowledges and
agrees that the exercise by Lender of any of the rights conferred under this
Section 3 shall not be construed to make Lender a mortgagee-in-possession of the
Mortgaged Property so long as Lender has not itself entered into actual
possession of the Land and Improvements.
(e)
If Lender
enters the Mortgaged Property, Lender shall be liable to account only to
Borrower and only for those Rents actually received. Lender shall not be liable
to Borrower, anyone claiming under or through Borrower or anyone having an
interest in the Mortgaged Property, by reason of any act or omission of Lender
under this Section 3, and Borrower hereby releases and discharges Lender from
any such liability to the fullest extent permitted by law.
(f)
If the
Rents are not sufficient to meet the costs of taking control of and managing the
Mortgaged Property and collecting the Rents, any funds expended by Lender for
such purposes shall become an additional part of the Indebtedness as provided in
Section 12.
(g)
Any
entering upon and taking of control of the Mortgaged Property by Lender or the
receiver, as the case may be, and any application of Rents as provided in this
Instrument shall not cure or waive any Event of Default or invalidate any other
right or remedy of Lender under applicable law or provided for in this
Instrument.
4.
ASSIGNMENT OF LEASES; LEASES
AFFECTING THE MORTGAGED PROPERTY.
(a)
As part
of the consideration for the Indebtedness, Borrower absolutely and
unconditionally assigns and transfers to Lender all of Borrower’s right, title
and interest in, to and under the Leases, including Borrower’s right, power and
authority to modify the terms of any such Lease, or extend or terminate any such
Lease. It is the intention of Borrower to establish a present, absolute and
irrevocable transfer and assignment to Lender of all of Borrower’s right, title
and interest in, to and under the Leases. Borrower and Lender intend this
assignment of the Leases to be immediately effective and to constitute an
absolute present assignment and not an assignment for additional security only.
For purposes of giving effect to this absolute assignment of the Leases, and for
no other purpose, the Leases shall not be deemed to be a part of the “Mortgaged
Property,” as that term is defined in Section 1(s). However, if this present,
absolute and unconditional assignment of the Leases is not enforceable by its
terms under the laws of the Property Jurisdiction, then the Leases shall be
included as a part of the Mortgaged Property and it is the intention of the
Borrower that in this circumstance this Instrument create and perfect a lien on
the Leases in favor of Lender, which lien shall be effective as of the date of
this Instrument.
(b)
Until
Lender gives notice to Borrower of Lender’s exercise of its rights under this
Section 4, Borrower shall have all rights, power and authority granted to
Borrower under any Lease (except as otherwise limited by this Section or any
other provision of this Instrument), including the right, power and authority to
modify the terms of any Lease or extend or terminate any Lease. Upon the
occurrence of an Event of Default, the permission given to Borrower pursuant to
the preceding sentence to exercise all rights, power and authority under Leases
shall automatically terminate. Borrower shall comply with and observe Borrower’s
obligations under all Leases, including Borrower’s obligations pertaining to the
maintenance and disposition of tenant security deposits.
(c)
Borrower
acknowledges and agrees that the exercise by Lender, either directly or by a
receiver, of any of the rights conferred under this Section 4 shall not be
construed to make Lender a mortgagee-in-possession of the Mortgaged Property so
long as Lender has not itself entered into actual possession of the Land and the
Improvements. The acceptance by Lender of the assignment of the Leases pursuant
to Section 4(a) shall not at any time or in any event obligate Lender to take
any action under this Instrument or to expend any money or to incur any
expenses. Lender shall not be liable in any way for any injury or damage to
person or property sustained by any person or persons, firm or corporation in or
about the Mortgaged Property. Prior to Lender’s actual entry into and taking
possession of the Mortgaged Property, Lender shall not (i) be obligated to
perform any of the terms, covenants and conditions contained in any Lease (or
otherwise have any obligation with respect to any Lease); (ii) be obligated to
appear in or defend any action or proceeding relating to the Lease or the
Mortgaged Property; or (iii) be responsible for the operation, control, care,
management or repair of the Mortgaged Property or any portion of the Mortgaged
Property. The execution of this Instrument by Borrower shall constitute
conclusive evidence that all responsibility for the operation, control, care,
management and repair of the Mortgaged Property is and shall be that of
Borrower, prior to such actual entry and taking of possession.
(d)
Upon
delivery of notice by Lender to Borrower of Lender’s exercise of Lender’s rights
under this Section 4 at any time after the occurrence of an Event of Default,
and without the necessity of Lender entering upon and taking and maintaining
control of the Mortgaged Property directly, by a receiver, or by any other
manner or proceeding permitted by the laws of the Property Jurisdiction, Lender
immediately shall have all rights, powers and authority granted to Borrower
under any Lease, including the right, power and authority to modify the terms of
any such Lease, or extend or terminate any such Lease.
(e)
Borrower
shall, promptly upon Lender’s request, deliver to Lender an executed copy of
each residential Lease then in effect. All Leases for residential dwelling units
shall be on forms approved by Lender, shall be for initial terms of at least six
months and not more than two years, and shall not include options to purchase.
If customary in the applicable market, residential Leases with terms of less
than six months may be permitted with Lender’s prior written
consent.
(f)
Borrower
shall not lease any portion of the Mortgaged Property for non-residential use
except with the prior written consent of Lender and Lender’s prior written
approval of the Lease agreement. Borrower shall not modify the terms of, or
extend or terminate, any Lease for non-residential use (including any Lease in
existence on the date of this Instrument) without the prior written consent of
Lender. Borrower shall, without request by Lender, deliver an executed copy of
each non-residential Lease to Lender promptly after such Lease is signed. All
non-residential Leases, including renewals or extensions of existing Leases,
shall specifically provide that (1) such Leases are subordinate to the lien of
this Instrument (unless waived in writing by Lender); (2) the tenant shall
attorn to Lender and any purchaser at a foreclosure sale, such attornment to be
self-executing and effective upon acquisition of title to the Mortgaged Property
by any purchaser at a foreclosure sale or by Lender in any manner; (3) the
tenant agrees to execute such further evidences of attornment as Lender or any
purchaser at a foreclosure sale may from time to time request; (4) the Lease
shall not be terminated by foreclosure or any other transfer of the Mortgaged
Property; (5) after a foreclosure sale of the Mortgaged Property, Lender or any
other purchaser at such foreclosure sale may, at Lender’s or such purchaser’s
option, accept or terminate such Lease; and (6) the tenant shall, upon receipt
after the occurrence of an Event of Default of a written request from Lender,
pay all Rents payable under the Lease to Lender.
(g)
Borrower
shall not receive or accept Rent under any Lease (whether residential or
non-residential) for more than two months in advance.
5.
PAYMENT OF INDEBTEDNESS; PERFORMANCE
UNDER LOAN DOCUMENTS; PREPAYMENT PREMIUM.
Borrower
shall pay the Indebtedness when due in accordance with the terms of the Note and
the other Loan Documents and shall perform, observe and comply with all other
provisions of the Note and the other Loan Documents. Borrower shall pay a
prepayment premium in connection with certain prepayments of the Indebtedness,
including a payment made after Lender’s exercise of any right of acceleration of
the Indebtedness, as provided in the Note.
6.
EXCULPATION.
Borrower’s
personal liability for payment of the Indebtedness and for performance of the
other obligations to be performed by it under this Instrument is limited in the
manner, and to the extent, provided in the Note.
7.
DEPOSITS FOR TAXES, INSURANCE AND
OTHER CHARGES.
(a)
Borrower
shall deposit with Lender on the day monthly installments of principal or
interest, or both, are due under the Note (or on another day designated in
writing by Lender), until the Indebtedness is paid in full, an additional amount
sufficient to accumulate with Lender the entire sum required to pay, when due
(1) any water and sewer charges which, if not paid, may result in a lien on all
or any part of the Mortgaged Property, (2) the premiums for fire and other
hazard insurance, rent loss insurance and such other insurance as Lender may
require under Section 19, (3) Taxes, and (4) amounts for other charges and
expenses which Lender at any time reasonably deems necessary to protect the
Mortgaged Property, to prevent the imposition of liens on the Mortgaged
Property, or otherwise to protect Lender’s interests, all as reasonably
estimated from time to time by Lender. The amounts deposited under the preceding
sentence are collectively referred to in this Instrument as the “Imposition
Deposits”. The obligations of Borrower for which the Imposition Deposits are
required are collectively referred to in this Instrument as “Impositions”. The
amount of the Imposition Deposits shall be sufficient to enable Lender to pay
each Imposition before the last date upon which such payment may be made without
any penalty or interest charge being added. Lender shall maintain records
indicating how much of the monthly Imposition Deposits and how much of the
aggregate Imposition Deposits held by Lender are held for the purpose of paying
Taxes, insurance premiums and each other obligation of Borrower for which
Imposition Deposits are required. Any waiver by Lender of the requirement that
Borrower remit Imposition Deposits to Lender may be revoked by Lender, in
Lender’s discretion, at any time upon notice to Borrower.
(b)
Imposition
Deposits shall be held in an institution (which may be Lender, if Lender is such
an institution) whose deposits or accounts are insured or guaranteed by a
federal agency. Lender shall not be obligated to open additional accounts or
deposit Imposition Deposits in additional institutions when the amount of the
Imposition Deposits exceeds the maximum amount of the federal deposit insurance
or guaranty. Lender shall apply the Imposition Deposits to pay Impositions so
long as no Event of Default has occurred and is continuing. Unless applicable
law requires, Lender shall not be required to pay Borrower any interest,
earnings or profits on the Imposition Deposits. Borrower hereby pledges and
grants to Lender a security interest in the Imposition Deposits as additional
security for all of Borrower’s obligations under this Instrument and the other
Loan Documents. Any amounts deposited with Lender under this Section 7 shall not
be trust funds, nor shall they operate to reduce the Indebtedness, unless
applied by Lender for that purpose under Section 7(e).
(c)
If Lender
receives a bill or invoice for an Imposition, Lender shall pay the Imposition
from the Imposition Deposits held by Lender. Lender shall have no obligation to
pay any Imposition to the extent it exceeds Imposition Deposits then held by
Lender. Lender may pay an Imposition according to any bill, statement or
estimate from the appropriate public office or insurance company without
inquiring into the accuracy of the bill, statement or estimate or into the
validity of the Imposition.
(d)
If at any
time the amount of the Imposition Deposits held by Lender for payment of a
specific Imposition exceeds the amount reasonably deemed necessary by Lender,
the excess shall be credited against future installments of Imposition Deposits.
If at any time the amount of the Imposition Deposits held by Lender for payment
of a specific Imposition is less than the amount reasonably estimated by Lender
to be necessary, Borrower shall pay to Lender the amount of the deficiency
within 15 days after notice from Lender.
(e)
If an
Event of Default has occurred and is continuing, Lender may apply any Imposition
Deposits, in any amounts and in any order as Lender determines, in Lender’s
discretion, to pay any Impositions or as a credit against the Indebtedness. Upon
payment in full of the Indebtedness, Lender shall refund to Borrower any
Imposition Deposits held by Lender.
8.
COLLATERAL
AGREEMENTS.
Borrower
shall deposit with Lender such amounts as may be required by any Collateral
Agreement and shall perform all other obligations of Borrower under each
Collateral Agreement.
9.
APPLICATION OF
PAYMENTS.
If at any
time Lender receives, from Borrower or otherwise, any amount applicable to the
Indebtedness which is less than all amounts due and payable at such time, then
Lender may apply that payment to amounts then due and payable in any manner and
in any order determined by Lender, in Lender’s discretion. Neither Lender’s
acceptance of an amount which is less than all amounts then due and payable nor
Lender’s application of such payment in the manner authorized shall constitute
or be deemed to constitute either a waiver of the unpaid amounts or an accord
and satisfaction. Notwithstanding the application of any such amount to the
Indebtedness, Borrower’s obligations under this Instrument and the Note shall
remain unchanged.
10.
COMPLIANCE WITH
LAWS.
Borrower
shall comply with all laws, ordinances, regulations and requirements of any
Governmental Authority and all recorded lawful covenants and agreements relating
to or affecting the Mortgaged Property, including all laws, ordinances,
regulations, requirements and covenants pertaining to health and safety,
construction of improvements on the Mortgaged Property, fair housing, zoning and
land use, and Leases. Borrower also shall comply with all applicable laws that
pertain to the maintenance and disposition of tenant security deposits. Borrower
shall at all times maintain records sufficient to demonstrate compliance with
the provisions of this Section 10. Borrower shall take appropriate measures to
prevent, and shall not engage in or knowingly permit, any illegal activities at
the Mortgaged Property that could endanger tenants or visitors, result in damage
to the Mortgaged Property, result in forfeiture of the Mortgaged Property, or
otherwise materially impair the lien created by this Instrument or Lender’s
interest in the Mortgaged Property. Borrower represents and warrants to Lender
that no portion of the Mortgaged Property has been or will be purchased with the
proceeds of any illegal activity.
11.
USE OF PROPERTY.
Unless
required by applicable law, Borrower shall not (a) except for any change in use
approved by Lender, allow changes in the use for which all or any part of the
Mortgaged Property is being used at the time this Instrument was executed, (b)
convert any individual dwelling units or common areas to commercial use, (c)
initiate or acquiesce in a change in the zoning classification of the Mortgaged
Property, or (d) establish any condominium or cooperative regime with respect to
the Mortgaged Property.
12.
PROTECTION OF LENDER’S
SECURITY.
(a)
If
Borrower fails to perform any of its obligations under this Instrument or any
other Loan Document, or if any action or proceeding is commenced which purports
to affect the Mortgaged Property, Lender’s security or Lender’s rights under
this Instrument, including eminent domain, insolvency, code enforcement, civil
or criminal forfeiture, enforcement of Hazardous Materials Laws, fraudulent
conveyance or reorganizations or proceedings involving a bankrupt or decedent,
then Lender at Lender’s option may make such appearances, disburse such sums and
take such actions as Lender reasonably deems necessary to perform such
obligations of Borrower and to protect Lender’s interest, including (1) payment
of fees and out-of-pocket expenses of attorneys, accountants, inspectors and
consultants, (2) entry upon the Mortgaged Property to make repairs or secure the
Mortgaged Property, (3) procurement of the insurance required by Section 19, and
(4) payment of amounts which Borrower has failed to pay under Sections 15 and
17.
(b)
Any
amounts disbursed by Lender under this Section 12, or under any other provision
of this Instrument that treats such disbursement as being made under this
Section 12, shall be added to, and become part of, the principal component of
the Indebtedness, shall be immediately due and payable and shall bear interest
from the date of disbursement until paid at the “Default Rate”, as defined in
the Note.
(c)
Nothing
in this Section 12 shall require Lender to incur any expense or take any
action.
13.
INSPECTION.
Lender,
its agents, representatives, and designees may make or cause to be made entries
upon and inspections of the Mortgaged Property (including environmental
inspections and tests) during normal business hours, or at any other reasonable
time.
14.
BOOKS AND RECORDS; FINANCIAL
REPORTING.
(a)
Borrower
shall keep and maintain at all times at the Mortgaged Property or the management
agent’s offices, and upon Lender’s request shall make available at the Mortgaged
Property, complete and accurate books of account and records (including copies
of supporting bills and invoices) adequate to reflect correctly the operation of
the Mortgaged Property, and copies of all written contracts, Leases, and other
instruments which affect the Mortgaged Property. The books, records, contracts,
Leases and other instruments shall be subject to examination and inspection at
any reasonable time by Lender.
(b)
Borrower
shall furnish to Lender all of the following:
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(1)
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within
120 days after the end of each fiscal year of Borrower, a statement of
income and expenses for Borrower’s operation of the Mortgaged Property for
that fiscal year, a statement of changes in financial position of Borrower
relating to the Mortgaged Property for that fiscal year and, when
requested by Lender, a balance sheet showing all assets and liabilities of
Borrower relating to the Mortgaged Property as of the end of that fiscal
year;
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(2)
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within
120 days after the end of each fiscal year of Borrower, and at any other
time upon Lender’s request, a rent schedule for the Mortgaged Property
showing the name of each tenant, and for each tenant, the space occupied,
the lease expiration date, the rent payable for the current month, the
date through which rent has been paid, and any related information
requested by Lender;
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(3)
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within
120 days after the end of each fiscal year of Borrower, and at any other
time upon Lender’s request, an accounting of all security deposits held
pursuant to all Leases, including the name of the institution (if any) and
the names and identification numbers of the accounts (if any) in which
such security deposits are held and the name of the person to contact at
such financial institution, along with any authority or release necessary
for Lender to access information regarding such
accounts;
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(4)
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within
120 days after the end of each fiscal year of Borrower, and at any other
time upon Lender’s request, a statement that identifies all owners of any
interest in Borrower and the interest held by each, if Borrower is a
corporation, all officers and directors of Borrower, and if Borrower is a
limited liability company, all managers who are not
members;
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(5)
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upon
Lender’s request, a monthly property management report for the Mortgaged
Property, showing the number of inquiries made and rental applications
received from tenants or prospective tenants and deposits received from
tenants and any other information requested by Lender;
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(6)
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upon
Lender’s request, a balance sheet, a statement of income and expenses for
Borrower and a statement of changes in financial position of Borrower for
Borrower’s most recent fiscal year;
and
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(7)
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if
required by Lender, a statement of income and expense for the Mortgaged
Property for the prior month or
quarter.
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(c)
Each of
the statements, schedules and reports required by Section 14(b) shall be
certified to be complete and accurate by an individual having authority to bind
Borrower, and shall be in such form and contain such detail as Lender may
reasonably require. Lender also may require that any statements, schedules or
reports be audited at Borrower’s expense by independent certified public
accountants acceptable to Lender.
(d)
If
Borrower fails to provide in a timely manner the statements, schedules and
reports required by Section 14(b), Lender shall have the right to have
Borrower’s books and records audited, at Borrower’s expense, by independent
certified public accountants selected by Lender in order to obtain such
statements, schedules and reports, and all related costs and expenses of Lender
shall become immediately due and payable and shall become an additional part of
the Indebtedness as provided in Section 12.
(e)
If an
Event of Default has occurred and is continuing, Borrower shall deliver to
Lender upon written demand all books and records relating to the Mortgaged
Property or its operation.
(f)
Borrower
authorizes Lender to obtain a credit report on Borrower at any
time.
(g)
If an
Event of Default has occurred and Lender has not previously required Borrower to
furnish a quarterly statement of income and expense for the Mortgaged Property,
Lender may require Borrower to furnish such a statement within 45 days after the
end of each fiscal quarter of Borrower following such Event of
Default.
15.
TAXES; OPERATING
EXPENSES.
(a)
Subject
to the provisions of Section 15(c) and Section 15(d), Borrower shall pay, or
cause to be paid, all Taxes when due and before the addition of any interest,
fine, penalty or cost for nonpayment.
(b)
Subject
to the provisions of Section 15(c), Borrower shall pay the expenses of
operating, managing, maintaining and repairing the Mortgaged Property (including
insurance premiums, utilities, repairs and replacements) before the last date
upon which each such payment may be made without any penalty or interest charge
being added.
(c)
As long
as no Event of Default exists and Borrower has timely delivered to Lender any
bills or premium notices that it has received, Borrower shall not be obligated
to pay Taxes, insurance premiums or any other individual Imposition to the
extent that sufficient Imposition Deposits are held by Lender for the purpose of
paying that specific Imposition. If an Event of Default exists, Lender may
exercise any rights Lender may have with respect to Imposition Deposits without
regard to whether Impositions are then due and payable. Lender shall have no
liability to Borrower for failing to pay any Impositions to the extent that any
Event of Default has occurred and is continuing, insufficient Imposition
Deposits are held by Lender at the time an Imposition becomes due and payable or
Borrower has failed to provide Lender with bills and premium notices as provided
above.
(d)
Borrower,
at its own expense, may contest by appropriate legal proceedings, conducted
diligently and in good faith, the amount or validity of any Imposition other
than insurance premiums, if (1) Borrower notifies Lender of the commencement or
expected commencement of such proceedings, (2) the Mortgaged Property is not in
danger of being sold or forfeited, (3) Borrower deposits with Lender reserves
sufficient to pay the contested Imposition, if requested by Lender, and (4)
Borrower furnishes whatever additional security is required in the proceedings
or is reasonably requested by Lender, which may include the delivery to Lender
of the reserves established by Borrower to pay the contested Imposition.
(e)
Borrower
shall promptly deliver to Lender a copy of all notices of, and invoices for,
Impositions, and if Borrower pays any Imposition directly, Borrower shall
promptly furnish to Lender receipts evidencing such payments.
16.
LIENS;
ENCUMBRANCES.
Borrower
acknowledges that, to the extent provided in Section 21, the grant, creation or
existence of any mortgage, deed of trust, deed to secure debt, security interest
or other lien or encumbrance (a “Lien”) on the Mortgaged Property (other than
the lien of this Instrument) or on certain ownership interests in Borrower,
whether voluntary, involuntary or by operation of law, and whether or not such
Lien has priority over the lien of this Instrument, is a “Transfer” which
constitutes an Event of Default.
17.
PRESERVATION, MANAGEMENT AND
MAINTENANCE OF MORTGAGED PROPERTY.
(a)
Borrower
(1) shall not commit waste or permit impairment or deterioration of the
Mortgaged Property, (2) shall not abandon the Mortgaged Property, (3) shall
restore or repair promptly, in a good and workmanlike manner, any damaged part
of the Mortgaged Property to the equivalent of its original condition, or such
other condition as Lender may approve in writing, whether or not insurance
proceeds or condemnation awards are available to cover any costs of such
restoration or repair, (4) shall keep the Mortgaged Property in good repair,
including the replacement of Personalty and Fixtures with items of equal or
better function and quality, (5) shall provide for professional management of
the Mortgaged Property by a residential rental property manager satisfactory to
Lender under a contract approved by Lender in writing, and (6) shall give notice
to Lender of and, unless otherwise directed in writing by Lender, shall appear
in and defend any action or proceeding purporting to affect the Mortgaged
Property, Lender’s security or Lender’s rights under this Instrument. Borrower
shall not (and shall not permit any tenant or other person to) remove, demolish
or alter the Mortgaged Property or any part of the Mortgaged Property except in
connection with the replacement of tangible Personalty.
(b)
If, in
connection with the making of the loan evidenced by the Note or at any later
date, Lender waives in writing the requirement of Section 17(a)(5) above that
Borrower enter into a written contract for management of the Mortgaged Property
and if, after the date of this Instrument, Borrower intends to change the
management of the Mortgaged Property, Lender shall have the right to approve
such new property manager and the written contract for the management of the
Mortgaged Property and require that Borrower and such new property manager enter
into an Assignment of Management Agreement on a form approved by Lender. If
required by Lender (whether before or after an Event of Default), Borrower will
cause any Affiliate of Borrower to whom fees are payable for the management of
the Mortgaged Property to enter into an agreement with Lender, in a form
approved by Lender, providing for subordination of those fees and such other
provisions as Lender may require. “Affiliate of Borrower” means any corporation,
partnership, joint venture, limited liability company, limited liability
partnership, trust or individual controlled by, under common control with, or
which controls Borrower (the term “control” for these purposes shall mean the
ability, whether by the ownership of shares or other equity interests, by
contract or otherwise, to elect a majority of the directors of a corporation, to
make management decisions on behalf of, or independently to select the managing
partner of, a partnership, or otherwise to have the power independently to
remove and then select a majority of those individuals exercising managerial
authority over an entity, and control shall be conclusively presumed in the case
of the ownership of 50% or more of the equity interests).
18.
ENVIRONMENTAL
HAZARDS.
(a)
Except
for matters covered by a written program of operations and maintenance approved
in writing by Lender (an “O&M Program”) or matters described in Section
18(b), Borrower shall not cause or permit any of the following:
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(1)
|
the
presence, use, generation, release, treatment, processing, storage
(including storage in above ground and underground storage tanks),
handling, or disposal of any Hazardous Materials on or under the Mortgaged
Property or any other property of Borrower that is adjacent to the
Mortgaged Property;
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(2)
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the
transportation of any Hazardous Materials to, from, or across the
Mortgaged Property;
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(3)
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any
occurrence or condition on the Mortgaged Property or any other property of
Borrower that is adjacent to the Mortgaged Property, which occurrence or
condition is or may be in violation of Hazardous Materials Laws;
or
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(4)
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any
violation of or noncompliance with the terms of any Environmental Permit
with respect to the Mortgaged Property or any property of Borrower that is
adjacent to the Mortgaged Property.
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The
matters described in clauses (1) through (4) above are referred to collectively
in this Section 18 as “Prohibited Activities or Conditions”.
(b)
Prohibited
Activities and Conditions shall not include the safe and lawful use and storage
of quantities of (1) pre-packaged supplies, cleaning materials and petroleum
products customarily used in the operation and maintenance of comparable
multifamily properties, (2) cleaning materials, personal grooming items and
other items sold in pre-packaged containers for consumer use and used by tenants
and occupants of residential dwelling units in the Mortgaged Property; and (3)
petroleum products used in the operation and maintenance of motor vehicles from
time to time located on the Mortgaged Property’s parking areas, so long as all
of the foregoing are used, stored, handled, transported and disposed of in
compliance with Hazardous Materials Laws.
(c)
Borrower
shall take all commercially reasonable actions (including the inclusion of
appropriate provisions in any Leases executed after the date of this Instrument)
to prevent its employees, agents, and contractors, and all tenants and other
occupants from causing or permitting any Prohibited Activities or Conditions.
Borrower shall not lease or allow the sublease or use of all or any portion of
the Mortgaged Property to any tenant or subtenant for nonresidential use by any
user that, in the ordinary course of its business, would cause or permit any
Prohibited Activity or Condition.
(d)
If an
O&M Program has been established with respect to Hazardous Materials,
Borrower shall comply in a timely manner with, and cause all employees, agents,
and contractors of Borrower and any other persons present on the Mortgaged
Property to comply with the O&M Program. All costs of performance of
Borrower’s obligations under any O&M Program shall be paid by Borrower, and
Lender’s out of pocket costs incurred in connection with the monitoring and
review of the O&M Program and Borrower’s performance shall be paid by
Borrower upon demand by Lender. Any such out-of-pocket costs of Lender which
Borrower fails to pay promptly shall become an additional part of the
Indebtedness as provided in Section 12.
(e)
Borrower
represents and warrants to Lender that, except as previously disclosed by
Borrower to Lender in writing:
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(1)
|
Borrower
has not at any time engaged in, caused or permitted any Prohibited
Activities or Conditions;
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(2)
|
to
the best of Borrower’s knowledge after reasonable and diligent inquiry, no
Prohibited Activities or Conditions exist or have
existed;
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(3)
|
except
to the extent previously disclosed by Borrower to Lender in writing, the
Mortgaged Property does not now contain any underground storage tanks,
and, to the best of Borrower’s knowledge after reasonable and diligent
inquiry, the Mortgaged Property has not contained any underground storage
tanks in the past. If there is an underground storage tank located on the
Property which has been previously disclosed by Borrower to Lender in
writing, that tank complies with all requirements of Hazardous Materials
Laws;
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(4)
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Borrower
has complied with all Hazardous Materials Laws, including all requirements
for notification regarding releases of Hazardous Materials. Without
limiting the generality of the foregoing, Borrower has obtained all
Environmental Permits required for the operation of the Mortgaged Property
in accordance with Hazardous Materials Laws now in effect and all such
Environmental Permits are in full force and effect;
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(5)
|
no
event has occurred with respect to the Mortgaged Property that
constitutes, or with the passing of time or the giving of notice would
constitute, noncompliance with the terms of any Environmental
Permit;
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(6)
|
there
are no actions, suits, claims or proceedings pending or, to the best of
Borrower’s knowledge after reasonable and diligent inquiry, threatened
that involve the Mortgaged Property and allege, arise out of, or relate to
any Prohibited Activity or Condition;
and
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(7)
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Borrower
has not received any complaint, order, notice of violation or other
communication from any Governmental Authority with regard to air
emissions, water discharges, noise emissions or Hazardous Materials, or
any other environmental, health or safety matters affecting the Mortgaged
Property or any other property of Borrower that is adjacent to the
Mortgaged Property.
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The
representations and warranties in this Section 18 shall be continuing
representations and warranties that shall be deemed to be made by Borrower
throughout the term of the loan evidenced by the Note, until the Indebtedness
has been paid in full.
(f)
Borrower
shall promptly notify Lender in writing upon the occurrence of any of the
following events:
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(1)
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Borrower’s
discovery of any Prohibited Activity or Condition;
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(2)
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Borrower’s
receipt of or knowledge of any complaint, order, notice of violation or
other communication from any Governmental Authority or other person with
regard to present or future alleged Prohibited Activities or Conditions or
any other environmental, health or safety matters affecting the Mortgaged
Property or any other property of Borrower that is adjacent to the
Mortgaged Property; and
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(3)
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any
representation or warranty in this Section 18 becomes untrue after the
date of this Agreement.
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Any such
notice given by Borrower shall not relieve Borrower of, or result in a waiver
of, any obligation under this Instrument, the Note, or any other Loan
Document.
(g)
Borrower
shall pay promptly the costs of any environmental inspections, tests or audits
(“Environmental Inspections”) required by Lender in connection with any
foreclosure or deed in lieu of foreclosure, or as a condition of Lender’s
consent to any Transfer under Section 21, or required by Lender following a
reasonable determination by Lender that Prohibited Activities or Conditions may
exist. Any such costs incurred by Lender (including the fees and out of pocket
costs of attorneys and technical consultants whether incurred in connection with
any judicial or administrative process or otherwise) which Borrower fails to pay
promptly shall become an additional part of the Indebtedness as provided in
Section 12. The results of all Environmental Inspections made by Lender shall at
all times remain the property of Lender and Lender shall have no obligation to
disclose or otherwise make available to Borrower or any other party such results
or any other information obtained by Lender in connection with its Environmental
Inspections. Lender hereby reserves the right, and Borrower hereby expressly
authorizes Lender, to make available to any party, including any prospective
bidder at a foreclosure sale of the Mortgaged Property, the results of any
Environmental Inspections made by Lender with respect to the Mortgaged Property.
Borrower consents to Lender notifying any party (either as part of a notice of
sale or otherwise) of the results of any of Lender’s Environmental Inspections.
Borrower acknowledges that Lender cannot control or otherwise assure the
truthfulness or accuracy of the results of any of its Environmental Inspections
and that the release of such results to prospective bidders at a foreclosure
sale of the Mortgaged Property may have a material and adverse effect upon the
amount which a party may bid at such sale. Borrower agrees that Lender shall
have no liability whatsoever as a result of delivering the results of any of its
Environmental Inspections to any third party, and Borrower hereby releases and
forever discharges Lender from any and all claims, damages, or causes of action,
arising out of, connected with or incidental to the results of, the delivery of
any of Lender’s Environmental Inspections.
(h)
If any
investigation, site monitoring, containment, clean-up, restoration or other
remedial work (“Remedial Work”) is necessary to comply with any Hazardous
Materials Law or order of any Governmental Authority that has or acquires
jurisdiction over the Mortgaged Property or the use, operation or improvement of
the Mortgaged Property under any Hazardous Materials Law, Borrower shall, by the
earlier of (1) the applicable deadline required by Hazardous Materials Law or
(2) 30 days after notice from Lender demanding such action, begin performing the
Remedial Work, and thereafter diligently prosecute it to completion, and shall
in any event complete the work by the time required by applicable Hazardous
Materials Law. If Borrower fails to begin on a timely basis or diligently
prosecute any required Remedial Work, Lender may, at its option, cause the
Remedial Work to be completed, in which case Borrower shall reimburse Lender on
demand for the cost of doing so. Any reimbursement due from Borrower to Lender
shall become part of the Indebtedness as provided in Section 12.
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(i)
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Borrower
shall cooperate with any inquiry by any Governmental Authority and shall
comply with any governmental or judicial order which arises from any
alleged Prohibited Activity or
Condition.
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(i)
Borrower
shall indemnify, hold harmless and defend (i) Lender, (ii) any prior owner or
holder of the Note, (iii) the Loan Servicer, (iv) any prior Loan Servicer, (v)
the officers, directors, shareholders, partners, employees and trustees of any
of the foregoing, and (vi) the heirs, legal representatives, successors and
assigns of each of the foregoing (collectively, the “Indemnitees”) from and
against all proceedings, claims, damages, penalties and costs (whether initiated
or sought by Governmental Authorities or private parties), including fees and
out-of-pocket expenses of attorneys and expert witnesses, investigatory fees,
and remediation costs, whether incurred in connection with any judicial or
administrative process or otherwise, arising directly or indirectly from any of
the following:
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(1)
|
any
breach of any representation or warranty of Borrower in this Section 18;
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(2)
|
any
failure by Borrower to perform any of its obligations under this Section
18;
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(3)
|
the
existence or alleged existence of any Prohibited Activity or
Condition;
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(4)
|
the
presence or alleged presence of Hazardous Materials on or under the
Mortgaged Property or any property of Borrower that is adjacent to the
Mortgaged Property; and
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(5)
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the
actual or alleged violation of any Hazardous Materials Law.
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(j)
Counsel
selected by Borrower to defend Indemnitees shall be subject to the approval of
those Indemnitees. However, any Indemnitee may elect to defend any claim or
legal or administrative proceeding at the Borrower’s expense.
(k)
Borrower
shall not, without the prior written consent of those Indemnitees who are named
as parties to a claim or legal or administrative proceeding (a “Claim”), settle
or compromise the Claim if the settlement (1) results in the entry of any
judgment that does not include as an unconditional term the delivery by the
claimant or plaintiff to Lender of a written release of those Indemnitees,
satisfactory in form and substance to Lender; or (2) may materially and
adversely affect Lender, as determined by Lender in its discretion.
(l)
Lender
agrees that the indemnity under this Section 18 shall be limited to the assets
of Borrower and Lender shall not seek to recover any deficiency from any natural
persons who are general partners of Borrower.
(m)
Borrower
shall, at its own cost and expense, do all of the following:
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(1)
|
pay
or satisfy any judgment or decree that may be entered against any
Indemnitee or Indemnitees in any legal or administrative proceeding
incident to any matters against which Indemnitees are entitled to be
indemnified under this Section 18;
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(2)
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reimburse
Indemnitees for any expenses paid or incurred in connection with any
matters against which Indemnitees are entitled to be indemnified under
this Section 18; and
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(3)
|
reimburse
Indemnitees for any and all expenses, including fees and out-of-pocket
expenses of attorneys and expert witnesses, paid or incurred in connection
with the enforcement by Indemnitees of their rights under this Section 18,
or in monitoring and participating in any legal or administrative
proceeding.
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(n)
In any
circumstances in which the indemnity under this Section 18 applies, Lender may
employ its own legal counsel and consultants to prosecute, defend or negotiate
any claim or legal or administrative proceeding and Lender, with the prior
written consent of Borrower (which shall not be unreasonably withheld, delayed
or conditioned), may settle or compromise any action or legal or administrative
proceeding. Borrower shall reimburse Lender upon demand for all costs and
expenses incurred by Lender, including all costs of settlements entered into in
good faith, and the fees and out-of-pocket expenses of such attorneys and
consultants.
(o)
The
provisions of this Section 18 shall be in addition to any and all other
obligations and liabilities that Borrower may have under applicable law or under
other Loan Documents, and each Indemnitee shall be entitled to indemnification
under this Section 18 without regard to whether Lender or that Indemnitee has
exercised any rights against the Mortgaged Property or any other security,
pursued any rights against any guarantor, or pursued any other rights available
under the Loan Documents or applicable law. If Borrower consists of more than
one person or entity, the obligation of those persons or entities to indemnify
the Indemnitees under this Section 18 shall be joint and several. The obligation
of Borrower to indemnify the Indemnitees under this Section 18 shall survive any
repayment or discharge of the Indebtedness, any foreclosure proceeding, any
foreclosure sale, any delivery of any deed in lieu of foreclosure, and any
release of record of the lien of this Instrument.
19.
PROPERTY AND LIABILITY
INSURANCE.
(a)
Borrower
shall keep the Improvements insured at all times against such hazards as Lender
may from time to time require, which insurance shall include but not be limited
to coverage against loss by fire and allied perils, general boiler and machinery
coverage, and business income coverage. Lender’s insurance requirements may
change from time to time throughout the term of the Indebtedness. If Lender so
requires, such insurance shall also include sinkhole insurance, mine subsidence
insurance, earthquake insurance, and, if the Mortgaged Property does not conform
to applicable zoning or land use laws, building ordinance or law coverage. If
any of the Improvements is located in an area identified by the Federal
Emergency Management Agency (or any successor to that agency) as an area having
special flood hazards, and if flood insurance is available in that area,
Borrower shall insure such Improvements against loss by flood.
(b)
All
premiums on insurance policies required under Section 19(a) shall be paid in the
manner provided in Section 7, unless Lender has designated in writing another
method of payment. All such policies shall also be in a form approved by Lender.
All policies of property damage insurance shall include a non-contributing,
non-reporting mortgage clause in favor of, and in a form approved by, Lender.
Lender shall have the right to hold the original policies or duplicate original
policies of all insurance required by Section 19(a). Borrower shall promptly
deliver to Lender a copy of all renewal and other notices received by Borrower
with respect to the policies and all receipts for paid premiums. At least 30
days prior to the expiration date of a policy, Borrower shall deliver to Lender
the original (or a duplicate original) of a renewal policy in form satisfactory
to Lender.
(c)
Borrower
shall maintain at all times commercial general liability insurance, workers’
compensation insurance and such other liability, errors and omissions and
fidelity insurance coverages as Lender may from time to time
require.
(d)
All
insurance policies and renewals of insurance policies required by this Section
19 shall be in such amounts and for such periods as Lender may from time to time
require, and shall be issued by insurance companies satisfactory to Lender.
(e)
Borrower
shall comply with all insurance requirements and shall not permit any condition
to exist on the Mortgaged Property that would invalidate any part of any
insurance coverage that this Instrument requires Borrower to
maintain.
(f)
In the
event of loss, Borrower shall give immediate written notice to the insurance
carrier and to Lender. Borrower hereby authorizes and appoints Lender as
attorney in fact for Borrower to make proof of loss, to adjust and compromise
any claims under policies of property damage insurance, to appear in and
prosecute any action arising from such property damage insurance policies, to
collect and receive the proceeds of property damage insurance, and to deduct
from such proceeds Lender’s expenses incurred in the collection of such
proceeds. This power of attorney is coupled with an interest and therefore is
irrevocable. However, nothing contained in this Section 19 shall require Lender
to incur any expense or take any action. Lender may, at Lender’s option, (1)
hold the balance of such proceeds to be used to reimburse Borrower for the cost
of restoring and repairing the Mortgaged Property to the equivalent of its
original condition or to a condition approved by Lender (the “Restoration”), or
(2) apply the balance of such proceeds to the payment of the Indebtedness,
whether or not then due. To the extent Lender determines to apply insurance
proceeds to Restoration, Lender shall do so in accordance with Lender’s
then-current policies relating to the restoration of casualty damage on similar
multifamily properties.
(g)
Lender
shall not exercise its option to apply insurance proceeds to the payment of the
Indebtedness if all of the following conditions are met: (1) no Event of Default
(or any event which, with the giving of notice or the passage of time, or both,
would constitute an Event of Default) has occurred and is continuing; (2) Lender
determines, in its discretion, that there will be sufficient funds to complete
the Restoration; (3) Lender determines, in its discretion, that the rental
income from the Mortgaged Property after completion of the Restoration will be
sufficient to meet all operating costs and other expenses, Imposition Deposits,
deposits to reserves and loan repayment obligations relating to the Mortgaged
Property; (4) Lender determines, in its discretion, that the Restoration will be
completed before the earlier of (A) one year before the maturity date of the
Note or (B) one year after the date of the loss or casualty; and (5) upon
Lender’s request, Borrower provides Lender evidence of the availability during
and after the Restoration of the insurance required to be maintained by Borrower
pursuant to this Section 19.
(h)
If the
Mortgaged Property is sold at a foreclosure sale or Lender acquires title to the
Mortgaged Property, Lender shall automatically succeed to all rights of Borrower
in and to any insurance policies and unearned insurance premiums and in and to
the proceeds resulting from any damage to the Mortgaged Property prior to such
sale or acquisition.
20.
CONDEMNATION.
(a)
Borrower
shall promptly notify Lender of any action or proceeding relating to any
condemnation or other taking, or conveyance in lieu thereof, of all or any part
of the Mortgaged Property, whether direct or indirect (a “Condemnation”).
Borrower shall appear in and prosecute or defend any action or proceeding
relating to any Condemnation unless otherwise directed by Lender in writing.
Borrower authorizes and appoints Lender as attorney in fact for Borrower to
commence, appear in and prosecute, in Lender’s or Borrower’s name, any action or
proceeding relating to any Condemnation and to settle or compromise any claim in
connection with any Condemnation. This power of attorney is coupled with an
interest and therefore is irrevocable. However, nothing contained in this
Section 20 shall require Lender to incur any expense or take any action.
Borrower hereby transfers and assigns to Lender all right, title and interest of
Borrower in and to any award or payment with respect to (i) any Condemnation, or
any conveyance in lieu of Condemnation, and (ii) any damage to the Mortgaged
Property caused by governmental action that does not result in a Condemnation.
(b)
Lender
may apply such awards or proceeds, after the deduction of Lender’s expenses
incurred in the collection of such amounts, at Lender’s option, to the
restoration or repair of the Mortgaged Property or to the payment of the
Indebtedness, with the balance, if any, to Borrower. Unless Lender otherwise
agrees in writing, any application of any awards or proceeds to the Indebtedness
shall not extend or postpone the due date of any monthly installments referred
to in the Note, Section 7 of this Instrument or any Collateral Agreement, or
change the amount of such installments. Borrower agrees to execute such further
evidence of assignment of any awards or proceeds as Lender may
require.
21.
TRANSFERS OF THE MORTGAGED PROPERTY
OR INTERESTS IN BORROWER.
(a)
The
occurrence of any of the following events shall constitute an Event of Default
under this Instrument:
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(1)
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a
Transfer of all or any part of the Mortgaged Property or any interest in
the Mortgaged Property;
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(2)
|
a
Transfer of a Controlling Interest in
Borrower;
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(3)
|
a
Transfer of a Controlling Interest in any entity which owns, directly or
indirectly through one or more intermediate entities, a Controlling
Interest in Borrower;
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(4)
|
a
Transfer of all or any part of Key Principal’s ownership interests (other
than limited partnership interests) in Borrower, or in any other entity
which owns, directly or indirectly through one or more intermediate
entities, an ownership interest in Borrower;
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(5)
|
if
Key Principal is an entity, (A) a Transfer of a Controlling Interest in
Key Principal, or (B) a Transfer of a Controlling Interest in any entity
which owns, directly or indirectly through one or more intermediate
entities, a Controlling Interest in Key Principal;
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(6)
|
if
Borrower or Key Principal is a trust, the termination or revocation of
such trust; and
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(7)
|
a
conversion of Borrower from one type of legal entity into another type of
legal entity, whether or not there is a
Transfer.
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Lender
shall not be required to demonstrate any actual impairment of its security or
any increased risk of default in order to exercise any of its remedies with
respect to an Event of Default under this Section 21.
(b)
The
occurrence of any of the following events shall not constitute an Event of
Default under this Instrument, notwithstanding any provision of Section 21(a) to
the contrary:
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(1)
|
a
Transfer to which Lender has
consented;
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(2)
|
a
Transfer that occurs by devise, descent, or by operation of law upon the
death of a natural person;
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(3)
|
the
grant of a leasehold interest in an individual dwelling unit for a term of
two years or less not containing an option to
purchase;
|
|
(4)
|
a
Transfer of obsolete or worn out Personalty or Fixtures that are
contemporaneously replaced by items of equal or better function and
quality, which are free of liens, encumbrances and security interests
other than those created by the Loan Documents or consented to by
Lender;
|
|
(5)
|
the
grant of an easement, if before the grant Lender determines that the
easement will not materially affect the operation or value of the
Mortgaged Property or Lender’s interest in the Mortgaged Property, and
Borrower pays to Lender, upon demand, all costs and expenses incurred by
Lender in connection with reviewing Borrower’s request;
and
|
|
(6)
|
the
creation of a tax lien or a mechanic’s, materialman’s or judgment lien
against the Mortgaged Property which is bonded off, released of record or
otherwise remedied to Lender’s satisfaction within 30 days of the date of
creation.
|
(c)
Lender
shall consent, without any adjustment to the rate at which the Indebtedness
secured by this Instrument bears interest or to any other economic terms of the
Indebtedness, to a Transfer that would otherwise violate this Section 21 if,
prior to the Transfer, Borrower has satisfied each of the following
requirements:
|
(1)
|
the
submission to Lender of all information required by Lender to make the
determination required by this Section
21(c);
|
|
(2)
|
the
absence of any Event of Default;
|
|
(3)
|
the
transferee meets all of the eligibility, credit, management and other
standards (including any standards with respect to previous relationships
between Lender and the transferee and the organization of the transferee)
customarily applied by Lender at the time of the proposed Transfer to the
approval of borrowers in connection with the origination or purchase of
similar mortgages, deeds of trust or deeds to secure debt on multifamily
properties;
|
|
(4)
|
the
Mortgaged Property, at the time of the proposed Transfer, meets all
standards as to its physical condition that are customarily applied by
Lender at the time of the proposed Transfer to the approval of properties
in connection with the origination or purchase of similar mortgages on
multifamily properties;
|
|
(5)
|
in
the case of a Transfer of all or any part of the Mortgaged Property, or
direct or indirect ownership interests in Borrower or Key Principal (if an
entity), if transferor or any other person has obligations under any Loan
Document, the execution by the transferee or one or more individuals or
entities acceptable to Lender of an assumption agreement (including, if
applicable, an Acknowledgement and Agreement of Key Principal to Personal
Liability for Exceptions to Non Recourse Liability) that is acceptable to
Lender and that, among other things, requires the transferee to perform
all obligations of transferor or such person set forth in such Loan
Document, and may require that the transferee comply with any provisions
of this Instrument or any other Loan Document which previously may have
been waived by Lender;
|
|
(6)
|
if
a guaranty has been executed and delivered in connection with the Note,
this Instrument or any of the other Loan Documents, the Borrower causes
one or more individuals or entities acceptable to Lender to execute and
deliver to Lender a guaranty in a form acceptable to Lender;
and
|
|
(7)
|
Lender’s
receipt of all of the following:
|
|
(A)
|
a
non refundable review fee in the amount of $3,000 and a transfer fee equal
to 1 percent of the outstanding Indebtedness immediately prior to the
Transfer.
|
|
(B)
|
In
addition, Borrower shall be required to reimburse Lender for all of
Lender’s out-of-pocket costs (including reasonable attorneys’ fees)
incurred in reviewing the Transfer request, to the extent such expenses
exceed $3,000.
|
(d)
For
purposes of this Section, the following terms shall have the meanings set forth
below:
|
(1)
|
“Initial
Owners” means, with respect to Borrower or any other entity, the persons
or entities who on the date of the Note own in the aggregate 100% of the
ownership interests in Borrower or that
entity.
|
|
(2)
|
A
Transfer of a “Controlling Interest” shall mean, with respect to any
entity, the following:
|
|
(i)
|
if
such entity is a general partnership or a joint venture, a Transfer of any
general partnership interest or joint venture interest which would cause
the Initial Owners to own less than 51% of all general partnership or
joint venture interests in such
entity;
|
|
(ii)
|
if
such entity is a limited partnership, a Transfer of any general
partnership interest;
|
|
(iii)
|
if
such entity is a limited liability company or a limited liability
partnership, a Transfer of any membership or other ownership interest
which would cause the Initial Owners to own less than 51% of all
membership or other ownership interests in such
entity;
|
|
(iv)
|
if
such entity is a corporation (other than a Publicly-Held Corporation) with
only one class of voting stock, a Transfer of any voting stock which would
cause the Initial Owners to own less than 51% of voting stock in such
corporation;
|
|
(v)
|
if
such entity is a corporation (other than a Publicly-Held Corporation) with
more than one class of voting stock, a Transfer of any voting stock which
would cause the Initial Owners to own less than a sufficient number of
shares of voting stock having the power to elect the majority of directors
of such corporation; and
|
|
(vi)
|
if
such entity is a trust, the removal, appointment or substitution of a
trustee of such trust other than (A) in the case of a land trust, or (B)
if the trustee of such trust after such removal, appointment or
substitution is a trustee identified in the trust agreement approved by
Lender.
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|
(3)
|
“Publicly-Held
Corporation” shall mean a corporation the outstanding voting stock of
which is registered under Section 12(b) or 12(g) of the Securities and
Exchange Act of 1934, as amended.
|
22.
EVENTS OF DEFAULT.
The
occurrence of any one or more of the following shall constitute an Event of
Default under this Instrument:
(a)
any
failure by Borrower to pay or deposit when due any amount required by the Note,
this Instrument or any other Loan Document;
(b)
any
failure by Borrower to maintain the insurance coverage required by Section
19;
(c)
any
failure by Borrower to comply with the provisions of Section 33;
(d)
fraud or
material misrepresentation or material omission by Borrower, or any of its
officers, directors, trustees, general partners or managers, Key Principal or
any guarantor in connection with (A) the application for or creation of the
Indebtedness, (B) any financial statement, rent roll, or other report or
information provided to Lender during the term of the Indebtedness, or (C) any
request for Lender’s consent to any proposed action, including a request for
disbursement of funds under any Collateral Agreement;
(e)
any Event
of Default under Section 21;
(f)
the
commencement of a forfeiture action or proceeding, whether civil or criminal,
which, in Lender’s reasonable judgment, could result in a forfeiture of the
Mortgaged Property or otherwise materially impair the lien created by this
Instrument or Lender’s interest in the Mortgaged Property;
(g)
any
failure by Borrower to perform any of its obligations under this Instrument
(other than those specified in Sections 22(a) through (f)), as and when
required, which continues for a period of 30 days after notice of such failure
by Lender to Borrower, but no such notice or grace period shall apply in the
case of any such failure which could, in Lender’s judgment, absent immediate
exercise by Lender of a right or remedy under this Instrument, result in harm to
Lender, impairment of the Note or this Instrument or any other security given
under any other Loan Document;
(h)
any
failure by Borrower to perform any of its obligations as and when required under
any Loan Document other than this Instrument which continues beyond the
applicable cure period, if any, specified in that Loan Document;
and
(i)
any
exercise by the holder of any other debt instrument secured by a mortgage, deed
of trust or deed to secure debt on the Mortgaged Property of a right to declare
all amounts due under that debt instrument immediately due and
payable.
23.
REMEDIES
CUMULATIVE.
Each
right and remedy provided in this Instrument is distinct from all other rights
or remedies under this Instrument or any other Loan Document or afforded by
applicable law, and each shall be cumulative and may be exercised concurrently,
independently, or successively, in any order.
24.
FORBEARANCE.
(a)
Lender
may (but shall not be obligated to) agree with Borrower, from time to time, and
without giving notice to, or obtaining the consent of, or having any effect upon
the obligations of, any guarantor or other third party obligor, to take any of
the following actions: extend the time for payment of all or any part of the
Indebtedness; reduce the payments due under this Instrument, the Note, or any
other Loan Document; release anyone liable for the payment of any amounts under
this Instrument, the Note, or any other Loan Document; accept a renewal of the
Note; modify the terms and time of payment of the Indebtedness; join in any
extension or subordination agreement; release any Mortgaged Property; take or
release other or additional security; modify the rate of interest or period of
amortization of the Note or change the amount of the monthly installments
payable under the Note; and otherwise modify this Instrument, the Note, or any
other Loan Document.
(b)
Any
forbearance by Lender in exercising any right or remedy under the Note, this
Instrument, or any other Loan Document or otherwise afforded by applicable law,
shall not be a waiver of or preclude the exercise of any other right or remedy.
The acceptance by Lender of payment of all or any part of the Indebtedness after
the due date of such payment, or in an amount which is less than the required
payment, shall not be a waiver of Lender’s right to require prompt payment when
due of all other payments on account of the Indebtedness or to exercise any
remedies for any failure to make prompt payment. Enforcement by Lender of any
security for the Indebtedness shall not constitute an election by Lender of
remedies so as to preclude the exercise of any other right available to Lender.
Lender’s receipt of any awards or proceeds under Sections 19 and 20 shall not
operate to cure or waive any Event of Default.
25.
LOAN CHARGES.
If any
applicable law limiting the amount of interest or other charges permitted to be
collected from Borrower is interpreted so that any charge provided for in any
Loan Document, whether considered separately or together with other charges
levied in connection with any other Loan Document, violates that law, and
Borrower is entitled to the benefit of that law, that charge is hereby reduced
to the extent necessary to eliminate that violation. The amounts, if any,
previously paid to Lender in excess of the permitted amounts shall be applied by
Lender to reduce the principal of the Indebtedness. For the purpose of
determining whether any applicable law limiting the amount of interest or other
charges permitted to be collected from Borrower has been violated, all
Indebtedness which constitutes interest, as well as all other charges levied in
connection with the Indebtedness which constitute interest, shall be deemed to
be allocated and spread over the stated term of the Note. Unless otherwise
required by applicable law, such allocation and spreading shall be effected in
such a manner that the rate of interest so computed is uniform throughout the
stated term of the Note.
26.
WAIVER OF STATUTE OF
LIMITATIONS.
Borrower
hereby waives the right to assert any statute of limitations as a bar to the
enforcement of the lien of this Instrument or to any action brought to enforce
any Loan Document.
27.
WAIVER OF
MARSHALLING.
Notwithstanding
the existence of any other security interests in the Mortgaged Property held by
Lender or by any other party, Lender shall have the right to determine the order
in which any or all of the Mortgaged Property shall be subjected to the remedies
provided in this Instrument, the Note, any other Loan Document or applicable
law. Lender shall have the right to determine the order in which any or all
portions of the Indebtedness are satisfied from the proceeds realized upon the
exercise of such remedies. Borrower and any party who now or in the future
acquires a security interest in the Mortgaged Property and who has actual or
constructive notice of this Instrument waives any and all right to require the
marshalling of assets or to require that any of the Mortgaged Property be sold
in the inverse order of alienation or that any of the Mortgaged Property be sold
in parcels or as an entirety in connection with the exercise of any of the
remedies permitted by applicable law or provided in this
Instrument.
28.
FURTHER
ASSURANCES.
Borrower
shall execute, acknowledge, and deliver, at its sole cost and expense, all
further acts, deeds, conveyances, assignments, estoppel certificates, financing
statements, transfers and assurances as Lender may require from time to time in
order to better assure, grant, and convey to Lender the rights intended to be
granted, now or in the future, to Lender under this Instrument and the Loan
Documents.
29.
ESTOPPEL
CERTIFICATE.
Within 10
days after a request from Lender, Borrower shall deliver to Lender a written
statement, signed and acknowledged by Borrower, certifying to Lender or any
person designated by Lender, as of the date of such statement, (i) that the Loan
Documents are unmodified and in full force and effect (or, if there have been
modifications, that the Loan Documents are in full force and effect as modified
and setting forth such modifications); (ii) the unpaid principal balance of the
Note; (iii) the date to which interest under the Note has been paid; (iv) that
Borrower is not in default in paying the Indebtedness or in performing or
observing any of the covenants or agreements contained in this Instrument or any
of the other Loan Documents (or, if the Borrower is in default, describing such
default in reasonable detail); (v) whether or not there are then existing any
setoffs or defenses known to Borrower against the enforcement of any right or
remedy of Lender under the Loan Documents; and (vi) any additional facts
requested by Lender.
30.
GOVERNING LAW; CONSENT TO
JURISDICTION AND VENUE.
(a)
This
Instrument, and any Loan Document which does not itself expressly identify the
law that is to apply to it, shall be governed by the laws of the jurisdiction in
which the Land is located (the “Property Jurisdiction”).
(b)
Borrower
agrees that any controversy arising under or in relation to the Note, this
Instrument, or any other Loan Document shall be litigated exclusively in the
Property Jurisdiction. The state and federal courts and authorities with
jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over
all controversies which shall arise under or in relation to the Note, any
security for the Indebtedness, or any other Loan Document. Borrower irrevocably
consents to service, jurisdiction, and venue of such courts for any such
litigation and waives any other venue to which it might be entitled by virtue of
domicile, habitual residence or otherwise.
31.
NOTICE.
(a)
All
notices, demands and other communications (“notice”) under or concerning this
Instrument shall be in writing. Each notice shall be addressed to the intended
recipient at its address set forth in this Instrument, and shall be deemed given
on the earliest to occur of (1) the date when the notice is received by the
addressee; (2) the first Business Day after the notice is delivered to a
recognized overnight courier service, with arrangements made for payment of
charges for next Business Day delivery; or (3) the third Business Day after the
notice is deposited in the United States mail with postage prepaid, certified
mail, return receipt requested. As used in this Section 31, the term “Business
Day” means any day other than a Saturday, a Sunday or any other day on which
Lender is not open for business.
(b)
Any party
to this Instrument may change the address to which notices intended for it are
to be directed by means of notice given to the other party in accordance with
this Section 31. Each party agrees that it will not refuse or reject delivery of
any notice given in accordance with this Section 31, that it will acknowledge,
in writing, the receipt of any notice upon request by the other party and that
any notice rejected or refused by it shall be deemed for purposes of this
Section 31 to have been received by the rejecting party on the date so refused
or rejected, as conclusively established by the records of the U.S. Postal
Service or the courier service.
(c)
Any
notice under the Note and any other Loan Document which does not specify how
notices are to be given shall be given in accordance with this Section
31.
32.
SALE OF NOTE; CHANGE IN
SERVICER.
The Note
or a partial interest in the Note (together with this Instrument and the other
Loan Documents) may be sold one or more times without prior notice to Borrower.
A sale may result in a change of the Loan Servicer. There also may be one or
more changes of the Loan Servicer unrelated to a sale of the Note. If there is a
change of the Loan Servicer, Borrower will be given notice of the change.
33.
SINGLE ASSET
BORROWER.
Until the
Indebtedness is paid in full, Borrower (a) shall not acquire any real or
personal property other than the Mortgaged Property and personal property
related to the operation and maintenance of the Mortgaged Property; (b) shall
not operate any business other than the management and operation of the
Mortgaged Property; and (c) shall not maintain its assets in a way difficult to
segregate and identify.
34.
SUCCESSORS AND ASSIGNS
BOUND.
This
Instrument shall bind, and the rights granted by this Instrument shall inure to,
the respective successors and assigns of Lender and Borrower. However, a
Transfer not permitted by Section 21 shall be an Event of Default.
35.
JOINT AND SEVERAL
LIABILITY.
If more
than one person or entity signs this Instrument as Borrower, the obligations of
such persons and entities shall be joint and several.
36.
RELATIONSHIP OF PARTIES; NO THIRD
PARTY BENEFICIARY.
(a)
The
relationship between Lender and Borrower shall be solely that of creditor and
debtor, respectively, and nothing contained in this Instrument shall create any
other relationship between Lender and Borrower.
(b)
No
creditor of any party to this Instrument and no other person shall be a third
party beneficiary of this Instrument or any other Loan Document. Without
limiting the generality of the preceding sentence, (1) any arrangement (a
“Servicing Arrangement”) between the Lender and any Loan Servicer for loss
sharing or interim advancement of funds shall constitute a contractual
obligation of such Loan Servicer that is independent of the obligation of
Borrower for the payment of the Indebtedness, (2) Borrower shall not be a third
party beneficiary of any Servicing Arrangement, and (3) no payment by the Loan
Servicer under any Servicing Arrangement will reduce the amount of the
Indebtedness.
37.
SEVERABILITY;
AMENDMENTS.
The
invalidity or unenforceability of any provision of this Instrument shall not
affect the validity or enforceability of any other provision, and all other
provisions shall remain in full force and effect. This Instrument contains the
entire agreement among the parties as to the rights granted and the obligations
assumed in this Instrument. This Instrument may not be amended or modified
except by a writing signed by the party against whom enforcement is
sought.
38.
CONSTRUCTION.
The
captions and headings of the sections of this Instrument are for convenience
only and shall be disregarded in construing this Instrument. Any reference in
this Instrument to an “Exhibit” or a “Section” shall, unless otherwise
explicitly provided, be construed as referring, respectively, to an Exhibit
attached to this Instrument or to a Section of this Instrument. All Exhibits
attached to or referred to in this Instrument are incorporated by reference into
this Instrument. Any reference in this Instrument to a statute or regulation
shall be construed as referring to that statute or regulation as amended from
time to time. Use of the singular in this Agreement includes the plural and use
of the plural includes the singular. As used in this Instrument, the term
“including” means “including, but not limited to.”
39.
LOAN SERVICING.
All
actions regarding the servicing of the loan evidenced by the Note, including the
collection of payments, the giving and receipt of notice, inspections of the
Property, inspections of books and records, and the granting of consents and
approvals, may be taken by the Loan Servicer unless Borrower receives notice to
the contrary. If Borrower receives conflicting notices regarding the identity of
the Loan Servicer or any other subject, any such notice from Lender shall
govern.
40.
DISCLOSURE OF
INFORMATION.
Lender
may furnish information regarding Borrower or the Mortgaged Property to third
parties with an existing or prospective interest in the servicing, enforcement,
evaluation, performance, purchase or securitization of the Indebtedness,
including trustees, master servicers, special servicers, rating agencies, and
organizations maintaining databases on the underwriting and performance of
multifamily mortgage loans. Borrower irrevocably waives any and all rights it
may have under applicable law to prohibit such disclosure, including any right
of privacy.
41.
NO CHANGE IN FACTS OR
CIRCUMSTANCES.
All
information in the application for the loan submitted to Lender (the “Loan
Application”) and in all financial statements, rent rolls, reports, certificates
and other documents submitted in connection with the Loan Application are
complete and accurate in all material respects. There has been no material
adverse change in any fact or circumstance that would make any such information
incomplete or inaccurate.
42.
SUBROGATION.
If, and
to the extent that, the proceeds of the loan evidenced by the Note are used to
pay, satisfy or discharge any obligation of Borrower for the payment of money
that is secured by a pre-existing mortgage, deed of trust or other lien
encumbering the Mortgaged Property (a “Prior Lien”), such loan proceeds shall be
deemed to have been advanced by Lender at Borrower’s request, and Lender shall
automatically, and without further action on its part, be subrogated to the
rights, including lien priority, of the owner or holder of the obligation
secured by the Prior Lien, whether or not the Prior Lien is released.
43.
ACCELERATION; REMEDIES; WAIVER OF
PERMISSIVE COUNTERCLAIMS.
At any
time during the existence of an Event of Default, Lender, at Lender’s option,
may declare the Indebtedness to be immediately due and payable without further
demand, and may foreclose this Instrument by judicial proceeding and may invoke
any other remedies permitted by Florida law or provided in this Instrument or in
any other Loan Document. Lender shall be entitled to collect all costs and
expenses incurred in pursuing such remedies, including attorneys’ fees, costs of
documentary evidence, abstracts and title reports. Borrower waives any and all
rights to file or pursue permissive counterclaims in connection with any legal
action brought by Lender under this Instrument, the Note or any other Loan
Document.
44.
RELEASE.
Upon
payment of the Indebtedness, Lender shall release this Instrument. Borrower
shall pay Lender’s reasonable costs incurred in releasing this
Instrument.
45.
FUTURE ADVANCES.
Lender
may from time to time, in Lender’s discretion, make optional future or
additional advances (collectively, “Future Advances”) to Borrower, except that
at no time shall the unpaid principal balance of all indebtedness secured by the
lien of this Instrument, including Future Advances, be greater than an amount
equal to two hundred percent (200%) of the original principal amount of this
Note as set forth on the first page of this Instrument plus accrued interest and
amounts disbursed by Lender under Section 12 or any other provision of this
Instrument that treats a disbursement by Lender as being made under Section 12.
All Future Advances shall be made, if at all, within twenty (20) years after the
date of this Instrument, or within such lesser period that may in the future be
provided by law as a prerequisite for the sufficiency of actual or record notice
of Future Advances as against the rights of creditors or subsequent purchasers
for value. Borrower shall, immediately upon request by Lender, execute and
deliver to Lender a promissory note evidencing each Future Advance together with
a notice of such Future Advance in recordable form. All promissory notes
evidencing Future Advances shall be secured, pari passu, by the lien of this
Instrument, and each reference in this Instrument to the Note shall be deemed to
be a reference to all promissory notes evidencing Future Advances.
46.
WAIVER OF TRIAL BY
JURY.
BORROWER
AND LENDER EACH (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY WITH
RESPECT TO ANY ISSUE ARISING OUT OF THIS INSTRUMENT OR THE RELATIONSHIP BETWEEN
THE PARTIES AS BORROWER AND LENDER THAT IS TRIABLE OF RIGHT BY A JURY AND (B)
WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT
ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE
BENEFIT OF COMPETENT LEGAL COUNSEL.
ATTACHED EXHIBITS
. The
following Exhibits are attached to this Instrument:
|X|
Exhibit
A
Description
of the Land (required).
|X|
Exhibit
B
Modifications
to Instrument
THIS IS A BALLOON MORTGAGE AND THE
FINAL PRINCIPAL PAYMENT OR THE PRINCIPAL BALANCE DUE UPON MATURITY IS
$26,204,468.90, TOGETHER WITH ACCRUED INTEREST, IF ANY, AND ALL ADVANCEMENTS
MADE BY THE MORTGAGEE (LENDER) UNDER THE TERMS OF THIS
MORTGAGE
IN WITNESS WHEREOF
,
Borrower has signed and delivered this Instrument or has caused this Instrument
to be signed and delivered by its duly authorized representative.
WITNESSES:
Print
Name:
Print
Name:
|
|
BORROWER:
LVP TAMPA ISLES
LLC
,
a
Delaware
limited liability company
By:
Name:
David
Lichtenstein
Title:
President
|
STATE OF NEW JERSEY
|
)
|
|
|
|
)
|
|
|
COUNTY OF OCEAN
|
)
|
|
|
The
foregoing instrument was acknowledged before me this ____ day of November, 2007,
by
DAVID LICHTENSTEIN
,
as
PRESIDENT
of
LVP TAMPA ISLES LLC,
a
Delaware limited liability company.
|
|
|
|
[NOTARIAL SEAL]
|
|
|
Notary:
|
|
|
|
Print Name:
My
Commission expires:
|
|
o
Personally Known
OR
o
Produced
Identification
|
|
Type of Identification
Produced:
|
|
|
|
|
|
|
|
KEY
PRINCIPAL
Key
Principal
|
|
|
|
|
|
Name:
|
Lightstone
Value Plus Real Estate Investment Trust, Inc.
|
|
|
|
|
Address
|
326
Third Street
|
|
|
Lakewood,
New York 08701
|
|
EXHIBIT
A
[DESCRIPTION OF THE
LAND]
EXHIBIT
B
MODIFICATIONS TO
INSTRUMENT
The
following modifications are made to the text of the Instrument that precedes
this Exhibit:
EXHIBIT
10.33
PROMISSORY NOTE
Date of
Note
: As of June
26
,
2008
|
Note
Amount
:
$17,280,000.00
|
THIS
PROMISSORY NOTE (this “
Note
”), is
made as of June 26, 2008, by ARBOR MILL RUN JRM LLC, a Delaware limited
liability company, having an address
at 333
Earle Ovington Boulevard, Suite 900, Uniondale, NY 11553
(“
Maker
”), in
favor of LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC., a Maryland
Corporation, having an address at 326 Third Street, Lakewood, NJ 08701 (together
with its successors and/or assigns, “
Payee
”).
RECITALS:
FOR VALUE
RECEIVED, Maker does hereby unconditionally covenant and promise to pay to
Payee, without any counterclaim, setoff or deduction whatsoever in immediately
available funds, to the address of Payee as set forth herein, in legal tender of
the United States, SEVENTEEN MILLION TWO HUNDRED EIGHTY THOUSAND and 00/100
Dollars ($17,280,000.00), which principal amount shall be paid as set forth in
this Note.
1.
DEFINITIONS
Defined
terms in this Note shall include in the singular number the plural and in the
plural number the singular. Additionally, for the purposes hereof, the following
definitions shall have the following meanings:
1.1.
“
Bankruptcy
Event
” shall
mean, with respect to any Person, any of the following events shall occur with
respect to such Person:
(i)
there
shall be commenced by such Person any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or such Person shall make a general assignment for the benefit of its
creditors; or
(ii)
there
shall be commenced against such Person by another Person any case, proceeding or
other action of a nature referred to in clause (i) above which (A) results in
the entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed for a period of sixty (60) days; or
(iii)
there
shall be commenced against it any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets which results in the entry of
an order for any such relief; or
(iv)
any
garnishment, levy, writ or warrant of attachment or similar process shall be
issued and served, which garnishment, levy, writ or warrant of attachment or
similar process relates to its property and has not been vacated, discharged or
stayed within 20 days from the issuance and service thereof; or
(v)
it shall
take any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), (iii) or (iv)
above; or
(vi)
it shall
admit in writing its inability to pay its debts as they become due.
1.2.
“
Business
Day
” shall
mean any day other than a Saturday, Sunday or any other day on which commercial
banks in New York, New York are authorized or required by law to close.
1.3.
“
Contribution
Agreement
” shall
mean the Contribution and Conveyance Agreement dated the date hereof between
Maker and LVP.
1.4.
“
Corresponding Interest
Period
” shall
mean, with respect to any Payment Date, the most recent Interest Period that
ended prior to such Payment Date.
1.5.
“
Default
” shall
mean the occurrence or existence of any event that, but for the giving of notice
or the passage of time or both, would constitute an Event of
Default.
1.6.
“
Default
Rate
” shall
mean the Interest Rate plus 2% per annum.
1.7.
“
Event of
Default
” shall
have the meaning ascribed thereto in Section 4.1 hereof.
1.8.
“
Guarantor
” shall
mean Arbor Commercial Mortgage LLC, a New York limited liability
company.
1.9.
“
Guaranty
” shall
mean the Guaranty dated the date hereof, made by Guarantor for the benefit of
Payee.
1.10.
“
Interest
Period
” shall
mean each six-month period prior to the Maturity Date beginning on January 1 and
ending on the following June 30 or beginning on July 1 and ending on the
following December 31, provided that the first Interest Period shall commence on
the date of this Note and end on June 30, 2008.
1.11.
“
Interest
Rate
” shall
mean the lesser of (a) four percent (4%) per annum and (b) the maximum rate of
interest, if any, which may be collected from Maker under applicable
law.
1.12.
“
Loan
” shall
mean that certain loan in the amount of $17,280,000.00 made by Payee to Maker on
the date hereof.
1.13.
“
Loan
Amount
” shall
mean the outstanding principal balance of this Note.
1.14.
“
Loan
Documents
” shall
mean this Note and the Pledge Agreement.
1.15.
“
LVP
” shall
mean Lightstone Value Plus REIT, L.P., a Delaware limited
partnership.
1.16.
“
LVP Preferred
Units
” shall
mean the Series A Preferred Units of LVP that are issued to Maker pursuant to
the Contribution Agreement.
1.17.
“
Maturity
Date
” shall
mean July 1, 2016.
1.18.
“
Maximum
Amount
” shall
have the meaning ascribed thereto in Section 5.4(A) hereof.
1.19.
“
Modification
” shall
have the meaning ascribed thereto in Section 5.2 hereof.
1.20.
“
Note
” shall
have the meaning ascribed thereto in the preamble.
1.21.
“
Obligations
” shall
mean all of the obligations, liabilities and indebtedness of every kind, nature
and description owing by Maker to Payee under this Note and the other Loan
Documents, including, without limitation, payment of the Loan
Amount.
1.22.
“
Payee
” shall
have the meaning ascribed thereto in the preamble.
1.23.
“
Payment
” shall
have the meaning ascribed thereto in Section 2.2(A) hereof.
1.24.
“
Payment
Date
” shall
mean the first (1
st
)
Business Day of each February and August.
1.25.
“
Person
” shall
mean an individual, corporation, partnership, joint venture, trust,
unincorporated organization, governmental agency or authority, or any other
entity of whatever nature.
1.26.
“
Pledge
Agreement
” shall
mean that certain Pledge Agreement, of even date herewith, made by Maker in
favor of Payee.
2.
PAYMENTS AND LOAN
TERMS
2.1.
Payments
.
A.
The
principal amount outstanding hereunder shall bear and accrue interest at the
Interest Rate. Except as otherwise provided herein, on each Payment Date Maker
shall pay, in arrears, all interest that accrued during the Corresponding
Interest Period with respect to that Payment Date on the unpaid principal amount
hereof;
provided
,
however
, that
the amount of interest that Maker shall be required to pay on any Payment Date
shall in no event exceed the lesser of (x) the amount of interest accrued on
this Note during the Corresponding Interest Period with respect to that Payment
Date or (y) the excess, if any, of (A) the aggregate amount of distributions, if
any, actually received by Maker in immediately available funds from LVP on
account of the LVP Preferred Units during the six month period ending on such
Payment Date and beginning after the prior Payment Date (or, in the case of the
first Payment Date, beginning on the date of this Note) over (B) $76,800 (which
amount, in the case of the first Payment Date only, shall be multiplied by a
fraction having a numerator equal to the number of days occurring during the
corresponding Interest Period with respect to that Payment Date and a
denominator equal to 180), and any excess accrued interest shall be deferred
until the earlier of the Maturity Date or the prepayment of this Note in full.
Interest
shall be calculated daily and shall be computed on the actual number of days
elapsed over a month of 30 days and a year of 360 days.
Commencing August 1, 2009, any accrued and unpaid interest hereon as of June 30
of any year shall compound annually on August 1 of that year.
All
calculations by Payee of the Interest Rate and the interest payments due under
this Note shall be conclusive absent manifest error. Whenever any payment to be
made under this Note is stated to be due on a day other than a Business Day,
such payment shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of the
payment of interest.
B.
On the
Maturity Date, Maker shall pay (i) the outstanding principal indebtedness
evidenced hereby, (ii) all accrued and unpaid interest, and (iii) and all other
amounts due and payable hereunder.
C.
Maker
agrees to make each Payment under this Note directly to Payee on the date when
due at the address of Payee as set forth in the Introductory Paragraph hereto or
at such other location as Payee may designate to Maker in writing.
D.
Payments
in Federal funds immediately available in the place designated for payment which
are received by Payee prior to 5:00 p.m. (Eastern Standard Time) at said place
of payment shall be credited prior to close of business, while other Payments
may, at
the
option of Payee, not be credited until immediately available to Payee in federal
funds in the place designated for payment prior to 5:00 p.m. (Eastern Standard
Time) on a day on which Payee is open for business.
2.2.
Application of
Payments
.
A.
Except as
provided in Section 2.4(A) below, each and every payment (a “
Payment
”) made
by Maker to Payee in accordance with the terms of this Note and all other
proceeds received by Payee with respect to the Obligations shall be applied as
follows:
(i)
first, to
all interest due on the principal sum and other sums payable hereunder,
calculated at the Default Rate;
(ii)
second,
to all interest (other than Default Rate interest) that shall be due and payable
with respect to the Loan Amount pursuant to the terms hereof as of the date the
Payment is received;
(iii)
third, to
any remaining Obligations (other than payment of the Loan Amount);
and
(iv)
fourth,
to the Loan Amount until the Loan Amount has been repaid.
B.
To the
extent that Maker makes a Payment or Payee receives any Payment or proceeds for
Maker’s benefit to be applied to the satisfaction of an obligation hereunder,
which Payment or proceeds are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver, custodian or any other party under any
bankruptcy law, common law or equitable cause, then Payee shall provide notice
of same to Maker and, to such extent, the obligations of Maker hereunder
intended to be satisfied shall be revived and continue as if such Payment or
proceeds had not been received by Payee.
2.3.
Voluntary
Prepayments
. Maker
may prepay the Loan Amount in whole or in part at any time, in accordance with
the following provisions: (i) Maker shall pay to Payee all interest which has
accrued and has not been paid on the Loan Amount through and including the date
on which the prepayment is being made, and (ii) this Note may be prepaid in part
only if no Event of Default shall have occurred and be continuing.
2.4.
Mandatory
Prepayments
. If the
LVP Preferred Units have been issued to Maker pursuant to the Contribution
Agreement and subsequently LVP redeems all of the outstanding LVP Preferred
Units for cash, then (i) immediately upon Maker’s receipt of the redemption
proceeds in immediately available funds, Maker shall be required to prepay the
Loan Amount together with all accrued interest thereon to the extent of the
amount of redemption proceeds received by Maker, or (ii) if such redemption
proceeds are received by Payee pursuant to the Pledge Agreement, then Payee
shall immediately apply such redemption proceeds to prepay the Loan Amount
together with all accrued interest thereon to the extent of the amount of
redemption proceeds received
2.5.
NO PERSONAL LIABILITY OF
MEMBERS, MANAGERS, OFFICERS AND AFFILIATES
. EXCEPT FOR THE LIABILITY OF THE
GUARANTOR PURSUANT TO THE GUARANTY, NO PAST, PRESENT OR FUTURE MEMBER, MANAGER,
OFFICER, EMPLOYEE, ORGANIZER, AGENT OR AFFILIATE OF MAKER SHALL HAVE ANY
LIABILITY FOR ANY OBLIGATIONS OF MAKER UNDER THIS NOTE OR ANY OTHER LOAN
DOCUMENT, OR FOR ANY CLAIM BASED ON, IN RESPECT OF, OR BY REASON OF, SUCH
OBLIGATIONS OR THEIR CREATION. PAYEE AND ANY SUBSEQUENT HOLDER OF THIS NOTE, BY
ACCEPTING THIS NOTE, WAIVES AND RELEASES ALL SUCH LIABILITY WHATSOEVER, WHETHER
SUCH LIABILITY ARISES OUT OF AN ACTUAL OR ALLEGED FRAUDULENT TRANSFER,
FRAUDULENT CONVEYANCE, PIERCING THE VEIL, ALTER EGO OR OTHER CLAIM, BASIS OR
THEORY. THE WAIVER AND RELEASE ARE PART OF THE CONSIDERATION FOR ISSUANCE OF
THIS NOTE.
2.6.
Financial
Statements
.
A.
Maker
will keep and maintain or will cause to be kept and maintained on a fiscal year
basis, in accordance with generally accepted accounting principles (or such
other accounting basis reasonably acceptable to Payee) consistently applied,
proper and accurate books, records and accounts reflecting all of the financial
affairs of Maker.
B.
As long
as the Loan remains unpaid in whole or in part, Maker covenants to furnish to
Payee, if requested by Payee in writing:
(i)
as soon
as available, but in any event within ninety (90) days after the end of each
fiscal year, a copy of the balance sheet of Maker as at the end of such fiscal
year and the related statements of income, cash flows and retained earnings of
Maker for such year, setting forth in each case in comparative form the figures
for the previous fiscal year; and
(ii)
as soon
as available and in any event within forty-five (45) days after the end of each
fiscal quarter of Maker, a company-prepared balance sheet of Maker as at the end
of such period and related statements of income, cash flows and retained
earnings for Maker for such quarterly period and for the portion of the fiscal
year ending with such period, setting forth in comparative form the figures for
the corresponding fiscal quarter of the previous fiscal year and the
corresponding portion of the previous fiscal year.
3.
PLEDGE
The
obligations evidenced by this Note are secured by the Pledge Agreement.
4.
DEFAULTS
4.1.
Events of
Default
. The
term “
Event of
Default
” as used
herein shall mean the occurrence or happening, at any time and from time to
time, of any one or more of the following:
A.
The
failure of Maker to pay the final payment of principal and interest on the
Maturity Date.
B.
The
failure of Maker to pay (i) any installment of interest that is due hereunder on
any Payment Date, and such failure is not cured within ten (10) Business Days
after written notice of default by Payee to Maker.
C.
The
failure of the Maker to make any mandatory prepayment of the Loan pursuant to
Section 2.4 hereof within one (1) Business Day of the date on which such
prepayment amount becomes due and payable.
D.
An Event
of Default, as defined in the Pledge Agreement.
E.
If Maker
shall be in default under any of the other terms, covenants or conditions of
this Note, other than as set forth in (A) through (C) above, for ten (10) days
after notice from Payee in the case of any default that can be cured by the
payment of a sum of money, or for thirty (30) days after notice from Payee in
the case of any other default; which notice shall specify in reasonable detail
the provision of this Note claimed to be defaulted and the nature of the
default;
provided
,
however
, that if
the cure of any such default (other than a default that can be cured by the
payment of a sum of money) cannot reasonably be effected within such 30 day
period and Maker shall have promptly and diligently commenced to cure such
default within such 30 day period, then the period to cure shall be deemed
extended for up to an additional 30 days from Payee’s default notice so long as
Maker diligently and continuously proceeds to cure such default to Payee’s
satisfaction.
F.
A
Bankruptcy Event occurs with respect to Maker.
G.
The
termination of the Contribution Agreement pursuant to its terms under
circumstances that result in Maker being obligated to pay liquidated damages to
LVP pursuant to the Contribution Agreement.
4.2.
Remedies
. Upon
the occurrence and during the continuance of an Event of Default, then: (i)
interest on the outstanding principal balance of this Note shall, commencing on
the date of the occurrence of such Event of Default and without notice to Maker,
accrue at the Default Rate until full payment thereof; (ii) Payee may exercise
the remedies under the Pledge Agreement; and (iii) Payee may, in addition to any
other rights or remedies available to it hereunder, under the other Loan
Documents, at law or in equity, take such action, without notice or demand, as
it reasonably deems advisable to protect and enforce its rights against Maker,
including, but not limited to, the following actions, each of which may be
pursued singly, concurrently or otherwise, at such time and in such order as
Payee may determine, in its sole discretion, without impairing or otherwise
affecting any other rights and remedies of Payee hereunder, at law or in
equity:
A.
declare
all or any portion of the unpaid Obligations to be immediately due and payable;
or
B.
institute
an action, suit or proceeding in equity for the specific performance of any
covenant, condition or agreement contained herein; or
C.
recover
judgment on this Note (including, without limitation obtaining summary judgment
under Section 3213 of the
New York
Civil Practice Law and Procedure Rules
);
or
D.
pursue
any or all such other rights or remedies as Payee may have under applicable law
or in equity;
provided
,
however
, that
the provisions of this Section shall not be construed to extend or modify any of
the notice requirements or grace periods expressly provided for hereunder (if
any).
5.
MISCELLANEOUS
5.1.
Further
Assurances
. Maker
shall execute and acknowledge (or cause to be executed and acknowledged) and
deliver to Payee all reasonable documents, and take all actions, reasonably
required by Payee from time to time to confirm the rights created or now
or
hereafter intended to be created under this Note, to protect and further the
validity, priority and enforceability of this Note,
provided
,
however
, that no
such further actions, assurances and confirmations shall increase Maker’s
obligations under this Note.
5.2.
Modification; Waiver in
Writing
. No
modification, amendment, extension, discharge, termination or waiver (a
“
Modification
”) of any
provision of this Note, nor consent to any departure by Maker therefrom, shall
in any event be effective unless the same shall be in a writing signed by the
party against whom enforcement is sought, and then such waiver or consent shall
be effective only in the specific instance, and for the purpose, for which
given. Except as otherwise expressly provided herein, no notice to, or demand
on, Maker shall entitle Maker to any other or future notice or demand in the
same, similar or other circumstances. Payee does not hereby agree to, nor does
Payee hereby commit itself to, enter into any Modification.
5.3.
Costs of
Collection
. Maker
agrees to pay all reasonable costs and expenses of collection incurred by Payee,
in addition to principal, interest and late or delinquency charges (including,
without limitation, reasonable attorneys’ fees and disbursements) and including
all reasonable costs and expenses incurred in connection with the pursuit by
Payee of any of its rights or remedies referred to in Section 4 hereof or the
protection of or realization of collateral or in connection with any of Payee’s
collection efforts, whether or not suit on this Note, or any foreclosure
proceeding is filed, and all such reasonable costs and expenses shall be payable
on demand, together with interest at the Default Rate thereon, and also shall be
secured by the Pledge Agreement and all other collateral at any time held by
Payee as security for Maker’s obligations to Payee.
5.4.
Maximum
Amount
.
A.
It is the
intention of Maker and Payee to conform strictly to the usury and similar laws
relating to interest from time to time in force, and all agreements between
Maker and Payee, whether now existing or hereafter arising and whether oral or
written, are hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity hereof or otherwise, shall the
amount paid or agreed to be paid in the aggregate to Payee as interest hereunder
or in any other security agreement given to secure the Obligations, or in any
other document evidencing, securing or pertaining to the Obligations, exceed the
maximum amount permissible under applicable usury or such other laws (the
“
Maximum
Amount
”). If
under any circumstances whatsoever fulfillment of any provision hereof, at the
time performance of such provision shall be due, shall involve transcending the
Maximum Amount, then,
ipso
facto
, the
obligation to be fulfilled shall be reduced to the Maximum Amount. For the
purposes of calculating the actual amount of interest paid and/or payable
hereunder, in respect of laws
pertaining
to usury or such other laws, all sums paid or agreed to be paid to Payee for the
use, forbearance or detention of the Obligations outstanding from time to time
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread from the date of disbursement of the proceeds of this Note
until payment in full of all of the Obligations, so that the actual rate of
interest on account of the Obligations is uniform through the term hereof. The
terms and provisions of this Section 5.4 shall control and supersede every other
provision of all agreements between Maker and Payee.
B.
If under
any circumstances Payee shall ever receive an amount that would exceed the
Maximum Amount, such amount shall be deemed a payment in reduction of the Loan
Amount owing hereunder and any other obligation of Maker in favor of Payee, and
shall be so applied in accordance with Section 2.2 hereof, or if such excessive
interest exceeds the Loan Amount and any other obligation of Maker in favor of
Payee, the excess shall be deemed to have been a payment made by mistake and
shall be refunded to Maker.
5.5.
Waivers; WAIVER OF RIGHT TO
TRIAL BY JURY, ETC.
Maker
hereby expressly and unconditionally waives presentment, demand, protest, notice
of protest or notice of any kind, including, without limitation, any notice of
intention to accelerate and notice of acceleration, except as expressly provided
herein. IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT BY PAYEE ON
THIS NOTE, MAKER HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVES ANY AND EVERY RIGHT
IT MAY HAVE TO A TRIAL BY JURY.
5.6.
Governing
Law
. This
Note shall be governed and construed in accordance with the laws of the State of
New York and the applicable laws of the United States of America. In any action
brought under or arising out of this Note or the other Loan Documents, Maker
hereby consents to the jurisdiction of any competent state or federal court
within the County of Nassau, State of New York, and hereby irrevocably consents
to service of process on Maker in any such action or proceeding by the mailing
of copies thereof to Maker by registered or certified mail, postage prepaid, to
Maker at its address for notices specified in Section 5.10. Nothing in this Note
will affect the right of Payee to serve process on Maker in any other manner
permitted by law.
5.7.
Headings
. The
Section headings in this Note are included herein for convenience of reference
only and shall not constitute a part of this Note for any other
purpose.
5.8.
Assignment
. Payee
shall not transfer, sell, assign or grant any participation in this Note, or any
of the other Loan Documents, or the obligations hereunder, to any Person other
than an affiliate of Payee that is directly or indirectly controlled by Payee,
unless Payee obtains the prior written consent of Maker to any such transaction,
which consent may be withheld in Maker’s sole and absolute discretion. All
references to “Payee” hereunder shall be
deemed to
include the permitted assigns of Payee. In the event that the result of such
permitted transfer, sale, assignment or participation is that Maker shall be
obligated to make the payments required hereunder to an entity other than Payee,
the
n Payee
shall provide at least five (5) Business Days prior written notice to Maker of
such transfer, sale, assignment or participation.
5.9.
Severability
.
Wherever
possible, each provision of this Note shall be interpreted in such manner
as
to be
effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note.
5.10.
Notices
. All
notices shall be deemed to have been properly given if hand delivered or if
mailed by United States registered or certified mail, with return receipt
requested, postage prepaid, or by United States Express Mail or other comparable
overnight courier service to the parties at the addresses set forth below (or at
such other addresses as shall be given in writing by any party to the others). A
notice shall be deemed to have been given: in the case of hand delivery, at the
time of delivery; in the case of registered or certified mail, when delivered or
two Business Days after mailing; or in the case of overnight courier service, on
the Business Day after the same was sent. A party receiving a notice which does
not comply with the technical requirements for notice under this section may
elect to waive any deficiencies and treat the notice as having been properly
given.
If
to Maker:
|
|
ARBOR
MILL RUN JRM LLC
333
Earle Ovington Boulevard, Suite 900
Uniondale,
NY 11553
Attention:
Guy R. Milone, Jr.
|
With
a copy to:
|
|
Cooley
Godward Kronish LLP
1114
Avenue of the Americas
New
York, New York 10036
Attention:
Thomas D. O’Connor, Esq.
|
|
|
|
If
to Payee:
|
|
LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT, TRUST INC.
326
Third Street
Lakewood,
NJ 08701
Attention:
Joseph E. Teichman
|
|
|
|
With
a copy to:
|
|
Herrick,
Feinstein LLP
2
Park Avenue
New
York, New York10016
Attention:
Sheldon Chanales, Esq.
|
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, this Note has been duly executed by Maker the day and year
first written above.
|
|
|
|
ARBOR
MILL RUN JRM LLC
By:
Arbor
Commercial Mortgage, LLC
its
sole member
|
|
|
|
|
By:
|
|
|
Name:
|
|
Title:
|
EXHIBIT
10.34
PROMISSORY NOTE
Date of
Note
: As of June
26
,
2008
|
Note
Amount
:
$360,000.00
|
THIS
PROMISSORY NOTE (this “
Note
”), is
made as of June 26, 2008, by ARBOR NATIONAL CJ LLC, a New York limited liability
company, having an address
at 333
Earle Ovington Boulevard, Suite 900, Uniondale, NY 11553
(“
Maker
”), in
favor of LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC., a Maryland
Corporation, having an address at 326 Third Street, Lakewood, NJ 08701 (together
with its successors and/or assigns, “
Payee
”).
RECITALS:
FOR VALUE
RECEIVED, Maker does hereby unconditionally covenant and promise to pay to
Payee, without any counterclaim, setoff or deduction whatsoever in immediately
available funds, to the address of Payee as set forth herein, in legal tender of
the United States, THREE HUNDRED SIXTY THOUSAND and 00/100 Dollars
($360,000.00), which principal amount shall be paid as set forth in this Note.
1.
DEFINITIONS
Defined
terms in this Note shall include in the singular number the plural and in the
plural number the singular. Additionally, for the purposes hereof, the following
definitions shall have the following meanings:
1.1.
“
Bankruptcy
Event
” shall
mean, with respect to any Person, any of the following events shall occur with
respect to such Person:
(i)
there
shall be commenced by such Person any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or such Person shall make a general assignment for the benefit of its
creditors; or
(ii)
there
shall be commenced against such Person by another Person any case, proceeding or
other action of a nature referred to in clause (i) above which (A) results in
the entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed for a period of sixty (60) days; or
(iii)
there
shall be commenced against it any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets which results in the entry of
an order for any such relief; or
(iv)
any
garnishment, levy, writ or warrant of attachment or similar process shall be
issued and served, which garnishment, levy, writ or warrant of attachment or
similar process relates to its property and has not been vacated, discharged or
stayed within 20 days from the issuance and service thereof; or
(v)
it shall
take any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), (iii) or (iv)
above; or
(vi)
it shall
admit in writing its inability to pay its debts as they become due.
1.2.
“
Business
Day
” shall
mean any day other than a Saturday, Sunday or any other day on which commercial
banks in New York, New York are authorized or required by law to close.
1.3.
“
Contribution
Agreement
” shall
mean the Contribution and Conveyance Agreement dated the date hereof between
Maker and LVP.
1.4.
“
Corresponding Interest
Period
” shall
mean, with respect to any Payment Date, the most recent Interest Period that
ended prior to such Payment Date.
1.5.
“
Default
” shall
mean the occurrence or existence of any event that, but for the giving of notice
or the passage of time or both, would constitute an Event of
Default.
1.6.
“
Default
Rate
” shall
mean the Interest Rate plus 2% per annum.
1.7.
“
Event of
Default
” shall
have the meaning ascribed thereto in Section 4.1 hereof.
1.8.
“
Guarantor
” shall
mean Arbor Commercial Mortgage LLC, a New York limited liability
company.
1.9.
“
Guaranty
” shall
mean the Guaranty dated the date hereof, made by Guarantor for the benefit of
Payee.
1.10.
“
Interest
Period
” shall
mean each six-month period prior to the Maturity Date beginning on January 1 and
ending on the following June 30 or beginning on July 1 and ending on the
following December 31, provided that the first Interest Period shall commence on
the date of this Note and end on June 30, 2008.
1.11.
“
Interest
Rate
” shall
mean the lesser of (a) four percent (4%) per annum and (b) the maximum rate of
interest, if any, which may be collected from Maker under applicable
law.
1.12.
“
Loan
” shall
mean that certain loan in the amount of $17,280,000.00 made by Payee to Maker on
the date hereof.
1.13.
“
Loan
Amount
” shall
mean the outstanding principal balance of this Note.
1.14.
“
Loan
Documents
” shall
mean this Note and the Pledge Agreement.
1.15.
“
LVP
” shall
mean Lightstone Value Plus REIT, L.P., a Delaware limited
partnership.
1.16.
“
LVP Preferred
Units
” shall
mean the Series A Preferred Units of LVP that are issued to Maker pursuant to
the Contribution Agreement.
1.17.
“
Maturity
Date
” shall
mean July 1, 2016.
1.18.
“
Maximum
Amount
” shall
have the meaning ascribed thereto in Section 5.4(A) hereof.
1.19.
“
Modification
” shall
have the meaning ascribed thereto in Section 5.2 hereof.
1.20.
“
Note
” shall
have the meaning ascribed thereto in the preamble.
1.21.
“
Obligations
” shall
mean all of the obligations, liabilities and indebtedness of every kind, nature
and description owing by Maker to Payee under this Note and the other Loan
Documents, including, without limitation, payment of the Loan
Amount.
1.22.
“
Payee
” shall
have the meaning ascribed thereto in the preamble.
1.23.
“
Payment
” shall
have the meaning ascribed thereto in Section 2.2(A) hereof.
1.24.
“
Payment
Date
” shall
mean the first (1
st
)
Business Day of each February and August.
1.25.
“
Person
” shall
mean an individual, corporation, partnership, joint venture, trust,
unincorporated organization, governmental agency or authority, or any other
entity of whatever nature.
1.26.
“
Pledge
Agreement
” shall
mean that certain Pledge Agreement, of even date herewith, made by Maker in
favor of Payee.
2.
PAYMENTS AND LOAN
TERMS
2.1.
Payments
.
A.
The
principal amount outstanding hereunder shall bear and accrue interest at the
Interest Rate. Except as otherwise provided herein, on each Payment Date Maker
shall pay, in arrears, all interest that accrued during the Corresponding
Interest Period with respect to that Payment Date on the unpaid principal amount
hereof;
provided
,
however
, that
the amount of interest that Maker shall be required to pay on any Payment Date
shall in no event exceed the lesser of (x) the amount of interest accrued on
this Note during the Corresponding Interest Period with respect to that Payment
Date or (y) the excess, if any, of (A) the aggregate amount of distributions, if
any, actually received by Maker in immediately available funds from LVP on
account of the LVP Preferred Units during the six month period ending on such
Payment Date and beginning after the prior Payment Date (or, in the case of the
first Payment Date, beginning on the date of this Note) over (B) $1,600 (which
amount, in the case of the first Payment Date only, shall be multiplied by a
fraction having a numerator equal to the number of days occurring during the
corresponding Interest Period with respect to that Payment Date and a
denominator equal to 180), and any excess accrued interest shall be deferred
until the earlier of the Maturity Date or the prepayment of this Note in full.
Interest
shall be calculated daily and shall be computed on the actual number of days
elapsed over a month of 30 days and a year of 360 days.
Commencing August 1, 2009, any accrued and unpaid interest hereon as of June 30
of any year shall compound annually on August 1 of that year.
All
calculations by Payee of the Interest Rate and the interest payments due under
this Note shall be conclusive absent manifest error. Whenever any payment to be
made under this Note is stated to be due on a day other than a Business Day,
such payment shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of the
payment of interest.
B.
On the
Maturity Date, Maker shall pay (i) the outstanding principal indebtedness
evidenced hereby, (ii) all accrued and unpaid interest, and (iii) and all other
amounts due and payable hereunder.
C.
Maker
agrees to make each Payment under this Note directly to Payee on the date when
due at the address of Payee as set forth in the Introductory Paragraph hereto or
at such other location as Payee may designate to Maker in writing.
D.
Payments
in Federal funds immediately available in the place designated for payment which
are received by Payee prior to 5:00 p.m. (Eastern Standard Time) at said place
of payment shall be credited prior to close of business, while other Payments
may, at
the
option of Payee, not be credited until immediately available to Payee in federal
funds in the place designated for payment prior to 5:00 p.m. (Eastern Standard
Time) on a day on which Payee is open for business.
2.2.
Application of
Payments
.
A.
Except as
provided in Section 2.4(A) below, each and every payment (a “
Payment
”) made
by Maker to Payee in accordance with the terms of this Note and all other
proceeds received by Payee with respect to the Obligations shall be applied as
follows:
(i)
first, to
all interest due on the principal sum and other sums payable hereunder,
calculated at the Default Rate;
(ii)
second,
to all interest (other than Default Rate interest) that shall be due and payable
with respect to the Loan Amount pursuant to the terms hereof as of the date the
Payment is received;
(iii)
third, to
any remaining Obligations (other than payment of the Loan Amount);
and
(iv)
fourth,
to the Loan Amount until the Loan Amount has been repaid.
B.
To the
extent that Maker makes a Payment or Payee receives any Payment or proceeds for
Maker’s benefit to be applied to the satisfaction of an obligation hereunder,
which Payment or proceeds are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver, custodian or any other party under any
bankruptcy law, common law or equitable cause, then Payee shall provide notice
of same to Maker and, to such extent, the obligations of Maker hereunder
intended to be satisfied shall be revived and continue as if such Payment or
proceeds had not been received by Payee.
2.3.
Voluntary
Prepayments
. Maker
may prepay the Loan Amount in whole or in part at any time, in accordance with
the following provisions: (i) Maker shall pay to Payee all interest which has
accrued and has not been paid on the Loan Amount through and including the date
on which the prepayment is being made, and (ii) this Note may be prepaid in part
only if no Event of Default shall have occurred and be continuing.
2.4.
Mandatory
Prepayments
. If the
LVP Preferred Units have been issued to Maker pursuant to the Contribution
Agreement and subsequently LVP redeems all of the outstanding LVP Preferred
Units for cash, then (i) immediately upon Maker’s receipt of the redemption
proceeds in immediately available funds, Maker shall be required to prepay the
Loan Amount together with all accrued interest thereon to the extent of the
amount of redemption proceeds received by Maker, or (ii) if such redemption
proceeds are received by Payee pursuant to the Pledge Agreement, then Payee
shall immediately apply such redemption proceeds to prepay the Loan Amount
together with all accrued interest thereon to the extent of the amount of
redemption proceeds received
2.5.
NO PERSONAL LIABILITY OF
MEMBERS, MANAGERS, OFFICERS AND AFFILIATES
. EXCEPT FOR THE LIABILITY OF THE
GUARANTOR PURSUANT TO THE GUARANTY, NO PAST, PRESENT OR FUTURE MEMBER, MANAGER,
OFFICER, EMPLOYEE, ORGANIZER, AGENT OR AFFILIATE OF MAKER SHALL HAVE ANY
LIABILITY FOR ANY OBLIGATIONS OF MAKER UNDER THIS NOTE OR ANY OTHER LOAN
DOCUMENT, OR FOR ANY CLAIM BASED ON, IN RESPECT OF, OR BY REASON OF, SUCH
OBLIGATIONS OR THEIR CREATION. PAYEE AND ANY SUBSEQUENT HOLDER OF THIS NOTE, BY
ACCEPTING THIS NOTE, WAIVES AND RELEASES ALL SUCH LIABILITY WHATSOEVER, WHETHER
SUCH LIABILITY ARISES OUT OF AN ACTUAL OR ALLEGED FRAUDULENT TRANSFER,
FRAUDULENT CONVEYANCE, PIERCING THE VEIL, ALTER EGO OR OTHER CLAIM, BASIS OR
THEORY. THE WAIVER AND RELEASE ARE PART OF THE CONSIDERATION FOR ISSUANCE OF
THIS NOTE.
2.6.
Financial
Statements
.
A.
Maker
will keep and maintain or will cause to be kept and maintained on a fiscal year
basis, in accordance with generally accepted accounting principles (or such
other accounting basis reasonably acceptable to Payee) consistently applied,
proper and accurate books, records and accounts reflecting all of the financial
affairs of Maker.
B.
As long
as the Loan remains unpaid in whole or in part, Maker covenants to furnish to
Payee, if requested by Payee in writing:
(i)
as soon
as available, but in any event within ninety (90) days after the end of each
fiscal year, a copy of the balance sheet of Maker as at the end of such fiscal
year and the related statements of income, cash flows and retained earnings of
Maker for such year, setting forth in each case in comparative form the figures
for the previous fiscal year; and
(ii)
as soon
as available and in any event within forty-five (45) days after the end of each
fiscal quarter of Maker, a company-prepared balance sheet of Maker as at the end
of such period and related statements of income, cash flows and retained
earnings for Maker for such quarterly period and for the portion of the fiscal
year ending with such period, setting forth in comparative form the figures for
the corresponding fiscal quarter of the previous fiscal year and the
corresponding portion of the previous fiscal year.
3.
PLEDGE
The
obligations evidenced by this Note are secured by the Pledge Agreement.
4.
DEFAULTS
4.1.
Events of
Default
. The
term “
Event of
Default
” as used
herein shall mean the occurrence or happening, at any time and from time to
time, of any one or more of the following:
A.
The
failure of Maker to pay the final payment of principal and interest on the
Maturity Date.
B.
The
failure of Maker to pay (i) any installment of interest that is due hereunder on
any Payment Date, and such failure is not cured within ten (10) Business Days
after written notice of default by Payee to Maker.
C.
The
failure of the Maker to make any mandatory prepayment of the Loan pursuant to
Section 2.4 hereof within one (1) Business Day of the date on which such
prepayment amount becomes due and payable.
D.
An Event
of Default, as defined in the Pledge Agreement.
E.
If Maker
shall be in default under any of the other terms, covenants or conditions of
this Note, other than as set forth in (A) through (C) above, for ten (10) days
after notice from Payee in the case of any default that can be cured by the
payment of a sum of money, or for thirty (30) days after notice from Payee in
the case of any other default; which notice shall specify in reasonable detail
the provision of this Note claimed to be defaulted and the nature of the
default;
provided
,
however
, that if
the cure of any such default (other than a default that can be cured by the
payment of a sum of money) cannot reasonably be effected within such 30 day
period and Maker shall have promptly and diligently commenced to cure such
default within such 30 day period, then the period to cure shall be deemed
extended for up to an additional 30 days from Payee’s default notice so long as
Maker diligently and continuously proceeds to cure such default to Payee’s
satisfaction.
F.
A
Bankruptcy Event occurs with respect to Maker.
G.
The
termination of the Contribution Agreement pursuant to its terms under
circumstances that result in Maker being obligated to pay liquidated damages to
LVP pursuant to the Contribution Agreement.
4.2.
Remedies
. Upon
the occurrence and during the continuance of an Event of Default, then: (i)
interest on the outstanding principal balance of this Note shall, commencing on
the date of the occurrence of such Event of Default and without notice to Maker,
accrue at the Default Rate until full payment thereof; (ii) Payee may exercise
the remedies under the Pledge Agreement; and (iii) Payee may, in addition to any
other rights or remedies available to it hereunder, under the other Loan
Documents, at law or in equity, take such action, without notice or demand, as
it reasonably deems advisable to protect and enforce its rights against Maker,
including, but not limited to, the following actions, each of which may be
pursued singly, concurrently or otherwise, at such time and in such order as
Payee may determine, in its sole discretion, without impairing or otherwise
affecting any other rights and remedies of Payee hereunder, at law or in
equity:
A.
declare
all or any portion of the unpaid Obligations to be immediately due and payable;
or
B.
institute
an action, suit or proceeding in equity for the specific performance of any
covenant, condition or agreement contained herein; or
C.
recover
judgment on this Note (including, without limitation obtaining summary judgment
under Section 3213 of the
New York
Civil Practice Law and Procedure Rules
);
or
D.
pursue
any or all such other rights or remedies as Payee may have under applicable law
or in equity;
provided
,
however
, that
the provisions of this Section shall not be construed to extend or modify any of
the notice requirements or grace periods expressly provided for hereunder (if
any).
5.
MISCELLANEOUS
5.1.
Further
Assurances
. Maker
shall execute and acknowledge (or cause to be executed and acknowledged) and
deliver to Payee all reasonable documents, and take all actions, reasonably
required by Payee from time to time to confirm the rights created or now
or
hereafter intended to be created under this Note, to protect and further the
validity, priority and enforceability of this Note,
provided
,
however
, that no
such further actions, assurances and confirmations shall increase Maker’s
obligations under this Note.
5.2.
Modification; Waiver in
Writing
. No
modification, amendment, extension, discharge, termination or waiver (a
“
Modification
”) of any
provision of this Note, nor consent to any departure by Maker therefrom, shall
in any event be effective unless the same shall be in a writing signed by the
party against whom enforcement is sought, and then such waiver or consent shall
be effective only in the specific instance, and for the purpose, for which
given. Except as otherwise expressly provided herein, no notice to, or demand
on, Maker shall entitle Maker to any other or future notice or demand in the
same, similar or other circumstances. Payee does not hereby agree to, nor does
Payee hereby commit itself to, enter into any Modification.
5.3.
Costs of
Collection
. Maker
agrees to pay all reasonable costs and expenses of collection incurred by Payee,
in addition to principal, interest and late or delinquency charges (including,
without limitation, reasonable attorneys’ fees and disbursements) and including
all reasonable costs and expenses incurred in connection with the pursuit by
Payee of any of its rights or remedies referred to in Section 4 hereof or the
protection of or realization of collateral or in connection with any of Payee’s
collection efforts, whether or not suit on this Note, or any foreclosure
proceeding is filed, and all such reasonable costs and expenses shall be payable
on demand, together with interest at the Default Rate thereon, and also shall be
secured by the Pledge Agreement and all other collateral at any time held by
Payee as security for Maker’s obligations to Payee.
5.4.
Maximum
Amount
.
A.
It is the
intention of Maker and Payee to conform strictly to the usury and similar laws
relating to interest from time to time in force, and all agreements between
Maker and Payee, whether now existing or hereafter arising and whether oral or
written, are hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity hereof or otherwise, shall the
amount paid or agreed to be paid in the aggregate to Payee as interest hereunder
or in any other security agreement given to secure the Obligations, or in any
other document evidencing, securing or pertaining to the Obligations, exceed the
maximum amount permissible under applicable usury or such other laws (the
“
Maximum
Amount
”). If
under any circumstances whatsoever fulfillment of any provision hereof, at the
time performance of such provision shall be due, shall involve transcending the
Maximum Amount, then,
ipso
facto
, the
obligation to be fulfilled shall be reduced to the Maximum Amount. For the
purposes of calculating the actual amount of interest paid and/or payable
hereunder, in respect of laws
pertaining
to usury or such other laws, all sums paid or agreed to be paid to Payee for the
use, forbearance or detention of the Obligations outstanding from time to time
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread from the date of disbursement of the proceeds of this Note
until payment in full of all of the Obligations, so that the actual rate of
interest on account of the Obligations is uniform through the term hereof. The
terms and provisions of this Section 5.4 shall control and supersede every other
provision of all agreements between Maker and Payee.
B.
If under
any circumstances Payee shall ever receive an amount that would exceed the
Maximum Amount, such amount shall be deemed a payment in reduction of the Loan
Amount owing hereunder and any other obligation of Maker in favor of Payee, and
shall be so applied in accordance with Section 2.2 hereof, or if such excessive
interest exceeds the Loan Amount and any other obligation of Maker in favor of
Payee, the excess shall be deemed to have been a payment made by mistake and
shall be refunded to Maker.
5.5.
Waivers; WAIVER OF RIGHT TO
TRIAL BY JURY, ETC.
Maker
hereby expressly and unconditionally waives presentment, demand, protest, notice
of protest or notice of any kind, including, without limitation, any notice of
intention to accelerate and notice of acceleration, except as expressly provided
here-in. IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT BY PAYEE ON
THIS NOTE, MAKER HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVES ANY AND EVERY RIGHT
IT MAY HAVE TO A TRIAL BY JURY.
5.6.
Governing
Law
. This
Note shall be governed and construed in accordance with the laws of the State of
New York and the applicable laws of the United States of America. In any action
brought under or arising out of this Note or the other Loan Documents, Maker
hereby consents to the jurisdiction of any competent state or federal court
within the County of Nassau, State of New York, and hereby irrevocably consents
to service of process on Maker in any such action or proceeding by the mailing
of copies thereof to Maker by registered or certified mail, postage prepaid, to
Maker at its address for notices specified in Section 5.10. Nothing in this Note
will affect the right of Payee to serve process on Maker in any other manner
permitted by law.
5.7.
Headings
. The
Section headings in this Note are included herein for convenience of reference
only and shall not constitute a part of this Note for any other
purpose.
5.8.
Assignment
. Payee
shall not transfer, sell, assign or grant any participation in this Note, or any
of the other Loan Documents, or the obligations hereunder, to any Person other
than an affiliate of Payee that is directly or indirectly controlled by Payee,
unless Payee obtains the prior written consent of Maker to any such transaction,
which consent may be withheld in Maker’s sole and absolute discretion. All
references to “Payee” hereunder shall be
deemed to
include the permitted assigns of Payee. In the event that the result of such
permitted transfer, sale, assignment or participation is that Maker shall be
obligated to make the payments required hereunder to an entity other than Payee,
the
n Payee
shall provide at least five (5) Business Days prior written notice to Maker of
such transfer, sale, assignment or participation.
5.9.
Severability
.
Wherever
possible, each provision of this Note shall be interpreted in such manner
as
to be
effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note.
5.10.
Notices
. All
notices shall be deemed to have been properly given if hand delivered or if
mailed by United States registered or certified mail, with return receipt
requested, postage prepaid, or by United States Express Mail or other comparable
overnight courier service to the parties at the addresses set forth below (or at
such other addresses as shall be given in writing by any party to the others). A
notice shall be deemed to have been given: in the case of hand delivery, at the
time of delivery; in the case of registered or certified mail, when delivered or
two Business Days after mailing; or in the case of overnight courier service, on
the Business Day after the same was sent. A party receiving a notice which does
not comply with the technical requirements for notice under this section may
elect to waive any deficiencies and treat the notice as having been properly
given.
If
to Maker:
|
|
ARBOR
NATIONAL CJ LLC
333
Earle Ovington Boulevard, Suite 900
Uniondale,
NY 11553
Attention:
Guy R. Milone, Jr.
|
With
a copy to:
|
|
Cooley
Godward Kronish LLP
1114
Avenue of the Americas
New
York, New York 10036
Attention:
Thomas D. O’Connor, Esq.
|
|
|
|
If
to Payee:
|
|
LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT, TRUST INC.
326
Third Street
Lakewood,
NJ 08701
Attention:
Joseph E. Teichman
|
|
|
|
With
a copy to:
|
|
Herrick,
Feinstein LLP
2
Park Avenue
New
York, New York10016
Attention:
Sheldon Chanales, Esq.
|
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, this Note has been duly executed by Maker the day and year
first written above.
|
|
|
|
ARBOR
NATIONAL CJ LLC
By:
Arbor
Commercial Mortgage, LLC
its
sole member
|
|
|
|
|
By:
|
|
|
Name:
|
|
Title:
|
EXHIBIT
10.35
PROMISSORY NOTE
Date of
Note
: As of June
26
,
2008
|
Note
Amount
:
$49,500,000.00
|
THIS
PROMISSORY NOTE (this “
Note
”), is
made as of June 26, 2008, by AR PRIME HOLDINGS LLC, a Delaware limited liability
company, having an address
at 333
Earle Ovington Boulevard, Suite 900, Uniondale, NY 11553
(“
Maker
”), in
favor of LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC., a Maryland
Corporation, having an address at 326 Third Street, Lakewood, NJ 08701 (together
with its successors and/or assigns, “
Payee
”).
RECITALS:
FOR VALUE
RECEIVED, Maker does hereby unconditionally covenant and promise to pay to
Payee, without any counterclaim, setoff or deduction whatsoever in immediately
available funds, to the address of Payee as set forth herein, in legal tender of
the United States, FORTY-NINE MILLION FIVE HUNDRED THOUSAND and 00/100 Dollars
($49,500,000.00), which principal amount shall be paid as set forth in this
Note.
1.
DEFINITIONS
Defined
terms in this Note shall include in the singular number the plural and in the
plural number the singular. Additionally, for the purposes hereof, the following
definitions shall have the following meanings:
1.1.
“
Additional
Loan
” shall
mean the additional loan that is required to be made by Payee to Maker on the
Closing Date pursuant to the Contribution Agreement.
1.2.
“
Bankruptcy
Event
” shall
mean, with respect to any Person, any of the following events shall occur with
respect to such Person:
(i)
there
shall be commenced by such Person any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or such Person shall make a general assignment for the benefit of its
creditors; or
(ii)
there
shall be commenced against such Person by another Person any case, proceeding or
other action of a nature referred to in clause (i) above which (A) results in
the entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed for a period of sixty (60) days; or
(iii)
there
shall be commenced against it any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets which results in the entry of
an order for any such relief; or
(iv)
any
garnishment, levy, writ or warrant of attachment or similar process shall be
issued and served, which garnishment, levy, writ or warrant of attachment or
similar process relates to its property and has not been vacated, discharged or
stayed within 20 days from the issuance and service thereof; or
(v)
it shall
take any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), (iii) or (iv)
above; or
(vi)
it shall
admit in writing its inability to pay its debts as they become due.
1.3.
“
Business
Day
” shall
mean any day other than a Saturday, Sunday or any other day on which commercial
banks in New York, New York are authorized or required by law to close.
1.4.
“
Closing
Date
” shall
mean the date, if any, on which LVP Preferred Units are issued to Maker by LVP
pursuant to the Contribution Agreement.
1.5.
“
Contribution
Agreement
” shall
mean the Contribution and Conveyance Agreement dated the date hereof between
Maker, Payee and LVP.
1.6.
“
Corresponding Interest
Period
” shall
mean, with respect to any Payment Date, the most recent Interest Period that
ended prior to such Payment Date.
1.7.
“
Default
” shall
mean the occurrence or existence of any event that, but for the giving of notice
or the passage of time or both, would constitute an Event of
Default.
1.8.
“
Default
Rate
” shall
mean the Interest Rate plus 2% per annum.
1.9.
“
Event of
Default
” shall
have the meaning ascribed thereto in Section 4.1 hereof.
1.10.
“
Guarantor
” shall
mean Arbor Realty SR, Inc., a Maryland corporation.
1.11.
“
Guaranty
” shall
mean the Guaranty dated the date hereof, made by Guarantor for the benefit of
Payee.
1.12.
“
Interest
Period
” shall
mean each six-month period prior to the Maturity Date beginning on January 1 and
ending on the following June 30 or beginning on July 1 and ending on the
following December 31, provided that the first Interest Period shall commence on
the date of this Note and end on June 30, 2008.
1.13.
“
Interest Prepayment
Amount
” shall
mean an amount equal to the excess, if any, of (x) the principal amount of the
Additional Loan over (y) the amount of interest that would have accrued on a
principal amount of $5,500,000 at the rate of 8% per annum for the period
commencing on the date hereof and ending on the date that the Additional Loan is
advanced, calculated using the same convention described in Section 2.1(A) of
this Note that is used for calculating interest on this Note.
1.14.
“
Interest
Rate
” shall
mean the lesser of (a) four percent (4%) per annum and (b) the maximum rate of
interest, if any, which may be collected from Maker under applicable
law.
1.15.
“
Loan
” shall
mean that certain loan in the amount of $49,500,000.00 made by Payee to Maker on
the date hereof.
1.16.
“
Loan
Amount
” shall
mean the outstanding principal balance of this Note.
1.17.
“
Loan
Documents
” shall
mean this Note and the Pledge Agreement.
1.18.
“
LVP
” shall
mean Lightstone Value Plus REIT, L.P., a Delaware limited
partnership.
1.19.
“
LVP Preferred
Units
” shall
mean the Series A Preferred Units of LVP that are actually issued to Maker
pursuant to the Contribution Agreement on account of the “Initial Preferred
Amount” (as defined in the Contribution Agreement).
1.20.
“
Maturity
Date
” shall
mean July 1, 2016.
1.21.
“
Maximum
Amount
” shall
have the meaning ascribed thereto in Section 5.4(A) hereof.
1.22.
“
Modification
” shall
have the meaning ascribed thereto in Section 5.2 hereof.
1.23.
“
Note
” shall
have the meaning ascribed thereto in the preamble.
1.24.
“
Obligations
” shall
mean all of the obligations, liabilities and indebtedness of every kind, nature
and description owing by Maker to Payee under this Note and the other Loan
Documents, including, without limitation, payment of the Loan
Amount.
1.25.
“
Payee
” shall
have the meaning ascribed thereto in the preamble.
1.26.
“
Payment
” shall
have the meaning ascribed thereto in Section 2.2(A) hereof.
1.27.
“
Payment
Date
” shall
mean the first (1
st
)
Business Day of each February and August..
1.28.
“
Person
” shall
mean an individual, corporation, partnership, joint venture, trust,
unincorporated organization, governmental agency or authority, or any other
entity of whatever nature.
1.29.
“
Pledge
Agreement
” shall
mean that certain Pledge Agreement, of even date herewith, made by Maker in
favor of Payee.
1.30.
“
POAC
” shall
mean Prime Outlets Acquisition Company LLC, a Delaware limited liability
company.
1.31.
“
POAC
Interest
” shall
mean Maker’s membership interest in POAC that is pledged to Payee pursuant to
the Pledge Agreement.
2.
PAYMENTS AND LOAN
TERMS
2.1.
Payments
.
A.
The
principal amount outstanding hereunder shall bear and accrue interest at the
Interest Rate. Except as otherwise provided herein, on each Payment Date Maker
shall pay, in arrears, all interest that accrued during the Corresponding
Interest Period with respect to that Payment Date on the unpaid principal amount
hereof;
provided
,
however
, that
(i)
all
interest that accrues prior to the Closing Date
shall be
deferred and shall not be payable until the earlier of the Maturity Date or the
prepayment of this Note in full, except as provided in the next sentence of this
Section 2.1(A), (ii) in the event that the LVP Preferred Units are not issued to
Maker pursuant to the Contribution Agreement on or prior to June 26, 2009, then
all interest that accrues on this Note shall be deferred and shall not be
payable until the earlier of the Maturity Date or the prepayment of this Note in
full, and (iii) the amount of interest that Maker shall be required to pay on
any Payment Date shall in no event exceed the lesser of (x) the amount of
interest accrued on this Note during the Corresponding Interest Period with
respect to that Payment Date or (y) the excess, if any, of (A) the aggregate
amount of distributions, if any, actually received by Maker in immediately
available funds from LVP on account of the LVP Preferred Units during the six
month period ending on such Payment Date and beginning after the prior Payment
Date over (B) $220,000, and any excess accrued interest shall be deferred until
the earlier of the Maturity Date or the prepayment of this Note in full.
Upon the
making of the Additional Loan to Maker by Payee on the Closing Date, Maker
hereby authorizes and directs Payee to advance a portion of the proceeds of the
Additional Loan equal to the Interest Prepayment Amount by Payee applying such
amount to pay a portion of the interest that accrued on this Note prior to the
Closing Date in an amount equal to the Interest Prepayment Amount, and the
balance of interest on this Note that accrued prior to the Closing Date shall be
deferred until the Maturity Date. Interest shall be calculated daily and shall
be computed on the actual number of days elapsed over a month of 30 days and a
year of 360 days.
Commencing August 1, 2009, any accrued and unpaid interest hereon as of June 30
of any year shall compound annually on August 1 of that year. All calculations
by Payee of the Interest Rate and the interest payments due under this Note
shall be conclusive absent manifest error. Whenever any payment to be made under
this Note is stated to be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of the payment of
interest.
B.
On the
Maturity Date, Maker shall pay (i) the outstanding principal indebtedness
evidenced hereby, (ii) all accrued and unpaid interest, and (iii) and all other
amounts due and payable hereunder.
C.
Maker
agrees to make each Payment under this Note directly to Payee on the date when
due at the address of Payee as set forth in the Introductory Paragraph hereto or
at such other location as Payee may designate to Maker in writing.
D.
Payments
in Federal funds immediately available in the place designated for payment which
are received by Payee prior to 5:00 p.m. (Eastern Standard Time) at said place
of payment shall be credited prior to close of business, while other Payments
may, at
the
option of Payee, not be credited until immediately available to Payee in federal
funds in the place designated for payment prior to 5:00 p.m. (Eastern Standard
Time) on a day on which Payee is open for business.
2.2.
Application of
Payments
.
A.
Except as
provided in Section 2.4(A) below, each and every payment (a “
Payment
”) made
by Maker to Payee in accordance with the terms of this Note and all other
proceeds received by Payee with respect to the Obligations shall be applied as
follows:
(i)
first, to
all interest due on the principal sum and other sums payable hereunder,
calculated at the Default Rate;
(ii)
second,
to all interest (other than Default Rate interest) that shall be due and payable
with respect to the Loan Amount pursuant to the terms hereof as of the date the
Payment is received;
(iii)
third, to
any remaining Obligations (other than payment of the Loan Amount);
and
(iv)
fourth,
to the Loan Amount until the Loan Amount has been repaid.
B.
To the
extent that Maker makes a Payment or Payee receives any Payment or proceeds for
Maker’s benefit to be applied to the satisfaction of an obligation hereunder,
which Payment or proceeds are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver, custodian or any other party under any
bankruptcy law, common law or equitable cause, then Payee shall provide notice
of same to Maker and, to such extent, the obligations of Maker hereunder
intended to be satisfied shall be revived and continue as if such Payment or
proceeds had not been received by Payee.
2.3.
Voluntary
Prepayments
. Maker
may prepay the Loan Amount in whole or in part at any time, in accordance with
the following provisions: (i) Maker shall pay to Payee all interest which has
accrued and has not been paid on the Loan Amount through and including the date
on which the prepayment is being made, and (ii) this Note may be prepaid in part
only if no Event of Default shall have occurred and be continuing.
2.4.
Mandatory
Prepayments
.
A.
If the
LVP Preferred Units have been issued to Maker pursuant to the Contribution
Agreement and subsequently LVP redeems all of the outstanding LVP Preferred
Units for cash, then (i) immediately upon Maker’s receipt of the redemption
proceeds in immediately available funds, Maker shall be required to prepay the
Loan Amount together with all accrued interest thereon to the extent of the
amount of redemption proceeds received by Maker, or (ii) if such redemption
proceeds are received by Payee pursuant to the Pledge Agreement, then Payee
shall immediately apply such redemption proceeds to prepay the Loan Amount
together with all accrued interest thereon to the extent of the amount of
redemption proceeds received.
B.
In the
event that after the date hereof and prior to the Closing Date Maker receives
any distributions from POAC on account of the POAC Interest, then within one (1)
Business Day following Maker’s receipt of such distribution proceeds in
immediately available funds, Maker shall be required to prepay the Loan Amount
in part in an amount equal to the distribution proceeds so received, and
notwithstanding anything herein to the contrary, all of such distribution
proceeds shall be applied as follows:
(i)
first, to
the Loan Amount until the Loan Amount has been repaid;
(ii)
second,
to all interest due on the principal sum and other sums payable hereunder,
calculated at the Default Rate;
(iii)
third, to
all interest (other than Default Rate interest) that shall be due and payable
with respect to the Loan Amount pursuant to the terms hereof as of the date the
Payment is received; and
(iv)
fourth,
to any remaining Obligations.
2.5.
NO PERSONAL LIABILITY OF
MEMBERS, MANAGERS, OFFICERS AND AFFILIATES
. EXCEPT FOR THE LIABILITY OF THE
GUARANTOR PURSUANT TO THE GUARANTY, NO PAST, PRESENT OR FUTURE MEMBER, MANAGER,
OFFICER, EMPLOYEE, ORGANIZER, AGENT OR AFFILIATE OF MAKER SHALL HAVE ANY
LIABILITY FOR ANY OBLIGATIONS OF MAKER UNDER THIS NOTE OR ANY OTHER LOAN
DOCUMENT, OR FOR ANY CLAIM BASED ON, IN RESPECT OF, OR BY REASON OF, SUCH
OBLIGATIONS OR THEIR CREATION. PAYEE AND ANY SUBSEQUENT HOLDER OF THIS NOTE, BY
ACCEPTING THIS NOTE, WAIVES AND RELEASES ALL SUCH LIABILITY WHATSOEVER, WHETHER
SUCH LIABILITY ARISES OUT OF AN ACTUAL OR ALLEGED FRAUDULENT TRANSFER,
FRAUDULENT CONVEYANCE, PIERCING THE VEIL, ALTER EGO OR OTHER CLAIM, BASIS OR
THEORY. THE WAIVER AND RELEASE ARE PART OF THE CONSIDERATION FOR ISSUANCE OF
THIS NOTE.
2.6.
Financial
Statements
.
A.
Maker
will keep and maintain or will cause to be kept and maintained on a fiscal year
basis, in accordance with generally accepted accounting principles (or such
other accounting basis reasonably acceptable to Payee) consistently applied,
proper and accurate books, records and accounts reflecting all of the financial
affairs of Maker.
B.
As long
as the Loan remains unpaid in whole or in part, Maker covenants to furnish to
Payee, if requested by Payee in writing:
(i)
as soon
as available, but in any event within ninety (90) days after the end of each
fiscal year, a copy of the balance sheet of Maker as at the end of such fiscal
year and the related statements of income, cash flows and retained earnings of
Maker for such year, setting forth in each case in comparative form the figures
for the previous fiscal year; and
(ii)
as soon
as available and in any event within forty-five (45) days after the end of each
fiscal quarter of Maker, a company-prepared balance sheet of Maker as at the end
of such period and related statements of income, cash flows and retained
earnings for Maker for such quarterly period and for the portion of the fiscal
year ending with such period, setting forth in comparative form the figures for
the corresponding fiscal quarter of the previous fiscal year and the
corresponding portion of the previous fiscal year.
3.
PLEDGE
The
obligations evidenced by this Note are secured by the Pledge Agreement.
4.
DEFAULTS
4.1.
Events of
Default
. The
term “
Event of
Default
” as used
herein shall mean the occurrence or happening, at any time and from time to
time, of any one or more of the following:
A.
The
failure of Maker to pay the final payment of principal and interest on the
Maturity Date.
B.
The
failure of Maker to pay (i) any installment of interest that is due hereunder on
any Payment Date, and such failure is not cured within ten (10) Business Days
after written notice of default by Payee to Maker.
C.
The
failure of the Maker to make any mandatory prepayment of the Loan pursuant to
Section 2.4 hereof within one (1) Business Day of the date on which such
prepayment amount becomes due and payable.
D.
An Event
of Default, as defined in the Pledge Agreement.
E.
If Maker
shall be in default under any of the other terms, covenants or conditions of
this Note, other than as set forth in (A) through (C) above, for ten (10) days
after notice from Payee in the case of any default that can be cured by the
payment of a sum of money, or for thirty (30) days after notice from Payee in
the case of any other default; which notice shall specify in reasonable detail
the provision of this Note claimed to be defaulted and the nature of the
default;
provided
,
however
, that if
the cure of any such default (other than a default that can be cured by the
payment of a sum of money) cannot reasonably be effected within such 30 day
period and Maker shall have promptly and diligently commenced to cure such
default within such 30 day period, then the period to cure shall be deemed
extended for up to an additional 30 days from Payee’s default notice so long as
Maker diligently and continuously proceeds to cure such default to Payee’s
satisfaction.
F.
A
Bankruptcy Event occurs with respect to Maker.
G.
The
termination of the Contribution Agreement pursuant to its terms under
circumstances that result in Maker being obligated to pay liquidated damages to
LVP pursuant to the Contribution Agreement.
4.2.
Remedies
. Upon
the occurrence and during the continuance of an Event of Default, then: (i)
interest on the outstanding principal balance of this Note shall, commencing on
the date of the occurrence of such Event of Default and without notice to Maker,
accrue at the Default Rate until full payment thereof; (ii) Payee may exercise
the remedies under the Pledge Agreement; and (iii) Payee may, in addition to any
other rights or remedies available to it hereunder, under the other Loan
Documents, at law or in equity, take such action, without notice or demand, as
it reasonably deems advisable to protect and enforce its rights against Maker,
including, but not limited to, the following actions, each of which may be
pursued singly, concurrently or otherwise, at such time and in such order as
Payee may determine, in its sole discretion, without impairing or otherwise
affecting any other rights and remedies of Payee hereunder, at law or in
equity:
A.
declare
all or any portion of the unpaid Obligations to be immediately due and payable;
or
B.
institute
an action, suit or proceeding in equity for the specific performance of any
covenant, condition or agreement contained herein; or
C.
recover
judgment on this Note (including, without limitation obtaining summary judgment
under Section 3213 of the
New York
Civil Practice Law and Procedure Rules
);
or
D.
pursue
any or all such other rights or remedies as Payee may have under applicable law
or in equity;
provided
,
however
, that
the provisions of this Section shall not be construed to extend or modify any of
the notice requirements or grace periods expressly provided for hereunder (if
any).
5.
MISCELLANEOUS
5.1.
Further
Assurances
. Maker
shall execute and acknowledge (or cause to be executed and acknowledged) and
deliver to Payee all reasonable documents, and take all actions, reasonably
required by Payee from time to time to confirm the rights created or now
or
hereafter intended to be created under this Note, to protect and further the
validity, priority and enforceability of this Note,
provided
,
however
, that no
such further actions, assurances and confirmations shall increase Maker’s
obligations under this Note.
5.2.
Modification; Waiver in
Writing
. No
modification, amendment, extension, discharge, termination or waiver (a
“
Modification
”) of any
provision of this Note, nor consent to any departure by Maker therefrom, shall
in any event be effective unless the same shall be in a writing signed by the
party against whom enforcement is sought, and then such waiver or consent shall
be effective only in the specific instance, and for the purpose, for which
given. Except as otherwise expressly provided herein, no notice to, or demand
on, Maker shall entitle Maker to any other or future notice or demand in the
same, similar or other circumstances. Payee does not hereby agree to, nor does
Payee hereby commit itself to, enter into any Modification.
5.3.
Costs of
Collection
. Maker
agrees to pay all reasonable costs and expenses of collection incurred by Payee,
in addition to principal, interest and late or delinquency charges (including,
without limitation, reasonable attorneys’ fees and disbursements) and including
all reasonable costs and expenses incurred in connection with the pursuit by
Payee of any of its rights or remedies referred to in Section 4 hereof or the
protection of or realization of collateral or in connection with any of Payee’s
collection efforts, whether or not suit on this Note, or any foreclosure
proceeding is filed, and all such reasonable costs and expenses shall be payable
on demand, together with interest at the Default Rate thereon, and also shall be
secured by the Pledge Agreement and all other collateral at any time held by
Payee as security for Maker’s obligations to Payee.
5.4.
Maximum
Amount
.
A.
It is the
intention of Maker and Payee to conform strictly to the usury and similar laws
relating to interest from time to time in force, and all agreements between
Maker and Payee, whether now existing or hereafter arising and whether oral or
written, are hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity hereof or otherwise, shall the
amount paid or agreed to be paid in the aggregate to Payee as interest hereunder
or in any other security agreement given to secure the Obligations, or in any
other document evidencing, securing or pertaining to the Obligations, exceed the
maximum amount permissible under applicable usury or such other laws (the
“
Maximum
Amount
”). If
under any circumstances whatsoever fulfillment of any provision hereof, at the
time performance of such provision shall be due, shall involve transcending the
Maximum Amount, then,
ipso
facto
, the
obligation to be fulfilled shall be reduced to the Maximum Amount. For the
purposes of calculating the actual amount of interest paid and/or payable
hereunder, in respect of laws
pertaining
to usury or such other laws, all sums paid or agreed to be paid to Payee for the
use, forbearance or detention of the Obligations outstanding from time to time
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread from the date of disbursement of the proceeds of this Note
until payment in full of all of the Obligations, so that the actual rate of
interest on account of the Obligations is uniform through the term hereof. The
terms and provisions of this Section 5.4 shall control and supersede every other
provision of all agreements between Maker and Payee.
B.
If under
any circumstances Payee shall ever receive an amount that would exceed the
Maximum Amount, such amount shall be deemed a payment in reduction of the Loan
Amount owing hereunder and any other obligation of Maker in favor of Payee, and
shall be so applied in accordance with Section 2.2 hereof, or if such excessive
interest exceeds the Loan Amount and any other obligation of Maker in favor of
Payee, the excess shall be deemed to have been a payment made by mistake and
shall be refunded to Maker.
5.5.
Waivers; WAIVER OF RIGHT TO
TRIAL BY JURY, ETC.
Maker
hereby expressly and unconditionally waives presentment, demand, protest, notice
of protest or notice of any kind, including, without limitation, any notice of
intention to accelerate and notice of acceleration, except as expressly provided
here-in. IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT BY PAYEE ON
THIS NOTE, MAKER HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVES ANY AND EVERY RIGHT
IT MAY HAVE TO A TRIAL BY JURY.
5.6.
Governing
Law
. This
Note shall be governed and construed in accordance with the laws of the State of
New York and the applicable laws of the United States of America. In any action
brought under or arising out of this Note or the other Loan Documents, Maker
hereby consents to the jurisdiction of any competent state or federal court
within the County of Nassau, State of New York, and hereby irrevocably consents
to service of process on Maker in any such action or proceeding by the mailing
of copies thereof to Maker by registered or certified mail, postage prepaid, to
Maker at its address for notices specified in Section 5.10. Nothing in this Note
will affect the right of Payee to serve process on Maker in any other manner
permitted by law.
5.7.
Headings
. The
Section headings in this Note are included herein for convenience of reference
only and shall not constitute a part of this Note for any other
purpose.
5.8.
Assignment
. Payee
shall not transfer, sell, assign or grant any participation in this Note, or any
of the other Loan Documents, or the obligations hereunder, to any Person other
than an affiliate of Payee that is directly or indirectly controlled by Payee,
unless Payee obtains the prior written consent of Maker to any such transaction,
which consent may be withheld in Maker’s sole and absolute discretion. All
references to “Payee” hereunder shall be
deemed to
include the permitted assigns of Payee. In the event that the result of such
permitted transfer, sale, assignment or participation is that Maker shall be
obligated to make the payments required hereunder to an entity other than Payee,
the
n Payee
shall provide at least five (5) Business Days prior written notice to Maker of
such transfer, sale, assignment or participation.
5.9.
Severability
.
Wherever
possible, each provision of this Note shall be interpreted in such manner
as
to be
effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note.
5.10.
Notices
. All
notices shall be deemed to have been properly given if hand delivered or if
mailed by United States registered or certified mail, with return receipt
requested, postage prepaid, or by United States Express Mail or other comparable
overnight courier service to the parties at the addresses set forth below (or at
such other addresses as shall be given in writing by any party to the others). A
notice shall be deemed to have been given: in the case of hand delivery, at the
time of delivery; in the case of registered or certified mail, when delivered or
two Business Days after mailing; or in the case of overnight courier service, on
the Business Day after the same was sent. A party receiving a notice which does
not comply with the technical requirements for notice under this section may
elect to waive any deficiencies and treat the notice as having been properly
given.
If
to Maker:
|
|
AR
PRIME HOLDINGS LLC
333
Earle Ovington Boulevard, Suite 900
Uniondale,
NY 11553
Attention:
Guy R. Milone, Jr.
|
|
|
|
With
a copy to:
|
|
Cooley
Godward Kronish LLP
1114
Avenue of the Americas
New
York, New York 10036
Attention:
Thomas D. O’Connor, Esq.
|
If
to Payee:
|
|
LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT, TRUST INC.
326
Third Street
Lakewood,
NJ 08701
Attention:
Joseph E. Teichman
|
|
|
|
With
a copy to:
|
|
Herrick,
Feinstein LLP
2
Park Avenue
New
York, New York 10016
Attention:
Sheldon Chanales, Esq.
|
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, this Note has been duly executed by Maker the day and year
first written above.
|
|
|
|
AR
PRIME HOLDINGS, LLC
By:
Arbor Realty Member LLC,
its
Managing Member
By:
Arbor Realty SR Inc., its sole member
|
|
|
|
|
|
By:
|
|
Name:
|
|
Title:
|
EXHIBIT
10.36
EXCHANGE
RIGHTS AGREEMENT
THIS
EXCHANGE RIGHTS AGREEMENT (this “Agreement”), dated as of June __, 2008, is
entered into by and among Lightstone Value Plus Real Estate Investment Trust,
Inc., a Maryland corporation (the “Company”), Lightstone Value Plus REIT LP, a
Delaware limited partnership (the “Operating Partnership”), and the Persons
whose names are set forth on Exhibit A attached hereto (as it may be amended
from time to time).
RECITALS:
(a) The
Company, together with certain other limited partners, has formed the Operating
Partnership pursuant to the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership dated April 22, 2005 the
(“Original Agreement”), as amended by that certain First Amendment to Amended
and Restated Agreement of Limited Partnership dated June __, 2008 (the
“Amendment”) (as such agreement may be further amended or amended and restated
from time to time, collectively the “Partnership Agreement”).
(b)
Pursuant to the Partnership Agreement, the Limited Partners (as defined below)
directly or indirectly hold units of limited partnership interest (“Partnership
Units”) in the Operating Partnership.
(c) The
Operating Partnership has agreed to provide the Limited Partners with certain
direct or indirect rights to exchange their Partnership Units for cash or, at
the election of the Company, for shares of the Company’s common stock, $0.01 par
value per share (the “REIT Stock”).
Accordingly,
the parties hereto do hereby agree as follows:
ARTICLE I
DEFINED
TERMS
The
following definitions shall be for all purposes, unless otherwise clearly
indicated to the contrary, applied to the terms used in this Agreement.
“Assignee”
means a Person to whom one or more Partnership Units have been transferred in a
manner permitted under the Partnership Agreement, but who has not become a
substituted Limited Partner in accordance therewith.
“Business
Day” means any day except a Saturday, Sunday or other day on which commercial
banks in New York, New York are authorized or required by law to close.
“Cash
Amount” means an amount of cash per Partnership Unit equal to the Value on the
Valuation Date of the REIT Stock Amount.
“Common
Units” has the meaning set forth in the Amendment.
“Exchange
Factor” means 1.0, provided, that in the event that the Company (i) declares or
pays a dividend on its outstanding REIT Stock in REIT Stock or makes a
distribution to all holders of its outstanding REIT Stock in REIT Stock; (ii)
subdivides its outstanding REIT Stock; or (iii) combines its outstanding REIT
Stock into a smaller number of shares of REIT Stock, the Exchange Factor shall
be adjusted by multiplying the Exchange Factor by a fraction, the numerator of
which shall be the number of shares of REIT Stock issued and outstanding on the
record date for such dividend, contribution, subdivision or combination
(assuming for such purpose that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall be
the actual number of shares of REIT Stock (determined without the above
assumption) issued and outstanding on the record date for such dividend,
distribution, subdivision or combination. Any adjustment to the Exchange Factor
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
“Exchanging
Partner” has the meaning set forth in Section 2.1 hereof.
“Exchange
Right” has the meaning set forth in Section 2.1 hereof.
“Lien”
means any lien, security interest, mortgage, deed of trust, charge, claim,
encumbrance, pledge, option, right of first offer or first refusal and any other
right or interest of others of any kind or nature, actual or contingent, or
other similar encumbrance of any nature whatsoever.
“Limited
Partner” means any Person, other than the Company, named as a Limited Partner on
Exhibit A, as such Exhibit may be amended from time to time.
“Notice
of Exchange” means the Notice of Exchange substantially in the form of Exhibit B
to this Agreement.
“Offering”
means the offering of the Company’s common stock, par value $.01 per share,
pursuant to a registration statement on Form S-11 filed with the Securities and
Exchange Commission (Registration No. 333-117367).
“Person”
shall mean an individual, partnership, corporation, limited liability company,
trust, estate, or unincorporated organization, or other entity, or a government
or agency or political subdivision thereof.
“REIT
Stock Amount” means that number of shares of REIT Stock equal to the product of
the number of Partnership Units offered for exchange by an Exchanging Partner,
multiplied by the Exchange Factor as of the Valuation Date, provided, that in
the event the Company or the Operating Partnership issues to all holders of REIT
Stock rights, options, warrants or convertible or exchangeable securities
entitling the stockholders to subscribe for or purchase REIT Stock, or any other
securities or property (collectively, the “rights”), then the REIT Stock Amount
shall also include such rights that a holder of that number of shares of REIT
Stock would be entitled to receive.
“SEC”
means the Securities and Exchange Commission.
“Series A
Preferred Units” has the meaning set forth in the Amendment.
“Specified
Exchange Date” means the tenth (10th) Business Day after receipt by the
Operating Partnership and the Company of a Notice of Exchange; provided,
however, that if the Operating Partnership has more than 99 partners, as
determined in accordance with the provisions of Treasury Regulation Section
1.7704-1(h), then the Specified Exchange Date shall mean the thirty-first (31st)
calendar day after receipt by the Operating Partnership and the Company of a
Notice of Exchange.
“Valuation
Date” means the date of receipt by the Operating Partnership and the Company of
a Notice of Exchange or, if such date is not a Business Day, the first Business
Day thereafter.
“Value”
means, with respect to shares of REIT Stock, the average of the daily market
price for the five (5) consecutive trading days immediately preceding the
Valuation Date. The market price for each such trading day shall be:
(i) if
the REIT Stock is listed or admitted to trading on the New York Stock Exchange
(the “NYSE”), any other national securities exchange or the Nasdaq Stock Market
(“Nasdaq”), the closing price on such day, or if no such sale takes place on
such day, the average of the closing bid and asked prices on such day; or
(ii) if
the REIT Stock is not listed or admitted to trading on the NYSE, any national
securities exchange or Nasdaq, the last reported sale price on such day; or
(iii) if
no sale takes place on such day, the average of the closing bid and asked prices
on such day, as reported by a reliable quotation source designated by the
Company or if the REIT Stock is not then traded on any market, as determined in
good faith by the Company’s Independent Directors (as defined by the Company’s
charter).
In the
event the REIT Stock Amount includes rights that a holder of REIT Stock would be
entitled to receive, then the Value of such rights shall be determined by the
independent directors of the Company acting in good faith on the basis of such
quotations and other information as they consider, in their reasonable judgment,
appropriate.
ARTICLE
II
EXCHANGE
RIGHT
2.1
Exchange Right. (a) Subject to Sections 2.2, 2.3, 2.4 and 2.5 hereof, and
subject to any limitations under applicable law, the Operating Partnership
hereby grants to each Limited Partner and each Limited Partner hereby accepts
the right (the “Exchange Right”), exercisable (i) on or after the date that is
one (1) year after the closing of the Offering or (ii) upon the liquidation of
the Operating Partnership or the sale of all or substantially all of the assets
of the Operating Partnership, to exchange on a Specified Exchange Date all or a
portion of the Partnership Units held by such Limited Partner at an exchange
price equal to and in the form of the Cash Amount. Notwithstanding anything to
the contrary herein, the Exchange Right shall only be applicable to such
Partnership Units that are Common Units and not Series A Preferred Units
prior to conversion of such Series A Preferred Units to Common Units pursuant to
the Partnership Agreement.
(b) The
Exchange Right shall be exercised pursuant to a Notice of Exchange delivered to
the Operating Partnership, with a copy delivered to the Company, by the Limited
Partner who is exercising the Exchange Right (the “Exchanging Partner”);
provided, however, that the Company, on behalf of the Operating Partnership, may
elect, after a Notice of Exchange is delivered, to satisfy the Exchange Right
which is the subject of such notice in accordance with Section 2.2.
(c) A
Limited Partner may exercise the Exchange Right from time to time with respect
to part or all of the Partnership Units that it owns (including Common Units
received upon conversion of Series A Preferred Units), as selected by the
Limited Partner, provided that, except as provided in the Agreement, a Limited
Partner may not exercise the Exchange Right for less than one thousand (1,000)
Partnership Units unless such Limited Partner then holds less than one thousand
(1,000) Partnership Units, in which event the Limited Partner must exercise the
Exchange Right for all of the Partnership Units held by such Limited Partner.
(d) An
Exchanging Partner shall have no right with respect to any Partnership Units so
exchanged to receive any distributions paid after the Specified Exchange Date
with respect to such Partnership Units.
(e) Any
Assignee of a Limited Partner may exercise the rights of such Limited Partner
pursuant to this Article 2, and such Limited Partner shall be deemed to have
assigned such rights to such Assignee and shall be bound by the exercise of such
rights by such Assignee.
(f) In
connection with any exercise of such rights by an Assignee on behalf of a
Limited Partner, the Cash Amount or the REIT Stock Amount, as the case may be,
shall be satisfied by the Operating Partnership or the Company, as the case may
be, directly to such Assignee and not to such Limited Partner.
2.2
Option of Company to Exchange for REIT Stock. (a) Notwithstanding the provisions
of Section 2.1, the Company may, on behalf of the Operating Partnership, in its
sole and absolute discretion (subject to the limitations on ownership and
transfer of REIT Stock set forth in the Company’s charter), elect to assume
directly the Operating Partnership’s obligation with respect to the Exchange
Right and satisfy an Exchanging Partner’s Exchange Right by exchanging REIT
Stock and rights equal to the REIT Stock Amount on the Specified Exchange Date
for the Partnership Units offered for exchange by the Exchanging Partner,
whereupon the Company shall acquire the Partnership Units offered for exchange
by the Exchanging Partner and shall be treated for all purposes of the
Partnership Agreement as the owner of such Partnership Units. Unless the
Company, in its sole and absolute discretion, shall exercise its right to assume
directly the Operating Partnership’s obligation with respect to the Exchange
Right and satisfy the Exchange Right, the Company shall not have any obligation
to the Exchanging Partner or to the Operating Partnership with respect to the
Exchanging Partner’s exercise of the Exchange Right. If the Company shall
exercise its right to satisfy the Exchange Right in the manner described in the
first sentence of this Section 2.2 and shall fully perform its obligations in
connection therewith, the Operating Partnership shall have no right or
obligation to pay any amount to the Exchanging Partner with respect to such
Exchanging Partner’s exercise of the Exchange Right, and each of the Exchanging
Partner, the Operating Partnership and the Company shall, for federal income tax
purposes, treat the transaction between the Company and the Exchanging Partner
as a sale of the Exchanging Partner’s Partnership Units to the Company. Nothing
contained in this Section 2.2 shall imply any right of the Company to require
any Limited Partner to exercise the Exchange Right afforded to such Limited
Partner pursuant to Section 2.1.
(b) In
the event the Company shall elect to satisfy, on behalf of the Operating
Partnership, an Exchanging Partner’s Exchange Right by exchanging REIT Stock for
the Partnership Units offered for exchange,
(i) the
Company hereby agrees so to notify the Exchanging Partner within five (5)
Business Days after the receipt by the Company of such Notice of Exchange,
(ii) each
Exchanging Partner hereby agrees to execute such documents and instruments as
the Company may reasonably require in connection with the issuance of REIT Stock
upon exercise of the Exchange Right, and
(iii) the
Company hereby agrees to deliver stock certificates representing fully paid and
nonassessable shares of REIT Stock.
2.3
Prohibition of Exchange for REIT Stock. Notwithstanding anything herein to the
contrary, the Company shall not be entitled to satisfy an Exchanging Partner’s
Exchange Right pursuant to Section 2.2 if the delivery of REIT Stock to such
Limited Partner by the Company pursuant to Section 2.2 (regardless of the
Operating Partnership’s obligations to the Limited Partner under Section 2.1)
(a) would
be prohibited under the Articles of Incorporation of the Company,
(b) if
the Company has elected REIT status, would otherwise jeopardize the REIT status
of the Company, or
(c) would
cause the acquisition of the REIT Stock by the Limited Partner to be
“integrated” with any other distribution of REIT Stock by the Company for
purposes of complying with the registration provisions of the Securities Act.
2.4
Payment Date. Any Cash Amount to be paid to an Exchanging Partner shall be paid
on the Specified Exchange Date; provided, however, that the Operating
Partnership may elect to cause the Specified Exchange Date to be delayed for up
to an additional 180 days to the extent required for the Company to cause
additional REIT Shares to be issued to provide financing to be used to make such
payment of the Cash Amount by the Operating Partnership.
2.5
Expiration of Exchange Right. The Exchange Right shall expire with respect to
any Partnership Units for which an Exchange Notice has not been delivered to the
Operating Partnership and the Company on or before December 31, 2040.
2.6
Effect of Exchange. (a) Any exchange of Partnership Units pursuant to this
Article 2 shall be deemed to have occurred as of the Specified Exchange Date for
all purposes, including without limitation the payment of distributions or
dividends in respect of Partnership Units or REIT Stock, as applicable.
(b) Any
Partnership Units acquired by the Company pursuant to an exercise by any Limited
Partner of an Exchange Right shall be deemed to be acquired by and reallocated
or reissued to the Company.
(c) The
Company, as general partner of the Operating Partnership, shall amend the
Partnership Agreement to reflect each such exchange and reallocation or
reissuance of Partnership Units and each corresponding recalculation of the
Partnership Units of the Limited Partners.
ARTICLE
III
OTHER
PROVISIONS
3.1
Covenants of the Company. (a) At all times during the pendency of the Exchange
Right, the Company shall reserve for issuance such number of shares of REIT
Stock as may be necessary to enable the Company to issue such shares in full
payment of the REIT Stock Amount in regard to all Partnership Units held by
Limited Partners which are from time to time outstanding.
(b)
During the pendency of the Exchange Right, the Company shall deliver to Limited
Partners in a timely manner all reports filed by the Company with the SEC to the
extent the Company also transmits such reports to its stockholders and all other
communications transmitted from time to time by the Company to its stockholders
generally.
(c) The
Company shall notify each Limited Partner, upon request, of the then current
Exchange Factor and such notice will include a reasonable explanation of the
Exchange Factor calculation to be applied at such time.
3.2
Fractional Shares. (a) No fractional shares of REIT Stock shall be issued upon
exchange of Partnership Units.
(b) The
number of full shares of REIT Stock which shall be issuable upon exchange of
Partnership Units (or the cash equivalent amount thereof if the Cash Amount is
paid) shall be computed on the basis of the aggregate amount of Partnership
Units so surrendered.
(c)
Instead of any fractional shares of REIT Stock which would otherwise be issuable
upon exchange of any Partnership Units, the Operating Partnership shall pay a
cash adjustment in respect of such fraction in an amount equal to the Cash
Amount of a Partnership Unit multiplied by such fraction.
3.3
Investment Representations and Warranties. By delivering to the Company a Notice
of Exchange, each Exchanging Partner will be deemed to represent and warrant to
the Company and the Operating Partnership that such Exchanging Partner is aware
of the Company’s option to exchange such Exchanging Partner’s Partnership Units
for REIT Stock pursuant to Section 2.2 hereof and that:
(a) (i)
Such Exchanging Partner has received and reviewed
(A) a
copy of the prospectus contained in the Registration Statement on Form S-11
filed by the Company in connection with the Offering, any prospectus contained
in any Registration Statement subsequently filed by the Company, and any
supplement or amendment thereto (each, a “Prospectus”), and
(B) if
the Company is filing reports under the Securities Exchange Act of 1934, as
amended, copies of all reports and other filings (the “SEC Reports”), including
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, made by the Company with the SEC pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, and
understands the risks of, and other considerations relating to, an investment in
REIT Stock.
(ii) Such
Exchanging Partner, by reason of its business and financial experience, together
with the business and financial experience of those persons, if any, retained by
it to represent or advise it with respect to its investment in REIT Stock,
(A) has
such knowledge, sophistication and experience in financial and business matters
and in making investment decisions of this type that it is capable of evaluating
the merits and risks of and of making an informed investment decision with
respect to an investment in REIT Stock,
(B) is
capable of protecting its own interest or has engaged representatives or
advisors to assist it in protecting its interests and
(C) is
capable of bearing the economic risk of such investment.
(iii) (A)
Such Exchanging Partner is an “accredited investor” as defined in Rule 501 of
the regulations promulgated under the Securities Act.
(B) If
such Exchanging Partner has retained or retains a person to represent or advise
it with respect to its investment in REIT Stock, such Exchanging Partner will
advise the Company of such retention and, at the Company’s request, such
Exchanging Partner shall, prior to or at delivery of the REIT Stock hereunder,
(I)
acknowledge in writing such representation and
(II)
cause such representative or advisor to deliver a certificate to the Company
containing such representations as may be reasonably requested by the Company.
(b) (i)
Such Exchanging Partner understands that an investment in the Company involves
substantial risks.
(ii) Such
Exchanging Partner has been given the opportunity to make a thorough
investigation of the activities of the Company and has been furnished with
materials relating to the Company and its activities, including, without
limitation, each Prospectus and the SEC Reports.
(iii)
Such Exchanging Partner has relied and is making its investment decision based
upon the Prospectus and any subsequent Prospectus, the SEC Reports and other
written information provided to the Exchanging Partner by or on behalf of the
Company and, as applicable, such Exchanging Partner’s position as a director or
executive officer of the Company.
(c) (i)
The REIT Stock to be issued to such Exchanging Partner hereunder will be
acquired by such Exchanging Partner for its own account, for investment only and
not with a view to, or with any intention of, a distribution or resale thereof,
in whole or in part, or the grant of any participation therein.
(ii) Such
Exchanging Partner was not formed for the specific purpose of acquiring an
interest in the Company.
(d) (i)
Such Exchanging Partner acknowledges that
(A) the
shares of REIT Stock to be issued to such Exchanging Partner hereunder have not
been registered under the Securities Act or state securities laws by reason of a
specific exemption or exemptions from registration under the Securities Act and
applicable state securities laws and, the certificates representing such shares
of REIT Stock will bear a legend to such effect,
(B) the
Company’s and the Operating Partnership’s reliance on such exemptions is
predicated in part on the accuracy and completeness of the representations and
warranties of such Exchanging Partner contained herein,
(C) the
REIT Stock to be issued to such Exchanging Partner hereunder may not be resold
or otherwise distributed unless registered under the Securities Act and
applicable state securities laws, or unless an exemption from registration is
available,
(D) there
may be no market for unregistered shares of REIT Stock, and
(E) the
Company has no obligation or intention to register such REIT Stock under the
Securities Act or any state securities laws or to take any action that would
make available any exemption from the registration requirements of such laws,
except as provided in the Registration Rights Agreement entered into by the
Company and the Exchanging Partner (the “Registration Rights Agreement”).
(ii) Such
Exchanging Partner acknowledges that because of the restrictions on transfer or
assignment of such REIT Stock to be issued hereunder, such Exchanging Partner
may have to bear the economic risk of its investment in REIT Stock issued
hereunder for an indefinite period of time, although the holder of any such REIT
Stock will be afforded certain rights to have such REIT Stock registered under
the Securities Act and applicable state securities laws pursuant to the
Registration Rights Agreement.
(e) The
address set forth under such Exchanging Partner’s name in the Notice of Exchange
is the address of the Exchanging Partner’s principal place of business or, if a
natural person, the address of the Exchanging Partner’s residence, and such
Exchanging Partner has no present intention of becoming a resident of any
country, state or jurisdiction other than the country and state in which such
principal place of business or residence is situated.
ARTICLE
IV
GENERAL
PROVISIONS
4.1
Addresses and Notice. Any notice, demand, request or report required or
permitted to be given or made to the Operating Partnership, the Company, a
Limited Partner or Assignee, as the case may be, under this Agreement shall be
in writing and shall be deemed given or made when delivered in person or when
sent by first class United States mail or by other similarly reliable means of
written communication to the Operating Partnership, the Company, a Limited
Partner or Assignee, as the case may be, (i) at the address listed on the
records of the Operating Partnership, with respect to a Limited Partner or
Assignee, and (ii) at 326 Third Street, Lakewood, NJ 08701, Attn: President,
with respect to the Operating Partnership or the Company.
4.2
Titles and Captions. All article or section titles or captions in this Agreement
are for convenience only. They shall not be deemed part of this Agreement and in
no way define, limit, extend or describe the scope or intent of any provisions
hereof. Except as specifically provided otherwise, references to “Articles” and
“Sections” are to Articles and Sections of this Agreement.
4.3
Pronouns and Plurals. Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa.
4.4
Further Action and Additional Restrictions. The parties shall execute and
deliver all documents, provide all information and take or refrain from taking
action as may be necessary or appropriate to achieve the purposes of this
Agreement.
4.5
Binding Effect. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors, legal representatives and permitted assigns.
4.6
Waiver. No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
4.7
Counterparts. This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on all of the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
4.8
Applicable Law. This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law thereof.
4.9
Invalidity of Provisions. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected thereby.
4.10
Entire Agreement. This Agreement contains the entire understanding and agreement
among the Limited Partners, the Operating Partnership and the Company with
respect to the subject matter hereof and supersedes any other prior written or
oral understandings or agreements among them with respect thereto.
4.11
Amendment. This Agreement may be modified or amended by a written instrument
signed by a duly authorized representative of each of the Company, the Operating
Partnership and the Limited Partners.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
first written above.
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THE
COMPANY:
LIGHTSTONE
VALUE PLUS REAL ESTATE
INVESTMENT
TRUST, INC.
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By:
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Name:
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Title:
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OPERATING
PARTNERSHIP:
LIGHTSTONE
VALUE PLUS REIT LP
BY:
LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC., its general
partner
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LIMITED
PARTNERS:
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By:
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Name:
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Title:
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ARBOR
NATIONAL CJ LLC
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By:
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Name:
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Title:
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Exhibit A
- Exchange Rights Agreement
Name and
Address of Limited Partner
Arbor
Mill Run JRM LLC
c/o Arbor
Commercial Mortgage LLC
333 Earle
Ovington Boulevard
Uniondale,
New York 11553
Arbor
National CJ LLC
c/o Arbor
Commercial Mortgage LLC
333 Earle
Ovington Boulevard
Uniondale,
New York 11553
Exhibit B
- Exchange Rights Agreement
Notice of
Exchange
The
undersigned Limited Partner hereby irrevocably (i) exchanges
Partnership Units in Lightstone Value Plus REIT LP, in accordance with the terms
of the Exchange Rights Agreement, dated as of
,
200 (the “Exchange Rights Agreement”), and the Exchange
Right referred to therein; (ii) surrenders such Partnership Units and all right,
title and interest therein; and (iii) directs that the Cash Amount or REIT Stock
Amount (as determined by the Company) deliverable upon exercise of the Exchange
Right be delivered to the address specified below, and if REIT Stock is to be
delivered, such REIT Stock will be registered or placed in the name(s) and at
the address(es) specified below.
The
undersigned hereby represents, warrants, and certifies that the undersigned (a)
has marketable and unencumbered title to such Partnership Units, free and clear,
other than any encumbrance arising pursuant to the Partnership Agreement, of the
rights or interests of any other person or entity; (b) has the full right,
power, and authority to exchange and surrender such Partnership Units as
provided herein; and (c) has obtained the consent or approval of all persons or
entities, if any, (other than consent or approval that may be required of the
Company or the Operating Partnership) having the right to consent or approve
such exchange and surrender on the part of the undersigned.
The
undersigned hereby makes the representations and warranties contained in Section
3.3 of the Exchange Rights Agreement as if such representations and warranties
had been set forth in full in this Notice of Exchange.
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Dated:
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Name
of Limited Partner (Please Print)
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Signature
guaranteed by:
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(Signature
of Limited Partner)
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(City)
(State)
(Zip
Code)
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If
REIT Stock is to be issued, issue
to:
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EXHIBIT
10.37
FIRST AMENDMENT
TO
AMENDED AND
RESTATED
AGREEMENT OF LIMITED
PARTNERSHIP
OF
LIGHTSTONE VALUE PLUS REIT
LP
THIS
FIRST AMENDMENT TO AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
LIGHTSTONE VALUE PLUS REIT LP (this “Amendment”) is made as of June 26, 2008 by
and among Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland
corporation (the “REIT”), as the General Partner of Lightstone Value Plus REIT
LP., a Delaware limited partnership (the “Partnership”), Lightstone Value Plus
REIT LLC, a Delaware limited liability company, as the Initial Limited Partner
and sole existing limited partner of the Partnership, Lightstone SLP, LLC, a
Delaware limited liability company, as Special General Partner of the
Partnership, Arbor Mill Run JRM LLC, a Delaware limited liability company
(“Arbor JRM”) and Arbor National CJ, LLC, a New York limited liability company
(“Arbor CJ”). Capitalized terms used but not otherwise defined in this Amendment
shall have the meanings given to such terms in the Amended and Restated
Agreement of Limited Partnership of the Partnership, dated as of April 22, 2005,
by and among the REIT, the Initial Limited Partner and Special General Partner
and the other parties signatory thereto (the “Partnership
Agreement”).
WITNESSETH:
WHEREAS,
on the date hereof, Arbor JRM has contributed a 22.08% common interest in Mill
Run L.L.C., a Delaware limited liability company (“Mill Run”), representing all
of its membership interest in Mill Run, to the Partnership (the “Arbor JRM
Contribution”) pursuant to that certain Contribution and Conveyance Agreement
dated as of the date hereof by and between Arbor JRM and the Partnership (the
“Arbor JRM Contribution Agreement”);
WHEREAS,
on the date hereof, Arbor CJ has contributed a 0.46% common interest in Mill
Run, representing all of its membership interest in Mill Run, to the Partnership
(the “Arbor CJ Contribution”) pursuant to that certain Contribution and
Conveyance Agreement dated as of the date hereof by and between Arbor CJ and the
Partnership (the “Arbor CJ Contribution Agreement”);
WHEREAS,
AR Prime Holdings LLC, a Delaware limited liability company (“AR Prime”), the
REIT and the Partnership are parties to that certain Contribution and Conveyance
Agreement dated as the date hereof (the “AR Prime Contribution Agreement”)
pursuant to which, upon the closing of the AR Prime Contribution Agreement, AR
Prime will contribute its 25% membership interest in Prime Outlets Acquisition
Company LLC, a Delaware limited liability company (“POAC”), representing all of
its membership interest in POAC, to the Partnership (the “POAC
Contribution”);
WHEREAS,
pursuant to each of the Arbor JRM Contribution Agreement, the Arbor CJ
Contribution Agreement and the AR Prime Contribution Agreement, and in exchange
for each of the Arbor JRM Contribution, the Arbor CJ Contribution and the POAC
Contribution, respectively, the Partnership has agreed to issue to Arbor JRM and
Arbor CJ, respectively, on the date hereof, and to AR Prime, upon the closing of
the POAC Contribution, certain common Limited Partner Interests in the
Partnership as well as certain preferred Limited Partner Interests represented
by a newly designated preferred class of Limited Partner Interest of the
Partnership with the rights, privileges and preferences set forth on Exhibit A
hereto (the “Series A Preferred Units”); and
WHEREAS,
the parties to this Amendment desire to amend the Partnership Agreement to
reflect the creation of the Series A Preferred Units and the rights, privileges
and preferences thereof.
NOW
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows.
1.
Pursuant
to Section 4.3 of the Partnership Agreement, the Partnership Agreement is hereby
amended (i) to create the Series A Preferred Units with the rights, privileges
and preferences set forth on Exhibit A attached hereto and (ii) to admit each of
Arbor JRM and Arbor CJ as a Limited Partner of the Partnership as of the date
hereof in accordance with the provisions of the Arbor JRM Contribution Agreement
and the Arbor CJ Contribution Agreement, respectively, and, upon and as of
closing of the transactions contemplated by the POAC Contribution Agreement, to
admit AR Prime as a Limited Partner of the Partnership effective as of the
closing date of the POAC Contribution in accordance with the provisions of the
AR Prime Contribution Agreement.
2.
Section
5.1 of the Partnership Agreement is hereby amended to provide that,
notwithstanding anything in the Partnership Agreement to the contrary,
distributions payable with respect to the Series A Preferred Units as provided
in Section 4 of Exhibit A attached hereto or, in the event of a Liquidation (as
defined in Exhibit A attached hereto) that is not a Liquidating Event, as
provided in Section 5 of Exhibit A attached hereto, shall have priority over all
of the other distributions to Partners pursuant to Section 5.1 of the
Partnership Agreement.
3.
Article 6
and Exhibit B of the Partnership Agreement are hereby amended to provide that,
notwithstanding anything in the Partnership Agreement to the contrary,
allocations of Net Income and Net Loss to holders of Series A Preferred Units in
any year shall be limited as provided in Section 4(F) of Exhibit A attached
hereto.
4.
Section
13.2 of the Partnership Agreement is hereby amended to provide that,
notwithstanding anything in the Partnership Agreement to the contrary,
distributions payable with respect to the Series A Preferred Units as provided
in Section 5 of Exhibit A attached hereto shall have priority over all of the
other distributions to Partners following a Liquidating Event, including any
distributions pursuant to Section 13.2(a)(iii)(D).
5.
The
Partnership Agreement is hereby amended to the fullest extent necessary to
effect all of the matters contemplated by this Amendment, including but not
limited to the terms set forth on Exhibit A hereto, and including, without
limitation, the voting rights of the holders of Series A Preferred Units and
restrictions on the General Partner and the Partnership that are set forth in
Section 8 of Exhibit A attached hereto. Except as specifically provided for in
this Amendment, the provisions of the Partnership Agreement shall remain in full
force and effect.
6.
The
execution, delivery and effectiveness of this Amendment shall not operate (a) as
an amendment or modification of any provision, right or obligation of any
Partner under the Partnership Agreement except as specifically set forth in this
Amendment or (b) as a waiver or consent to any subsequent action or
transaction.
7.
This
Amendment shall be construed and enforced in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
laws thereof.
8.
This
Amendment contains the entire understanding among the parties with respect to
the subject matter hereof and supersedes any other prior written or oral
understanding or agreements among their with respect thereto.
9.
This
Amendment may be executed in one or more counterparts, each of which shall be an
original and all of which, when taken together, shall constitute one and the
same agreement.
10.
This
Amendment shall become effective when each party hereto shall have received a
counterpart hereof signed by all of the other parties hereto.
[SIGNATURE PAGE TO
FOLLOW]
IN WITNESS WHEREOF
, each of
the undersigned has caused this Amendment to be duly executed on its behalf as
of the date first above written.
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GENERAL
PARTNER:
LIGHTSTONE
VALUE PLUS REAL ESTATE
INVESTMENT
TRUST, INC.
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By:
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David
Lichtenstein
Chief
Executive Officer and President
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LIMITED
PARTNER:
LIGHTSTONE
VALUE PLUS REIT LLC
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By:
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David
Lichtenstein
Authorized
Person
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SPECIAL GENERAL
PARTNER:
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By:
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David
Lichtenstein
Authorized
Person
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ARBOR JRM:
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By:
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Name:
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Title:
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ARBOR CJ:
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By:
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Name:
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Title:
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EXHIBIT A
TERMS OF SERIES A PREFERRED
UNITS
In
accordance with Section 4.3 of the Partnership Agreement, set forth below are
the terms and conditions of the Series A Preferred Units established by the
Partnership on June 26, 2008.
1.
Definitions
. For
purposes of the Series A Preferred Units, the following terms shall have the
meanings indicated in this Section 1. Capitalized terms used but not otherwise
defined in this Exhibit A shall have the meanings set forth in Article I of the
Partnership Agreement, as amended by the Amendment to which this Exhibit A is
attached.
“Common
Units” shall mean any class or series of Partnership Interest that does not have
a priority or preference in the payment of distributions in the distribution of
assets upon any Liquidation, including but not limited to all partnership
Interests issued to the General partner or to the Special General Partner.
“Estimated
Market Price” shall have the meaning set forth in Section 6(A) of this Exhibit
A.
“Liquidation”
shall mean the occurrence of any Liquidating Event or any lease or transfer of
all or substantially all of the Partnership’s property or assets.
“Lockout
Date” shall mean June 26, 2013.
“Series A
Distribution Payment Date” shall mean with respect each calendar quarter a date
that is no later than 30 days after the end of such calendar quarter.
“Series A
Distribution Period” shall mean quarterly distribution periods commencing on
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Series A
Distribution Period.
“Series A
Distribution Record Date” shall have the meaning set forth in Section 6(C) of
this Exhibit A.
“Series A
Junior Units” shall mean Common Units and any Partnership Units of any other
class or series now or hereafter issued and outstanding that are not Series A
Senior Units, Series A Preferred Units or Series A Parity Units.
“Series A
Liquidation Preference” shall have the meaning set forth in Section 5(A) of this
Exhibit A.
“Series A
Parity Units” shall mean any class or series of Limited Partner Interest now or
hereafter issued and outstanding, whether or not the distribution rates thereof
shall be different from those of the Series A Preferred Units, if the holders of
such class or series and the Series A Preferred Units shall be entitled to (i)
the receipt of distributions in proportion to their respective amounts of
accrued and unpaid distributions per unit and (ii) amounts distributable upon
Liquidation in proportion to their respective liquidation preferences, in each
case without preference or priority one over the other.
“Series A
Senior Units” shall mean any class or series of Partnership Interest of the
Partnership hereafter issued and outstanding, if the holders of such class or
series shall be entitled to the receipt of distributions prior to a Liquidation
or of amounts distributable upon any event of Liquidation, in preference or
priority to the holders of Series A Preferred Units.
2.
Number of Preferred Units
and Designation
. This
series of preferred Partnership Interests shall be designated as the 4.6316%
Series A Preferred Limited Partner Interests (the “Series A Preferred Units”).
The number of units which shall initially constitute such series shall be 80,000
units.
3.
Ranking
. The
Series A Preferred Units shall, with respect to the payment of distributions and
the right to receive the Series A Liquidation Preference upon a Liquidation,
rank junior to all Series A Senior Units; rank senior to all Series A Junior
Units, and rank in parity with all Series A Parity Units.
4.
Distributions
.
(A)
Subject
to the preferential rights of the holders of any Series A Senior Units, the
holders of Series A Preferred Units shall be entitled to receive, when, as and
if declared by the General Partner, cumulative preferential distributions
payable in cash in an amount per unit equal to an annual rate of 4.6316% payable
in arrears
shall be
calculated daily and shall be computed on the actual number of days elapsed over
a month of 30 days and a year of 360 days;
provided
,
however
, that
i
n the
event that the Series A Preferred Units are not redeemed by the Partnership on
the Lockout Date or within fifteen (15) days thereafter, the annual distribution
rate applicable to the Series A Preferred Units shall increase from 4.6316% to
fifteen percent (15%) per annum for so long as the Series A Preferred Units
remain outstanding.
The
distributions shall begin to accrue and shall be fully cumulative from the day
of issuance of any such Series A Preferred Units and shall be payable quarterly,
when, as and if declared by the General Partner, in arrears, on each Series A
Distribution Payment Date. Each such distribution shall be payable to the
holders of record of Series A Preferred Units as they appear in the records of
the Partnership at the close of business on such record date, not less than 10
nor more than 30 days preceding such Series A Distribution Payment Dates
thereof, as shall be fixed by the General Partner. Accrued and unpaid
distributions for any past Series A Distribution Periods may be declared and
paid at any time and for such interim periods, without reference to any regular
Series A Distribution Payment Date, to holders of record on such date, not less
than 10 nor more than 30 days preceding the payment date thereof, as may be
fixed by the General Partner. Any distribution payment made on Series A
Preferred Units shall first be credited against the earliest accrued but unpaid
distribution due with respect to Series A Preferred Units which remains
payable.
(B)
The
amount of distributions payable for any Series A Distribution Period shorter
than a full calendar quarter on the Series A Preferred Units shall be computed
by dividing the number of days in such period by 360 and multiplying the result
by the product of the annual distribution rate (i.e., 4.6316%) multiplied by the
Series A Liquidation Preference (i.e., $1,000.00 per Series A Preferred Unit).
Holders of Series A Preferred Units shall not be entitled to any distributions,
whether payable in cash, property or shares, in excess of cumulative
distributions, as herein provided, on the Series A Preferred Units. No interest,
or sum of money in lieu of interest, shall be payable in respect of any
distribution payment or payments on the Series A Preferred Units which may be in
arrears.
(C)
So long
as any Series A Preferred Units are outstanding, no distributions, except as
described in the immediately following sentence, shall be declared or paid or
set apart for payment on any class or series of Series A Junior Units for any
period unless full cumulative distributions have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series A Preferred Units for all Series A
Distribution Periods terminating on or prior to the distribution payment date on
such class or series of Series A Junior Units.
(D)
So long
as any Series A Preferred Units are outstanding, no distributions, except as
described in the immediately following sentence, shall be declared or paid or
set apart for payment on any class or series of Series A Parity Units for any
period unless full cumulative distributions have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series A Preferred Units for all Series A
Distribution Periods terminating on or prior to the distribution payment date on
such class or series of Series A Parity Units. When distributions are not paid
in full or a sum sufficient for such payment is not set apart, as aforesaid, all
distributions declared upon Series A Preferred Units and all distributions
declared upon any other class or series of Series A Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated and unpaid on the Series A Preferred Units and accumulated and
unpaid on such Series A Parity Units.
(E)
No
distributions on Series A Preferred Units shall be declared by the General
Partner or paid or set apart for payment by the Partnership at such time as the
terms and provisions of any agreement of the Partnership, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by
law.
(F)
Subject
at all times to Section 2 and Section 3(a), (b), (e) and (f) of Exhibit B to the
Partnership Agreement, with respect to any Partnership Year, the
holders
of Series A Preferred Units
shall be
allocated Net Income, Net Loss and other allocable Partnership items of income,
gain, loss or expense, only with respect to and to the extent of the amounts
actually distributed to such holder of Series A Preferred Units for such
Partnership Year (but in no event distributed later than 30 days after the end
of that Partnership Year) pursuant to this Section 4 on account of the annual
return accrued on the Series A Preferred Units, but none of such items shall be
allocated to the holders of Series A Preferred Units on account of any other
distributions (all such other distributions representing a return of contributed
capital).
5.
Liquidation
Preference
.
(A)
In the
event of any Liquidation, subject to the prior preferences and other rights of
any Series A Senior Units, before any payment or distribution of the assets of
the Partnership (whether capital or surplus) shall be made to or set apart for
the holders of Series A Junior Units, the holders of the Series A Preferred
Units shall be entitled to receive One Thousand Dollars ($1,000.00) (the “Series
A Liquidation Preference”) per Series A Preferred Unit plus an amount equal to
all distributions (whether or not earned or declared) accrued and unpaid thereon
to the date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If, upon any Liquidation, the assets of the
Partnership, or proceeds thereof, distributable among the holders of the Series
A Preferred Units and all Series A Parity Units shall be insufficient to pay in
full the preferential amount aforesaid and liquidating payments on any other
units of any class or series of Series A Parity Units, then such assets, or the
proceeds thereof, shall be distributed among the holders of Series A Preferred
Units and any such other Series A Parity Units ratably in accordance with the
respective amounts that would be payable on such Series A Preferred Units and
any such other Series A Parity Units if all amounts payable thereon were paid in
full.
(B)
Subject
to the rights of the holders of any Series A Parity Units or Series A Senior
Units, upon any liquidation, dissolution or winding up of the Partnership, after
payment shall have been made in full to the holders of the Series A Preferred
Units, as provided in this Section 5, the holders of Series A Preferred Units
shall have no other claim to the remaining assets of the Partnership and any
other series or class or classes of Series A Junior Units shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Series A Preferred Units shall not be entitled to share therein.
6.
Conversion
.
(A)
Unless
such Series A Preferred Units have previously been redeemed pursuant to Section
8 hereof, at the option of the holder thereof, any Series A Preferred Units may
be converted, in whole or in part, at any time and from time to time after the
Lockout Date, into such number of Common Units obtained by dividing the
aggregate Series A Liquidation Preference (including for this purpose any
distributions accrued and unpaid in respect of any prior Series A Distribution
Periods but not the then-current Series A distribution Period) of such Series A
Preferred Units by the estimated fair market value of one common share in the
REIT (the “Estimated Market Value”) as determined by Robert A. Stanger &
Co., Inc. or another nationally recognized independent valuation firm with
expertise in valuing the securities of real estate investment trusts, reasonably
acceptable to the Partnership and holders owning at least sixty six and two
thirds percent (66 and 2/3%) of Series A Preferred Units.
(B)
In order
to exercise the conversion right, the holder of each applicable Series A
Preferred Unit shall surrender the certificate representing such Series A
Preferred Unit, duly endorsed or assigned to the Partnership in blank, to the
Partnership, accompanied by written notice to the Partnership that the holder
thereof elects to convert such Series A Preferred Units.
(C)
Holders
of Series A Preferred Units at the close of business on the record date (a
“Series A Distribution Record Date”) in respect if any Series A Distribution
Payment Date shall be entitled to receive the distribution payable on such units
on the corresponding Series A Distribution Payment Date notwithstanding the
conversion thereof following such Series A Distribution Record Date and prior to
such Series A Distribution Payment Date.
(D)
Each
conversion shall be deemed to have been effected immediately prior to the close
of business on the date on which the certificate for the Series A Preferred
Units shall have been surrendered and such notice received by the Partnership as
aforesaid.
(E)
No
fractional units or scrip representing fractions of Common Units shall be issued
upon conversion of the Series A Preferred Units. Instead of any fractional
interest in a Common Unit that would otherwise be deliverable upon the
conversion of a Series A Preferred Unit, the Partnership shall pay to the holder
of such Series A Preferred Unit an amount equal in cash based upon the then
Estimated Market Price. If more than one Series A Preferred Unit shall be
surrendered for conversion at one time by the same holder, the number of Common
Units issuable upon conversion thereof shall be computed on the basis of the
aggregate number of Series A Preferred Units so surrendered.
7.
Redemption
.
The
Series A Preferred Units shall have no mandatory redemption or maturity date.
The Series A Preferred Units shall not be redeemable by the Partnership prior to
the Lockout Date. On or after the Lockout Date, the Series A Preferred Units may
be redeemed at the option of the Partnership (which notice may be delivered
prior to the Lockout Date as long as the redemption does not occur prior to the
Lockout Date), in whole but not in part, on thirty (30) days’ prior written
notice at the option of the Partnership, at a redemption price per Series A
Preferred Unit equal to the sum of the Series A Liquidation Preference plus an
amount equal to all distributions (whether or not earned or declared) accrued
and unpaid thereon to the date of redemption, and the redemption price shall be
payable in cash. During any redemption notice period, the holders of the Series
A Preferred Units shall retain any conversion rights with respect to the Series
A Preferred Units. The Series A Preferred Units shall not be subject to any
sinking fund or other obligation of the Partnership to redeem or retire the
Series A Preferred Units.
8.
Voting
.
(A)
Other
than as expressly provided in below in this Section 8, the Series A Preferred
Units shall not have any voting rights or powers, and the consent of the holders
thereof, shall not be required for the taking of any Partnership
action.
(B)
As long
as any of the Series A Preferred Units shall remain outstanding, the Partnership
shall not, and the General Partner shall not have the authority to cause the
Partnership to, take any of the following actions without the prior written
consent of holders owning at least sixty-six and two-thirds percent (66 and
2/3%) of the Series A Preferred Units then issued and outstanding, voting as a
single class, in person or by proxy:
(1)
Issue any
Series A Senior Units or additional Series A Preferred Units, except for Series
A Preferred Units that are issued to AR Prime pursuant to the AR Prime
Contribution Agreement;
provided
,
however
, nothing
in this clause 8(B)(1) shall prohibit the Partnership from issuing Series A
Junior Units or Series A Parity Units.
(2)
Issue any
Series A Parity Units if (x) the liquidation preference for such units exceeds
the value of the consideration received by the Partnership for the issuance of
such units, as determined by the Board of Directors of the REIT in its sole
discretion, (y) the rates at which distributions are payable on such units are
calculated on a base amount that is higher than the liquidation preference for
such units, or (z) the distribution payment dates for such units are not the
same as those for the Series A Preferred Units.
(3)
Redeem or
repurchase any Series A Junior Units.
(4)
Redeem or
repurchase any Series A Parity Units on or after the Lockout Date, unless
concurrently therewith all of the Series A Preferred Units are being
redeemed.
(5)
Redeem or
repurchase any Series A Party Units prior to the Lockout Date, unless the full
cumulative distributions have been or contemporaneously are declared and paid or
set apart for payment for any past Series A Distribution Periods;
provided
that in
the case of a repurchase, Series A Parity Units may not be purchased by the
Partnership at a price higher than the redemption price for such Series A Parity
Units or if no redemption price is provided for, the liquidation preference for
such Series A Parity Units, plus any accrued and unpaid distributions thereon to
the extent not otherwise included in the calculation of the liquidation
preference for such Series A Parity Units.
(6)
(x)
Effectuate
amendments to the Partnership Agreement (other than amendments to this Exhibit
A) that would materially adversely affect the terms and conditions of, or the
rights, privileges or preferences of the holders of the Series A Preferred Units
or (y) effectuate amendments to any provisions set forth in this Amendment that
would adversely affect the terms and conditions of, or the rights, privileges or
preferences of the holders of the Series A Preferred Units.
(C)
In the
event that the Series A Preferred Units have not been redeemed by the
Partnership
on the Lockout Date or within fifteen (15) days thereafter, from and after such
date the Partnership shall not, and the General Partner shall not have the
authority to cause the Partnership to,
take any
of the following actions without the prior written consent of holders owning at
least sixty-six and two-thirds percent (66 and 2/3%) of the Series A Preferred
Units then issued and outstanding, voting as a single class in person or by
proxy:
(1)
Issue any
Partnership Interests other than Common Units.
(2)
Purchase
or otherwise acquire any direct or indirect interest in real property, except
that the Partnership shall be permitted to make purchases or acquisitions of
interests in real property where the sole consideration for such purchases or
acquisitions is exclusively the issuance of Common Units. Notwithstanding the
foregoing, the Partnership shall be permitted to consummate any purchase or
acquisition from a Person other than the REIT Advisor, the Special General
Partner or any of their respective Affiliates provided that such purchase or
acquisition (i) was the subject of an executed purchase agreement dated at least
90 days prior to the Lockout Date or (ii) is a follow-on investment in existing
real property owned by the Partnership that involves an acquisition (a) of
property adjoining property already owned by the Partnership or (b) a greater
ownership interest in property already owned by the Partnership;
provided
that, in
the case of (a) and (b) above, such purchase or acquisition is being effected in
order to protect, preserve or enhance the Partnership’s existing
investment.
(3)
Sell,
transfer, lease as an entirety, or otherwise dispose of any direct or indirect
interest in real property;
provided
,
however
, that
the Partnership shall be permitted to sell, transfer, lease or otherwise dispose
of any real property to a Person other than the REIT Advisor, the Special
General Partner or any of their respective Affiliates if such transaction (i)
was the subject of a binding executed purchase agreement dated at least 90 days
prior to the Lockout Date, or (ii) none of the net proceeds of such transaction
(after customary third party transaction costs, other than those payable to
Person the REIT Advisor, the Special General Partner or any of their respective
Affiliates) shall be distributed to any holders of Series A Junior Units and all
of such net proceeds shall instead either (x) be applied to redeem the Series A
Preferred Units at the closing of such transaction or (y) be held in a
segregated account which may be used solely for the redemption of the Series A
Preferred Units.
(4)
Lend
money to or guarantee the obligation of, any person other than direct or
indirect subsidiaries of the REIT or the Partnership, in excess of $500,000 per
annum in the aggregate;
provided
that the
Partnership shall be permitted to make any loan or guarantee that is required to
be made pursuant to a binding executed agreement dated at least 90 days prior to
the Lockout Date;
provided
,
further
, that
any such loan or guarantee permitted by the previous proviso shall not be
permitted to be made to the REIT Advisor, the Special General Partner or any of
their respective Affiliates.
(5)
Effectuate
a merger, consolidation or recapitalization of the Partnership or a conversion
of the Partnership to an entity other than a Delaware limited
partnership.
(6)
Enter
into any new agreement or transaction, or modify or waive the terms of, or agree
to terminate, any existing agreement or transaction, with the REIT Advisor, the
Special General Partner or any of their respective Affiliates;
provided
,
however
, that
the foregoing restriction shall not apply to the annual renewal of the advisory
agreement with affiliates of the Partnership and the annual renewal of the
management agreements with affiliates of the Partnership; and
provided
,
further
, that in
addition to the renewal or extension of the term of any such advisory and
management agreement, additional amendments or modifications to such agreements
may be made as long as such amendments or modifications (including, without
limitation with respect to fees payable pursuant to such agreements) are
determined by the Board of Directors of the REIT to be market provisions and
amendments as evidenced by a report produced or compiled by Robert A Stanger
& Co., Inc. or another independent, nationally recognized valuation firm
selected by the Board of Directors of the REIT.
(D)
Notwithstanding
anything in this Section 8 to the contrary, no consent of the holders of the
Series A Preferred Units shall be required with respect to any transaction if
(x) prior to the closing of such transaction the Partnership has given written
notice that it intends to fully redeem all of the Series A Preferred Units and
(y) at the closing of such transaction the Series A Preferred Units are fully
redeemed by the Partnership.
(E)
The
Partnership shall not, and the General Partner shall not have the authority to
cause the Partnership to, enter into any binding agreement to take any action
that would violate the provisions of this Section 8 (a “Restricted Agreement”);
provided
,
however
, that
the General Partner shall have the authority to cause the Partnership to enter
into a Restricted Agreement if, upon the closing of the transaction contemplated
by such Restricted Agreement, the Series A Preferred Units will be redeemed in
full by the Partnership.
9.
Transfers
. Prior
to the Lockout Date, no Series A Preferred Unit shall be transferred, sold,
assigned, conveyed, gifted, pledged, encumbered, hypothecated, mortgaged,
exchanged or otherwise disposed of by law or otherwise (collectively, a
“Transfer”) without the prior written consent of the General Partner, which may
be withheld or denied by the General Partner it is sole and absolute discretion;
provided
,
however
, that
notwithstanding anything in the Partnership Agreement to the contrary but
subject to the limitations set forth in Sections 11.3 (c), (d), and (e) of the
Partnership Agreement as in effect as of June 26, 2008, prior to the Lockout
Date
there
shall be no approval required for, and no restrictions whatsoever on,
any
Transfer of Series A Preferred Units to Arbor Realty Trust, Inc., Arbor
Commercial Mortgage, LLC or any of their respective controlled Affiliates, and
there shall be no approval required for, or restrictions on, the pledge of any
Series A Preferred Units to the REIT. Notwithstanding anything in the
Partnership Agreement to the contrary, (i) from and after the Lockout Date, the
only restrictions in the Partnership Agreement on the Transfer of Series A
Preferred Units are those set forth in Sections 11.3 (c), (d), and (e) of the
Partnership Agreement as in effect as of June 26, 2008
and (ii)
any Transfer in contravention of the terms of this Exhibit A shall be void and
ineffectual and shall not be binding upon, or recognized by the
Partnership.
10.
Opt-in to Article 8 of the
Uniform Commercial Code
.
Pursuant to and in accordance with 6 Del. Code Section 8-103(c), all Series A
Preferred Units shall be considered and treated as “securities” (within the
meaning of Del. Code Section 8-102(a)(15)) governed by Article 8 of the Delaware
Uniform Commercial Code. All Series A Preferred Units shall upon issuance be
evidenced and represented by Certificates of Series A Preferred Units issued by
the Partnership to each holder of Series A Preferred Units. Such Certificate of
Series A Preferred Interest is intended to be and shall be considered a
“security certificate” within the meaning of 6 Del. Code Section 8-102(a)(16).
The Series A Preferred Units represented or evidenced by such Certificate are
intended to be treated and shall be considered “certificated securities” within
the meaning of 6 Del. Code Section 8-102(a)(4). The General Partner and the
officers thereof are hereby authorized, empowered and directed to execute and
deliver any such Certificate and such Certificates shall be delivered by the
Partnership to the applicable holder concurrently with the date of
issuance.
11.
Miscellaneous
.
(A)
Series A
Preferred Units will not have any designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to distributions,
qualifications or terms and conditions of redemption, other than those
specifically set forth herein, in the Partnership Agreement, and as may be
provided under applicable law.
(B)
The
headings of the various subdivisions herein are for convenience only and will
not affect the meaning if interpretation of any of the provisions
herein.
(C)
The
preferences, conversion and other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms and conditions of
redemption of the Series A Preferred Units may be waived, and any of such
provisions of the Series A Preferred Units may be amended, with the approval of
holders of at least sixty-six and two-thirds percent (66 and 2/3%) of the issued
outstanding Series A Preferred Units, voting as a single class in person or by
proxy.
12.
Severability of
Provisions
.
Whenever possible, each provision hereof shall be interpreted in a manner as to
be effective and valid under applicable law, but if any provision hereof is held
to be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating or otherwise adversely affecting the remaining provisions hereof.
If a court of competent jurisdiction should determine that a provision hereof
would be valid or enforceable if a period of time were extended or shortened or
a particular percentage were increased or decreased, the such court may make
such change as shall be necessary to render the provision in question effective
and valid under applicable law.
EXHIBIT
10.38
TAX PROTECTION
AGREEMENT
THIS TAX
PROTECTION AGREEMENT (“Agreement”), dated as of June 26, 2008, is made by
LIGHTSTONE VALUE PLUS REIT, L.P., a Delaware limited partnership (“LVP”), and
ARBOR MILL RUN JRM, LLC, a Delaware limited liability company (“AMR”) that will
become a limited partner of LVP as a result of the Contribution (defined
below).
WHEREAS AMR
owns a membership interest in
Mill Run
LLC
(“MRL”)
corresponding to a 22.08% Common Interest (as defined in the Second Amended and
Restated Operating Agreement of Mill Run LLC, dated as of September 20, 2005, as
amended);
WHEREAS
MRL owns, indirectly through entities that are treated as disregarded entities
for U.S. federal tax purposes, a property known as the Orlando Design Center and
a property known as Orlando Outlet World (collectively, the “Properties”);
WHEREAS,
pursuant to that certain Contribution and Conveyance Agreement, dated as of the
date hereof, between AMR and LVP (the “Contribution Agreement”), AMR will
contribute all of its membership interest in MRL (the “Contributed Interest”) to
LVP in exchange for Units (as defined in the Contribution Agreement) of LVP (the
“Contribution”);
WHEREAS,
for federal income tax purposes, it is intended that the Contribution will be
treated as a tax-free contribution by AMR to LVP of the Contributed Interest in
exchange for Units under Section 721 of the Code;
WHEREAS,
pursuant to the Contribution Agreement, LVP has agreed to make certain
undertakings to AMR as provided herein;
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties agree as follows:
1.
Definitions
. All
capitalized terms used and not otherwise defined in this Agreement shall have
the meaning set forth in the Partnership Agreement (as defined below). As used
herein, the following terms have the following meanings:
“Approved
Firms” shall mean any of the following firms: Baker & McKenzie LLP, Deloitte
& Touche LLP, Dewey & LeBoeuf LLP, McKee Nelson LLP, Kaye Scholer LLP,
and DLA Piper; and if any of the aforementioned law firms shall disband, the
parties hereto shall each make a good faith effort to choose a replacement for
each such firm.
“Built-in
Gain” means gain allocable under Section 704(c) of the Code or under so-called
“reverse” Section 704(c) principles pursuant to Treasury Regulation Section
1.704-1(b)(4)(i) to AMR with respect to the Properties or the Contributed
Interest (taking into account any special inside basis of AMR under Section
743(b) of the Code with respect to the Properties or the Contributed Interest).
For purposes of determining Built-in Gain with respect to the Properties, the
assets of MRL shall be deemed to have been revalued for federal income tax
purposes, and the capital accounts of the partners therein adjusted, immediately
prior to the Contribution pursuant to the principles of Treasury Regulation
Section 1.704-2(b)(2)(iv)(f) (notwithstanding that no event described in
Treasury Regulation Section 1.704-2(b)(2)(iv)(f)(5) occurs with respect to MRL
in connection with the Contribution). After the Closing Date, the Built-in Gain
shall be reduced from time to time pursuant to the principles set forth in the
Code and the Regulations thereunder.
“Closing”
shall mean the closing of the exchange of the Contributed Interest for Units
pursuant to the Contribution Agreement.
“Closing
Date” shall mean the date on which the Closing occurs.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Contributed
Interest” shall have the meaning set forth in the Recitals.
“Contribution”
shall have the meaning set forth in the Recitals.
“Disposition”
shall
have the meaning set forth in Section 2(a).
“Excluded
Transfer” shall have the meaning set forth in Section 2(g).
“Nonrecourse
Built-in Gain” means gain recognized under Section 731(a)(1) of the Code as a
result of a deemed distribution under Section 752(b) of the Code or gain
recognized under Section 465(e) of the Code as a result of a reduction of the
amount of liabilities allocable to AMR under Section 752 of the Code below the
Protected Amount.
“Partnership
Agreement” shall mean the Amended and Restated Agreement of Limited Partnership,
dated as of April 22, 2005, of LVP, as amended.
“Permitted
Transfer” shall mean (i)
a
transfer of any of the Properties or the Contributed Interest in an involuntary
bankruptcy against MRL,
(ii) the
condemnation or other taking of any of the Properties by a governmental entity
or authority in eminent domain proceedings, (iii) if LVP elects the Application
of Section 2(f), a transfer of the Orlando Design Center, or (iv) if LVP elects
the Application of Section 2(g), an Excluded Transfer.
“Prohibited
Transaction” shall mean a transaction that is prohibited under Section
2(a).
“Properties”
shall have the meaning set forth in the Recitals.
“Protected
Amount” shall mean an amount equal to the product of (i) AMR’s negative tax
capital account in MRL as of the date hereof and (ii) negative one (-1), as such
amount may be reduced pursuant to the following sentence. Upon any other sale,
exchange, transfer or disposition either (a) by AMR of some or all of its Units
or (b) by any person or entity of some or all of its direct or indirect equity
interest in AMR, the Protected Amount shall be reduced to the extent of (x) in
situation (a), any gain recognized by AMR, but only to the extent such gain is
attributable to the amount of nonrecourse liabilities of LVP of which AMR is
deemed relieved under Section 752 of the Code and the regulations thereunder as
a result of such transaction, and (y) in situation (b), any gain recognized by
such person (or, in the case of a transfer resulting from the death of such
person, the difference between the adjusted tax basis, for federal income tax
purposes, of the transferee with respect to the transferred property and the
adjusted tax basis, for federal income tax purposes, of such person with respect
to such property), but only to the extent such gain is attributable to the
amount of nonrecourse liabilities of LVP of which such person is deemed relieved
under Section 752 of the Code and the regulations thereunder as a result of such
transaction.
“Protected
Period” means the period beginning on the Closing Date, but after the Closing,
and ending on the date that is five (5) years after the Closing
Date.
“Qualifying
Opinion” shall have the meaning set forth in Section 3(d).
2.
Restrictions on Disposition
of the Properties
.
(a)
Subject
to Section 2(b), LVP agrees that during the Protected Period neither LVP, nor
any entity in which LVP holds a direct or indirect interest, will consummate a
sale, transfer, exchange or other disposition of all or any portion of the
Properties, the Contributed Interest, or any indirect interest in all or any
portion of the Properties or the Contributed Interest (a “Disposition”), or
engage in any other transaction, that results in the recognition and allocation
to AMR of all or any portion of its Built-in Gain that it would not otherwise
have recognized at such time as a result of the application of the Code and
Regulations in the absence of such transaction or any other transaction. In
addition, LVP shall not enter into any transaction described in the first
sentence of Section 3(d) unless LVP shall have first provided AMR with a
Qualifying Opinion in a timely manner pursuant to the requirements of Section
3(d). AMR shall have the right to seek and obtain specific performance or
injunctive relief as a remedy with respect to any breach or threatened breach of
the covenant set forth in the preceding sentence.
(b)
The first
sentence of Section 2(a) shall not apply to (i)
a
transfer of any of the Properties or the Contributed Interest in an involuntary
bankruptcy against MRL or
(ii) the
condemnation or other taking of any of the Properties by a governmental entity
or authority in eminent domain proceedings.
(c)
Any
property that is exchanged for or replaces any of the Properties, the
Contributed Interest, or any portion thereof and that is “substituted basis
property,” as defined in Section 7701(a)(42) of the Code, with respect
thereto shall thereafter be treated as a “Property,” the “Contributed Interest,”
or a portion thereof, as the case may be, for all purposes of this Agreement;
however, the Property, the Contributed Interest, or the portion thereof that was
exchanged for or replaced by such new property shall continue to be treated as a
“Property,” the “Contributed Interest,” or a portion thereof to the extent that
a subsequent disposition of (or other transaction involving) the Property, the
Contributed Interest, or the portion thereof could result in the recognition and
allocation to AMR of any Built-in Gain.
(d)
Within 18
weeks after the Closing Date, LVP shall provide to AMR a spreadsheet showing its
calculation of (i) the Built-in Gain with respect to the Properties and the
Contributed Interest and (ii) AMR’s negative tax capital account in MRL as of
the Closing Date. The calculation of the Built-in Gain shall be based on the
fair market values for the Properties and the Contributed Interest shown on
Schedule A hereto. The calculation of the Built-in Gain shall also reflect any
Section 704(c) or “reverse” Section 704(c) gain or loss existing with respect to
the Properties immediately prior to the Closing.
(e)
For
federal, state, and local income tax purposes, LVP shall report (i) AMR’s
contribution of the Contributed Interest to LVP as a tax-free contribution
pursuant to Section 721 of the Code (or the corresponding provision of state or
local law, as applicable) and (ii) AMR as a partner in LVP with respect to all
of the Units received by LVP;
provided
that,
upon a reasonable request from LVP’s accountant, AMR shall provide (at LVP’s
expense) to the accountant, at AMR’s election, either (i) a letter from Cooley
Godward Kronish LLP to the accountant, (ii) an opinion letter from Cooley
Godward Kronish LLP which shall provide that the accountant is entitled to rely
on it, or (iii) an opinion letter from an Approved Firm to the accountant, in
each case providing the required level of comfort to the accountant to sign the
return or returns. Notwithstanding the foregoing, LVP shall not be deemed to
have breached its obligations under this Section 2(e) solely because a
governmental taxing authority determines that LVP would be required to file an
amended tax return or amended information statement that reports the
Contribution other than as a contribution pursuant to Section 721 of the
Code.
(f)
LVP may
elect to apply this Section 2(f) by treating any taxable direct or indirect
disposition of the Orlando Design Center as not subject to indemnification under
the first sentence of Section 2(a);
provided
,
however
, that
LVP shall not be entitled to elect the application of this Section 2(f) if LVP
shall have previously elected the application of Section 2(g). If LVP elects the
application of this Section 2(f), then the first sentence of Section 2(a) shall
not apply to a transfer of the Orlando Design Center.
(g)
LVP may
elect to apply this Section 2(g) by treating all or part of one or more taxable
direct or indirect Dispositions of Properties (other than the Orlando Design
Center), occurring at any time after the one year anniversary of the Closing
Date, as an Excluded Transfer or Excluded Transfers (as defined below) not
subject to indemnification under the first sentence of Section 2(a), within the
limits set forth in the following sentence;
provided
,
however
, that
LVP shall not be entitled to elect the application of this Section 2(g) if LVP
shall have previously or concurrently elected the application of Section 2(f).
If LVP elects or has elected the application of this Section 2(g) and in any
calendar year, taking into account all direct or indirect Dispositions by LVP of
one or more Properties or portions thereof that (i) are taxable in whole or in
part and (ii) occur during such calendar year and after the one year anniversary
of the Closing Date, LVP transfers Properties or portions thereof having an
aggregate value as of the date hereof as set forth on Schedule A hereto that is
less than or equal to ten percent (10%) of the total value of the Properties as
of the date hereof as set forth on Schedule A hereto, then the first sentence of
Section 2(a) shall not apply to such Dispositions (each such Disposition, an
“Excluded Transfer”); moreover, if the aggregate value of the Properties
transferred in such Dispositions is less than ten percent (10%) of the total
value (as of the date hereof as set forth on Schedule A hereto) of the
Properties as of the date hereof as set forth on Schedule A hereto, then such
deficit shall carry over to the following calendar year and increase the amount
of Properties the transfers of which may qualify as Excluded Transfers for such
year, and if such amounts are not transferred, all such amounts shall carry over
to the next successive year, and so on, until the term of this Agreement shall
expire. If the preceding sentence does not apply to Dispositions by LVP in any
calendar year because the aggregate value (as of the date hereof as set forth on
Schedule A hereto) of the Properties (or portions thereof) disposed of exceeds
ten percent (10%) of the total value of the Properties as of the date hereof as
set forth on Schedule A hereto, then only a ratable portion of each such
Disposition shall qualify as an Excluded Transfer not subject to Section 2(a).
With respect to the first calendar year that begins after the date hereof, the
preceding two sentences shall be applied by substituting for each occurrence of
“ten percent (10%)” the product of (i) ten percent (10%) and (ii) a fraction,
the numerator of which is the number of days from the one year anniversary of
the date hereof to December 31 of such calendar year, and the denominator of
which is 365. Notwithstanding anything to the contrary herein, a direct or
indirect Disposition or other transfer of a Property or a portion thereof shall
not constitute an Excluded Transfer if such transfer is effectuated with a party
“related” to LVP (applying the principles of Code Sections 267(b) and 707(b)) in
a transaction that lacks a bona fide commercially motivated business purpose.
(h)
No later
than the earlier of (i) the date that is 30 days after LVP consummates a direct
or indirect Disposition, taxable in whole or in part, of one or more Properties
or portions thereof and (ii) December 31 of the calendar year in which such
Disposition occurs, LVP shall provide AMR with written notification of such
disposition, including (I) the Property, Properties, or portions thereof
disposed of, (II) the amount and nature of the consideration received, and (III)
the amount of gain (including Built-in Gain) allocable to AMR as a result of
such Disposition;
provided
,
however
, that
LVP shall not be required to provide such notification if it shall have
previously provided the identical information to AMR pursuant to the
notification provisions of Section 3(a).
3.
Indemnity by LVP for Breach
of Obligations set forth in Section 2
.
(a)
In the
event that LVP engages in a Prohibited Transaction in breach of its obligations
set forth in Section 2(a), LVP shall pay to AMR an amount equal to (i) the
aggregate federal, state and local income taxes deemed incurred by AMR with
respect to any portion of its Built-in Gain that it recognizes as a result of
such Prohibited Transaction plus (ii) a “gross-up” amount so that, after the
hypothetical payment by AMR of all federal, state and local income taxes on
amounts received pursuant to this Section 3(a), AMR would retain from such
payments hereunder an amount equal to its total deemed income tax liability
incurred as a result of the Prohibited Transaction and its recognition of such
Built-in Gain. If (i) gain is recognized by AMR or allocated to AMR as a result
of the closing of the transactions contemplated by the Contribution Agreement
and (ii) such gain recognition is attributable to (I) incorrect information
provided by MRL or an affiliate or agent thereof to AMR or (II) a breach of
LVP’s or the Lightstone Value Plus Real Estate Investment Trust, Inc.’s
obligations under the Contribution Agreement or this Agreement, then LVP shall
indemnify AMR for such Built-in Gain under this Section 3(a) as if such Built-in
Gain had resulted from a Prohibited Transaction. Notwithstanding anything herein
to the contrary, it is the understanding and the intention of the parties hereto
that this Agreement shall in no manner create liability for LVP as a result of
any tax that may be recognized as a result of (i) the structure and effectuation
of the transactions contemplated hereby and by the Contribution Agreement or
(ii) any conversion of Units into stock of the REIT at AMR’s election and that
the only liability that may arise as to LVP shall be as a result of its breach
of its obligations imposed by this Agreement or the Contribution Agreement, if
any, or as a result of any provision of incorrect information.
At the
time LVP enters into an agreement to consummate a Prohibited Transaction that,
if consummated, would breach Section 2(a) hereof and result in the recognition
by AMR of all or any portion of its Built-in Gain, and in any case not less than
thirty (30) days prior to consummating such Prohibited Transaction, LVP shall
notify AMR in writing of such proposed Prohibited Transaction and of the
approximate sales price or other amount to be realized for income tax purposes
in connection therewith and all other relevant details of the Prohibited
Transaction and shall request from AMR such information
that is
within AMR’s possession or control
as is
reasonably necessary for LVP to calculate the amount of the indemnity set forth
herein. Upon receipt of such notice, AMR shall provide LVP with any information
reasonably requested by LVP of AMR that is within AMR’s possession or control
and is relevant to calculation of the indemnity set forth herein within ten (10)
days of such request. Within ten (10) days after receipt of such information
from AMR (or, if no such information is requested, at the same time that LVP
notifies AMR of the Prohibited Transaction as provided above), LVP shall provide
to AMR (i) a computation of the indemnity payment, if any, owing to AMR under
this Section 3(a). LVP shall make any required indemnity payment owing to AMR
pursuant to this Section 3(a) no later than five (5) days prior to the due date
of the quarterly estimated tax payment for individuals which next follows the
date that the Prohibited Transaction is consummated or, if later, ten (10) days
after the date required for LVP’s delivery of the computation of the indemnity
payment to AMR. For purposes of determining the amount of the deemed income
taxes incurred by AMR and the amount of the indemnity for Built-in Gain under
this Section 3(a), (i) all income arising from a transaction or event that is
taxable at ordinary income rates (including, without limitation, “recapture”
under Code Sections 1245 or 1250 and net short-term capital gain) under the
applicable provisions of the Code and allocable to AMR shall be treated as
subject to federal, state and local income tax at the then applicable effective
tax rate imposed on ordinary income of individuals residing in the city of New
York, New York, determined using the maximum federal rate of tax on ordinary
income and the maximum state and local rates of tax on ordinary income then in
effect in New York City and New York State, (ii) all long-term capital gain
arising from the transaction or event allocable to AMR shall be treated as
subject to federal, state, and local income tax at the then applicable effective
tax rate imposed on long-term capital gains of individuals residing in the city
of New York, New York, determined using the maximum federal, state and local
rates on long-term capital gains then in effect (taking into account any special
capital gains rate attributable to recapture of prior depreciation deductions),
and (iii) any amounts payable with respect to state and local income taxes shall
be assumed to be fully deductible (without limitation or phaseout) for federal
income tax purposes.
(b)
Notwithstanding
any provision of this Agreement to the contrary, other than the last sentence of
Section 2(a), Section 3(c), and Section 3(d), the sole and exclusive rights and
remedies of AMR for a breach or violation of the covenants set forth in
Sections 2(a) and 3(a) shall be a claim for payment against LVP, computed
as set forth in Section 3(a), and for interest and enforcement costs as
provided in Section 9(e). Except as provided in Sections 2(a), 3(c), and 3(d),
AMR shall not be entitled to pursue a claim for specific performance of the
covenant set forth in Section 2(a) or bring a claim against any person that
acquires the Contributed Interest or any of the Properties in violation of
Section 2(a).
(c)
Notwithstanding
anything to the contrary herein, LVP may not enter into a Prohibited Transaction
unless, at least fourteen (14) days prior to entering into such transaction, LVP
will have provided AMR with evidence reasonably satisfactory to AMR that,
following such transaction, and including any proceeds from such transaction,
LVP will have the requisite liquidity to make any necessary indemnification
payments required pursuant to this Agreement. AMR shall have the right to seek
and obtain specific performance or injunctive relief as a remedy with respect to
any breach or threatened breach of this covenant.
(d)
Prior to
the time that LVP enters into an agreement to consummate a transaction that (i)
may result in the realization of Built-in Gain but (ii) which LVP may report,
for federal, state, or local income tax purposes, as not resulting (in whole or
in part) in the recognition of such realized Built-in Gain, and in any case not
less than thirty (30) days prior to consummating such transaction, LVP shall
provide AMR with a written description of the transaction containing all
relevant details and shall thereafter, as promptly as possible upon AMR’s
reasonable request, and in any case not less than twenty (20) days prior to
consummating such transaction, provide AMR with an opinion from any Approved
Firm that (i) meets all the requirements for “covered opinions” set forth in
Section 10.35(c) of IRS Circular 230, including the requirement that a covered
opinion consider all significant federal tax issues, (ii) is based on a
statement of facts that is not inaccurate or unreasonable in any material
respect, and (iii) concludes, at at least a “more likely than not” level of
comfort, that all or part of the Built-in Gain realized in such transaction will
not be recognized for tax purposes (such an opinion, a “Qualifying Opinion”). If
LVP does not provide AMR with a description of the transaction and, if
reasonably requested by AMR, a Qualifying Opinion in a timely manner pursuant to
the first sentence of this paragraph, then LVP shall not consummate such
transaction. Furthermore, LVP shall not report any transaction as resulting (in
whole or in part) in the realization, but not the nonrecognition, of Built-in
Gain unless either (i) LVP previously provided AMR with a Qualifying Opinion in
a timely manner pursuant to the first sentence of this paragraph or (ii) LVP
obtains the consent of AMR prior to taking such reporting position. AMR shall
have the right to seek and obtain specific performance or injunctive relief as a
remedy with respect to any breach or threatened breach of the covenants set
forth in this paragraph.
4.
Section 704(c)
Method
. LVP
shall use, and shall cause any other entity in which LVP has a direct or
indirect interest to use, the “traditional method” under Treasury Regulation
Section 1.704-3(b) without curative allocations for purposes of making
allocations under Section 704(c) of the Code or reverse Section 704(c)
allocations with respect to the Contributed Interest and the Properties to take
into account the book-tax disparities as of the effective time of the
Contribution with respect to the Contributed Interest and the Properties.
5.
Obligation of LVP to
Maintain Certain Debt
.
(a)
At all
times through the Protected Period, LVP agrees to maintain, directly or
indirectly, an amount of indebtedness allocable to AMR under Section 752 of the
Code (and specifically as one or more nonrecourse liabilities under Treasury
Regulation Section 1.752-3) at least equal to the Protected Amount. AMR shall
have the right to seek and obtain specific performance or injunctive relief as a
remedy with respect to any breach or threatened breach of this covenant. For the
avoidance of doubt, the purpose of this Section 5(a) is not to require LVP to
increase the amount of liabilities to which the Properties or any other
properties are subject,
provided
that LVP
maintains in place the liabilities of MRL and its subsidiary entities existing
as of the date hereof and does not take any actions (or cause or permit any
actions to be taken) that would decrease the amounts of such liabilities that
are allocable to AMR under Section 752 and the regulations
thereunder.
(b)
Federal,
state and local income tax returns filed by LVP for all taxable periods
beginning prior to the expiration of the Protected Period shall report
allocations of nonrecourse liabilities to AMR in an amount at least equal to the
Protected Amount.
6.
Indemnity by LVP for Breach
of Obligations set forth in Section 5
. In the
event that (i) LVP breaches its obligations set forth in Section 5 and as a
result AMR recognizes Nonrecourse Built-in Gain
and (ii)
such breach has not occurred in connection with a Permitted Transfer,
LVP shall
pay to AMR, upon written demand by AMR, an amount equal to (i) the aggregate
federal, state and local income taxes deemed incurred by AMR as a result of such
Nonrecourse Built-in Gain recognized by AMR by reason of such breach plus (ii) a
“gross-up” amount so that, after the hypothetical payment by AMR of all federal,
state and local income taxes on amounts received pursuant to this Section 6, AMR
would retain from such payments hereunder an amount equal to its total income
tax liability deemed incurred as a result of the breach by LVP of its
obligations set forth in Section 5 and AMR’s recognition of such Nonrecourse
Built-in Gain. The principles and tax rates set forth in Section 3(a) shall
apply for purposes of determining the timing and amount of payment to be made to
AMR pursuant to this Section 6 (including, without limitation, the calculation
of the aggregate federal, state and local income taxes deemed incurred by AMR).
In addition, the notification procedures set forth in Section 3(a) shall apply
for purposes of this Section 6 with respect to transactions that would result in
a breach of Section 5.
7.
Requests for
Information
. Upon
the request of LVP, AMR shall provide to LVP copies of such tax returns,
schedules and other information that is within the possession or control of AMR
(including, without limitation, copies of state and federal tax returns and
related working papers) reasonably requested by LVP (“Tax Protection
Information”) to enable it to make any necessary calculations with respect to
payments required to be made by LVP hereunder, including, without limitation,
calculations of Built-in Gain and Nonrecourse Built-in Gain claimed to be
recognized by AMR. No Tax Protection Information acquired by LVP or any of its
representatives may be disclosed to any individual or entity other than (i)
those representatives of LVP who need to know the Tax Protection Information for
the purpose of assisting LVP in evaluating and performing its obligations under
this Agreement (it being understood that prior to such disclosure LVP’s
representatives will be informed of the confidential nature of the Tax
Protection Information and shall agree in writing to be bound by the
requirements of this Section 7 of this Agreement), (ii) as required by
applicable law, or (iii) if necessary, upon the advice of counsel, in order to
comply with any judicial order, civil or criminal subpoena or any discovery
demand in pending litigation, whether or not LVP or any of its representatives
is a party thereto. LVP agrees to be responsible for any breach of this
Agreement by its representatives.
8.
Term
. This
Agreement shall terminate upon the expiration of the Protected Period. In
addition, Section 5 of this Agreement shall terminate in the event that the
Protected Amount is reduced to zero. Notwithstanding the foregoing, LVP's
payment obligations under Sections 3, 6 and 9(e) shall survive the termination
of this Agreement or the termination of Section 5, as the case may be, to the
extent such obligations relate to a breach of LVP’s obligations under Section 2
or 5 occurring before such termination of this Agreement (or in the case of
liability under Section 6, the termination of Section 5).
9.
General
Provisions
.
(a)
Notices
. All
notices, requests, claims, demands and other communications under this Agreement
shall be in writing and shall be deemed given if delivered personally, sent by
overnight courier (providing proof of delivery) or sent by telecopy (providing
confirmation of transmission) to the parties at the following addresses or
telecopy numbers (or at such other address or telecopy number for a party as
shall be specified by like notice):
(i)
if to
LVP, to:
c/o The
Lightstone Group
326 Third
Street
Lakewood,
NJ 08701
Attn:
Joseph E. Teichman
Fax
No.:
732-612-1444
with a
copy to:
Herrick,
Feinstein LLP
2 Park
Avenue
New York,
NY 10016
Attn:
Sheldon Chanales, Esq.
Fax No.:
(212) 545-3313
(ii)
if to
AMR, to:
c/o Arbor
Commercial Mortgage LLC
333 Earle
Ovington Boulevard
Uniondale,
NY 11553
Attention:
Guy R. Milone, Jr.
Fax No.:
(516) 506-4045
with a
copy to:
Cooley
Godward Kronish LLP
1114
Avenue of the Americas
New York,
NY 10036
Fax No.:
(212) 479-6275
Attn:
Thomas D. O’Connor, Esq.
(b)
Counterparts
. This
Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other party.
(c)
Governing
Law
. THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
(d)
Severability
. If any
term, covenant or condition of this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, this Agreement shall be construed
without such provision.
(e)
Interest and Enforcement
Costs
. In the
event that LVP fails to pay AMR any amount due pursuant to this Agreement on the
date such amount is due, then such past due amount shall bear interest until the
date paid at a rate equal to 15% per annum. In the event of any breach by LVP of
any of its covenants in this Agreement, LVP shall pay all of AMR’s costs of
enforcement of its rights under this Agreement, including but not limited to
reasonable attorneys’ fees, disbursements, expenses and court
costs.
(f)
Subsidiary Entities of
LVP
. All
references herein to the consummation, engaging in, entering into, or reporting
of a Disposition or other transaction, or entering into an agreement to do any
of the foregoing, by
LVP
shall
also apply to and include the consummation, engaging in, entering into, or
reporting of a Disposition or other transaction, or entering into an agreement
to do any of the foregoing, by any entity in which LVP owns, directly or
indirectly, an equity interest.
(g)
List of Properties Correct
and Complete
. LVP
represents to AMR that MRL owns, indirectly through entities that are treated as
disregarded entities for U.S. federal tax purposes, the Orlando Design Center
and Orlando Outlet World, and that LVP does not own, directly or indirectly, any
properties other than the Orlando Design Center and Orlando Outlet World and
holding entities for the Orlando Design Center and Orlando Outlet World.
IN
WITNESS WHEREOF, LVP and AMR have caused this Agreement to be signed by their
respective authorized signatories all as of the date first written
above.
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LIGHTSTONE
VALUE PLUS REIT, L.P.
By
Lightstone Value Plus Real Estate Investment Trust, Inc., its general
partner
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By:
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Name:
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Title:
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ARBOR
MILL RUN JRM, LLC
By
Arbor Commercial Mortgage, LLC, Member
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By:
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Name:
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Title:
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EXHIBIT
10.39
TAX PROTECTION
AGREEMENT
THIS TAX
PROTECTION AGREEMENT (“Agreement”), dated as of June 26, 2008, is made by
LIGHTSTONE VALUE PLUS REIT, L.P., a Delaware limited partnership (“LVP”), and
ARBOR NATIONAL CJ, LLC, a New York limited liability company (“ANCJ”) that will
become a limited partner of LVP as a result of the Contribution (defined
below).
WHEREAS ANCJ
owns a membership interest in
Mill Run
LLC
(“MRL”)
corresponding to a .46% Common Interest (as defined in the Second Amended and
Restated Operating Agreement of Mill Run LLC, dated as of September 20, 2005, as
amended);
WHEREAS
MRL owns, indirectly through entities that are treated as disregarded entities
for U.S. federal tax purposes, a property known as the Orlando Design Center and
a property known as Orlando Outlet World (collectively, the “Properties”);
WHEREAS,
pursuant to that certain Contribution and Conveyance Agreement, dated as of the
date hereof, between ANCJ and LVP (the “Contribution Agreement”), ANCJ will
contribute all of its membership interest in MRL (the “Contributed Interest”) to
LVP in exchange for Units (as defined in the Contribution Agreement) of LVP (the
“Contribution”);
WHEREAS,
for federal income tax purposes, it is intended that the Contribution will be
treated as a tax-free contribution by ANCJ to LVP of the Contributed Interest in
exchange for Units under Section 721 of the Code;
WHEREAS,
pursuant to the Contribution Agreement, LVP has agreed to make certain
undertakings to ANCJ as provided herein;
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties agree as follows:
1.
Definitions
. All
capitalized terms used and not otherwise defined in this Agreement shall have
the meaning set forth in the Partnership Agreement (as defined below). As used
herein, the following terms have the following meanings:
“Approved
Firms” shall mean any of the following firms: Baker & McKenzie LLP, Deloitte
& Touche LLP, Dewey & LeBoeuf LLP, McKee Nelson LLP, Kaye Scholer LLP,
and DLA Piper; and if any of the aforementioned law firms shall disband, the
parties hereto shall each make a good faith effort to choose a replacement for
each such firm.
“Built-in
Gain” means gain allocable under Section 704(c) of the Code or under so-called
“reverse” Section 704(c) principles pursuant to Treasury Regulation Section
1.704-1(b)(4)(i) to ANCJ with respect to the Properties or the Contributed
Interest (taking into account any special inside basis of ANCJ under Section
743(b) of the Code with respect to the Properties or the Contributed Interest).
For purposes of determining Built-in Gain with respect to the Properties, the
assets of MRL shall be deemed to have been revalued for federal income tax
purposes, and the capital accounts of the partners therein adjusted, immediately
prior to the Contribution pursuant to the principles of Treasury Regulation
Section 1.704-2(b)(2)(iv)(f) (notwithstanding that no event described in
Treasury Regulation Section 1.704-2(b)(2)(iv)(f)(5) occurs with respect to MRL
in connection with the Contribution). After the Closing Date, the Built-in Gain
shall be reduced from time to time pursuant to the principles set forth in the
Code and the Regulations thereunder.
“Closing”
shall mean the closing of the exchange of the Contributed Interest for Units
pursuant to the Contribution Agreement.
“Closing
Date” shall mean the date on which the Closing occurs.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Contributed
Interest” shall have the meaning set forth in the Recitals.
“Contribution”
shall have the meaning set forth in the Recitals.
“Disposition”
shall
have the meaning set forth in Section 2(a).
“Excluded
Transfer” shall have the meaning set forth in Section 2(g).
“Nonrecourse
Built-in Gain” means gain recognized under Section 731(a)(1) of the Code as a
result of a deemed distribution under Section 752(b) of the Code or gain
recognized under Section 465(e) of the Code as a result of a reduction of the
amount of liabilities allocable to ANCJ under Section 752 of the Code below the
Protected Amount.
“Partnership
Agreement” shall mean the Amended and Restated Agreement of Limited Partnership,
dated as of April 22, 2005, of LVP, as amended.
“Permitted
Transfer” shall mean (i)
a
transfer of any of the Properties or the Contributed Interest in an involuntary
bankruptcy against MRL,
(ii) the
condemnation or other taking of any of the Properties by a governmental entity
or authority in eminent domain proceedings, (iii) if LVP elects the Application
of Section 2(f), a transfer of the Orlando Design Center, or (iv) if LVP elects
the Application of Section 2(g), an Excluded Transfer.
“Prohibited
Transaction” shall mean a transaction that is prohibited under Section
2(a).
“Properties”
shall have the meaning set forth in the Recitals.
“Protected
Amount” shall mean an amount equal to the product of (i) ANCJ’s negative tax
capital account in MRL as of the date hereof and (ii) negative one (-1), as such
amount may be reduced pursuant to the following sentence. Upon any other sale,
exchange, transfer or disposition either (a) by ANCJ of some or all of its Units
or (b) by any person or entity of some or all of its direct or indirect equity
interest in ANCJ, the Protected Amount shall be reduced to the extent of (x) in
situation (a), any gain recognized by ANCJ, but only to the extent such gain is
attributable to the amount of nonrecourse liabilities of LVP of which ANCJ is
deemed relieved under Section 752 of the Code and the regulations thereunder as
a result of such transaction, and (y) in situation (b), any gain recognized by
such person (or, in the case of a transfer resulting from the death of such
person, the difference between the adjusted tax basis, for federal income tax
purposes, of the transferee with respect to the transferred property and the
adjusted tax basis, for federal income tax purposes, of such person with respect
to such property), but only to the extent such gain is attributable to the
amount of nonrecourse liabilities of LVP of which such person is deemed relieved
under Section 752 of the Code and the regulations thereunder as a result of such
transaction.
“Protected
Period” means the period beginning on the Closing Date, but after the Closing,
and ending on the date that is five (5) years after the Closing
Date.
“Qualifying
Opinion” shall have the meaning set forth in Section 3(d).
2.
Restrictions on Disposition
of the Properties
.
(a)
Subject
to Section 2(b), LVP agrees that during the Protected Period neither LVP, nor
any entity in which LVP holds a direct or indirect interest, will consummate a
sale, transfer, exchange or other disposition of all or any portion of the
Properties, the Contributed Interest, or any indirect interest in all or any
portion of the Properties or the Contributed Interest (a “Disposition”), or
engage in any other transaction, that results in the recognition and allocation
to ANCJ of all or any portion of its Built-in Gain that it would not otherwise
have recognized at such time as a result of the application of the Code and
Regulations in the absence of such transaction or any other transaction. In
addition, LVP shall not enter into any transaction described in the first
sentence of Section 3(d) unless LVP shall have first provided ANCJ with a
Qualifying Opinion in a timely manner pursuant to the requirements of Section
3(d). ANCJ shall have the right to seek and obtain specific performance or
injunctive relief as a remedy with respect to any breach or threatened breach of
the covenant set forth in the preceding sentence.
(b)
The first
sentence of Section 2(a) shall not apply to (i)
a
transfer of any of the Properties or the Contributed Interest in an involuntary
bankruptcy against MRL or
(ii) the
condemnation or other taking of any of the Properties by a governmental entity
or authority in eminent domain proceedings.
(c)
Any
property that is exchanged for or replaces any of the Properties, the
Contributed Interest, or any portion thereof and that is “substituted basis
property,” as defined in Section 7701(a)(42) of the Code, with respect
thereto shall thereafter be treated as a “Property,” the “Contributed Interest,”
or a portion thereof, as the case may be, for all purposes of this Agreement;
however, the Property, the Contributed Interest, or the portion thereof that was
exchanged for or replaced by such new property shall continue to be treated as a
“Property,” the “Contributed Interest,” or a portion thereof to the extent that
a subsequent disposition of (or other transaction involving) the Property, the
Contributed Interest, or the portion thereof could result in the recognition and
allocation to ANCJ of any Built-in Gain.
(d)
Within 18
weeks after the Closing Date, LVP shall provide to ANCJ a spreadsheet showing
its calculation of (i) the Built-in Gain with respect to the Properties and the
Contributed Interest and (ii) ANCJ’s negative tax capital account in MRL as of
the Closing Date. The calculation of the Built-in Gain shall be based on the
fair market values for the Properties and the Contributed Interest shown on
Schedule A hereto. The calculation of the Built-in Gain shall also reflect any
Section 704(c) or “reverse” Section 704(c) gain or loss existing with respect to
the Properties immediately prior to the Closing.
(e)
For
federal, state, and local income tax purposes, LVP shall report (i) ANCJ’s
contribution of the Contributed Interest to LVP as a tax-free contribution
pursuant to Section 721 of the Code (or the corresponding provision of state or
local law, as applicable) and (ii) ANCJ as a partner in LVP with respect to all
of the Units received by LVP;
provided
that,
upon a reasonable request from LVP’s accountant, ANCJ shall provide (at LVP’s
expense) to the accountant, at ANCJ ’s election, either (i) a letter from Cooley
Godward Kronish LLP to the accountant, (ii) an opinion letter from Cooley
Godward Kronish LLP which shall provide that the accountant is entitled to rely
on it, or (iii) an opinion letter from an Approved Firm to the accountant, in
each case providing the required level of comfort to the accountant to sign the
return or returns.
Notwithstanding
the foregoing, LVP shall not be deemed to have breached its obligations under
this Section 2(e) solely because a governmental taxing authority determines that
LVP would be required to file an amended tax return or amended information
statement that reports
the
Contribution
other
than as a contribution pursuant to Section 721 of the Code.
(f)
LVP may
elect to apply this Section 2(f) by treating any taxable direct or indirect
disposition of the Orlando Design Center as not subject to indemnification under
the first sentence of Section 2(a);
provided
,
however
, that
LVP shall not be entitled to elect the application of this Section 2(f) if LVP
shall have previously elected the application of Section 2(g). If LVP elects the
application of this Section 2(f), then the first sentence of Section 2(a) shall
not apply to a transfer of the Orlando Design Center.
(g)
LVP may
elect to apply this Section 2(g) by treating all or part of one or more taxable
direct or indirect Dispositions of Properties (other than the Orlando Design
Center), occurring at any time after the one year anniversary of the Closing
Date, as an Excluded Transfer or Excluded Transfers (as defined below) not
subject to indemnification under the first sentence of Section 2(a), within the
limits set forth in the following sentence;
provided
,
however
, that
LVP shall not be entitled to elect the application of this Section 2(g) if LVP
shall have previously or concurrently elected the application of Section 2(f).
If LVP elects or has elected the application of this Section 2(g) and in any
calendar year, taking into account all direct or indirect Dispositions by LVP of
one or more Properties or portions thereof that (i) are taxable in whole or in
part and (ii) occur during such calendar year and after the one year anniversary
of the Closing Date, LVP transfers Properties or portions thereof having an
aggregate value as of the date hereof as set forth on Schedule A hereto that is
less than or equal to ten percent (10%) of the total value of the Properties as
of the date hereof as set forth on Schedule A hereto, then the first sentence of
Section 2(a) shall not apply to such Dispositions (each such Disposition, an
“Excluded Transfer”); moreover, if the aggregate value (as of the date hereof as
set forth on Schedule A hereto) of the Properties transferred in such
Dispositions is less than ten percent (10%) of the total value of the Properties
as of the date hereof as set forth on Schedule A hereto, then such deficit shall
carry over to the following calendar year and increase the amount of Properties
the transfers of which may qualify as Excluded Transfers for such year, and if
such amounts are not transferred, all such amounts shall carry over to the next
successive year, and so on, until the term of this Agreement shall expire. If
the preceding sentence does not apply to Dispositions by LVP in any calendar
year because the aggregate value (as of the date hereof as set forth on Schedule
A hereto) of the Properties (or portions thereof) disposed of exceeds ten
percent (10%) of the total value of the Properties as of the date hereof as set
forth on Schedule A hereto, then only a ratable portion of each such Disposition
shall qualify as an Excluded Transfer not subject to Section 2(a). With respect
to the first calendar year that begins after the date hereof, the preceding two
sentences shall be applied by substituting for each occurrence of “ten percent
(10%)” the product of (i) ten percent (10%) and (ii) a fraction, the numerator
of which is the number of days from the one year anniversary of the date hereof
to December 31 of such calendar year, and the denominator of which is 365.
Notwithstanding anything to the contrary herein, a direct or indirect
Disposition or other transfer of a Property or a portion thereof shall not
constitute an Excluded Transfer if such transfer is effectuated with a party
“related” to LVP (applying the principles of Code Sections 267(b) and 707(b)) in
a transaction that lacks a bona fide commercially motivated business purpose.
(h)
No later
than the earlier of (i) the date that is 30 days after LVP consummates a direct
or indirect Disposition, taxable in whole or in part, of one or more Properties
or portions thereof and (ii) December 31 of the calendar year in which such
Disposition occurs, LVP shall provide ANCJ with written notification of such
disposition, including (I) the Property, Properties, or portions thereof
disposed of (II) the amount and nature of the consideration received, and (III)
the amount of gain (including Built-in Gain) allocable to ANCJ as a result of
such Disposition;
provided
,
however
, that
LVP shall not be required to provide such notification if it shall have
previously provided the identical information to ANCJ pursuant to the
notification provisions of Section 3(a).
3.
Indemnity by LVP for Breach
of Obligations set forth in Section 2
.
(a)
In the
event that LVP engages in a Prohibited Transaction in breach of its obligations
set forth in Section 2(a), LVP shall pay to ANCJ an amount equal to (i) the
aggregate federal, state and local income taxes deemed incurred by ANCJ with
respect to any portion of its Built-in Gain that it recognizes as a result of
such Prohibited Transaction plus (ii) a “gross-up” amount so that, after the
hypothetical payment by ANCJ of all federal, state and local income taxes on
amounts received pursuant to this Section 3(a), ANCJ would retain from such
payments hereunder an amount equal to its total deemed income tax liability
incurred as a result of the Prohibited Transaction and its recognition of such
Built-in Gain. If (i) gain is recognized by ANCJ or allocated to ANCJ as a
result of the closing of the transactions contemplated by the Contribution
Agreement and (ii) such gain recognition is attributable to (I) incorrect
information provided by MRL or an affiliate or agent thereof to ANCJ or (II) a
breach of LVP’s or the Lightstone Value Plus Real Estate Investment Trust,
Inc.’s obligations under the Contribution Agreement or this Agreement, then LVP
shall indemnify ANCJ for such Built-in Gain under this Section 3(a) as if such
Built-in Gain had resulted from a Prohibited Transaction. Notwithstanding
anything herein to the contrary, it is the understanding and the intention of
the parties hereto that this Agreement shall in no manner create liability for
LVP as a result of any tax that may be recognized as a result of (i) the
structure and effectuation of the transactions contemplated hereby and by the
Contribution Agreement or (ii) any conversion of Units into stock of the REIT at
ANCJ’s election and that the only liability that may arise as to LVP shall be as
a result of its breach of its obligations imposed by this Agreement or the
Contribution Agreement, if any, or as a result of any provision of incorrect
information.
At the
time LVP enters into an agreement to consummate a Prohibited Transaction that,
if consummated, would breach Section 2(a) hereof and result in the recognition
by ANCJ of all or any portion of its Built-in Gain, and in any case not less
than thirty (30) days prior to consummating such Prohibited Transaction, LVP
shall notify ANCJ in writing of such proposed Prohibited Transaction and of the
approximate sales price or other amount to be realized for income tax purposes
in connection therewith and all other relevant details of the Prohibited
Transaction and shall request from ANCJ such information
that is
within ANCJ’s possession or control
as is
reasonably necessary for LVP to calculate the amount of the indemnity set forth
herein. Upon receipt of such notice, ANCJ shall provide LVP with any information
reasonably requested by LVP of ANCJ that is within ANCJ’s possession or control
and is relevant to calculation of the indemnity set forth herein within ten (10)
days of such request. Within ten (10) days after receipt of such information
from ANCJ
(or, if
no such information is requested, at the same time that LVP notifies ANCJ of the
Prohibited Transaction as provided above)
, LVP
shall provide to ANCJ (i) a computation of the indemnity payment, if any, owing
to ANCJ under this Section 3(a). LVP shall make any required indemnity payment
owing to ANCJ pursuant to this Section 3(a) no later than five (5) days prior to
the due date of the quarterly estimated tax payment for individuals which next
follows the date that the Prohibited Transaction is consummated or, if later,
ten (10) days after the date required for LVP’s delivery of the computation of
the indemnity payment to ANCJ. For purposes of determining the amount of the
deemed income taxes incurred by ANCJ and the amount of the indemnity for
Built-in Gain under this Section 3(a), (i) all income arising from a transaction
or event that is taxable at ordinary income rates (including, without
limitation, “recapture” under Code Sections 1245 or 1250 and net short-term
capital gain) under the applicable provisions of the Code and allocable to ANCJ
shall be treated as subject to federal, state and local income tax at the then
applicable effective tax rate imposed on ordinary income of individuals residing
in the city of New York, New York, determined using the maximum federal rate of
tax on ordinary income and the maximum state and local rates of tax on ordinary
income then in effect in New York City and New York State, (ii) all long-term
capital gain arising from the transaction or event allocable to ANCJ shall be
treated as subject to federal, state, and local income tax at the then
applicable effective tax rate imposed on long-term capital gains of individuals
residing in the city of New York, New York, determined using the maximum
federal, state and local rates on long-term capital gains then in effect (taking
into account any special capital gains rate attributable to recapture of prior
depreciation deductions), and (iii) any amounts payable with respect to state
and local income taxes shall be assumed to be fully deductible (without
limitation or phaseout) for federal income tax purposes.
(b)
Notwithstanding
any provision of this Agreement to the contrary, other than the last sentence of
Section 2(a), Section 3(c), and Section 3(d), the sole and exclusive rights and
remedies of ANCJ for a breach or violation of the covenants set forth in
Sections 2(a) and 3(a) shall be a claim for payment against LVP, computed
as set forth in Section 3(a), and for interest and enforcement costs as
provided in Section 9(e). Except as provided in Sections 2(a), 3(c), and 3(d),
ANCJ shall not be entitled to pursue a claim for specific performance of the
covenant set forth in Section 2(a) or bring a claim against any person that
acquires the Contributed Interest or any of the Properties in violation of
Section 2(a).
(c)
Notwithstanding
anything to the contrary herein, LVP may not enter into a Prohibited Transaction
unless, at least fourteen (14) days prior to entering into such transaction, LVP
will have provided ANCJ with evidence reasonably satisfactory to ANCJ that,
following such transaction, and including any proceeds from such transaction,
LVP will have the requisite liquidity to make any necessary indemnification
payments required pursuant to this Agreement. ANCJ shall have the right to seek
and obtain specific performance or injunctive relief as a remedy with respect to
any breach or threatened breach of this covenant.
(d)
Prior to
the time that LVP enters into an agreement to consummate a transaction that (i)
may result in the realization of Built-in Gain but (ii) which LVP may report,
for federal, state, or local income tax purposes, as not resulting (in whole or
in part) in the recognition of such realized Built-in Gain, and in any case not
less than thirty (30) days prior to consummating such transaction, LVP shall
provide ANCJ with a written description of the transaction containing all
relevant details and shall thereafter, as promptly as possible upon ANCJ’s
reasonable request, and in any case not less than twenty (20) days prior to
consummating such transaction, provide ANCJ with an opinion from any Approved
Firm that (i) meets all the requirements for “covered opinions” set forth in
Section 10.35(c) of IRS Circular 230, including the requirement that a covered
opinion consider all significant federal tax issues, (ii) is based on a
statement of facts that is not inaccurate or unreasonable in any material
respect, and (iii) concludes, at at least a “more likely than not” level of
comfort, that all or part of the Built-in Gain realized in such transaction will
not be recognized for tax purposes (such an opinion, a “Qualifying Opinion”). If
LVP does not provide ANCJ with
a
description of the transaction and, if reasonably requested by ANCJ,
a
Qualifying Opinion in a timely manner pursuant to the first sentence of this
paragraph, then LVP shall not consummate such transaction. Furthermore, LVP
shall not report any transaction as resulting (in whole or in part) in the
realization, but not the nonrecognition, of Built-in Gain unless either (i) LVP
previously provided ANCJ with a Qualifying Opinion in a timely manner pursuant
to the first sentence of this paragraph or (ii) LVP obtains the consent of ANCJ
prior to taking such reporting position. ANCJ shall have the right to seek and
obtain specific performance or injunctive relief as a remedy with respect to any
breach or threatened breach of the covenants set forth in this
paragraph.
4.
Section 704(c)
Method
. LVP
shall use, and shall cause any other entity in which LVP has a direct or
indirect interest to use, the “traditional method” under Treasury Regulation
Section 1.704-3(b) without curative allocations for purposes of making
allocations under Section 704(c) of the Code or reverse Section 704(c)
allocations with respect to the Contributed Interest and the Properties to take
into account the book-tax disparities as of the effective time of the
Contribution with respect to the Contributed Interest and the Properties.
5.
Obligation of LVP to
Maintain Certain Debt
.
(a)
At all
times through the Protected Period, LVP agrees to maintain, directly or
indirectly, an amount of indebtedness allocable to ANCJ under Section 752 of the
Code (and specifically as one or more nonrecourse liabilities under Treasury
Regulation Section 1.752-3) at least equal to the Protected Amount. ANCJ shall
have the right to seek and obtain specific performance or injunctive relief as a
remedy with respect to any breach or threatened breach of this covenant. For the
avoidance of doubt, the purpose of this Section 5(a) is not to require LVP to
increase the amount of liabilities to which the Properties or any other
properties are subject,
provided
that LVP
maintains in place the liabilities of MRL and its subsidiary entities existing
as of the date hereof and does not take any actions (or cause or permit any
actions to be taken) that would decrease the amounts of such liabilities that
are allocable to ANCJ under Section 752 and the regulations
thereunder.
(b)
Federal,
state and local income tax returns filed by LVP for all taxable periods
beginning prior to the expiration of the Protected Period shall report
allocations of nonrecourse liabilities to ANCJ in an amount at least equal to
the Protected Amount.
6.
Indemnity by LVP for Breach
of Obligations set forth in Section 5
. In the
event that (i) LVP breaches its obligations set forth in Section 5 and as a
result ANCJ recognizes Nonrecourse Built-in Gain
and (ii)
such breach has not occurred in connection with a Permitted Transfer,
LVP shall
pay to ANCJ, upon written demand by ANCJ, an amount equal to (i) the aggregate
federal, state and local income taxes deemed incurred by ANCJ as a result of
such Nonrecourse Built-in Gain recognized by ANCJ by reason of such breach plus
(ii) a “gross-up” amount so that, after the hypothetical payment by ANCJ of all
federal, state and local income taxes on amounts received pursuant to this
Section 6, ANCJ would retain from such payments hereunder an amount equal to its
total income tax liability deemed incurred as a result of the breach by LVP of
its obligations set forth in Section 5 and ANCJ’s recognition of such
Nonrecourse Built-in Gain. The principles and tax rates set forth in Section
3(a) shall apply for purposes of determining the timing and amount of payment to
be made to ANCJ pursuant to this Section 6 (including, without limitation, the
calculation of the aggregate federal, state and local income taxes deemed
incurred by ANCJ). In addition, the notification procedures set forth in Section
3(a) shall apply for purposes of this Section 6 with respect to transactions
that would result in a breach of Section 5.
7.
Requests for
Information
. Upon
the request of LVP, ANCJ shall provide to LVP copies of such tax returns,
schedules and other information that is within the possession or control of ANCJ
(including, without limitation, copies of state and federal tax returns and
related working papers) reasonably requested by LVP (“Tax Protection
Information”) to enable it to make any necessary calculations with respect to
payments required to be made by LVP hereunder, including, without limitation,
calculations of Built-in Gain and Nonrecourse Built-in Gain claimed to be
recognized by ANCJ. No Tax Protection Information acquired by LVP or any of its
representatives may be disclosed to any individual or entity other than (i)
those representatives of LVP who need to know the Tax Protection Information for
the purpose of assisting LVP in evaluating and performing its obligations under
this Agreement (it being understood that prior to such disclosure LVP’s
representatives will be informed of the confidential nature of the Tax
Protection Information and shall agree in writing to be bound by the
requirements of this Section 7 of this Agreement), (ii) as required by
applicable law, or (iii) if necessary, upon the advice of counsel, in order to
comply with any judicial order, civil or criminal subpoena or any discovery
demand in pending litigation, whether or not LVP or any of its representatives
is a party thereto. LVP agrees to be responsible for any breach of this
Agreement by its representatives.
8.
Term
. This
Agreement shall terminate upon the expiration of the Protected Period. In
addition, Section 5 of this Agreement shall terminate in the event that the
Protected Amount is reduced to zero. Notwithstanding the foregoing, LVP's
payment obligations under Sections 3, 6 and 9(e) shall survive the termination
of this Agreement or the termination of Section 5, as the case may be, to the
extent such obligations relate to a breach of LVP’s obligations under Section 2
or 5 occurring before such termination of this Agreement (or in the case of
liability under Section 6, the termination of Section 5).
9.
General
Provisions
.
(a)
Notices
. All
notices, requests, claims, demands and other communications under this Agreement
shall be in writing and shall be deemed given if delivered personally, sent by
overnight courier (providing proof of delivery) or sent by telecopy (providing
confirmation of transmission) to the parties at the following addresses or
telecopy numbers (or at such other address or telecopy number for a party as
shall be specified by like notice):
(i)
if to
LVP, to:
c/o The
Lightstone Group
326 Third
Street
Lakewood,
NJ 08701
Attn:
Joseph E. Teichman
Fax
No.:
732-612-1444
with a
copy to:
Herrick,
Feinstein LLP
2 Park
Avenue
New York,
NY 10016
Attn:
Sheldon Chanales, Esq.
Fax No.:
(212) 545-3313
(ii)
if to
ANCJ, to:
c/o Arbor
Commercial Mortgage LLC
333 Earle
Ovington Boulevard
Uniondale,
NY 11553
Attention:
Guy R. Milone, Jr.
Fax No.:
(516) 506-4045
with a
copy to:
Cooley
Godward Kronish LLP
1114
Avenue of the Americas
New York,
NY 10036
Fax No.:
(212) 479-6275
Attn:
Thomas D. O’Connor, Esq.
(b)
Counterparts
. This
Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other party.
(c)
Governing
Law
. THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
(d)
Severability
. If any
term, covenant or condition of this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, this Agreement shall be construed
without such provision.
(e)
Interest and Enforcement
Costs
. In the
event that LVP fails to pay ANCJ any amount due pursuant to this Agreement on
the date such amount is due, then such past due amount shall bear interest until
the date paid at a rate equal to 15% per annum. In the event of any breach by
LVP of any of its covenants in this Agreement, LVP shall pay all of ANCJ’s costs
of enforcement of its rights under this Agreement, including but not limited to
reasonable attorneys’ fees, disbursements, expenses and court
costs.
(f)
Subsidiary Entities of
LVP
. All
references herein to the consummation, engaging in, entering into, or reporting
of a Disposition or other transaction, or entering into an agreement to do any
of the foregoing, by
LVP
shall
also apply to and include the consummation, engaging in, entering into, or
reporting of a Disposition or other transaction, or entering into an agreement
to do any of the foregoing, by any entity in which LVP owns, directly or
indirectly, an equity interest.
(g)
List of Properties Correct
and Complete
. LVP
represents to ANCJ that MRL owns, indirectly through entities that are treated
as disregarded entities for U.S. federal tax purposes, the Orlando Design Center
and Orlando Outlet World, and that LVP does not own, directly or indirectly, any
properties other than the Orlando Design Center and Orlando Outlet World and
holding entities for the Orlando Design Center and Orlando Outlet
World.
IN
WITNESS WHEREOF, LVP and ANCJ have caused this Agreement to be signed by their
respective authorized signatories all as of the date first written
above.
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LIGHTSTONE
VALUE PLUS REIT, L.P.
By
Lightstone Value Plus Real Estate Investment Trust, Inc., its general
partner
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By:
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Name:
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Title:
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ARBOR
NATIONAL CJ, LLC
By
Arbor Commercial Mortgage, LLC, its sole member
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Name:
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Title:
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EXHIBIT
10.40
TAX PROTECTION
AGREEMENT
THIS TAX
PROTECTION AGREEMENT (“Agreement”), dated as of June 26, 2008, is made by
LIGHTSTONE VALUE PLUS REIT, L.P., a Delaware limited partnership (“LVP”), PRIME
OUTLETS ACQUISITION COMPANY LLC, a Delaware limited liability company (“POAC”),
and AR PRIME HOLDINGS, LLC, a Delaware limited liability company (“ARP”) that
will become a limited partner of LVP as a result of the Contribution (defined
below).
WHEREAS ARP
owns a membership interest in POAC corresponding to a 25% Percentage of
Membership Interest (as defined in the Amended and Restated Limited Liability
Company Agreement of POAC, dated as of December 11, 2003);
WHEREAS
POAC owns, indirectly through certain entities that are treated as disregarded
entities for U.S. federal tax purposes and certain other entities that are
treated as partnerships for U.S. federal tax purposes (the “Subsidiary
Partnerships”), the properties listed on Schedule A hereto (collectively, the
“Properties”);
WHEREAS,
in that certain Contribution and Conveyance Agreement, dated as of the date
hereof, by and among the Lightstone Value Plus Real Estate Investment Trust,
Inc., ARP, and LVP (the “Contribution Agreement”), ARP and LVP have agreed that,
within thirty (30) days of the completion of financial audits with respect to
all of the subsidiaries of POAC, but not later than June
26, 2009,
ARP will contribute all of its membership interest in POAC (the “Contributed
Interest”) to LVP in exchange for Units (as defined in the Contribution
Agreement) of LVP (the “Contribution”);
WHEREAS,
for federal income tax purposes, it is intended that the Contribution will be
treated as a tax-free contribution by ARP to LVP of the Contributed Interest in
exchange for Units under Section 721 of the Code;
WHEREAS
,
pursuant to the Contribution Agreement, LVP has agreed to make certain
undertakings to ARP as provided herein;
WHEREAS
POAC desires to induce ARP to enter into the Contribution Agreement, and the
execution of this Agreement by POAC was a condition to ARP’s execution and
delivery of the Contribution Agreement;
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties agree as follows:
1.
Definitions
. All
capitalized terms used and not otherwise defined in this Agreement shall have
the meaning set forth in the Partnership Agreement (as defined below). As used
herein, the following terms have the following meanings:
“Applicable
Lightstone Party” shall mean (i) before the Contribution, POAC, and (ii) from
and after the Contribution, LVP.
“Approved
Firms” shall mean any of the following firms: Baker & McKenzie LLP, Deloitte
& Touche LLP, Dewey & LeBoeuf LLP, McKee Nelson LLP, Kaye Scholer LLP,
and DLA Piper; and if any of the aforementioned law firms shall disband, the
parties hereto shall each make a good faith effort to choose a replacement for
each such firm.
“Built-in
Gain” means gain allocable under Section 704(c) of the Code or under so-called
“reverse” Section 704(c) principles pursuant to Treasury Regulation Section
1.704-1(b)(4)(i) to ARP with respect to the Properties, the Subsidiary
Partnership Interests, or the Contributed Interest (taking into account any
special inside basis of ARP under Section 743(b) of the Code with respect to the
Properties, the Subsidiary Partnership Interests, or the Contributed Interest);
provided
,
however
, that,
subject to Section 2(a), the Built-in Gain with respect to the Contributed
Interest as of the date hereof shall be treated for purposes of this Agreement
as an amount equal to the excess of the fair market value of the Contributed
Interest over its adjusted basis for federal income tax purposes, and such
Built-in Gain shall thereafter be adjusted from time to time pursuant to the
principles set forth in the Code and the Regulations thereunder. For purposes of
determining Built-in Gain with respect to the Properties and the Subsidiary
Partnership Interests, the assets of POAC and the Subsidiary Partnerships shall
be deemed to have been revalued for federal income tax purposes, and the capital
accounts of the partners therein adjusted, as of the date hereof pursuant to the
principles of Treasury Regulation Section 1.704-2(b)(2)(iv)(f) (notwithstanding
that no event described in Treasury Regulation Section 1.704-2(b)(2)(iv)(f)(5)
occurs with respect to POAC or the Subsidiary Partnerships on the date hereof).
After the date hereof, the Built-in Gain shall be reduced from time to time
pursuant to the principles set forth in the Code and the Regulations thereunder.
“Burnoff
Date” shall mean the day that is 365 days after the date hereof. However, if the
Contribution occurs after February 26, 2009, then the preceding sentence shall
be applied as if the number “365” were replaced by the sum of (i) 365 and (ii)
the number of days from (but excluding) February 26, 2009, through and including
the Closing Date.
“Closing”
shall mean the closing of the exchange of the Contributed Interest for Units
pursuant to the Contribution Agreement.
“Closing
Date” shall mean the date on which the Closing occurs.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Contributed
Interest” shall have the meaning set forth in the Recitals.
“Contribution”
shall have the meaning set forth in the Recitals.
“Disposition”
shall
have the meaning set forth in Section 2(a).
“Excluded
Transfer” shall have the meaning set forth in Section 2(b).
“Nonrecourse
Built-in Gain” means gain recognized under Section 731(a)(1) of the Code as a
result of a deemed distribution under Section 752(b) of the Code or gain
recognized under Section 465(e) of the Code as a result of a reduction of the
amount of liabilities allocable to ARP under Section 752 of the Code below the
Protected Amount.
“Partnership
Agreement” shall mean the Amended and Restated Agreement of Limited Partnership,
dated as of April 22, 2005, of LVP, as amended.
“Permitted
Transfer” shall mean (i)
a
transfer of any of the Properties or the Contributed Interest in an involuntary
bankruptcy against the
Applicable
Lightstone Party
,
(ii) the
condemnation or other taking of any of the Properties by a governmental entity
or authority in eminent domain proceedings, or (iii) an Excluded
Transfer.
“Prohibited
Transaction” shall mean a transaction that is prohibited under Section
2(a).
“Properties”
shall have the meaning set forth in the Recitals.
“Protected
Amount” shall mean an amount equal to the product of (i) ARP’s negative tax
capital account in POAC as of the date hereof and (ii) negative one (-1), as
such amount may be reduced pursuant to the following sentence. Upon any other
sale, exchange, transfer or disposition either (a) by ARP of some or all of its
equity interest in
the
Applicable
Lightstone Party or (b) by any person or entity of some or all of its direct or
indirect equity interest in ARP, the Protected Amount shall be reduced to the
extent of (x) in situation (a), any gain recognized by ARP, but only to the
extent such gain is attributable to the amount of nonrecourse liabilities of
the
Applicable
Lightstone Party of which ARP is deemed relieved under Section 752 of the Code
and the regulations thereunder as a result of such transaction, and (y) in
situation (b), any gain recognized by such person (or, in the case of a transfer
resulting from the death of such person, the difference between the adjusted tax
basis, for federal income tax purposes, of the transferee with respect to the
transferred property and the adjusted tax basis, for federal income tax
purposes, of such person with respect to such property), but only to the extent
such gain is attributable to the amount of nonrecourse liabilities of
the
Applicable
Lightstone Party of which such person is deemed relieved under Section 752 of
the Code and the regulations thereunder as a result of such transaction.
“Protected
Period” means the five-year period beginning on the date hereof.
“Qualifying
Opinion” shall have the meaning set forth in Section 3(d).
“Subsidiary
Partnership” shall have the meaning set forth in the Recitals.
“Subsidiary
Partnership Interest” shall mean an interest in a Subsidiary Partnership held,
directly or indirectly, by
the
Applicable
Lightstone Party.
2.
Restrictions on Disposition
of the Properties
.
(a)
Subject
to Section 2(b), LVP and POAC agree that during the Protected Period neither
the
Applicable
Lightstone Party, nor any entity in which
the
Applicable
Lightstone Party holds a direct or indirect interest, will consummate a sale,
transfer, exchange or other disposition of all or any portion of the Properties,
the Contributed Interest, or any indirect interest in all or any portion of the
Properties or the Contributed Interest (a “Disposition”), or engage in any other
transaction, that results in the recognition and allocation to ARP of all or any
portion of its Built-in Gain that it would not otherwise have recognized at such
time as a result of the application of the Code and Regulations in the absence
of such transaction or any other transaction. For purposes of the preceding
sentence, the Contributed Interest shall not be treated as having any Built-in
Gain until after the Contribution. In addition,
the
Applicable
Lightstone Party
shall not
enter into any transaction described in the first sentence of Section 3(d)
unless
the
Applicable
Lightstone Party shall have first provided ARP with a Qualifying Opinion in a
timely manner pursuant to the requirements of Section 3(d). ARP shall have the
right to seek and obtain specific performance or injunctive relief as a remedy
with respect to any breach or threatened breach of the covenant set forth in the
preceding sentence.
(b)
The first
sentence of Section 2(a) shall not apply to (i)
a
transfer of any of the Properties or the Contributed Interest in an involuntary
bankruptcy against the
Applicable
Lightstone Party
or
(ii) the
condemnation or other taking of any of the Properties by a governmental entity
or authority in eminent domain proceedings.
Furthermore,
if in any calendar year, taking into account all direct or indirect Dispositions
by LVP of one or more Properties or portions thereof that (i) are taxable in
whole or in part and (ii) occur during such calendar year and after the Burnoff
Date,
LVP
transfers Properties or portions thereof having an aggregate value as of the
date hereof as set forth on Schedule A hereto that is less than or equal to ten
percent (10%) of the total value of the Properties as of the date hereof as set
forth on Schedule A hereto,
then the
first sentence of Section 2(a) shall not apply to such Dispositions (each such
Disposition, an “Excluded Transfer”); moreover, if the aggregate value (as of
the date hereof as set forth on Schedule A hereto) of the Properties transferred
in such Dispositions is less than ten percent (10%) of the total value of the
Properties as of the date hereof as set forth on Schedule A hereto, then such
deficit shall carry over to the following calendar year and increase the amount
of Properties the transfers of which may qualify as Excluded Transfers for such
year, and if such amounts are not transferred, all such amounts shall carry over
to the next successive year, and so on, until the term of this Agreement shall
expire. If the preceding sentence does not apply to Dispositions by LVP in any
calendar year because the aggregate value (as of the date hereof as set forth on
Schedule A hereto) of the Properties (or portions thereof) disposed of exceeds
ten percent (10%) of the total value of the Properties as of the date hereof as
set forth on Schedule A hereto, then only a ratable portion of each such
Disposition shall qualify as an Excluded Transfer not subject to Section 2(a).
With respect to the calendar year that includes the day after the Burnoff Date,
the preceding two sentences shall be applied by substituting for each occurrence
of “ten percent (10%)” the product of (i) ten percent (10%) and (ii) a fraction,
the numerator of which is the number of days from (but excluding) the Burnoff
Date to December 31 of such calendar year, and the denominator of which is 365.
Notwithstanding anything to the contrary herein, a direct or indirect
Disposition or other transfer of a Property or a portion thereof shall not
constitute an Excluded Transfer if such transfer is effectuated with a party
“related” to LVP (applying the principles of Code Sections 267(b) and 707(b)) in
a transaction that lacks a bona fide commercially motivated business purpose. No
later than the earlier of (i) the date that is 30 days after LVP consummates a
direct or indirect Disposition, taxable in whole or in part, of one or more
Properties or portions thereof and (ii) December 31 of the calendar year in
which such Disposition occurs, LVP shall provide ARP with written notification
of such disposition, including (I) the Property, Properties, or portions thereof
disposed of, (II) the amount and nature of the consideration received, and (III)
the amount of gain (including Built-in Gain) allocable to ARP as a result of
such Disposition;
provided
,
however
, that
LVP shall not be required to provide such notification if it shall have
previously provided the identical information to ARP pursuant to the
notification provisions of Section 3(a).
(c)
Any
property that is exchanged for or replaces any of the Properties, a Subsidiary
Partnership Interest, the Contributed Interest, or any portion thereof and that
is “substituted basis property,” as defined in Section 7701(a)(42) of the
Code, with respect thereto shall thereafter be treated as a “Property,” a
“Subsidiary Partnership Interest,” the “Contributed Interest,” or a portion
thereof, as the case may be, for all purposes of this Agreement;
provided
,
however
, that
(i) the Property, the Subsidiary Partnership Interest, the Contributed Interest,
or the portion thereof that was exchanged for or replaced by such new property
shall continue to be treated as a “Property,” a “Subsidiary Partnership
Interest,” the “Contributed Interest,” or a portion thereof to the extent that a
subsequent disposition of (or other transaction involving) the Property, the
Subsidiary Partnership Interest, the Contributed Interest, or the portion
thereof could result in the recognition and allocation to ARP of any Built-in
Gain, and
provided
further
that (ii) the Units received by ARP in exchange for the Contributed Interest in
connection with the Contribution shall not be treated as the Contributed
Interest or as having Built-in Gain under this Agreement.
(d)
Within 18
weeks after the date hereof, POAC shall provide to ARP a spreadsheet showing its
calculation of (i) the Built-in Gain with respect to the Properties and the
Contributed Interest as of the date hereof and (ii) ARP’s negative tax capital
account in POAC as of the date hereof. The calculation of the Built-in Gain
shall be based on the fair market values for the Properties and the Contributed
Interest shown on Schedule A hereto. The calculation of the Built-in Gain shall
also reflect any Section 704(c) or “reverse” Section 704(c) gain or loss
existing with respect to the Properties immediately prior to the date hereof. In
addition, at the time of the Contribution, the Built-in Gain with respect to the
Properties, the Subsidiary Partnership Interests, and the Contributed Interest
shall be increased by the Additional Amount, as defined in the Contribution
Agreement. Within 2 weeks after the Contribution, LVP shall provide to ARP a
spreadsheet showing the allocation of the Additional Amount among the
Properties. Each Property shall be allocated its ratable share of the Additional
Amount based on the fair market value of such Property relative to the fair
market values of all of the Properties, as shown on Schedule A hereto. The
allocation of the Additional Amount among the Subsidiary Partnership Interests
shall be made based on and consistently with the allocation of the Additional
Amount among the Properties.
(e)
For
federal, state, and local income tax purposes, LVP shall report (i) ARP’s
contribution of the Contributed Interest to LVP as a tax-free contribution
pursuant to Section 721 of the Code
(or the
corresponding provision of state or local law, as applicable)
and (ii)
ARP as a partner in LVP with respect to all of the Units received by LVP;
provided
that,
upon a reasonable request from LVP’s accountant, ARP shall provide (at LVP’s
expense) to the accountant, at ARP’s election, either (i) a letter from Cooley
Godward Kronish LLP to the accountant, (ii) an opinion letter from Cooley
Godward Kronish LLP which shall provide that the accountant is entitled to rely
on it, or (iii) an opinion letter from an Approved Firm to the accountant, in
each case providing the required level of comfort to the accountant to sign the
return or returns.
Notwithstanding
the foregoing, LVP shall not be deemed to have breached its obligations under
this Section 2(e) solely because a governmental taxing authority determines that
LVP would be required to file an amended tax return or amended information
statement that reports the Contribution other than as a contribution pursuant to
Section 721 of the Code.
3.
Indemnity for Breach of
Obligations set forth in Section 2
.
(a)
In the
event that either LVP or POAC engages in a Prohibited Transaction in breach of
its obligations set forth in Section 2(a), LVP and POAC shall be jointly
and severally liable to ARP for, and shall pay to ARP, an amount equal to (i)
the aggregate federal, state and local income taxes deemed incurred by ARP with
respect to any portion of its Built-in Gain that it recognizes as a result of
such Prohibited Transaction plus (ii) a “gross-up” amount so that, after the
hypothetical payment by ARP of all federal, state and local income taxes on
amounts received pursuant to this Section 3(a), ARP would retain from such
payments hereunder an amount equal to its total deemed income tax liability
incurred as a result of the Prohibited Transaction and its recognition of such
Built-in Gain. If (i) gain is recognized by ARP or allocated to ARP as a result
of the closing of the transactions contemplated by the Contribution Agreement
and (ii) such gain recognition is attributable to (I) incorrect information
provided by POAC or an affiliate or agent thereof to ARP or (II) a breach of
LVP’s or the Lightstone Value Plus Real Estate Investment Trust, Inc.’s
obligations under the Contribution Agreement or this Agreement, then LVP and
POAC shall indemnify ARP for such Built-in Gain under this Section 3(a) as if
such Built-in Gain had resulted from a Prohibited Transaction. Notwithstanding
anything herein to the contrary, it is the understanding and the intention of
the parties hereto that this Agreement shall in no manner create liability for
LVP as a result of any tax that may be recognized as a result of (i) the
structure and effectuation of the transactions contemplated hereby and by the
Contribution Agreement or (ii) any conversion of Units into stock of the REIT at
ARP’s election and that the only liability that may arise as to LVP shall be as
a result of its breach of its obligations imposed by this Agreement or the
Contribution Agreement, if any, or as a result of any provision of incorrect
information.
At the
time LVP enters into an agreement to consummate a Prohibited Transaction that,
if consummated, would breach Section 2(a) hereof and result in the recognition
by ARP of all or any portion of its Built-in Gain, and in any case not less than
thirty (30) days prior to consummating such Prohibited Transaction,
the
Applicable
Lightstone Party shall notify ARP in writing of such proposed Prohibited
Transaction and of the approximate sales price or other amount to be realized
for income tax purposes in connection therewith and all other relevant details
of the Prohibited Transaction and shall request from ARP such information
that is
within ARP’s possession or control
as is
reasonably necessary for
the
Applicable
Lightstone Party to calculate the amount of the indemnity set forth herein. Upon
receipt of such notice, ARP shall provide
the
Applicable
Lightstone Party with any information reasonably requested by
the
Applicable
Lightstone Party of ARP that is within ARP’s possession or control and is
relevant to calculation of the indemnity set forth herein within ten (10) days
of such request. Within ten (10) days after receipt of such information from ARP
(or, if
no such information is requested, at the same time that the Applicable
Lightstone Party notifies ARP of the Prohibited Transaction as provided
above)
,
the
Applicable
Lightstone Party shall provide to ARP (i) a computation of the indemnity
payment, if any, owing to ARP under this Section 3(a). T
he
Applicable
Lightstone Party shall make any required indemnity payment owing to ARP pursuant
to this Section 3(a) no later than five (5) days prior to the due date of the
quarterly estimated tax payment for individuals which next follows the date that
the Prohibited Transaction is consummated or, if later, ten (10) days after the
date required for
the
Applicable
Lightstone Party’s delivery of the computation of the indemnity payment to ARP.
For purposes of determining the amount of the deemed income taxes incurred by
ARP and the amount of the indemnity for Built-in Gain under this Section 3(a),
(i) all income arising from a transaction or event that is taxable at ordinary
income rates (including, without limitation, “recapture” under Code Sections
1245 or 1250 and net short-term capital gain) under the applicable provisions of
the Code and allocable to ARP shall be treated as subject to federal, state and
local income tax at the then applicable effective tax rate imposed on ordinary
income of individuals residing in the city of New York, New York, determined
using the maximum federal rate of tax on ordinary income and the maximum state
and local rates of tax on ordinary income then in effect in New York City and
New York State, (ii) all long-term capital gain arising from the transaction or
event allocable to ARP shall be treated as subject to federal, state, and local
income tax at the then applicable effective tax rate imposed on long-term
capital gains of individuals residing in the city of New York, New York,
determined using the maximum federal, state and local rates on long-term capital
gains then in effect (taking into account any special capital gains rate
attributable to recapture of prior depreciation deductions), and (iii) any
amounts payable with respect to state and local income taxes shall be assumed to
be fully deductible (without limitation or phaseout) for federal income tax
purposes.
(b)
Notwithstanding
any provision of this Agreement to the contrary, other than the last sentence of
Section 2(a), Section 3(c), and Section 3(d), the sole and exclusive rights and
remedies of ARP for a breach or violation of the covenants set forth in
Sections 2(a) and 3(a) shall be a claim for payment against LVP and/or
POAC, computed as set forth in Section 3(a), and for interest and
enforcement costs as provided in Section 9(e). Except as provided in Sections
2(a), 3(c), and 3(d), ARP shall not be entitled to pursue a claim for specific
performance of the covenant set forth in Section 2(a) or bring a claim
against any person that acquires the Contributed Interest or any of the
Properties in violation of Section 2(a).
(c)
Notwithstanding
anything to the contrary herein,
the
Applicable
Lightstone Party may not enter into a Prohibited Transaction unless, at least
fourteen (14) days prior to entering into such transaction,
the
Applicable
Lightstone Party will have provided ARP with evidence reasonably satisfactory to
ARP that, following such transaction, and including any proceeds from such
transaction, LVP and POAC
will have
the requisite liquidity to make any necessary indemnification payments required
pursuant to this Agreement. ARP shall have the right to seek and obtain specific
performance or injunctive relief as a remedy with respect to any breach or
threatened breach of this covenant.
(d)
Prior to
the time that
the
Applicable
Lightstone Party enters into an agreement to consummate a transaction that (i)
may result in the realization of Built-in Gain but (ii) which
the
Applicable
Lightstone Party may report, for federal, state, or local income tax purposes,
as not resulting (in whole or in part) in the recognition of such realized
Built-in Gain, and in any case not less than thirty (30) days prior to
consummating such transaction,
the
Applicable
Lightstone Party shall provide ARP with a written description of the transaction
containing all relevant details and shall thereafter, as promptly as possible
upon ARP’s reasonable request, and in any case not less than twenty (20) days
prior to consummating such transaction, provide ARP with an opinion from any
Approved Firm that (i) meets all the requirements for “covered opinions” set
forth in Section 10.35(c) of IRS Circular 230, including the requirement that a
covered opinion consider all significant federal tax issues, (ii) is based on a
statement of facts that is not inaccurate or unreasonable in any material
respect, and (iii) concludes, at at least a “more likely than not” level of
comfort, that all or part of the Built-in Gain realized in such transaction will
not be recognized for tax purposes (such an opinion, a “Qualifying Opinion”). If
the
Applicable
Lightstone Party does not provide ARP with a description of the transaction and,
if reasonably requested by ARP, a Qualifying Opinion in a timely manner pursuant
to the first sentence of this paragraph, then
the
Applicable
Lightstone Party shall not consummate such transaction. Furthermore,
the
Applicable
Lightstone Party shall not report any transaction as resulting (in whole or in
part) in the realization, but not the nonrecognition, of Built-in Gain unless
either (i)
the
Applicable
Lightstone Party previously provided ARP with a Qualifying Opinion in a timely
manner pursuant to the first sentence of this paragraph or (ii)
the
Applicable
Lightstone Party obtains the consent of ARP prior to taking such reporting
position. ARP shall have the right to seek and obtain specific performance or
injunctive relief as a remedy with respect to any breach or threatened breach of
the covenants set forth in this paragraph.
4.
Section 704(c)
Method
.
LVP and
POAC
shall
use, and each of LVP and POAC shall cause any other entity in which it has a
direct or indirect interest to use, the “traditional method” under Treasury
Regulation Section 1.704-3(b) without curative allocations for purposes of
making allocations under Section 704(c) of the Code or reverse Section
704(c) allocations with respect to the Contributed Interest and the Properties
to take into account the book-tax disparities as of the date hereof with respect
to the Contributed Interest and the Properties.
5.
Obligation to Maintain
Certain Debt
.
(a)
At all
times through the Protected Period,
the
Applicable
Lightstone Party agrees to maintain, directly or indirectly, an amount of
indebtedness allocable to ARP under Section 752 of the Code (and specifically as
one or more nonrecourse liabilities under Treasury Regulation Section 1.752-3)
at least equal to the Protected Amount. ARP shall have the right to seek and
obtain specific performance or injunctive relief as a remedy with respect to any
breach or threatened breach of this covenant. For the avoidance of doubt, the
purpose of this Section 5(a) is not to require the Applicable Lightstone Party
to increase the amount of liabilities to which the Properties
or any
other properties
are
subject,
provided
that the
Applicable Lightstone Party maintains in place the liabilities of POAC and its
subsidiary entities existing as of the date hereof and does not take any actions
(or cause or permit any actions to be taken) that would decrease the amounts of
such liabilities that are allocable to ARP under Section 752 and the regulations
thereunder.
(b)
Federal,
state and local income tax returns filed by POAC (and, after the Contribution,
by LVP) for all taxable periods beginning prior to the expiration of the
Protected Period shall report allocations of nonrecourse liabilities to ARP in
an amount at least equal to the Protected Amount.
6.
Indemnity for Breach of
Obligations set forth in Section 5
. In the
event that (i) either LVP or POAC breaches its obligations set forth in Section
5 and as a result ARP recognizes Nonrecourse Built-in Gain
and (ii)
such breach has not occurred in connection with a Permitted Transfer,
LVP and
POAC shall be jointly and severally liable to ARP for, and shall pay to ARP upon
written demand by ARP, an amount equal to (i) the aggregate federal, state and
local income taxes deemed incurred by ARP as a result of such Nonrecourse
Built-in Gain recognized by ARP by reason of such breach plus (ii) a “gross-up”
amount so that, after the hypothetical payment by ARP of all federal, state and
local income taxes on amounts received pursuant to this Section 6, ARP would
retain from such payments hereunder an amount equal to its total income tax
liability deemed incurred as a result of the breach by LVP or POAC of its
obligations set forth in Section 5 and ARP’s recognition of such Nonrecourse
Built-in Gain. The principles and tax rates set forth in Section 3(a) shall
apply for purposes of determining the timing and amount of payment to be made to
ARP pursuant to this Section 6 (including, without limitation, the calculation
of the aggregate federal, state and local income taxes deemed incurred by ARP).
In addition, the notification procedures set forth in Section 3(a) shall apply
for purposes of this Section 6 with respect to transactions that would result in
a breach of Section 5.
7.
Requests for
Information
. Upon
the request of LVP or POAC, ARP shall provide to LVP or POAC copies of such tax
returns, schedules and other information that is within the possession or
control of ARP (including, without limitation, copies of state and federal tax
returns and related working papers) reasonably requested by LVP or POAC (“Tax
Protection Information”) to enable it to make any necessary calculations with
respect to payments required to be made by LVP and POAC hereunder, including,
without limitation, calculations of Built-in Gain and Nonrecourse Built-in Gain
claimed to be recognized by ARP. No Tax Protection Information acquired by LVP
or POAC or any of its representatives may be disclosed to any individual or
entity other than (i) those representatives of LVP or POAC who need to know the
Tax Protection Information for the purpose of assisting LVP or POAC in
evaluating and performing its obligations under this Agreement (it being
understood that prior to such disclosure LVP’s or POAC’s representatives will be
informed of the confidential nature of the Tax Protection Information and shall
agree in writing to be bound by the requirements of this Section 7 of this
Agreement), (ii) as required by applicable law, or (iii) if necessary, upon the
advice of counsel, in order to comply with any judicial order, civil or criminal
subpoena or any discovery demand in pending litigation, whether or not LVP,
POAC, or any of the representatives of LVP or POAC is a party thereto. LVP and
POAC agree to be responsible for any breach of this Agreement by the
representatives of LVP or POAC.
8.
Term
. This
Agreement shall terminate upon the expiration of the Protected Period;
provided
,
however
, that if
the Contribution does not occur prior to the effective date of the termination
of the Contribution Agreement, then this Agreement shall terminate effective as
of midnight (Eastern Standard Time) on the effective date of the termination of
the Contribution Agreement;
provided
that, if
the Contribution Agreement is terminated under circumstances that require LVP to
pay liquidated damages to ARP, then this Agreement shall not be terminated until
all such liquidated damages have been received by ARP. In addition, Section 5 of
this Agreement shall terminate in the event that the Protected Amount is reduced
to zero. Notwithstanding the foregoing, LVP's and POAC’s payment obligations
under Sections 3, 6 and 9(e) shall survive the termination of this Agreement or
the termination of Section 5, as the case may be, to the extent such obligations
relate to a breach of LVP’s or POAC’s obligations under Section 2 or 5 occurring
before such termination of this Agreement (or in the case of liability under
Section 6, the termination of Section 5).
9.
General
Provisions
.
(a)
Notices
. All
notices, requests, claims, demands and other communications under this Agreement
shall be in writing and shall be deemed given if delivered personally, sent by
overnight courier (providing proof of delivery) or sent by telecopy (providing
confirmation of transmission) to the parties at the following addresses or
telecopy numbers (or at such other address or telecopy number for a party as
shall be specified by like notice):
(i)
if to LVP
or POAC, to:
c/o The
Lightstone Group
326 Third
Street
Lakewood,
NJ 08701
Attn:
Joseph E. Teichman
Fax
No.:
732-612-1444
with a
copy to:
Herrick,
Feinstein LLP
2 Park
Avenue
New York,
NY 10016
Attn:
Sheldon Chanales, Esq.
Fax No.:
(212) 545-3313
(ii)
if to
ARP, to:
c/o Arbor
Commercial Mortgage LLC
333 Earle
Ovington Boulevard
Uniondale,
NY 11553
Attention:
Guy R. Milone, Jr.
Fax No.:
(516) 506-4045
with a
copy to:
Cooley
Godward Kronish LLP
1114
Avenue of the Americas
New York,
NY 10036
Fax No.:
(212) 479-6275
Attn:
Thomas D. O’Connor, Esq.
(b)
Counterparts
. This
Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other party.
(c)
Governing
Law
. THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
(d)
Severability
. If any
term, covenant or condition of this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, this Agreement shall be construed
without such provision.
(e)
Interest and Enforcement
Costs
. In the
event that LVP and POAC fail to pay ARP any amount due pursuant to this
Agreement on the date such amount is due, or, if no due date is specified
herein, within five (5) days after demand by ARP for such payment, then such
past due amount shall bear interest from such due date or the date demand for
payment is made, as applicable, until the date paid at a rate equal to 15% per
annum. In the event of any breach by LVP or POAC of any of its covenants in this
Agreement, LVP and POAC shall be jointly and severally liable to pay, and shall
pay, all of ARP’s costs of enforcement of its rights under this Agreement,
including but not limited to reasonable attorneys’ fees, disbursements, expenses
and court costs.
(f)
Subsidiary
Entities
. All
references herein to the consummation, engaging in, entering into, or reporting
of a Disposition or other transaction, or entering into an agreement to do any
of the foregoing, by
the
Applicable Lightstone Entity, LVP
, or POAC
shall also apply to and include the consummation, engaging in, entering into, or
reporting of a Disposition or other transaction, or entering into an agreement
to do any of the foregoing, by any entity in which the Applicable Lightstone
Entity, LVP, or POAC owns, directly or indirectly, an equity
interest.
(g)
List of Properties Correct
and Complete
. LVP and
POAC represent to ARP that the list of Properties on Schedule A hereto is
correct and complete and that the Properties are owned indirectly by POAC.
IN
WITNESS WHEREOF, LVP, POAC, and ARP have caused this Agreement to be signed by
their respective authorized signatories all as of the date first written
above.
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LIGHTSTONE
VALUE PLUS REIT, L.P.
By
Lightstone Value Plus Real Estate Investment Trust, Inc., its general
partner
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By:
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Name:
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Title:
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PRIME
OUTLETS ACQUISITION COMPANY LLC
By
Lightstone Prime, LLC, its managing member
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By:
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Name:
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Title:
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ARBOR
MILL RUN JRM, LLC
By
Arbor Commercial Mortgage, LLC, Member
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By
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Name:
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Title:
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EXHIBIT
10.41
CONTRIBUTION AND CONVEYANCE
AGREEMENT
THIS
CONTRIBUTION AND CONVEYANCE AGREEMENT (this “Agreement”), dated as of June 26,
2008, by and between ARBOR MILL RUN JRM LLC, a Delaware limited liability
company (“Transferor”), and LIGHTSTONE VALUE PLUS REIT, L.P., a Delaware limited
partnership (“Transferee”).
WITNESSETH:
WHEREAS,
Transferor owns a Class A membership interest in MILL RUN L.L.C., a Delaware
limited liability company (the “Company”), corresponding to a 22.08% Common
Interest (as defined in the Mill Run Operating Agreement), pursuant to that
certain Second Amended and Restated Operating Agreement of the Company, dated as
of September 20, 2005 (as amended by a First Amendment dated as of January 1,
2006, the “Mill Run Operating Agreement”); and
WHEREAS,
in consideration of Transferor’s transferring the Transferred Interests (as
defined below) herewith to Transferee, Transferee shall issue to Transferor
96,000 units of common limited partnership interest in Transferee (“Common
Units”) and 18,240 units of Series A preferred limited partnership interest in
Transferee (“Series A Units”, and collectively with the Common Units, the
“Units”); and
WHEREAS,
Transferor has delivered on the date hereof a completed Representation Letter
and Agreement in the form attached as
Exhibit A
hereto;
and
WHEREAS,
in consideration of the receipt by Transferor of the Units, and the execution
and delivery by Transferee of a Tax Protection Agreement
in the
form attached as
Exhibit B
hereto
(the “Tax Protection Agreement”), Transferor desires to transfer and assign to
Transferee all of Transferor’s right, title and interest (x) in the Company and
(y) under the Mill Run Operating Agreement (collectively, the “Transferred
Interests”), and Transferee desires to accept such transfer and assignment, all
upon the terms and conditions hereinafter set forth; and
WHEREAS,
concurrently with the execution and delivery of this Agreement, Transferor,
Transferee and Lightstone Value Plus Real Estate Investment Trust, Inc. (the
“REIT”) are entering into an Exchange Rights Agreement with respect to the
exchange of Transferor’s Common Units (including units received upon conversion
of Series A Units) for cash or stock in the REIT (the “Exchange Rights
Agreement”); and
WHEREAS,
for federal income tax purposes, it is intended that the transfer of the
Transferred Interests will be treated as a tax-free contribution by Transferor
to Transferee of the Transferred Interests in exchange for the Units under
Section 721 of the Internal Revenue Code of 1986, as amended (the “Code”);
and
WHEREAS,
concurrently with the transfer and assignment of the Transferred Interests to
Transferee, Transferor is withdrawing as a member of the Company.
NOW,
THEREFORE, the parties covenant and agree as follows:
1.
Contribution and
Transfer
.
(a)
For and
in consideration of the issuance by Transferee to Transferor of the Units,
Transferor hereby contributes and assigns to Transferee all of Transferor’s
right, title and interest in and to the Transferred Interests, including,
without limitation, all of Transferor’s rights and interest in all profits,
losses, Cash Flow, Capital Proceeds (as such terms are defined in the Mill Run
Operating Agreement), distributions and capital of the Company with respect to
such Transferred Interests, except that the Transferor is retaining all right to
distributions previously paid and allocations made by the Company on account of
the Transferred Interests prior to the date hereof. In connection with its
receipt of the Units, Transferor agrees to be bound by and comply with the terms
of the Amended and Restated Agreement of Limited Partnership of Transferee dated
as of April 22, 2005, as amended by the First Amendment to the Amended and
Restated Agreement of Limited Partnership of Transferee, dated as of the date
hereof (as so amended, the “Partnership Agreement”), and delivers herewith an
executed counterpart of the Partnership Agreement.
(b)
Transferee
hereby accepts Transferor’s contribution, transfer and assignment of the
Transferred Interests.
(c)
Transferor
hereby withdraws as a Member of the Company and grants Transferee the right to
be admitted as a substitute member of the Company in Transferor’s place in
accordance with the terms of the Mill Run Operating Agreement.
(d)
The
Company hereby admits Transferee as a substitute member of the Company in
Transferor’s place.
2.
Representations and
Warranties
.
(a)
Transferor
hereby represents and warrants to Transferee that (i) Transferor is the sole
legal and beneficial owner of the Transferred Interests; (ii) Transferor has not
previously assigned, transferred, sold, pledged or otherwise disposed of or
hypothecated the Transferred Interests or any portion thereof or interest
therein, except for the granting of any security interests therein which have
been released on or prior to the date hereof; (iii) the Transferred Interests
transferred hereby are free and clear of any liens, security interests and other
encumbrances, except for those, if any, arising under the Mill Run Operating
Agreement; (iv) the execution of, and the transfer and assignment of the
Transferred Interests pursuant to, this Agreement have been authorized by all
necessary action on the part of Transferor; (v) Transferor has the full
right, power and authority to execute and deliver this Agreement and to perform
its obligations hereunder, without obtaining any consents or approvals from, or
taking any actions with respect to, any governmental authorities or other third
parties; (vi) this Agreement has been duly and validly executed and
delivered by Transferor and, when executed and delivered by Transferee, will
constitute the valid and binding agreement of Transferor, enforceable against
Transferor in accordance with its respective terms; and (vii) the execution and
delivery by Transferor of this Agreement and the performance of Transferor’s
obligations hereunder and the transaction contemplated hereby do not violate or
conflict with the governing documents of Transferor, or, subject to the
approvals of the Members of the Company, any other instrument or agreement to
which Transferor is a party;
provided
,
however
, that
notwithstanding anything herein to the contrary, Transferor is not making any
representation or warranty as to whether any third party consents are or are not
required under any loan or other financing agreements, mortgages or other
instruments or agreements to which the Company or any entity directly or
indirectly owned by the Company is a party, or by which any real or personal
property owned by the Company or by any entity directly or indirectly owned by
the Company is subject or encumbered.
(b)
Transferee
hereby represents and warrants to Transferor that: (i) the execution of this
Agreement, the Tax Protection Agreement, the Partnership Agreement and the
Exchange Rights Agreement, and the issuance of the Units to Transferor, have
been authorized by all necessary action on the part of Transferee and the REIT,
as applicable; (ii) each of Transferee and the REIT, as applicable, has full
right, power and authority to execute, deliver and perform this Agreement, the
Tax Protection Agreement, the Partnership Agreement and the Exchange Rights
Agreement without obtaining any consents or approvals from, or taking any
actions with respect to, any governmental authorities or other third parties;
(iii) this Agreement,
the Tax
Protection Agreement, the Partnership Agreement and the Exchange Rights
Agreement
have been
duly and validly executed and delivered by Transferee and the REIT, as
applicable, and, when executed and delivered by Transferor, will constitute the
valid and binding agreement of Transferee and the REIT, as applicable,
enforceable against Transferee and the REIT, as applicable, in accordance with
their respective terms; (iv) a true and complete copy of the Partnership
Agreement (including Exhibit A thereto updated to reflect the transactions
contemplated by this Agreement and any other transactions involving the
Transferee that are consummated on or prior to the date hereof) is attached
hereto as
Exhibit C
, and the
Partnership Agreement has been duly executed and delivered by all parties
thereto, is in full force and effect, and is binding and enforceable in
accordance with its terms; (v) after giving effect to the transactions
contemplated by this Agreement and any other transactions involving the
Transferee that are consummated on or prior to the date hereof, the
capitalization of Transferee (including the number of each class and series of
units issued by Transferee and the related capital contributed with respect to
such units) is set forth on
Exhibit D
hereto;
(vi) the execution and delivery by each of Transferee and the REIT of this
Agreement, the Tax Protection Agreement, the Partnership Agreement and the
Exchange Rights Agreement and the performance of the obligations of Transferee
and the REIT hereunder and thereunder and the transaction contemplated hereby
and thereby do not violate or conflict with the governing documents of
Transferee or the REIT or any other instrument or agreement to which either of
them is a party, as the case may be (vii) on the date hereof immediately after
the closing of the transfer and contribution by Transferor to Transferee
described in Section 1 of this Agreement: (1) Transferor is
simultaneously herewith being admitted as a limited partner in Transferee with
respect to the Units; (2) the 704(b) “book” capital account of Transferor
in Transferee is equal to $19,200,000; and (3) the Units have been duly
issued to the Transferor and are fully paid and Transferor has no further
obligation to contribute any amounts to the capital of Transferee or to
reimburse Transferee for any expenses in respect of the Units;
(viii)
since May
23, 2005, the REIT, has been subject to the reporting requirements of Section 13
or 15 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the “1934 Act”) and has filed with the
Securities and Exchange Commission (“SEC”) all documents required to be filed
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the “1933 Act”), and the 1934 Act (the “REIT SEC
Documents”); (ix) as of their respective dates, the REIT SEC Documents complied
in all material respects with the requirements of the 1933 Act and the 1934 Act,
as the case may be, and none of the REIT SEC Documents contained any untrue
statement of a material fact or omitted a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, taking into account
all corrections made by the REIT in subsequent filings with the SEC through the
date of this Agreement; (x) the prospectus of the REIT dated January 23, 2008
and the supplements thereto do not contain any untrue statement of material fact
or omit a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstance under which they were made, not
misleading as of the date hereof; (xi) as of their respective dates, the
consolidated financial statements of the REIT included in the REIT SEC Documents
complied as to form in all material respects with then applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto) and fairly presented the
consolidated financial position of the REIT and its consolidated subsidiaries as
at the dates thereof and the consolidated results of their operations and
statements of cash flows for the periods covered by such statements (subject, in
the case of unaudited statements, to normal year-end audit adjustments and to
any other adjustments described therein); and (xii) neither Transferee nor the
REIT have entered into or is a party to any instrument or agreement with any
limited partner of Transferee which grants registration rights with respect to
shares in the REIT which such limited partner may own or acquire.
(c)
Transferee
hereby acknowledges, represents and warrants that it is not relying on any
information, representations or warranties furnished or made by Transferor or
any of Transferor’s representatives or agents as to any matter whatsoever
concerning the Company or any entity that is directly or indirectly owned by the
Company or in which the Company has any direct or indirect interest (including,
without limitation, the legal status, good standing, organizational documents,
business, prospects, assets, liabilities, financial condition or operations of,
or the need for any third party consents to the transactions contemplated by
this Agreement from any lenders to or other persons having any contractual
relationship with or jurisdiction over, the Company or such other entity), or
any matter (including, without limitation, physical condition, operating
results, financing, liabilities, title, encumbrances, leases, zoning status,
compliance with law, prospects and compliance with mortgages and other
instruments and agreements) relating to any properties in which any of the
Company or such other entities have a direct or indirect interest, and in
entering into this Agreement and in accepting the Transferred Interests,
Transferee is not relying upon any representations or warranties of Transferor
or any of its representatives or agents whatsoever, except for the
representations of Transferor expressly set forth in Section 2(a) hereof.
Transferee further acknowledges, represents, warrants and covenants that in
entering into this Agreement and in accepting the Transferred Interests, it is
relying solely on its own independent investigation and due diligence with
respect to the Company and any entity or property in which the Company has a
direct or indirect interest, and Transferee further agrees that Transferee shall
not seek to hold Transferor responsible or liable in any way for or in
connection with any representations or warranties or other information furnished
to Transferee by any person or entity, other than the representations and
warranties of Transferor expressly set forth in Section 2(a)
hereof.
3.
Release
.
(a)
Transferor
hereby releases and discharges
Transferee,
BRM LLC, a New Jersey limited liability company, and the Company and their
respective past, present and future subsidiaries, directors, officers, partners,
shareholders, members, managers, affiliates, employees, beneficiaries, agents,
representatives, predecessors, successors and assigns (collectively, “Transferee
Releasees”) from any claims, liabilities, obligations, causes of action, suits,
debts, accounts, reckonings, contracts, agreements, promises, covenants,
damages, costs (including costs of suit and attorneys’ fees and expenses) and
demands (collectively, “Claims”) of whatever nature, character, type or
description, whether contingent, known or unknown, liquidated or unliquidated,
at law or in equity, which Transferor or its affiliates
now has,
has ever had or may hereafter claim to have against the Transferee Releasees,
provided that such release and discharge is specifically limited to only those
Claims that are on account of, relating to or arising from or under the
Co
mpany
, the
Transferred Interests or the Mill Run Operating Agreement. In amplification, and
not in limitation, of the foregoing, BRM LLC and the Company are hereby released
by Transferor from, among other things, any obligation or liability to make any
further distributions to Transferor. The release herein given shall be and
remain in effect as a full and complete release notwithstanding the discovery or
existence of any such additional or different claims or facts.
(b)
Transferee
and the Company
hereby
release and discharge
Transferor
and its respective past, present and future subsidiaries, directors, officers,
partners, shareholders, members, managers, affiliates, employees, beneficiaries,
agents, predecessors, representatives, successors and assigns (collectively,
“Transferor Releasees”) from any Claims, of whatever nature, character, type or
description, whether contingent, known or unknown, liquidated or unliquidated,
at law or in equity, which Transferee or the Company now has, has ever had or
may hereafter claim to have against the Transferor Releasees, provided that such
release and discharge is specifically limited to only those Claims that are on
account of, relating to or arising from or under the Co
mpany
, the
Transferred Interests or the Mill Run Operating Agreement. In amplification, and
not in limitation, of the foregoing, Transferor is hereby released by Transferee
and the Company from, among other things, any obligation or liability to make
any capital contributions to the Company or to return to the Company all or any
portion of any distributions previously made to it by the Company. The release
herein given shall be and remain in effect as a full and complete release
notwithstanding the discovery or existence of any such additional or different
claims or facts.
(c)
Notwithstanding
anything in this Section 3 to the contrary, in no event shall either Transferor
or Transferee or their respective affiliates, be deemed to release, discharge or
waive, pursuant to this Section 3 or any other provision of this Agreement, any
Claim against the other party (or its affiliates) that is not on account of,
relating to or arising from or under the Company, the Transferred Interests or
the Mill Run Operating Agreement (“Unrelated Claims”), and all such Unrelated
Claims are hereby fully preserved and reserved in all respects, and all such
Unrelated Claims remain in full force and effect. In amplification, and not in
limitation, of the foregoing, all rights, remedies, covenants and obligations of
the parties under this Agreement and under the documents and agreements attached
as
Exhibit A
,
Exhibit B
and
Exhibit C
hereto
(i) are hereby deemed to be Unrelated Claims, (ii) are not modified in any
manner by the release provisions set forth in this Section 3, and (iii) remain
in full force and effect.
4.
Indemnification
.
(a)
Transferee
shall defend, indemnify and hold harmless Transferor from and against any and
all loss, liability, damage, cost or expense (including, without limitation,
reasonable attorneys’ fees and disbursements) incurred or sustained by
Transferor on account of (i) any breach of any representation, warranty or
covenant of Transferee set forth herein, or (ii) the Transferred Interests,
provided and to the extent that such loss, liability, damage or cost accrues on
or after the date hereof.
(b)
Transferor
shall defend, indemnify and hold harmless Transferee from and against any and
all loss, liability, damage, cost or expense (including, without limitation,
reasonable attorneys’ fees and disbursements) incurred or sustained by
Transferee on account of any breach of any representation, warranty or covenant
of Transferor set forth herein, provided and to the extent that such loss,
liability, damage or cost accrues on or after the date hereof.
5.
Initial Unit Distributions;
Unit Redemption
.
Transferor and Transferee acknowledge and agree that the first quarterly
distribution paid by Transferee in respect of the Series A Units shall (a) be
with respect to the quarter ending June 30, 2008, and (b) be prorated based on
the number of days during such quarter after the date hereof. Transferor
acknowledges that notwithstanding anything to the contrary herein or in the
Partnership Agreement, Transferor shall not have the right to convert or redeem
any Series A Units prior to June 26, 2013.
6.
Tax Reporting;
Audits
.
For
federal, state, and local income tax purposes, Transferee shall report
Transferor’s contribution of the Transferred Interests to Transferee as a
tax-free contribution pursuant to Section 721 of the Code (or the corresponding
provision of state or local law, as applicable). Notwithstanding anything to the
contrary in this Agreement or the Partnership Agreement, neither Transferee nor
the REIT shall settle any matter that involves the tax treatment of (i) the
contribution of the Transferred Interests or (ii) any other matter that would
have a tax impact on Transferor that is materially, adversely different from the
tax impact such matter would have on the REIT, without the prior written consent
of Transferor, which consent shall not be unreasonably withheld.
7.
Registration
Rights
. Each of
Transferee and the REIT agrees that in the event that either of them enters into
or becomes a party to any instrument or agreement with any limited partner of
Transferee which grants registration rights with respect to shares in the REIT
which such limited partner may own or acquire, or otherwise grants such
registration rights to any limited partner of Transferee, then each of
Transferee and the REIT shall promptly notify Transferor and shall grant to
Transferor, by entering into a registration rights agreement with Transferor
that is in form and substance reasonably acceptable to Transferor, registration
rights with respect to any shares issued by the REIT that Transferor may acquire
in connection with a transfer or redemption of any of its Units to or by
Transferee or the REIT, and such registration rights shall be on terms that are
no less favorable to Transferor in any respect than the most favorable
registration rights granted to any other limited partner of Transferee by
Transferee or the REIT.
8.
Further
Assurances
.
Each
party to this Agreement will execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, any such further conveyances, assignments,
approvals, consents and other documents, and do any other acts, as may be
reasonably necessary to carry out the intent and purpose of this Agreement.
Without limiting the generality of the foregoing, if any property, assets,
collateral, funds, documents or other items which constitute a part of the
Transferred Interests remains in or comes into either Transferor’s possession or
control or remains or become vested or titled in Transferor, Transferor shall
promptly take any and all actions necessary to transfer title and possession
thereof to Transferee, all at Transferee’s sole cost and expense.
9.
Governing
Law
. This
Agreement shall be construed and enforced in accordance with the laws of the
State of New York.
10.
Binding
Effect
. This
Agreement shall be binding upon, and shall inure to the benefit of, Transferor,
Transferee and their respective successors and assigns.
11.
Severability
. In the
event that any phrase, clause, sentence, paragraph, section, article or other
portion of this Agreement shall become illegal, null or void, or against public
policy, for any reason, or shall be held by any court of competent jurisdiction
to be illegal, null or void, or against public policy, the remaining portions of
this Agreement shall not be affected thereby and shall remain in force and
effect to the full extent permissible by law
.
12.
Counterparts
. This
Agreement may be executed in several counterparts, each of which shall
constitute an original and all of which, taken together, shall constitute one
and the same Agreement, binding on each party hereto.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF,
Transferor
and Transferee have executed this Agreement as of the date first above
written.
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TRANSFEROR
:
ARBOR
MILL RUN JRM LLC
,
a
Delaware limited liability company
By:
Arbor Commercial Mortgage, LLC,
a
New York limited liability company,
its
sole member
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By:
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Name:
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Title:
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TRANSFEREE
:
LIGHTSTONE
VALUE PLUS REIT, L.P.,
a
Delaware limited partnership
By
Lightstone
Value Plus Real Estate Investment
Trust,
Inc., a Maryland corporation, its general
partner
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By:
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Title:
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MILL RUN
L.L.C. is executing this
Agreement
for the sole purpose of
Sections
1(d) and 3(b) hereof.
MILL RUN
L.L.C.
By: BRM
LLC, its managing member
[SIGNATURES
CONTINUE ON NEXT PAGE]
LIGHTSTONE
VALUE PLUS REAL
ESTATE
INVESTMENT TRUST, INC.,
is
executing this agreement for the sole
purpose
of Sections 6 and 7 hereof.
LIGHTSTONE
VALUE PLUS REAL
ESTATE
INVESTMENT TRUST, INC.,
a
Maryland Corporation
EXHIBIT
A
REPRESENTATION LETTER AND
AGREEMENT
EXHIBIT
B
TAX PROTECTION
AGREEMENT
EXHIBIT
C
PARTNERSHIP
AGREEMENT
EXHIBIT
D
CAPITALIZATION OF
TRANSFEREE
EXHIBIT
10.42
CONTRIBUTION AND CONVEYANCE
AGREEMENT
THIS
CONTRIBUTION AND CONVEYANCE AGREEMENT (this “Agreement”), dated as of June 26,
2008, by and between ARBOR NATIONAL CJ, LLC, a New York limited liability
company (“Transferor”), and LIGHTSTONE VALUE PLUS REIT, L.P., a Delaware limited
partnership (“Transferee”).
WITNESSETH:
WHEREAS,
Transferor owns a Class A membership interest in MILL RUN L.L.C., a Delaware
limited liability company (the “Company”), corresponding to a 0.46% Common
Interest (as defined in the Mill Run Operating Agreement), pursuant to that
certain Second Amended and Restated Operating Agreement of the Company, dated as
of September 20, 2005 (as amended by a First Amendment dated as of January 1,
2006, the “Mill Run Operating Agreement”); and
WHEREAS,
in consideration of Transferor’s transferring the Transferred Interests (as
defined below) herewith to Transferee, Transferee shall issue to Transferor
2,000 units of common limited partnership interest in Transferee (“Common
Units”) and 380 units of Series A preferred limited partnership interest in
Transferee (“Series A Units”, and collectively with the Common Units, the
“Units”); and
WHEREAS,
Transferor has delivered on the date hereof a completed Representation Letter
and Agreement in the form attached as
Exhibit A
hereto;
and
WHEREAS,
in consideration of the receipt by Transferor of the Units, and the execution
and delivery by Transferee of a Tax Protection Agreement
in the
form attached as
Exhibit B
hereto
(the “Tax Protection Agreement”), Transferor desires to transfer and assign to
Transferee all of Transferor’s right, title and interest (x) in the Company and
(y) under the Mill Run Operating Agreement (collectively, the “Transferred
Interests”), and Transferee desires to accept such transfer and assignment, all
upon the terms and conditions hereinafter set forth; and
WHEREAS,
concurrently with the execution and delivery of this Agreement, Transferor,
Transferee and Lightstone Value Plus Real Estate Investment Trust, Inc. (the
“REIT”) are entering into an Exchange Rights Agreement with respect to the
exchange of Transferor’s Common Units (including units received upon conversion
of Series A Units) for cash or stock in the REIT (the “Exchange Rights
Agreement”); and
WHEREAS,
for federal income tax purposes, it is intended that the transfer of the
Transferred Interests will be treated as a tax-free contribution by Transferor
to Transferee of the Transferred Interests in exchange for the Units under
Section 721 of the Internal Revenue Code of 1986, as amended (the “Code”);
and
WHEREAS,
concurrently with the transfer and assignment of the Transferred Interests to
Transferee, Transferor is withdrawing as a member of the Company.
NOW,
THEREFORE, the parties covenant and agree as follows:
1.
Contribution and
Transfer
.
(a)
For and
in consideration of the issuance by Transferee to Transferor of the Units,
Transferor hereby contributes and assigns to Transferee all of Transferor’s
right, title and interest in and to the Transferred Interests, including,
without limitation, all of Transferor’s rights and interest in all profits,
losses, Cash Flow, Capital Proceeds (as such terms are defined in the Mill Run
Operating Agreement), distributions and capital of the Company with respect to
such Transferred Interests, except that the Transferor is retaining all right to
distributions previously paid and allocations made by the Company on account of
the Transferred Interests prior to the date hereof. In connection with its
receipt of the Units, Transferor agrees to be bound by and comply with the terms
of the Amended and Restated Agreement of Limited Partnership of Transferee dated
as of April 22, 2005, as amended by the First Amendment to the Amended and
Restated Agreement of Limited Partnership of Transferee, dated as of the date
hereof (as so amended, the “Partnership Agreement”), and delivers herewith an
executed counterpart of the Partnership Agreement.
(b)
Transferee
hereby accepts Transferor’s contribution, transfer and assignment of the
Transferred Interests.
(c)
Transferor
hereby withdraws as a Member of the Company and grants Transferee the right to
be admitted as a substitute member of the Company in Transferor’s place in
accordance with the terms of the Mill Run Operating Agreement.
(d)
The
Company hereby admits Transferee as a substitute member of the Company in
Transferor’s place.
2.
Representations and
Warranties
.
(a)
Transferor
hereby represents and warrants to Transferee that (i) Transferor is the sole
legal and beneficial owner of the Transferred Interests; (ii) Transferor has not
previously assigned, transferred, sold, pledged or otherwise disposed of or
hypothecated the Transferred Interests or any portion thereof or interest
therein, except for the granting of any security interests therein which have
been released on or prior to the date hereof; (iii) the Transferred Interests
transferred hereby are free and clear of any liens, security interests and other
encumbrances, except for those, if any, arising under the Mill Run Operating
Agreement; (iv) the execution of, and the transfer and assignment of the
Transferred Interests pursuant to, this Agreement have been authorized by all
necessary action on the part of Transferor; (v) Transferor has the full
right, power and authority to execute and deliver this Agreement and to perform
its obligations hereunder, without obtaining any consents or approvals from, or
taking any actions with respect to, any governmental authorities or other third
parties; (vi) this Agreement has been duly and validly executed and
delivered by Transferor and, when executed and delivered by Transferee, will
constitute the valid and binding agreement of Transferor, enforceable against
Transferor in accordance with its respective terms; and (vii) the execution and
delivery by Transferor of this Agreement and the performance of Transferor’s
obligations hereunder and the transaction contemplated hereby do not violate or
conflict with the governing documents of Transferor, or, subject to the
approvals of the Members of the Company, any other instrument or agreement to
which Transferor is a party;
provided
,
however
, that
notwithstanding anything herein to the contrary, Transferor is not making any
representation or warranty as to whether any third party consents are or are not
required under any loan or other financing agreements, mortgages or other
instruments or agreements to which the Company or any entity directly or
indirectly owned by the Company is a party, or by which any real or personal
property owned by the Company or by any entity directly or indirectly owned by
the Company is subject or encumbered.
(b)
Transferee
hereby represents and warrants to Transferor that: (i) the execution of this
Agreement, the Tax Protection Agreement, the Partnership Agreement and the
Exchange Rights Agreement, and the issuance of the Units to Transferor, have
been authorized by all necessary action on the part of Transferee and the REIT,
as applicable; (ii) each of Transferee and the REIT, as applicable, has full
right, power and authority to execute, deliver and perform this Agreement, the
Tax Protection Agreement, the Partnership Agreement and the Exchange Rights
Agreement without obtaining any consents or approvals from, or taking any
actions with respect to, any governmental authorities or other third parties;
(iii) this Agreement,
the Tax
Protection Agreement, the Partnership Agreement and the Exchange Rights
Agreement
have been
duly and validly executed and delivered by Transferee and the REIT, as
applicable, and, when executed and delivered by Transferor, will constitute the
valid and binding agreement of Transferee and the REIT, as applicable,
enforceable against Transferee and the REIT, as applicable, in accordance with
their respective terms; (iv) a true and complete copy of the Partnership
Agreement (including Exhibit A thereto updated to reflect the transactions
contemplated by this Agreement and any other transactions involving the
Transferee that are consummated on or prior to the date hereof) is attached
hereto as
Exhibit C
, and the
Partnership Agreement has been duly executed and delivered by all parties
thereto, is in full force and effect, and is binding and enforceable in
accordance with its terms; (v) after giving effect to the transactions
contemplated by this Agreement and any other transactions involving the
Transferee that are consummated on or prior to the date hereof, the
capitalization of Transferee (including the number of each class and series of
units issued by Transferee and the related capital contributed with respect to
such units) is set forth on
Exhibit D
hereto;
(vi) the execution and delivery by each of Transferee and the REIT of this
Agreement, the Tax Protection Agreement, the Partnership Agreement and the
Exchange Rights Agreement and the performance of the obligations of Transferee
and the REIT hereunder and thereunder and the transaction contemplated hereby
and thereby do not violate or conflict with the governing documents of
Transferee or the REIT or any other instrument or agreement to which either of
them is a party, as the case may be (vii) on the date hereof immediately after
the closing of the transfer and contribution by Transferor to Transferee
described in Section 1 of this Agreement: (1) Transferor is
simultaneously herewith being admitted as a limited partner in Transferee with
respect to the Units; (2) the 704(b) “book” capital account of Transferor
in Transferee is equal to $400,000; and (3) the Units have been duly issued
to the Transferor and are fully paid and Transferor has no further obligation to
contribute any amounts to the capital of Transferee or to reimburse Transferee
for any expenses in respect of the Units; (viii)
since May
23, 2005, the REIT, has been subject to the reporting requirements of Section 13
or 15 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the “1934 Act”) and has filed with the
Securities and Exchange Commission (“SEC”) all documents required to be filed
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the “1933 Act”), and the 1934 Act (the “REIT SEC
Documents”); (ix) as of their respective dates, the REIT SEC Documents complied
in all material respects with the requirements of the 1933 Act and the 1934 Act,
as the case may be, and none of the REIT SEC Documents contained any untrue
statement of a material fact or omitted a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, taking into account
all corrections made by the REIT in subsequent filings with the SEC through the
date of this Agreement; (x) the prospectus of the REIT dated January 23, 2008
and the supplements thereto do not contain any untrue statement of material fact
or omit a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstance under which they were made, not
misleading as of the date hereof; (xi) as of their respective dates, the
consolidated financial statements of the REIT included in the REIT SEC Documents
complied as to form in all material respects with then applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto) and fairly presented the
consolidated financial position of the REIT and its consolidated subsidiaries as
at the dates thereof and the consolidated results of their operations and
statements of cash flows for the periods covered by such statements (subject, in
the case of unaudited statements, to normal year-end audit adjustments and to
any other adjustments described therein); and (xii) neither Transferee nor the
REIT have entered into or is a party to any instrument or agreement with any
limited partner of Transferee which grants registration rights with respect to
shares in the REIT which such limited partner may own or acquire.
(c)
Transferee
hereby acknowledges, represents and warrants that it is not relying on any
information, representations or warranties furnished or made by Transferor or
any of Transferor’s representatives or agents as to any matter whatsoever
concerning the Company or any entity that is directly or indirectly owned by the
Company or in which the Company has any direct or indirect interest (including,
without limitation, the legal status, good standing, organizational documents,
business, prospects, assets, liabilities, financial condition or operations of,
or the need for any third party consents to the transactions contemplated by
this Agreement from any lenders to or other persons having any contractual
relationship with or jurisdiction over, the Company or such other entity), or
any matter (including, without limitation, physical condition, operating
results, financing, liabilities, title, encumbrances, leases, zoning status,
compliance with law, prospects and compliance with mortgages and other
instruments and agreements) relating to any properties in which any of the
Company or such other entities have a direct or indirect interest, and in
entering into this Agreement and in accepting the Transferred Interests,
Transferee is not relying upon any representations or warranties of Transferor
or any of its representatives or agents whatsoever, except for the
representations of Transferor expressly set forth in Section 2(a) hereof.
Transferee further acknowledges, represents, warrants and covenants that in
entering into this Agreement and in accepting the Transferred Interests, it is
relying solely on its own independent investigation and due diligence with
respect to the Company and any entity or property in which the Company has a
direct or indirect interest, and Transferee further agrees that Transferee shall
not seek to hold Transferor responsible or liable in any way for or in
connection with any representations or warranties or other information furnished
to Transferee by any person or entity, other than the representations and
warranties of Transferor expressly set forth in Section 2(a)
hereof.
3.
Release
.
(a)
Transferor
hereby releases and discharges
Transferee,
BRM LLC, a New Jersey limited liability company, and the Company and their
respective past, present and future subsidiaries, directors, officers, partners,
shareholders, members, managers, affiliates, employees, beneficiaries, agents,
representatives, predecessors, successors and assigns (collectively, “Transferee
Releasees”) from any claims, liabilities, obligations, causes of action, suits,
debts, accounts, reckonings, contracts, agreements, promises, covenants,
damages, costs (including costs of suit and attorneys’ fees and expenses) and
demands (collectively, “Claims”) of whatever nature, character, type or
description, whether contingent, known or unknown, liquidated or unliquidated,
at law or in equity, which Transferor or its affiliates
now has,
has ever had or may hereafter claim to have against the Transferee Releasees,
provided that such release and discharge is specifically limited to only those
Claims that are on account of, relating to or arising from or under the
Co
mpany
, the
Transferred Interests or the Mill Run Operating Agreement. In amplification, and
not in limitation, of the foregoing, BRM LLC and the Company are hereby released
by Transferor from, among other things, any obligation or liability to make any
further distributions to Transferor. The release herein given shall be and
remain in effect as a full and complete release notwithstanding the discovery or
existence of any such additional or different claims or facts.
(b)
Transferee
and the Company
hereby
release and discharge
Transferor
and its respective past, present and future subsidiaries, directors, officers,
partners, shareholders, members, managers, affiliates, employees, beneficiaries,
agents, predecessors, representatives, successors and assigns (collectively,
“Transferor Releasees”) from any Claims, of whatever nature, character, type or
description, whether contingent, known or unknown, liquidated or unliquidated,
at law or in equity, which Transferee or the Company now has, has ever had or
may hereafter claim to have against the Transferor Releasees, provided that such
release and discharge is specifically limited to only those Claims that are on
account of, relating to or arising from or under the Co
mpany
, the
Transferred Interests or the Mill Run Operating Agreement. In amplification, and
not in limitation, of the foregoing, Transferor is hereby released by Transferee
and the Company from, among other things, any obligation or liability to make
any capital contributions to the Company or to return to the Company all or any
portion of any distributions previously made to it by the Company. The release
herein given shall be and remain in effect as a full and complete release
notwithstanding the discovery or existence of any such additional or different
claims or facts.
(c)
Notwithstanding
anything in this Section 3 to the contrary, in no event shall either Transferor
or Transferee or their respective affiliates, be deemed to release, discharge or
waive, pursuant to this Section 3 or any other provision of this Agreement, any
Claim against the other party (or its affiliates) that is not on account of,
relating to or arising from or under the Company, the Transferred Interests or
the Mill Run Operating Agreement (“Unrelated Claims”), and all such Unrelated
Claims are hereby fully preserved and reserved in all respects, and all such
Unrelated Claims remain in full force and effect. In amplification, and not in
limitation, of the foregoing, all rights, remedies, covenants and obligations of
the parties under this Agreement and under the documents and agreements attached
as
Exhibit A
,
Exhibit B
and
Exhibit C
hereto
(i) are hereby deemed to be Unrelated Claims, (ii) are not modified in any
manner by the release provisions set forth in this Section 3, and (iii) remain
in full force and effect.
4.
Indemnification
.
(a)
Transferee
shall defend, indemnify and hold harmless Transferor from and against any and
all loss, liability, damage, cost or expense (including, without limitation,
reasonable attorneys’ fees and disbursements) incurred or sustained by
Transferor on account of (i) any breach of any representation, warranty or
covenant of Transferee set forth herein, or (ii) the Transferred Interests,
provided and to the extent that such loss, liability, damage or cost accrues on
or after the date hereof.
(b)
Transferor
shall defend, indemnify and hold harmless Transferee from and against any and
all loss, liability, damage, cost or expense (including, without limitation,
reasonable attorneys’ fees and disbursements) incurred or sustained by
Transferee on account of any breach of any representation, warranty or covenant
of Transferor set forth herein, provided and to the extent that such loss,
liability, damage or cost accrues on or after the date hereof.
5.
Initial Unit Distributions;
Unit Redemption
.
Transferor and Transferee acknowledge and agree that the first quarterly
distribution paid by Transferee in respect of the Series A Units shall (a) be
with respect to the quarter ending June 30, 2008, and (b) be prorated based on
the number of days during such quarter after the date hereof. Transferor
acknowledges that notwithstanding anything to the contrary herein or in the
Partnership Agreement, Transferor shall not have the right to convert or redeem
any Series A Units prior to June 26, 2013.
6.
Tax Reporting;
Audits
.
For
federal, state, and local income tax purposes, Transferee shall report
Transferor’s contribution of the Transferred Interests to Transferee as a
tax-free contribution pursuant to Section 721 of the Code (or the corresponding
provision of state or local law, as applicable). Notwithstanding anything to the
contrary in this Agreement or the Partnership Agreement, neither Transferee nor
the REIT shall settle any matter that involves the tax treatment of (i) the
contribution of the Transferred Interests or (ii) any other matter that would
have a tax impact on Transferor that is materially, adversely different from the
tax impact such matter would have on the REIT, without the prior written consent
of Transferor, which consent shall not be unreasonably withheld.
7.
Registration
Rights
. Each of
Transferee and the REIT agrees that in the event that either of them enters into
or becomes a party to any instrument or agreement with any limited partner of
Transferee which grants registration rights with respect to shares in the REIT
which such limited partner may own or acquire, or otherwise grants such
registration rights to any limited partner of Transferee, then each of
Transferee and the REIT shall promptly notify Transferor and shall grant to
Transferor, by entering into a registration rights agreement with Transferor
that is in form and substance reasonably acceptable to Transferor, registration
rights with respect to any shares issued by the REIT that Transferor may acquire
in connection with a transfer or redemption of any of its Units to or by
Transferee or the REIT, and such registration rights shall be on terms that are
no less favorable to Transferor in any respect than the most favorable
registration rights granted to any other limited partner of Transferee by
Transferee or the REIT.
8.
Further
Assurances
.
Each
party to this Agreement will execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, any such further conveyances, assignments,
approvals, consents and other documents, and do any other acts, as may be
reasonably necessary to carry out the intent and purpose of this Agreement.
Without limiting the generality of the foregoing, if any property, assets,
collateral, funds, documents or other items which constitute a part of the
Transferred Interests remains in or comes into either Transferor’s possession or
control or remains or become vested or titled in Transferor, Transferor shall
promptly take any and all actions necessary to transfer title and possession
thereof to Transferee, all at Transferee’s sole cost and expense.
9.
Governing
Law
. This
Agreement shall be construed and enforced in accordance with the laws of the
State of New York.
10.
Binding
Effect
. This
Agreement shall be binding upon, and shall inure to the benefit of, Transferor,
Transferee and their respective successors and assigns.
11.
Severability
. In the
event that any phrase, clause, sentence, paragraph, section, article or other
portion of this Agreement shall become illegal, null or void, or against public
policy, for any reason, or shall be held by any court of competent jurisdiction
to be illegal, null or void, or against public policy, the remaining portions of
this Agreement shall not be affected thereby and shall remain in force and
effect to the full extent permissible by law
.
12.
Counterparts
. This
Agreement may be executed in several counterparts, each of which shall
constitute an original and all of which, taken together, shall constitute one
and the same Agreement, binding on each party hereto.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF,
Transferor
and Transferee have executed this Agreement as of the date first above
written.
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TRANSFEROR
:
ARBOR NATIONAL CJ,
LLC
,
a
New York limited liability company
By:
Arbor Commercial Mortgage, LLC,
a
New York limited liability company,
its
sole member
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By:
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Name:
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Title:
|
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TRANSFEREE
:
LIGHTSTONE
VALUE PLUS REIT, L.P.,
a
Delaware limited partnership
By
Lightstone
Value Plus Real Estate Investment
Trust,
Inc., a Maryland corporation, its general
partner
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By:
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Name:
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Title:
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MILL RUN
L.L.C. is executing this
Agreement
for the sole purpose of
Sections
1(d) and 3(b) hereof.
MILL RUN
L.L.C.
By: BRM
LLC, its managing member
[SIGNATURES
CONTINUE ON NEXT PAGE]
LIGHTSTONE
VALUE PLUS REAL
ESTATE
INVESTMENT TRUST, INC.,
is
executing this agreement for the sole
purpose
of Sections 6 and 7 hereof.
LIGHTSTONE
VALUE PLUS REAL
ESTATE
INVESTMENT TRUST, INC.,
a
Maryland Corporation
EXHIBIT
A
REPRESENTATION LETTER AND
AGREEMENT
EXHIBIT
B
TAX PROTECTION
AGREEMENT
EXHIBIT
C
PARTNERSHIP
AGREEMENT
EXHIBIT
D
CAPITALIZATION OF
TRANSFEREE
EXHIBIT
10.43
CONTRIBUTION AND CONVEYANCE
AGREEMENT
THIS
CONTRIBUTION AND CONVEYANCE AGREEMENT (this “
Agreement
”), dated
as of June 26, 2008, by and among AR PRIME HOLDINGS LLC, a Delaware limited
liability company (“
Transferor
”),
LIGHTSTONE VALUE PLUS REIT, L.P., a Delaware limited partnership (“
Transferee
”), and
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC., a Maryland corporation
(the “
REIT
”).
WITNESSETH
:
WHEREAS,
Transferor owns a membership interest (the “
Interest
”) in
Prime Outlets Acquisition Company LLC, a Delaware limited liability company (the
“
Company
”),
corresponding to a 25% Percentage of Membership Interest (as defined in the POAC
Operating Agreement), pursuant to that certain Amended and Restated Limited
Liability Company Agreement of the Company, dated as of December 11, 2003, as
amended by the Amendment to the Amended and Restated Limited Liability Company
Agreement of the Company, dated as of September 2007 (the “
POAC Operating
Agreement
”);
WHEREAS,
Transferor and Transferee desire to enter into a transaction whereby Transferor
shall transfer the Interest to Transferee in exchange for certain units of
limited partnership interest in Transferee;
WHEREAS,
for federal income tax purposes, it is intended that the transfer of the
Interest will be treated as a tax-free contribution by Transferor to Transferee
of the Interest in exchange for the Units (as defined below) under Section 721
of the Internal Revenue Code of 1986, as amended (the “
Code
”);
WHEREAS,
concurrently with the execution and delivery of this Agreement, Transferor,
Transferee and the Company are entering into a tax protection agreement with
respect to the sale or other disposition of properties indirectly owned by the
Company (the “
Tax Protection
Agreement
”);
WHEREAS,
the REIT is the sole general partner of Transferee; and
WHEREAS,
the members of the Company have executed and delivered the Consent to Transfer,
Substitution and Withdrawal in the form attached hereto as
Exhibit I
;
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties covenant and agree as
follows:
1.
Contribution and Transfer;
Additional Loan
. Subject
to the terms and conditions of this Agreement, at the Closing (as defined
below):
(a)
Transferor
shall contribute and assign to Transferee all of Transferor’s right, title and
interest in and to the Interest, including, without limitation, all of
Transferor’s rights and interest in all profits, losses, Net Cash Receipts,
Capital Proceeds (as such terms are defined in the POAC Operating Agreement),
distributions and capital of the Company with respect to the Interest, free and
clear of any liens, security interests and any other encumbrances (except for
those, if any, arising under the POAC Operating Agreement), in exchange for the
issuance to Transferor by Transferee of:
(i)
subject
to Section 4(d), a number of units of common limited partnership interest in
Transferee ( “
Common
Units
”) equal
to (x) the Initial Common Amount (as defined below), divided by (y)
$10
(the
“
Base Common
Units
”);
(ii)
a number
of units of Series A preferred limited partnership interest in Transferee
(“
Series A
Units
”) having
an aggregate liquidation preference equal to the Initial Preferred Amount (as
defined below) (the “
Base Preferred
Units
” and,
together with the Base Common Units, the “
Base
Units
”);
(iii)
subject
to Section 4(d), a number of Common Units equal to (x) the Additional Common
Amount (as defined below), divided by (y) $10 (the “
Additional Common
Units
”);
and
(iv)
a number
of Series A Units having an aggregate liquidation preference equal to the
Additional Preferred Amount (as defined below) (the “
Additional Preferred
Units
” and,
together with the Additional Common Units, the “
Additional
Units
”) (the
Base Units and the Additional Units are collectively referred to herein as the
“
Units
”);
provided
,
however
, that
notwithstanding the foregoing, Transferor shall retain all right to
distributions paid and allocations made by the Company on account of the
Interest prior to the Closing;
(b)
Transferee
shall issue the Units to Transferor in exchange for Transferor’s contribution of
the Interest to Transferee;
(c)
The REIT
shall make a loan to Transferor in an amount equal to 90% of the Additional
Amount (as defined below) (the “
Additional
Loan
”), which
shall be advanced to Transferor on the Closing Date in immediately available
funds; and
(d)
Upon the
contribution of the Interest to Transferee, (i) Transferee shall, upon
compliance with the conditions for substitution as a member set forth in the
POAC Operating Agreement, be admitted as a Member (as defined in the POAC
Operating Agreement) of the Company in substitution for Transferor in accordance
with the POAC Operating Agreement, and (ii) Transferee shall agree to be bound
by the POAC Operating Agreement as a Member in place of Transferor.
2.
Representations and
Warranties
.
(a)
Transferor
hereby represents and warrants to Transferee and the REIT that:
(i)
Transferor
is the sole legal and beneficial owner of the Interest, subject to a security
interest in favor of the REIT;
(ii)
Transferor
has not previously assigned, transferred, sold, pledged or otherwise disposed of
or hypothecated the Interest or any portion thereof or interest therein, except
for the granting of any security interests therein which have been released on
or prior to the date hereof and the grant of a security interest therein to the
REIT;
(iii)
as of the
execution hereof the Interest is free and clear of any liens, security interests
and other encumbrances, except for those, if any, arising under the POAC
Operating Agreement and for a
security
interest in favor of the REIT
;
(iv)
the
execution of, and the transfer and assignment of the Interest pursuant to, this
Agreement have been authorized by all necessary action on the part of
Transferor;
(v)
at the
Closing, the Transferor shall have record and beneficial ownership in and to the
Interest, free and clear of any liens, security interests or any other
encumbrances, except for (A) those, if any, arising under the POAC Operating
Agreement, and (B) a security interest in favor of the REIT;
(vi)
Transferor
has the full right, power and authority to execute and deliver this Agreement
and the Transferor Closing Documents, and to perform its obligations hereunder
and thereunder, without obtaining any consents or approvals from, or taking any
actions with respect to, any governmental authorities or other third
parties
, except
for the approvals of the Members of the Company
;
and
(vii)
this
Agreement has been, and at the Closing the Transferor Closing Documents will be,
duly and validly executed and delivered by Transferor and, when executed and
delivered by Transferee, will constitute the valid and binding agreements of
Transferor, enforceable against Transferor in accordance with their respective
terms; and
(viii)
the
execution and delivery by Transferor of this Agreement and the Transferor
Closing Documents and the performance of Transferor’s obligations thereunder and
the transactions contemplated thereby do not violate or conflict with the
governing documents of Transferor or, subject to the approvals of the Members of
the Company, any other instrument or agreement to which Transferor is a
party;
provided
,
however
, that
notwithstanding anything herein to the contrary, Transferor is not making any
representation or warranty as to whether any third party consents are or are not
required under any loan or other financing agreements, mortgages or other
instruments or agreements to which the Company or any entity directly or
indirectly owned by the Company is a party or to or by which any real or
personal property owned by the Company or by any entity directly or indirectly
owned by the Company is subject or encumbered.
(b)
Each of
Transferee and the REIT, jointly and severally, hereby represents and warrants
to Transferor that:
(i)
the
execution of this Agreement and the Tax Protection Agreement, the issuance by
Transferee of the Units to Transferor, and the making by the REIT of the
Additional Loan, have been authorized by all necessary action on the part of
Transferee and the REIT, as applicable;
(ii)
each of
Transferee and the REIT (as applicable) has the full right, power and authority
to execute and deliver this Agreement, the Tax Protection Agreement and the
Transferee Closing Documents, and to perform its obligations hereunder and
thereunder, without obtaining any consents or approvals from, or taking any
actions with respect to, any governmental authorities or other third
parties;
(iii)
this
Agreement and the Tax Protection Agreement have been, and at the Closing the
Transferee Closing Documents will be, duly and validly executed and delivered by
each of Transferee and the REIT (as applicable) and, when executed and delivered
by Transferor, will constitute the valid and binding agreements of each of
Transferee and the REIT (as applicable), enforceable against each of Transferee
and the REIT (as applicable) in accordance with the respective terms of such
agreements and Transferee Closing Documents;
(iv)
a true
and complete copy of the Amended and Restated Agreement of Limited Partnership
of Transferee, dated as of April 22, 2005, as amended by the First Amendment to
the Amended and Restated Agreement of Limited Partnership of Transferee, dated
as of the date hereof, (as so amended, the “
Partnership
Agreement
”), is
attached hereto as
Annex I
, and the
Partnership Agreement has been duly executed and delivered by all parties
thereto, is in full force and effect, and is binding and enforceable in
accordance with its terms;
(v)
after
giving effect to the transactions contemplated by this Agreement and any other
transactions involving the Transferee that are consummated on or prior to the
date hereof, the capitalization of Transferee (including the number of each
class and series of units issued by Transferee and the related capital
contributed with respect to such units) will be as set forth on
Annex II
hereto;
(vi)
at the
Closing (as defined below
):
(A) the
execution of the Exchange Rights Agreement (as defined below) will have been
authorized by all necessary action on the part of Transferee and the REIT; (B)
each of Transferee and the REIT will have full right, power and authority to
execute, deliver and perform the Exchange Rights Agreement without obtaining any
consents or approvals from, or taking any actions with respect to, any
governmental authorities or other third parties; and (C) the Exchange Rights
Agreement will have been duly and validly executed and delivered by each of
Transferee and the REIT and, when executed and delivered by Transferor, will
constitute the valid and binding agreement of each of Transferee and the REIT,
enforceable against each of them in accordance with its terms;
(vii)
the
execution and delivery by each of Transferee and the REIT of this Agreement and
the applicable Transferee Closing Documents and the performance of the
obligations of Transferee and the REIT thereunder and the transactions
contemplated thereby do not violate or conflict with the governing documents of
Transferee or the REIT or any other instrument or agreement to which either of
them is a party, as the case may be;
(viii)
immediately
after the Closing: (1) Transferor will, simultaneously therewith, be
admitted as a limited partner in Transferee with respect to the Units;
(2) at the Closing, the 704(b) “book” capital account of Transferor in
Transferee will be equal to the Total Amount (as defined below); and
(3) the Units to be issued to the Transferor will be fully paid and
Transferor will have no further obligation to contribute any amounts to the
capital of Transferee or reimburse Transferee for any expenses in respect of the
Units;
(ix)
since May
23, 2005, the REIT has been subject to the reporting requirements of Section 13
or 15 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the “
1934 Act
”) and
has filed with the Securities and Exchange Commission (“
SEC
”) all
documents required to be filed under the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the “
1933 Act
”), and
the 1934 Act (the “
REIT SEC
Documents
”);
(x)
as of
their respective dates, the REIT SEC Documents complied in all material respects
with the requirements of the 1933 Act and the 1934 Act, as the case may be, and
none of the REIT SEC Documents contained any untrue statement of a material fact
or omitted a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, taking into account all corrections made by the REIT in
subsequent filings with the SEC through the date of this Agreement;
(xi)
the
prospectus of the REIT dated January 23, 2008 and the supplements thereto do not
contain any untrue statement of material fact or omit a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstance under which they were made, not misleading as of the date
hereof;
(xii)
as of
their respective dates, the consolidated financial statements of the REIT
included in the REIT SEC Documents complied as to form in all material respects
with then applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated therein or in the notes
thereto) and fairly presented the consolidated financial position of the REIT
and its consolidated subsidiaries as at the dates thereof and the consolidated
results of their operations and statements of cash flows for the periods covered
by such statements (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described
therein);
(xiii)
neither
the REIT nor Transferee has entered into or is a party to any instrument or
agreement granting any limited partner of Transferee registration rights with
respect to shares of stock in the REIT which such limited partner may own or
acquire; and
(xiv)
the REIT
has been organized and operated in conformity with the requirements for
qualification and taxation as a “real estate investment trust” under Sections
856 through 860 of the Code for all taxable years commencing with its taxable
year of formation. The proposed method of operating of the REIT as described in
the REIT SEC Documents will enable the REIT to continue to meet the requirements
for qualification and taxation as a “real estate investment trust” under the
Code. The REIT currently intends, and at the Closing the REIT will intend, to
continue to operate in a manner which would permit it to qualify as a “real
estate investment trust” under the Code.
(c)
Each of
Transferee and the REIT hereby acknowledges, represents and warrants that it is
not relying on any information, representations or warranties furnished or made
by Transferor or any of Transferor’s representatives or agents as to any matter
whatsoever concerning the Company or any entity that is directly or indirectly
owned by the Company or in which the Company has any direct or indirect interest
(including, without limitation, the legal status, good standing, organizational
documents, business, prospects, assets, liabilities, financial condition or
operations of, or the need for any third party consents to the transactions
contemplated by this Agreement from any lenders to or other persons having any
contractual relationship with or jurisdiction over, the Company or such other
entity), or any matter (including, without limitation, physical condition,
operating results, financing, liabilities, title, encumbrances, leases, zoning
status, compliance with law, prospects and compliance with mortgages and other
instruments and agreements) relating to any properties in which any of the
Company or such other entities have a direct or indirect interest, and in
entering into this Agreement and (in the case of Transferee) in accepting the
Interest at the Closing, each of Transferee and the REIT is not and will not be
relying upon any representations or warranties of Transferor or any of its
representatives or agents whatsoever, except for the representations of
Transferor expressly set forth in Section 2(a) hereof. Each of Transferee and
the REIT further acknowledges, represents, warrants and covenants that in
entering into this Agreement and (in the case of Transferee) in accepting the
Interest at the Closing, it is and will be relying solely on its own independent
investigation and due diligence with respect to the Company and any entity or
property in which the Company has a direct or indirect interest, and each of
Transferee and the REIT further agrees that neither Transferee nor the REIT
shall seek to hold Transferor responsible or liable in any way for or in
connection with any representations or warranties or other information furnished
to Transferee or the REIT by any person or entity, other than the
representations and warranties of Transferor expressly set forth in Section 2(a)
hereof.
3.
Closing
.
(a)
The
closing of the transactions contemplated hereby (the “
Closing
”) shall
occur at the New York offices of Cooley Godward Kronish LLP, counsel to the
Transferor, at 10:00 am on the earlier of (i) the “
Closing
Deadline
”, which
shall initially be December 15, 2008, and (ii) a date designated by Transferee,
by no less than fifteen (15) days’ prior written notice to Transferor, which
date must be a business day and must be no later than thirty (30) days after the
date on which Transferee has received audited financial statements for the
Company for the years 2005, 2006 and 2007 (the “
Audited
Statements
”);
provided
,
however
, that,
if Transferee has not received the Audited Statements at least fifteen (15) days
prior to the Closing Deadline, then Transferee shall have the right to extend
the Closing Deadline, from time to time but no more than four times, by at least
ten (10) days prior written notice to Transferor, to a date that is a business
day and is not later than June 26, 2009. TIME SHALL BE OF THE ESSENCE with
respect to the obligation of each of Transferor, Transferee and the REIT to
close the transactions contemplated hereby no later than June 26, 2009,
regardless of whether or not the Transferee has received the Audited Statements.
The date on which the Closing occurs is referred to herein as the “
Closing
Date
”.
(b)
At the
Closing, Transferor shall execute and deliver to Transferee and/or the REIT
(as indicated below) the following (the “
Transferor Closing
Documents
”):
(i)
An
instrument of assignment of the Interest, in the form annexed hereto as
Exhibit A
(the
“
Assignment
”) (to
Transferee);
(ii)
A
representation letter and agreement, in the form annexed hereto as
Exhibit B
(the
“
Representation Letter and
Agreement
”) (to
both Transferee and the REIT);
(iii)
A limited
partner signature page to the Partnership Agreement (as defined below), in the
form annexed hereto as
Exhibit C
(to
Transferee);
(iv)
An
exchange rights agreement, in the form annexed hereto as
Exhibit D
(the
“
Exchange Rights
Agreement
”) (to
both Transferee and the REIT)
(v)
A mutual
release agreement, in the form annexed hereto as
Exhibit E
(the
“
Release
Agreement
”) (to
Transferee);
(vi)
A
promissory note evidencing the Additional Loan
, in the
form annexed hereto as
Exhibit F
(the
“
Additional Promissory
Note
”)
(to the
REIT)
;
(vii)
A pledge
agreement, in the form annexed hereto as
Exhibit G
(the
“
New Pledge
Agreement
”) (to
the REIT);
(viii)
A
certificate confirming the accuracy as of the Closing Date of the
representations and warranties of Transferor set forth in Section 2(a) of this
Agreement (to both Transferee and the REIT); and
(ix)
A
certified copy of Transferor’s resolutions approving the transactions
contemplated hereby (to both Transferee and the REIT).
(c)
At the
Closing, the REIT shall advance to Transferor, in immediately available funds,
the Additional Loan, and each of Transferee and the REIT (as applicable) shall
execute and deliver to Transferor the following (together with the documents
referred to in Section 3(d), collectively the “
Transferee Closing
Documents
”):
(i)
The
Assignment;
(ii)
The
Representation Letter and Agreement;
(iii)
An
amended Exhibit A to the Partnership Agreement, naming Transferor as a limited
partner of Transferee and indicating the number of Common Units and the number
of Series A Units held by Transferor after the consummation of the transactions
contemplated in this Agreement;
(iv)
A
certificate evidencing action by the general partner of Transferee to issue the
Units to Transferee, in the form annexed hereto as
Exhibit H
;
(v)
Certificates
representing the Series A Units required to be issued to Transferor at
Closing;
(vi)
The
Exchange Rights Agreement;
(vii)
The
Release Agreement;
(viii)
The New
Pledge Agreement;
(ix)
A
certificate from each of the Transferee and the REIT confirming the accuracy as
of the Closing Date of the representations and warranties set forth in Section
2(b) of this Agreement; and
(x)
A
certified copy of the resolutions adopted by the board of directors of the REIT
approving, both for the REIT itself and in the REIT’s capacity as general
partner of Transferee, the transactions contemplated hereby.
(d)
At the
Closing, each of Transferee and the REIT shall cause:
(i)
Proskauer
Rose LLP (or another nationally recognized tax counsel experienced in such
matters and satisfactory to Transferor) to delivered to Transferor a tax
opinion, addressed to Transferor, that, as of the Closing Date, the REIT
qualifies as a real estate investment trust for U.S. federal income tax
purposes;
(ii)
each of
the Company and Lightstone Prime, LLC, a Delaware limited liability company
(“
Lightstone
Prime
”), to
execute and deliver the Release Agreement; and
(iii)
any
direct or indirect transferee of Lightstone Prime’s membership interest in the
Company to execute and deliver a counterpart signature page to the Consent to
Transfer, Substitution and Withdrawal annexed hereto as
Exhibit I
.
4.
Adjustments
.
(a)
The
“
Initial Common
Amount
” means
an amount equal to $2,750,000. The “
Initial Preferred
Amount
” means
an amount equal to (x) $52,250,000 minus (y) the aggregate amount of any
distributions by the Company of Net Cash Receipts or Capital Proceeds (as such
terms are defined in the POAC Operating Agreement) that are received by
Transferor from the date of this agreement through the Closing Date, plus (z)
the product of (i) 275,000 multiplied by (ii) the aggregate amount of any
distributions per Common Unit that are declared or paid by the Partnership with
a record date that is after the date of this Agreement but on or before the
Closing Date. Neither the Initial Common Amount nor the Initial Preferred Amount
shall be adjusted on account of Transferor’s contributed capital or capital
account in the Company.
(b)
The
“
Additional
Amount
” means
an amount equal to the aggregate distributions that would have accrued by the
Closing Date on a number of
Series A
Units
having
an aggregate liquidation preference equal to $52,250,000, had such Series A
Units been issued on the date of this Agreement. The “
Additional Common
Amount
” means
an amount equal to 5% of the Additional Amount, and the “
Additional Preferred
Amount
” means
an amount equal to 95% of the Additional Amount.
(c)
The
“
Total
Amount
” means
an amount equal to the sum of (w) the Initial Common Amount, (x) the Additional
Common Amount, (y) the Initial Preferred Amount, and (z) the Additional
Preferred Amount.
(d)
In the
event that Transferee at any time or from time to time after the date hereof
shall declare or pay any distribution on the Common Units payable in Common
Units (or in any other securities or property other than cash, including without
limitation the right to acquire Common Units), or shall effect a subdivision of
the outstanding Common Units into a greater number of Common Units (by split,
reclassification or otherwise), or in the event the outstanding Common Units
shall be combined or consolidated, and so long as the record date for any of the
foregoing is after the date of this Agreement but on or before the Closing Date,
then the Base Common Units and the Additional Common Units to be issued pursuant
to Sections 1(a)(i) and 1(a)(iii), respectively, shall be adjusted to equal the
number of Common Units (and any other securities and property) that a limited
partner of Transferee would have on the Closing Date had such limited partner
been issued the Base Common Units and the Additional Units (before giving effect
to the adjustments contemplated by this paragraph), as the case may be, on the
date hereof.
5.
Closing
Conditions
.
(a)
Transferor’s
obligations to consummate the transactions contemplated hereby and to deliver
the Transferor Closing Documents at the Closing shall be conditioned upon the
satisfaction of the following conditions (any of which may be waived by
Transferor, in whole or in part) (the “
Transferor Closing
Conditions
”):
(i)
The REIT
shall advance the Additional Loan to Transferor in immediately available
funds;
(ii)
Transferee
and the REIT shall have tendered delivery, and shall have caused each of the
persons referred to in Section 3(d), as applicable, to tender delivery, of all
of the Transferee Closing Documents, including in each case a tender which may
be conditioned on the satisfaction of the Transferee Closing Conditions (as
defined below); and
(iii)
Each of
the representations and warranties of Transferee set forth in Section 2(b) of
this Agreement must be accurate in all materials respects as of the Closing
Date.
(b)
Transferee’s
obligations to consummate the transactions contemplated hereby and to deliver
(or cause the delivery of) the Transferee Closing Documents at the Closing, and
the REIT’s obligation to advance the Additional Loan at the Closing, shall be
conditioned upon the satisfaction of the following conditions (any of which may
be waived by Transferee, in whole or in part) (the “
Transferee Closing
Conditions
”):
(i)
Transferor
shall have tendered delivery (including a tender which may be conditioned on the
satisfaction of the Transferor Closing Conditions) of all of the Transferor
Closing Documents; and
(ii)
Each of
the representations and warranties of Transferor set forth in Section 2(a) of
this Agreement must be accurate in all materials respects as of the Closing
Date.
(c)
Transferee’s
receipt of the Audited Statements is not a condition to Transferee’s obligation
to consummate the transactions contemplated hereby at the Closing.
6.
Initial Unit Distributions;
Unit Redemption
.
Transferor and Transferee acknowledge and agree that the first quarterly
distribution paid by Transferee in respect of the Series A Units, after they are
issued to Transferor, shall (a) be with respect to the quarter in which the
Closing occurs and (b) be prorated based on the number of days during such
quarter after the date of the Closing. Transferor acknowledges that
notwithstanding anything to the contrary herein or in the Partnership Agreement,
Transferor shall not have the right to convert any Series A Units to Common
Units prior to June 26, 2013.
7.
Termination;
Remedies
.
(a)
If on the
Closing Deadline (or any earlier date designated for the Closing in accordance
with Section 3(a) hereof):
(i)
the
Transferee Closing Conditions have been satisfied; and
(ii)
either of
Transferee or the REIT shall fail or refuse to close the transactions
contemplated hereby (including, in the case of the REIT, advancing the
Additional Loan), whether
due to
the failure of Transferee to obtain the Audited Financials
or for
any other reason or for no reason; and
(iii)
Transferor
is ready, willing and able to close the transactions contemplated hereby (or, in
the event that any of the Transferor Closing Conditions shall not have been
satisfied, Transferor would be ready, willing and able to close the transactions
contemplated hereby but for such unsatisfied Transferor Closing
Conditions),
then
Transferor may elect one of the following as its sole and exclusive remedy: (x)
to commence and prosecute an action for specific performance of Transferee’s
obligations hereunder; or (y) to terminate this Agreement
by
written notice to Transferee
,
whereupon Transferee shall forthwith pay to Transferor the amount of $6,082,000
as liquidated damages, and the parties hereto shall have no further rights or
obligations to each other under this Agreement, except for Section 7(d) hereof;
provided
,
however
, that if
the failure or refusal of Transferee or the REIT to close is due to the failure
of Transferee to obtain the Audited Financials, then Transferor will be entitled
to terminate this Agreement and receive liquidated damages from Transferee as
provided by clause (y), above, but shall not be entitled to seek specific
performance.
(b)
If on the
Closing Deadline (or any earlier date designated for the Closing in accordance
with Section 3(a) hereof):
(i)
the
Transferor Closing Conditions have been satisfied; and
(ii)
Transferor
shall fail or refuse to close the transactions contemplated hereby;
and
(iii)
each of
Transferee and the REIT is ready, willing and able to close the transactions
contemplated hereby (or, in the event that any of the Transferee Closing
Conditions shall not have been satisfied, each of Transferee and the REIT would
be ready, willing and able to close the transactions contemplated hereby but for
such unsatisfied Transferee Closing Conditions),
then,
Transferee and the REIT may collectively, as their sole and exclusive remedy,
commence and prosecute an action for specific performance of Transferor’s
obligations hereunder;
provided,
however,
that if
the conditions in Section 7(b)(i) through (iii) are all satisfied and a court of
competent jurisdiction holds that the remedy of specific performance is not
available to Transferee and the REIT and such court’s order becomes a final and
non-appealable order (whether through the lapse of time or the exhaustion of
appeals), then, Transferor and Transferee shall each have the right to terminate
this Agreement by written notice to the other, whereupon, except as provided
below, Transferor shall pay to Transferee the amount of $6,082,000 as liquidated
damages, and the parties hereto shall have no further rights or obligations to
each other under this Agreement, except for Section 7(d) hereof;
provided further
,
however
, that
Transferee and the REIT shall not be entitled to any damages (liquidated or
otherwise), and either Transferee or Transferor shall be entitled to terminate
this Agreement, if Transferor’s failure or refusal to close the transactions
contemplated hereby is due to any of the following: (A) the existence of an
order, injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
by Transferor of the transactions contemplated by this Agreement, or (B) the
existence of a statute, rule, regulation, order, injunction or decree enacted,
entered, promulgated or enforced by any Governmental Authority which prohibits
or makes illegal the consummation by Transferor of the transactions contemplated
hereby, unless in the case of the matters described in the foregoing clause (A)
or (B), the restraint or prohibition is the result of wrongful acts or omissions
by Transferor to avoid its obligations under this Agreement or is the result of
a breach of any of Transferor’s representations and warranties (other than a
breach that is caused by any of the situations described in the foregoing
clauses (A) or (B)) or, in the case of an injunction or other proceeding to
prevent the consummation of the transactions contemplated hereby, if Transferor
did not vigorously defend against the imposition of such injunction or such
other proceeding.
(c)
Subject
to the proviso set forth at the end of Section 7(a), Transferee acknowledges
that in the event that the conditions set forth in Section 7(a)(i), (ii) and
(iii) are satisfied: (x) Transferor will have no adequate remedy at law for the
damages caused to Transferor thereby, in part because the transaction
contemplated by this Agreement is for a transfer of property representing
indirect interests in real estate; and (y) the damages caused to Transferor
thereby will not be readily ascertainable, and that the liquidated damages
remedy provided by Section 7(a) is a reasonable approximation of Transferor’s
prospective damages, and not a penalty for non-performance, and Transferee
hereby waives (A) all objections to Transferor’s right to elect the liquidated
damages remedy, and (B) all challenges to the amount of liquidated damages
provided for herein, in each case whether on the grounds that damages are
readily ascertainable, that the remedy constitutes an unenforceable penalty, or
otherwise.
(d)
Subject
to the proviso set forth at the end of Section 7(b), Transferor acknowledges
that in the event that the conditions set forth in Section 7(b)(i), (ii) and
(iii) are satisfied: (x) Transferee will have no adequate remedy at law for the
damages caused to Transferee thereby, in part because the transaction
contemplated by this Agreement is for a transfer of property representing
indirect interests in real estate; and (y) the damages caused to Transferee
thereby will not be readily ascertainable, and that the liquidated damages
remedy provided by Section 7(b) is a reasonable approximation of Transferee’s
prospective damages, and not a penalty for non-performance, and if Transferee is
entitled to liquidated damages pursuant to Section 7(b), Transferor hereby
waives any challenge to the amount of liquidated damages provided for herein, in
each case whether on the grounds that damages are readily ascertainable, that
the remedy constitutes an unenforceable penalty, or otherwise.
(e)
If on the
Closing Deadline (x) the transactions contemplated hereby have not been
consummated, and (y) neither Transferor nor Transferee are entitled to elect
liquidated damages as a remedy pursuant to Sections 7(a) or 7(b), respectively,
then this Agreement shall terminate, and the parties hereto shall have no
further rights or obligations to each other under this Agreement.
(f)
If either
Transferee or Transferor fails to pay to the other any amounts payable under
this Section 7 within ten (10) days after the date in which a written notice of
termination is delivered pursuant to clause (y) of Section 7(a) or 7(b) hereof,
as the case may be, (the “
Default
Date
”), then
(i) the defaulting party shall reimburse the non-defaulting party for all costs
and expenses (including without limitation attorney’s fees) incurred in
connection with the collection of such overdue amount and the enforcement by the
non-defaulting party of its rights under this Section 7, and (ii) the defaulting
party shall pay to the non-defaulting party interest on such overdue amount at a
rate of 15% per annum for the period commencing on the Default Date and ending
on the date such overdue amount is actually paid to the non-defaulting party in
full.
(g)
For
purposes of this Section 7, “
Governmental
Authority
” means
any nation, state, territory, province, county, city or other unit or
subdivision thereof or any entity, authority, agency, department, board,
commission, instrumentality, court or other judicial body authorized on behalf
of any of the foregoing to exercise legislative, judicial, regulatory or
administrative functions and any governmental or nongovernmental self-regulatory
organization of which any of the parties to this Agreement was or is a member or
to whose regulations any of the parties to this Agreement was or is
subject.
8.
Tax Reporting;
Audits
.
For
federal, state, and local income tax purposes, Transferee shall report
Transferor’s contribution of the Interest to the Transferee as a tax-free
contribution pursuant to Section 721 of the Code (or the corresponding provision
of state or local law, as applicable). Notwithstanding anything to the contrary
in this Agreement or the Partnership Agreement, neither Transferee nor the REIT
shall settle any matter that involves the tax treatment of (i) the contribution
of the Transferred Interests or (ii) any other matter that would have a tax
impact on Transferor that is materially, adversely different from the tax impact
such matter would have on the REIT, without the prior written consent of
Transferor, which shall not be unreasonably withheld or delayed.
9.
Maintenance of REIT
Status
.
Transferee hereby acknowledges that it has been informed that Transferor is a
subsidiary of an entity that qualifies as a “real estate investment trust” for
United States federal income tax purposes, and acknowledges that Transferor may
transfer its Units to an affiliate of Transferor that is a “real estate
investment trust” or a subsidiary of a “real estate investment trust” (any such
entity, a “
REIT
Entity
”).
Transferee represents and warrants to Transferor that it currently operates in a
manner that would not adversely affect the qualification as a “real estate
investment trust” of any partner of Transferee that otherwise qualifies as a
“real estate investment trust”, and Transferee covenants and agrees that both
before and after the Closing Date it shall operate (directly or indirectly
through entities owned or controlled by it) in a manner that would not adversely
affect the qualification as a “real estate investment trust” of any partner of
Transferee, or any direct or indirect parent entity of such partner, that
otherwise qualifies as a “real estate investment trust”. Transferee shall make
available, on a timely basis, to Transferor and to any other REIT Entity that
holds Units, such information as is reasonably requested by Transferor or such
REIT Entity or its direct or indirect parent to enable it to monitor and ensure
its compliance with the “real estate investment trust” qualification
requirements, on an ongoing basis, insofar as they relate to its investment in
Transferee, including, without limitation (a) information regarding the nature
and amount of Transferee’s gross income and gross assets, and the portion
thereof that is allocable to Transferor for purposes of the gross asset and
income requirements applicable to “real estate investment trusts” (i.e. on the
basis of Transferor’s percentage interest in Transferee’s capital), and (b) an
organizational chart showing each entity in which the Transferee holds any
direct or indirect equity interest, and indicating the classification for United
States federal income tax purposes of each such entity. Notwithstanding anything
contained herein to the contrary, from and after the date hereof, Transferee
shall operate in a manner, taking into account any operations conducted through
lower-tier entities, such that at all times (i) Transferee would satisfy each of
the asset tests and the income tests for “real estate investment trusts” as set
forth in Section 856(c) of the Code, determined as if Transferee were a
corporation for United States federal income tax purposes, (ii) no dispositions
of assets will give rise to a “prohibited transaction” as defined in Section
857(b)(6) of the Code, and (iii) no portion of Transferee or any lower-tier
entity will be classified as a “taxable mortgage pool” as defined in Section
7701(i) of the Code.
10.
Registration
Rights
.
Each of
Transferee and the REIT
agrees
that in the event that either of them enters into or becomes a party to any
instrument or agreement which grants registration rights to any limited partner
of Transferee with respect to shares of stock in the REIT which such limited
partner may own or acquire, or otherwise grants such registration rights to any
limited partner of Transferee, then each of Transferee and the REIT shall
promptly notify Transferor and shall grant to Transferor, by entering into a
registration rights agreement with Transferor that is in form and substance
reasonably acceptable to Transferor, registration rights with respect to any
shares issued by the REIT that Transferor may acquire in connection with a
transfer or redemption of any of its Units to or by Transferee or the REIT, and
such registration rights shall be on terms that are no less favorable to
Transferor in any respect than the most favorable registration rights granted to
any other limited partner of Transferee by Transferee or the REIT.
11.
Notices
. All
notices shall be deemed to have been properly given if hand delivered or if
mailed by United States registered or certified mail, with return receipt
requested, postage prepaid, or by United States Express Mail or other comparable
overnight courier service to the parties at the addresses set forth below (or at
such other addresses as shall be given in writing by any party to the others). A
notice shall be deemed to have been given: in the case of hand delivery, at the
time of delivery; in the case of registered or certified mail, two Business Days
after mailing; or in the case of overnight courier service, on the Business Day
after the same was sent. A party receiving a notice which does not comply with
the technical requirements for notice under this section may elect to waive any
deficiencies and treat the notice as having been properly given.
If
to Transferor:
|
|
AR
Prime Holdings
,
LLC
333
Earle Ovington Boulevard, Suite 900
Uniondale,
NY 11553
Attention:
Guy R. Milone, Jr.
|
|
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|
With
a copy to:
|
|
Cooley
Godward Kronish LLP
1114
Avenue of the Americas
New
York, New York 10036
Attention:
Thomas D. O’Connor, Esq.
|
|
|
|
If
to Transferee or the REIT:
|
|
Lightstone
Value Plus Real Estate Investment Trust Inc.
326
Third Street
Lakewood,
NJ 08701
Attention:
Joseph E. Teichman
|
|
|
|
With
a copy to:
|
|
Herrick,
Feinstein LLP
2
Park Avenue
New
York, New York 10016
Attention:
Sheldon Chanales, Esq.
|
12.
Further
Assurances
.
Each
party to this Agreement will execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, any such further conveyances, assignments,
approvals, consents and other documents, and do any other acts, as may be
reasonably necessary to carry out the intent and purpose of this Agreement.
Without limiting the generality of the foregoing, if, after the Closing, any
property, assets, collateral, funds, documents or other items which constitute a
part of the Interest remains in or comes into either Transferor’s possession or
control or remains or become vested or titled in Transferor, Transferor shall
promptly take any and all actions necessary to transfer title and possession
thereof to Transferee, all at Transferee’s sole cost and expense.
13.
Governing
Law
. This
Agreement shall be construed and enforced in accordance with the laws of the
State of New York.
14.
Binding
Effect
. This
Agreement shall be binding upon, and shall inure to the benefit of, Transferor,
Transferee and their respective successors and assigns.
15.
Severability
. In the
event that any phrase, clause, sentence, paragraph, section, article or other
portion of this Agreement shall become illegal, null or void, or against public
policy, for any reason, or shall be held by any court of competent jurisdiction
to be illegal, null or void, or against public policy, the remaining portions of
this Agreement shall not be affected thereby and shall remain in force and
effect to the full extent permissible by law
.
16.
Counterparts
. This
Agreement may be executed in several counterparts, each of which shall
constitute an original and all of which, taken together, shall constitute one
and the same Agreement, binding on each party hereto regardless of whether all
parties are signatories to the same counterpart.
[Remainder
of Page Intentionally Left Blank]
IN WITNESS WHEREOF,
the
parties hereto have executed this Agreement as of the date first above
written.
|
|
|
|
TRANSFEROR
AR
PRIME HOLDINGS LLC
,
a
Delaware limited liability company
By
Arbor
Realty Member LLC, a Delaware limited liability company, its
manager
By
Arbor
Realty SR Inc., a Maryland corporation, its sole member
|
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|
|
|
|
By
|
|
Name:
|
|
Title:
|
|
|
|
|
TRANSFEREE:
LIGHTSTONE
VALUE PLUS REIT, L.P.
,
a
Delaware limited partnership
By:
Lightstone
Value Plus Real Estate Investment Trust, Inc., a Maryland corporation, its
general partner
|
|
|
|
|
|
By:
|
|
Name:
|
|
Title:
|
|
|
|
|
LIGHTSTONE
VALUE PLUS REAL ESTATE
INVESTMENT
TRUST, INC.
,
a
Maryland corporation, its general partner
|
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By:
|
|
|
Name:
|
|
Title:
|
ANNEX
I
PARTNERSHIP
AGREEMENT
[INCLUDING ALL AMENDMENTS
THERETO]
ANNEX
II
CAPITALIZATION OF
TRANSFEREE
EXHIBIT
A
ASSIGNMENT OF
INTEREST
EXHIBIT
B
REPRESENTATION LETTER AND
AGREEMENT
EXHIBIT
C
LIMITED PARTNER SIGNATURE
PAGE
TO PARTNERSHIP
AGREEMENT
EXHIBIT
D
EXCHANGE RIGHTS
AGREEMENT
EXHIBIT
E
RELEASE
AGREEMENT
EXHIBIT
F
ADDITIONAL PROMISSORY
NOTE
EXHIBIT
G
NEW PLEDGE
AGREEMENT
EXHIBIT
H
CERTIFICATE EVIDENCING
ACTION BY THE
GENERAL PARTNER OF
TRANSFEREE TO ISSUE
COMMON UNITS AND SERIES A
UNITS
TO
TRANSFEREE
EXHIBIT
I
CONSENT TO TRANSFER,
SUBSTITUTION AND WITHDRAWAL
EXHIBIT
10.44
EXECUTION
COPY
CONTRIBUTION
AGREEMENT
DATED
AS OF DECEMBER 8, 2009
TABLE OF
CONTENTS
|
|
|
Page
|
|
|
|
|
ARTICLE
1 CERTAIN DEFINITIONS
|
|
2
|
Section
1.1
|
Certain
Definitions
|
|
2
|
|
|
|
|
ARTICLE
2 THE CONTRIBUTIONS
|
|
20
|
Section
2.1
|
Contributions
|
|
21
|
Section
2.2
|
Closing
of the Contributions
|
|
21
|
Section
2.3
|
Aggregate
Consideration Value
|
|
21
|
Section
2.4
|
Contribution
of Unit Consideration to New Company
|
|
25
|
Section
2.5
|
***
|
|
26
|
Section
2.6
|
Book
Entry; No Fractional Units
|
|
26
|
Section
2.7
|
Purchase
and Sale of St. Augustine Interests and St. Augustine Land
|
|
26
|
|
|
|
|
ARTICLE
3 REPRESENTATIONS AND WARRANTIES RELATING TO THE GROUP
COMPANIES
|
|
27
|
Section
3.1
|
Organization
and Qualification; Subsidiaries
|
|
27
|
Section
3.2
|
Capitalization
of the Group Companies
|
|
27
|
Section
3.3
|
Authority
|
|
30
|
Section
3.4
|
Financial
Statements; Indebtedness
|
|
31
|
Section
3.5
|
Consents
and Approvals; No Violations
|
|
32
|
Section
3.6
|
Material
Contracts
|
|
33
|
Section
3.7
|
Absence
of Changes
|
|
34
|
Section
3.8
|
Litigation
|
|
34
|
Section
3.9
|
Compliance
with Applicable Law
|
|
35
|
Section
3.10
|
Employee
Benefit Plans
|
|
35
|
Section
3.11
|
Environmental
Matters
|
|
37
|
Section
3.12
|
Intellectual
Property
|
|
38
|
Section
3.13
|
Labor
Matters
|
|
39
|
Section
3.14
|
Tax
Matters
|
|
40
|
Section
3.15
|
Brokers
|
|
42
|
Section
3.16
|
Real
and Personal Property
|
|
42
|
Section
3.17
|
No
Undisclosed Liabilities
|
|
49
|
Section
3.18
|
Transactions
with Affiliates
|
|
49
|
Section
3.19
|
Insurance
|
|
49
|
Section
3.20
|
Investment
Company Act Status
|
|
49
|
Section
3.21
|
No
Other Representations and Warranties Regarding the Group
Companies
|
|
49
|
|
|
|
ARTICLE
4 REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTORS AND LVP
REIT
|
|
50
|
Section
4.1
|
Organization
|
|
50
|
Section
4.2
|
Authority
|
|
50
|
Section
4.3
|
Consents
and Approvals; No Violations
|
|
51
|
Section
4.4
|
Title
|
|
51
|
***
Certain portions have been omitted based upon a request for confidential
treatment to the Securities and Exchange Commission. The information
omitted has been filed separately with the Commission.
Section
4.5
|
Accredited
Investor
|
|
51
|
Section
4.6
|
Brokers
|
|
51
|
Section
4.7
|
Acknowledgment
|
|
51
|
Section
4.8
|
No
Other Representations and Warranties Regarding the
Contributors
|
|
52
|
|
|
|
ARTICLE
5 REPRESENTATIONS AND WARRANTIES OF PARENT REIT, PARENT OP AND PARENT
SUB
|
|
52
|
Section
5.1
|
Organization
|
|
52
|
Section
5.2
|
Authority
|
|
52
|
Section
5.3
|
Consents
and Approvals; No Violations
|
|
53
|
Section
5.4
|
Capitalization
|
|
53
|
Section
5.5
|
SEC
Documents
|
|
54
|
Section
5.6
|
Brokers
|
|
54
|
Section
5.7
|
***
|
|
55
|
Section
5.8
|
Tax
Matters
|
|
55
|
Section
5.9
|
Certain
Activities
|
|
55
|
Section
5.10
|
New
Company
|
|
55
|
Section
5.11
|
Acknowledgement
|
|
56
|
Section
5.12
|
No
Other Representations and Warranties Regarding Parent REIT, Parent OP and
Parent Sub
|
|
57
|
|
|
|
|
ARTICLE
6 COVENANTS
|
|
57
|
Section
6.1
|
Conduct
of Business of the Group Companies
|
|
57
|
Section
6.2
|
Pre-Closing
Tax Matters
|
|
61
|
Section
6.3
|
Access
to Information
|
|
62
|
Section
6.4
|
Efforts
to Consummate
|
|
63
|
Section
6.5
|
***
|
|
64
|
Section
6.6
|
Public
Announcements
|
|
64
|
Section
6.7
|
Indemnification
|
|
64
|
Section
6.8
|
Documents
and Information
|
|
65
|
Section
6.9
|
***
|
|
65
|
Section
6.10
|
Employee
Benefit Matters
|
|
65
|
Section
6.11
|
Notification
|
|
67
|
Section
6.12
|
Transactions
in Parent Common Stock
|
|
68
|
Section
6.13
|
Exclusivity
|
|
68
|
Section
6.14
|
Use
of Prime Retail Mark
|
|
69
|
Section
6.15
|
Parent
OP Agreement
|
|
69
|
Section
6.16
|
***
|
|
70
|
|
|
|
ARTICLE
7 CERTAIN AFFILIATE MATTERS
|
|
70
|
Section
7.1
|
Termination
of Agreements; Resignations of Affiliates
|
|
70
|
Section
7.2
|
Release
|
|
71
|
|
|
|
|
ARTICLE
8 CONDITIONS TO CONSUMMATION OF THE CONTRIBUTIONS
|
|
73
|
Section
8.1
|
Conditions
to the Obligations of the Contributors, Parent REIT, Parent OP and Parent
Sub
|
|
73
|
***
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
[Type
text]
Section
8.2
|
Other
Conditions to the Obligations of Parent REIT, Parent OP and Parent
Sub
|
|
73
|
Section
8.3
|
Other
Conditions to the Obligations of the Contributors
|
|
75
|
Section
8.4
|
Frustration
of Closing Conditions
|
|
76
|
|
|
|
ARTICLE
9 TERMINATION; AMENDMENT; WAIVER
|
|
76
|
Section
9.1
|
Termination
|
|
76
|
Section
9.2
|
Effect
of Termination
|
|
77
|
Section
9.3
|
Amendment
|
|
78
|
Section
9.4
|
Extension;
Waiver
|
|
78
|
|
|
|
|
ARTICLE
10 SURVIVAL; INDEMNIFICATION
|
|
78
|
Section
10.1
|
Survival
|
|
78
|
Section
10.2
|
Indemnification
|
|
79
|
Section
10.3
|
Indemnification
Procedures
|
|
81
|
Section
10.4
|
Limitations
on Indemnification Obligations
|
|
83
|
Section
10.5
|
The
Representative
|
|
85
|
Section
10.6
|
Exclusive
Remedy
|
|
86
|
Section
10.7
|
Manner
of Payment; Escrow
|
|
86
|
|
|
|
|
ARTICLE
11 REPRESENTATIVE OF THE CONTRIBUTORS
|
|
88
|
Section
11.1
|
Authorization
of Representative
|
|
88
|
|
|
|
|
ARTICLE
12 MISCELLANEOUS
|
|
90
|
Section
12.1
|
Entire
Agreement; Assignment
|
|
91
|
Section
12.2
|
Notices
|
|
91
|
Section
12.3
|
Governing
Law
|
|
93
|
Section
12.4
|
Fees
and Expenses
|
|
93
|
Section
12.5
|
Construction;
Interpretation
|
|
93
|
Section
12.6
|
Exhibits,
Annexes and Schedules
|
|
93
|
Section
12.7
|
Parties
in Interest
|
|
94
|
Section
12.8
|
Severability
|
|
94
|
Section
12.9
|
Counterparts;
Facsimile Signatures
|
|
94
|
Section
12.10
|
Obligations
Joint and Several
|
|
94
|
Section
12.11
|
Knowledge
of the Company
|
|
94
|
Section
12.12
|
Waiver
of Jury Trial
|
|
94
|
Section
12.13
|
Jurisdiction
and Venue
|
|
95
|
Section
12.14
|
Waiver
of Conflicts
|
|
95
|
Section
12.15
|
Limitation
on Damages; Remedies
|
|
95
|
Section
12.16
|
Specific
Performance
|
|
96
|
***
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
[Type
text]
EXHIBITS
ANNEXES:
***
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
[Type
text]
CONTRIBUTION
AGREEMENT
THIS CONTRIBUTION AGREEMENT
(this “
Agreement
”), dated as
of December 8, 2009, is made by and among Simon Property Group, Inc., a Delaware
corporation (“
Parent
REIT
”), Simon Property Group, L.P., a Delaware limited partnership
(“
Parent
OP
”), Marco Capital
Acquisition, LLC, a Delaware limited liability company and a wholly owned
subsidiary of Parent OP (“
Parent Sub
,” and
together with Parent REIT and Parent OP, the “
Parent Parties
”),
Lightstone Value Plus REIT, LP, a Delaware limited partnership (“
LVP OP
”), Pro-DFJV
Holdings LLC, a Delaware limited liability company (“
Pro-DFJV
”),
Lightstone Holdings, LLC, a Delaware limited liability company (“
Lightstone
Holdings
”), Lightstone Prime, LLC, a Delaware limited liability company
(“
Lightstone
Prime
”), BRM, LLC, a New Jersey limited liability company (“
BRM
”), Lightstone
Real Property Ventures Limited Liability Company, a New Jersey limited liability
company (“
LRPV
”), PR Lightstone
Manager, LLC, a Delaware limited liability company (“
PR Manager
”), Prime
Outlets Acquisition Company LLC, a Delaware limited liability company (the
“
Company
”) and
solely for purposes of
Section 4.3(b)
,
Section 6.13
,
Section 6.16
,
Section 7.2(b)
,
Article 10
(with
respect to any alleged breach of
Section 4.3(b)
,
Section 6.13
,
Section 6.16
or
Section 7.2(b)
),
Article 11
and
Article 12
,
Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation
(“
LVP REIT
”).
Capitalized terms used but not otherwise defined herein have the meanings
ascribed to such terms in
Article
1
.
WHEREAS
, Lightstone Holdings,
Pro-DFJV, LVP OP, BRM, LRPV and PR Manager own the membership interests in
Ewell, Mill Run and Barceloneta, in each case as set forth opposite their
respective names on
Annex A
(such
membership interests, the “
Other Group Companies
Contributed Interests
”);
WHEREAS
, Lightstone Prime, LVP
OP and Pro-DFJV own all of the outstanding membership interests in the Company,
in each case as set forth opposite their respective names on
Annex B
(such
membership interests, the “
Company Contributed
Interests
” and, with the Other Group Companies Contributed Interests, the
“
Contributed
Interests
”);
WHEREAS
, LVP OP owns all of
the outstanding membership interests of St. Augustine (the “
St. Augustine
Interests
”) and a related parcel of unimproved land described on
Annex C
(with all
structures, improvements and fixtures located thereon and all rights of way,
other rights, privileges, licenses, easements and appurtenances belonging or
appertaining thereto, the “
St. Augustine
Land
”);
WHEREAS
, certain of the
Contributors have agreed to enter into this Agreement to, subject to the terms
and conditions hereof, contribute all of the Company Contributed Interests to
Parent Sub;
WHEREAS
, certain of the
Contributors have agreed to enter into this Agreement to, subject to the terms
and conditions hereof, contribute all of the Other Group Companies Contributed
Interests to Parent Sub;
WHEREAS
, LVP OP has agreed to
enter into this Agreement to, subject to the terms and conditions hereof, sell
all of the St. Augustine Interests and the St. Augustine Land to Parent Sub;
and
WHEREAS
, concurrently with the
execution hereof, Parent OP and Parent Sub have entered into a master purchase
and sale agreement in the form attached as
Exhibit A
(the “
LP Purchase
Agreement
”) with each of the members of Mill Run and Ewell that is not a
Contributor (collectively, the “
Other Members
”),
pursuant to which Parent Sub has agreed, subject to the terms and conditions of
the LP Purchase Agreement, to purchase, concurrently with the Closing, all of
the membership interests of Mill Run and Ewell owned by the Other
Members.
NOW, THEREFORE
, in
consideration of the premises and the mutual promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE
1
CERTAIN
DEFINITIONS
Section
1.1
Certain
Definitions
As used
in this Agreement, the following terms have the respective meanings set forth
below.
“
Accounting Firm
” has
the meaning set forth in
Section
2.3(d)(ii)
.
“
Actual Adjustment
”
means (a) the Aggregate Consideration Value as finally determined pursuant to
Section
2.3(d)
,
minus
(b) the
Estimated Aggregate Consideration Value. For the avoidance of doubt, the
Actual Adjustment may be a positive amount or a negative amount.
“
Actual Value
” has the
meaning set forth in
Section
2.3(d)(iii)(C)
.
“
Affiliate
” means,
with respect to any Person, any other Person who directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, such Person. The term “
control
” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, and the terms “
controlled
” and
“
controlling
”
have meanings correlative thereto.
“
Aggregate Consideration
Dispute Notice
” has the meaning set forth in
Section
2.3(d)(ii)
.
“
Aggregate Consideration
Value
” means (i) the Enterprise Value,
increased by
(ii) the Net Working Capital Adjustment (if a positive number),
decreased by
(iii)
the absolute value of the Net Working Capital Adjustment (if a negative number),
decreased by
(iv) the amount of Closing Date Funded Indebtedness,
decreased by
(v) the Company Transaction Expenses,
decreased by
(vi) the
Minority Cash Amount, decreased by (vii) the St. Augustine Cash Amount.
For the avoidance of doubt, no item (or element thereof) shall be included more
than once in any of the foregoing clauses in the calculation of the Aggregate
Consideration Value. For illustrative purposes, attached as
Schedule 1.1(A)
is a
hypothetical calculation of the Aggregate Consideration Value.
“
Aggregate Unit Value
”
means the product of (i) the Parent Closing Price and (ii) the number of
Parent OP Common Units constituting the Unit Consideration.
“
Agreement
” has the
meaning set forth in the preamble to this Agreement.
“
Alternate Financing
”
has the meaning set forth in
Section
6.5(c)
.
“
Applicable Percentage
Interest
” means, with respect to any Contributor, the percentage interest
set forth opposite such Contributor’s name on
Annex D
(as such
Annex D
may be
updated from time to time prior to Closing, with notice to the Parent Parties,
by the Representative).
“
Barceloneta
” means PR
Barceloneta LLC, a New Jersey limited liability company.
“
BRM
” has the meaning
set forth in the preamble to this Agreement.
“
Brokerage Agreements
”
has the meaning set forth in
Section
3.16(i)
.
“
Budget
” means the
operating budget of the Group Companies for the year-ended December 31, 2010
(or, in respect of any period prior to January 1, 2010, the operating budget of
the Group Companies for the year ended December 31, 2009), in each case as set
forth in
Schedule
1.1(B).
“
Business Day
” means a
day, other than a Saturday or Sunday, on which commercial banks in New York City
and Indianapolis, Indiana are open for the general transaction of
business.
“
Claim
” has the
meaning set forth in
Section
11.1(a)(iv)
.
“
Claim Arbitrator
” has
the meaning set forth in
Section
2.3(f)(ii)
.
“
Closing
” has the
meaning set forth in
Section
2.2
.
“
Closing Date
” has the
meaning set forth in
Section
2.2.
“
Closing Date Funded
Indebtedness
” means the Funded Indebtedness as of immediately prior to
the Closing (and determined without giving effect to the Contemplated
Transactions).
“
CMBS Transfer
Restrictions
” means restrictions on transfer or alienation or similar
encumbrances contained in the terms of any Funded Indebtedness.
“
Code
” means the
United States Internal Revenue Code of 1986, as amended.
“
Company
” has the
meaning set forth in the preamble to this Agreement.
***
1
“
Company Contributed
Interests
” has the meaning set forth in the recitals to this
Agreement.
“
Company Ground
Leases
” has the meaning set forth in
Section
3.16(b)
.
“
Company Intellectual
Property
” has the meaning set forth in
Section
3.12(a)
.
“
Company IP Licenses
”
has the meaning set forth in
Section
3.12(b).
“
Company Knowledge
Parties
” means the persons set forth on
Annex F
.
“
Company Leases
” has
the meaning set forth in
Section
3.16(f)
.
“
Company LLC
Agreement
” means the Company’s limited liability agreement (as amended
from time to time).
“
Company Material Adverse
Effect
” means a material adverse effect upon the financial condition,
business, or results of operations of the Group Companies, taken as a whole;
provided
,
however
, that any
adverse effect arising from or related to the following shall not be taken into
account in determining whether a “Company Material Adverse Effect” has occurred
or would reasonably be expected to occur: (i) conditions affecting or changes in
the national, international or any regional economy in general, the financial,
credit, securities or banking markets or conditions in general (including any
disruption thereof), interest rates, currency or exchange rates or the price of
any commodity, security or market index (unless such matters have a materially
disproportionate impact on the Group Companies, taken as a whole, relative to
other participants in the industries and markets in which the Group Companies
participate), (ii) any national, international or regional political or social
conditions, including, without limitation, the engagement by the United States
in hostilities, whether or not pursuant to the declaration of a national
emergency or war, the occurrence of any military or terrorist attack upon the
United States, or any of its territories, possessions, or diplomatic or consular
offices or upon any military installation, equipment or personnel of the United
States, the occurrence or results of any primary or general elections, the
occurrence or threatened occurrence of any earthquakes, floods, hurricanes,
tropical storms, fires or other natural disasters or any national or
international calamity (except to the extent directed at or physically impacting
any of the Group Companies or their respective properties or assets), (iii)
seasonal fluctuations in the business of any Group Company consistent in scope
with seasonal fluctuations over the preceding five (5) years, (iv) generally
applicable changes in legal or regulatory conditions, (v) changes or proposed
changes in any Laws, including changes or proposed changes in Laws applicable to
any Group Company or any of their respective properties, assets or liabilities,
or in applicable accounting or Tax regulations or principles or interpretations
thereof, including GAAP, (vi) any matter set forth in the Company Schedules or
the 2008 Audited Financial Statements (other than any change in the footnotes
thereto from the 2008 Unaudited Financial Statements), (vii) any change that is
generally applicable to any industry or market in which any of the Group
Companies operates, including any weakening of the real estate or retail
shopping industries in general (unless such changes have a materially
disproportionate impact on the Group Companies, taken as a whole, relative to
other participants in the industries and markets in which the Group Companies
participate); (viii) the announcement, performance or existence of this
Agreement, the identity of the parties hereto or any of their respective
Affiliates, representatives or financing sources, the taking of any action to
the extent required by this Agreement, the failure to take any action prohibited
by this Agreement, or the pendency or contemplated consummation of Contemplated
Transactions, including the loss of any current or prospective tenants, lessees,
customers, employees, financing sources, investors, landlords, partners,
suppliers or vendors of any Group Company due to any of the foregoing in this
clause (viii)
,
(ix) any failure by any Group Company to meet any projections, forecasts or
revenue or earnings predictions for any period,
provided
,
howev
er
, that the facts or
occurrences giving rise or contributing to such failure may, unless otherwise
excluded by another clause in this definition of “Company Material Adverse
Effect,” be deemed to constitute, or be taken into account in determining
whether there has been, a “Company Material Adverse Effect” or whether a
“Company Material Adverse Effect” would be reasonably likely to occur; (x) any
actions taken, or not taken, with the written consent or written waiver, or at
the written request, of Parent REIT, Parent OP or Parent Sub; (xi) any Known
Claim (including the matters underlying such Known Claim), the value of which
was not disputed by the Contributors or, if disputed, was included in the
process of calculating a Known Claim; or (xii) any matter for which any Person,
other than the Group Companies, shall have liability following the Closing
pursuant to the terms of the Tax Matters Agreements.
1
Certain portions have been
omitted in connection with an application for confidential treatment
therefor.
“
Company Membership
Interests
” has the meaning ascribed to the term “Membership Interests” in
the Company LLC Agreement.
“
Company Owned Intellectual
Property
” has the meaning set forth in
Section
3.12(a)
.
“
Company Permits
” has
the meaning set forth in
Section
3.9(a)
.
“
Company Released
Matters
” has the meaning set forth in
Section
7.2(a).
“
Company Released
Parties
” has the meaning set forth in
Section
7.2(a).
“
Company Releasing
Parties
” has the meaning set forth in
Section
7.2(a).
“
Company Schedules
”
has the meaning set forth in
Article
3
.
“
Company Title Insurance
Policies
” has the meaning set forth in
Section
3.16(q)
.
“
Company Transaction
Expenses
” means, without duplication, (i) the expenses of the Group
Companies incurred in connection with the negotiation and consummation of this
Agreement and the other Transaction Documents (or any alternative transaction)
that are either payable as of immediately prior to, at or after the Closing or
that are contingent upon the consummation of the Contemplated Transactions,
including attorney fees, financial advisor fees, accountant fees, and including,
for the avoidance of doubt, the fees and expenses of the Persons set forth on
S
chedule 1.1(C
)
, (ii) the Company
Consent Fees, (iii) the Company Transaction Taxes and (iv) the Severance,
Employment and Shut-Down Costs.
“
Company Transaction
Taxes
” means any Transaction Taxes (a) payable by the Group Companies at
or after the Closing and/or (b) paid or payable by Parent OP or any Affiliate
thereof (other than any Group Company) prior to, at or after the
Closing.
“
Confidentiality
Agreement
” means the confidentiality agreement, dated August 19, 2009, by
and between the Company and Parent REIT.
“
Contemplated
Transactions
” means the Contributions and the other transactions
contemplated by this Agreement and the other Transaction Documents.
“
Contract
” means any
written loan agreement, indenture, letter of credit (including related letter of
credit application and reimbursement obligation), mortgage, security agreement,
pledge agreement, deed of trust, bond, note, guarantee, surety obligation,
warranty, franchise, power of attorney, purchase order, lease and other
agreement, license, contract, binding arrangement or understanding, obligation,
or instrument, in each case as amended, supplemented, waived or otherwise
modified.
“
Contributed
Interests
” has the meaning set forth in the recitals to this
Agreement.
“
Contributions
” has
the meaning set forth in
Section
2.1
.
“
Contributor Released
Matters
” has the meaning set forth in
Section
7.2(b).
“
Contributor Released
Parties
” has the meaning set forth in
Section
7.2(b).
“
Contributor Releasing
Parties
” has the meaning set forth in
Section
7.2(b).
“
Contributors
” means
Lightstone Holdings, Lightstone Prime, BRM, LRPV, PR Manager, LVP OP and
Pro-DFJV.
“
DL Parties
” means
Lightstone Holdings, Lightstone Prime, BRM, LRPV and PR Manager.
***
2
“
Employee
” means each
current (including those on layoff, disability or leave of absence, whether paid
or unpaid), former, or retired employee, officer, consultant, independent
contractor providing individual services, agent or director of a Group Company
or the Prime Manager.
“
Employee Agreement
”
means each management, employment, severance, consulting, non-compete,
confidentiality, change-in-control or similar agreement or contract between any
Group Company and any Employee pursuant to which any Group Company or the Prime
Manager has or may have any liability as of the date hereof.
2
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
“
Employee Benefit
Plan
” means each plan, program, policy, contract, agreement or other
arrangement providing for compensation, severance, termination pay, performance
awards, stock or stock-related awards, collective bargaining, bonus, incentive,
deferred compensation, profit sharing, pension, retirement benefits, fringe
benefits or other employee benefits of any kind, funded or unfunded, written or
oral, including, without limitation, each “employee benefit plan,” within the
meaning of Section 3(3) of ERISA and each “multi-employer plan” within the
meaning of Sections 3(37) or 4001(a)(3) of ERISA and all other material employee
benefit plans, agreements, programs, policies or other arrangements, whether or
not subject to ERISA, maintained or contributed to, or required to be maintained
or contributed to, by any Group Company or any ERISA Affiliate for the benefit
of any Employee of any Group Company or the Prime Manager as of the date
hereof.
“
Enterprise Value
”
means two billion, three hundred twenty five million dollars ($2,325,000,000),
subject to adjustment pursuant to
Section
2.3(a)
.
“
Environmental Laws
”
has the meaning set forth in
Section
3.11(a)(i)
.
“
Environmental
Permits
” has the meaning set forth in
Section
3.11(a)(ii)
.
“
ERISA
” means the
Employee Retirement Income Security Act of 1974, as amended.
“
ERISA Affiliate
”
means each trade or business which is a member of a “controlled group of
corporations,” under “common control” or an “affiliated service group” with any
of the Group Companies or the Prime Manager within the meaning of Sections
414(b), (c) or (m) of the Code, or required to be aggregated with any of the
Group Companies or the Prime Manager under Section 414(o) of the Code, or is
under “common control” with any of the Group Companies or the Prime Manager,
within the meaning of Section 4001(a)(14) of ERISA.
“
Escrow Account
” means
the escrow account established pursuant to the Escrow Agreement.
“
Escrow Agent
” means
an escrow agent to be mutually agreed upon by Parent OP and the Representative
in good faith.
“
Escrow Agreement
”
means an escrow agreement to be entered into on the Closing Date by the
Representative, Parent OP and the Escrow Agent in a form as the Representative,
Parent OP and the Escrow Agent shall reasonably agree in good faith, which
agreement shall not modify any of the rights or obligations of the parties
hereto in any material respect and which agreement shall provide that the
Representative and Parent OP shall each bear 50% of the fees and expenses of the
Escrow Agent.
“
Escrow Cash
” means
the sum of the Working Capital Escrow Amount and the Known Claims Escrow
Amount.
“
Escrow Units
” has the
meaning set forth in
Section
2.3(c)(i)
.
“
Estimated Aggregate
Consideration Value
” means a good faith estimate of the Aggregate
Consideration Value prepared by the Company. In connection with
determining the Estimated Aggregate Consideration Value, the Company (a) shall
use the actual Enterprise Value, the actual Minority Cash Amount and the actual
St. Augustine Cash Amount and (b) shall estimate the amount of (i) the Net
Working Capital Adjustment, (ii) Closing Date Funded Indebtedness, and (iii)
Company Transaction Expenses.
“
Ewell
” means Ewell
Holdings, LLC, a Delaware limited liability company.
“
Exculpated Parties
”
has the meaning set forth in
Section
6.7(a).
“
Existing Company Lease
Documents
” has the meaning set forth in
Section
3.16(f)
.
“
Financial Statements
”
has the meaning set forth in
Section
3.4(a)
.
***
3
“
Fixed Rate Debt
” has
the meaning set forth in
Section
3.4(f)
.
***
4
“
Fraud
” means, with
respect to a Contributor, an actual and intentional fraud with respect to (i)
the making of the representations and warranties in
Article 3
or (ii) the
intentional failure to provide notice to the Parent Parties in breach of
Section 6.11
,
provided
, that such
actual and intentional fraud of a Contributor shall only be deemed to exist if
any of the Company Knowledge Parties had actual knowledge (as opposed to imputed
or constructive knowledge) that (x) the representations and warranties in
Article 3
, as
qualified by the Company Schedules, were actually and intentionally breached in
any material respect when made or (y) the obligations to provide notice to the
Parent Parties pursuant to
Section 6.11
were
actually and intentionally not complied with in any material
respect.
“
Funded Indebtedness
”
means, as of any time, without duplication, the outstanding principal amount of,
and accrued and unpaid interest on, any obligations of any Group Company
consisting of (a) indebtedness for borrowed money, whether secured or
unsecured, or indebtedness issued in substitution or exchange for borrowed money
or for the deferred purchase price of property or services (but excluding any
trade payables and accrued expenses arising in the ordinary course of business
and included in the calculation of current liabilities for purposes of Net
Working Capital), (b) indebtedness evidenced by any note, bond, debenture
or other debt security, (c) obligations under any interest rate, currency or
other hedging agreements (valued at the termination value thereof), (d) the
outstanding shares of Prime Retail Series C Preferred, including all accrued and
unpaid dividends thereon, (e) obligations under capitalized leases, (f) the
obligation set forth on
Schedule 1.1(F)
to
the extent unpaid, and (g) the deferred purchase price for real properties or
Persons owning real properties (which, for the avoidance of doubt, shall not
include any amounts required to be paid to exercise any real property purchase
options), in each case, as of such date. Notwithstanding the foregoing,
“Funded Indebtedness” shall not include any (i) obligations under operating
leases, (ii) undrawn letters of credit, (iii) LIBOR breakage fees and (iv) and
obligations of a Group Company to any other Group Company.
3
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
4
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
“
GAAP
” means United
States generally accepted accounting principles.
“
Governing Documents
”
means the legal document(s) by which any Person (other than an individual)
establishes its legal existence or which govern its internal affairs. For
example, the “Governing Documents” of a corporation are its certificate of
incorporation and by-laws, the “Governing Documents” of a limited partnership
are its limited partnership agreement and certificate of limited partnership and
the “Governing Documents” of a limited liability company are its operating
agreement and certificate of formation.
“
Governmental Entity
”
means any United States, non-United States or supranational (a) federal, state,
local, municipal or other government, (b) governmental or quasi-governmental
entity of any nature (including, without limitation, any governmental agency,
branch, department, official, or entity and any court or other tribunal) or (c)
body exercising or entitled to exercise any administrative, executive, judicial,
legislative, police, regulatory, or taxing authority or power of any nature,
including, without limitation, any arbitral tribunal.
***
5
***
6
“
Group Companies
”
means, collectively, the Company, Ewell, Mill Run, Barceloneta, St. Augustine,
and each of their respective Subsidiaries.
“
Group Company
Information
” has the meaning set forth in
Section
6.13(b)
.
“
Hazardous Substances
”
means any pollutant, contaminant, material, waste or toxic substance that is
regulated under Environmental Laws, including asbestos or any substance
containing asbestos, polychlorinated biphenyls, petroleum or petroleum products
(including crude oil and any fraction thereof) and radon, mold, fungus and other
hazardous biological materials.
“
High Value
” has the
meaning set forth in
Section
2.3(d)(iii)(B)
.
“
Indemnified Party
”
has the meaning set forth in
Section
10.3(a)
.
“
Intellectual
Property
” means (a) patents, patent applications and statutory invention
registrations; (b) trademarks, service marks, trade dress, logos, trade names,
corporate names, brand names, domain names and other source identifiers; (c)
copyrights, mask works and software; and (d) trade secrets, confidential and
proprietary information and know-how.
“
IRS
” means the United
States Internal Revenue Service.
“
Known Claim
” has the
meaning set forth in
Section
2.3(f)(i).
5
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
6
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
“
Known Claims Escrow
Amount
” has the meaning set forth in
Section
2.3(f)(iii).
“
Latest Balance Sheet
”
has the meaning set forth in
Section
3.4(a)(ii).
“
Law
” or “
law
”
means, with respect to
any Person, any applicable law (including common law), treaty, statute,
ordinance, rule or regulation enacted or promulgated by any Governmental Entity
having jurisdiction over such Person, its properties, assets or activities, all
as in effect from time to time.
“
Leased Real Property
”
means the real property leased by or subject to a written agreement to lease or
sublease or other use or occupancy contract, in each case by any Group Company
as tenant;
provided
,
however
, that any
real property as to which any Group Company is a ground lessee under a ground
lease shall constitute “Owned Real Property” and not “Leased Real
Property.”
“
Leasing Plan
” means
the leasing plan for each of the Group Companies and Owned Real Properties set
forth in
Schedule
1.1(D).
“
Lender
” has the
meaning set forth in
Section
5.7
.
“
Lien
” means any
mortgage, pledge, security interest, encumbrance, lien or charge. For the
avoidance of doubt, the term “Lien” shall not be deemed to include any license
of Intellectual Property rights.
“
Lightstone Holdings
”
has the meaning set forth in the preamble to this Agreement.
“
Lightstone Prime
” has
the meaning set forth in the preamble to this Agreement.
“
Loss
” has the meaning
set forth in
Section
10.2(a)
.
“
Low Value
” has the
meaning set forth in
Section
2.3(d)(iii)(A)
.
“
LP Purchase
Agreement
” has the meaning set forth in the recitals to this
Agreement.
“
LRPV
” has the meaning
set forth in the preamble to this Agreement.
“
LVP OP
” has the
meaning set forth in the preamble to this Agreement.
“
LVP REIT
” has the
meaning set forth in the preamble to this Agreement.
***
7
“
Management Employees
”
means all current employees of the Prime Manager, including those on short-term
disability (and expected to not go on long-term disability) or short-term leave
of absence, whether paid or unpaid, but not on a layoff or long-term disability,
providing individual service at a Group Company or at the Prime
Manager.
7
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
“
Material Company
Leases
” has the meaning set forth in
Section
3.16(g)
.
“
Material Contracts
”
has the meaning set forth in
Section
3.6(a)
.
“
Member Guarantees
”
means the guarantees by the DL Parties of the obligations of Parent OP under the
Financing in the forms attached to this Agreement as
Exhibit
B
.
“
Member Indemnitee
”
has the meaning set forth in
Section
10.2(c)
.
“
Mill Run
” means Mill
Run, L.L.C., a New Jersey limited liability company.
“
Mill Run Letter
Agreement
” means that certain letter agreement, dated as of the date
hereof, between Parent OP and Mill Run.
“
Minority Cash Amount
”
means the aggregate amount of cash paid or payable by Parent OP pursuant to the
LP Purchase Agreement.
“
Net Working Capital
”
means, with respect to the Group Companies, the net book value of those current
assets of the Group Companies as of immediately prior to the Closing (without
giving effect to the Contemplated Transactions) that are included in the line
item categories of current assets specifically identified on
Exhibit C
,
less
the net book
value of those current liabilities of the Group Companies as of immediately
prior to the Closing (without giving effect to the Contemplated Transactions)
that are included in the line item categories of current liabilities
specifically identified on
Exhibit C
, in each
case, without duplication, and as determined in a manner strictly consistent
with the principles used in the preparation of the Financial Statements (the
“
Accounting
Principles
”); provided, that Pre-Signing Allowances and Commissions shall
be treated as current liabilities (without regard to whether they would
constitute current liabilities in accordance with GAAP) and Post-Signing
Allowances and Commissions shall not be treated as current liabilities (without
regard to whether they would constitute current liabilities in accordance with
GAAP). Notwithstanding anything to the contrary contained herein, in no
event shall “Net Working Capital” (including the determination of current assets
and current liabilities) include any amounts to the extent included in the
calculation of Closing Date Funded Indebtedness or Company Transaction
Expenses.
“
Net Working Capital
Adjustment
” means (a) the amount by which Net Working Capital as of
immediately prior to the Closing exceeds Target Net Working Capital or (b) the
amount by which Net Working Capital as of immediately prior to the Closing is
less than Target Net Working Capital, in each case, if applicable;
provided
, that any
amount which is calculated pursuant to
clause (b)
above
shall be deemed to be a negative number.
“
New Company
” has the
meaning set forth in the recitals.
“
New Company
Agreement
” means the limited liability company
agreement of New Company
in the form attached as
Exhibit E
hereto
pursuant to which New Company will hold the Parent OP Common Units to be issued
to the Contributors and the Escrow Account hereunder.
“
New Company Common
Units
” means the Company Units, as defined in the New Company Agreement,
each of which is exchangeable and redeemable for the Parent OP Common Unit
contributed to the New Company in exchange for the issuance of the Company Unit,
as set forth herein and in the New Company Agreement.
“
New Company Manager
”
has the meaning set forth in the recitals.
“
New Facility
” has the
meaning set forth in
Section
6.5(c)
.
“
NOI Waiver
” has the
meaning set forth in
Section
2.3(a)
.
“
Non-Excluded
Representation
” means, (a) with respect to the representations and
warranties of the Company in
Article 3
, each
representation and warranty in
Article 3
except for
the representations and warranties in
Section 3.4(b)
and
Section 3.7(a)
and (b) with respect to the representations and warranties of the Parent Parties
in
Article 5
,
each representation and warranty in
Article 5
except for
the representations and warranties in
Section 5.5(b)
and
Section
5.9(a).
“
Off Balance Sheet
Arrangements
” means, with respect to any Person, any obligation or
liability that does not appear as a liability on the balance sheet of such
Person and that constitutes (a) any repurchase obligation or liability,
contingent or otherwise, of such Person with respect to any accounts or notes
receivable sold, transferred or otherwise disposed of by such Person, (b) any
repurchase obligation or liability, contingent or otherwise, of such Person with
respect to property or assets leased by such Person as lessee, (c) obligations,
liabilities and indebtedness of such Person arising under any interest rate,
currency or commodity hedge, cap, collar, swap, derivative or similar
transaction and (d) obligations, contingent or otherwise, of such Person under
any “synthetic” lease, tax retention operating lease, off balance sheet loan or
similar off balance sheet financing if the transaction giving rise to such
obligation (i) is considered indebtedness for borrowed money for tax purposes
but is classified as an operating lease or (ii) does not (and is not required
pursuant to GAAP to) appear as a liability on the balance sheet of such
Person.
“
Order
” means any
decisions, injunctions, judgments, decrees or orders (whether temporary,
preliminary or permanent) entered, issued, made or rendered by any Governmental
Entity of competent jurisdiction.
“
Other Group
Companies
” means Ewell, Mill Run, Barceloneta and St.
Augustine.
“
Other Group Companies
Contributed Interests
” has the meaning set forth in the recitals to this
Agreement.
“
Other Members
” has
the meaning set forth in the recitals to this Agreement.
“
Overage Rent
” means,
with respect to any Company Lease that provides for the payment of additional or
escalation rent based upon (a) a percentage of a tenant’s gross sales during a
specified annual or other period or (b) increases in real estate taxes,
operating expenses, labor costs, cost of living indices or porter’s
wages.
“
Owned Real
Properties
” has the meaning set forth in
Section
3.16(b)
.
“
Parent Assumable
Claim
” has the meaning set forth in
Section
10.3(b)
.
“
Parent Closing Price
”
means an amount equal to the volume-weighted (based on daily trading volume)
average of the per share daily closing price of a share of Parent Common Stock
quoted on The New York Stock Exchange, as reported by
The Wall Street Journal
(or,
if not reported therein, such other authoritative source as the Parties shall
otherwise agree), for the ten (10) trading days ending on and including the date
that is three (3) trading days prior to the Closing Date;
provided
, that
(a) if the Parent Closing Price as finally determined is equal to or
greater than $81.29 (the “
Maximum Price
”), the
Parent Closing Price shall equal the Maximum Price, and (b) if the Parent
Closing Price as finally determined is equal to or less than $66.51 (the “
Minimum Price
”), the
Parent Closing Price shall equal the Minimum Price. The Unit
Consideration, the Parent Closing Price, the Maximum Price and the Minimum Price
shall be adjusted to reflect appropriately the effect of any stock or unit
split, reverse split, dividend or distribution (including any dividend or
distribution of securities convertible into Parent Common Stock or Parent OP
Common Units), reorganization, recapitalization, reclassification or other like
change with respect to the Parent Common Stock and/or Parent OP Common Units
occurring on or after the date hereof and prior to the Closing. For the
avoidance of doubt, and notwithstanding the foregoing, no adjustment shall be
made in respect of any dividend or distribution in respect of the Parent Common
Stock to the extent such dividend was paid in (i) cash, (ii) Parent Common Stock
and/or (iii) Parent OP Common Units and, in each case of clause (i), clause (ii)
or clause (iii), was either included in a regular quarterly dividend or was
otherwise intended to assure Parent REIT maintains its tax status as a
REIT.
“
Parent Common Stock
”
has the meaning set forth in
Section
5.4(a)
.
“
Parent Indemnitee
”
has the meaning set forth in
Section
10.2(a)
.
“
Parent Material Adverse
Effect
” means a material adverse effect upon the financial condition,
business, or results of operations of Parent REIT, Parent OP and their
respective Subsidiaries, taken as a whole;
provided
,
however
, that any
adverse effect arising from or related to the following shall not be taken into
account in determining whether a “Parent Material Adverse Effect” has occurred
or would reasonably be expected to occur: (i) conditions affecting or changes in
the national, international or any regional economy in general, the financial,
credit, securities or banking markets or conditions in general (including any
disruption thereof), interest rates, currency or exchange rates or the price of
any commodity, security or market index (unless such matters have a materially
disproportionate impact on Parent REIT, Parent OP and their respective
Subsidiaries, taken as a whole, relative to other participants in the industries
and markets in which Parent REIT, Parent OP and their respective Subsidiaries
participate), (ii) any national, international or regional political or social
conditions, including, without limitation, the engagement by the United States
in hostilities, whether or not pursuant to the declaration of a national
emergency or war, the occurrence of any military or terrorist attack upon the
United States, or any of its territories, possessions, or diplomatic or consular
offices or upon any military installation, equipment or personnel of the United
States, the occurrence or results of any primary or general elections, the
occurrence or threatened occurrence of any earthquakes, floods, hurricanes,
tropical storms, fires or other natural disasters or any national or
international calamity (except to the extent directed at or physically impacting
Parent REIT, Parent OP or any of their respective Subsidiaries, or their
respective properties or assets), (iii) seasonal fluctuations in the business of
Parent REIT, Parent OP or any of their respective Subsidiaries consistent in
scope with seasonal fluctuations over the preceding five (5)
years, (iv) generally
applicable changes in legal or regulatory conditions, (v) changes or proposed
changes in any Laws, including changes or proposed changes in Laws applicable to
Parent REIT, Parent OP or any of their respective Subsidiaries or any of their
respective properties, assets or liabilities, or in applicable accounting or Tax
regulations or principles or interpretations thereof, including GAAP, (vi) any
matter disclosed in the Parent SEC Reports prior to the date hereof (without
giving effect to any amendment to any such Parent SEC Report filed on or after
the date hereof and excluding any disclosures that contain general cautionary,
predictive or forward-looking statements set forth in any section of a Parent
SEC Report entitled “risk factors” or constituting “forward-looking statements”
or any other similar sections of such filings), (vii) any change that is
generally applicable to any industry or market in which Parent REIT, Parent OP
or any of their respective Subsidiaries operate, including any weakening of the
real estate or retail shopping industries in general (unless such changes have a
materially disproportionate impact on Parent REIT, Parent OP and their
respective Subsidiaries, taken as a whole, relative to other participants in the
industries and markets in which Parent REIT, Parent OP and their respective
Subsidiaries participate); (viii) the announcement, performance or
existence of this Agreement, the identity of the parties hereto or any of their
respective Affiliates, representatives or financing sources, the taking of any
action to the extent required by this Agreement, the failure to take any action
prohibited by this Agreement, or the pendency or contemplated consummation of
the Contemplated Transactions, including the loss of any current or prospective
tenants, lessees, customers, employees, financing sources, investors, landlords,
partners, suppliers or vendors of Parent REIT, Parent OP or any of their
respective Subsidiaries due to any of the foregoing in this
clause (viii)
;
provided
,
however
, that the
exceptions set forth in this
clause (viii)
shall
not apply to references to “Parent Material Adverse Effect” in the
representations and warranties set forth in
Section 5.3
or to the
conditions set forth in
Section 8.3(a)
(to
the extent related to the representations and warranties set forth in
Section 5.3
); (ix)
any (A) failure by Parent REIT, Parent OP or any of their respective
Subsidiaries to meet any projections, forecasts or revenue or earnings
predictions for any period or (B) any fluctuation (including any decline)
in the market price of the Parent Common Stock or any other debt or equity
securities of Parent REIT or any of its Affiliates,
provided
,
however
, that the
facts or occurrences giving rise or contributing to such failure or fluctuation
may, unless otherwise excluded by another clause in this definition of “Parent
Material Adverse Effect,” be deemed to constitute, or be taken into account in
determining whether there has been, a “Parent Material Adverse Effect”; (x) any
actions taken, or not taken, with the written consent or written waiver, or at
the written request of, the Representative or (xi) subject to its obligations
under
Section
6.4(d)
, any actual or proposed acquisition of securities, properties or
assets by Parent REIT, Parent OP or any of their respective Subsidiaries in the
good faith belief that such transaction was, is or will be in the best interests
of Parent REIT, Parent OP or any such Subsidiaries.
“
Parent OP
” has the
meaning set forth in the preamble to this Agreement.
“
Parent OP Agreement
”
means the Eighth Amended and Restated Limited Partnership Agreement of Parent
OP, dated as of May 8, 2008 as it may be amended from time to
time.
“
Parent OP Common
Units
” means “Partnership Units,” as defined in the Parent OP Agreement,
each of which is exchangeable for one share of Parent Common Stock as set forth
in the Parent OP Agreement.
“
Parent Parties
” has
the meaning set forth in the preamble to this Agreement.
“
Parent Preferred
Stock
” has the meaning set forth in
Section
5.4(a)
.
“
Parent REIT
” has the
meaning set forth in the preamble to this Agreement.
***
8
“
Parent SEC Reports
”
means all publicly available forms, reports, statements, certificates and other
documents filed with or furnished to the SEC by Parent REIT or Parent OP since
December 31, 2007.
“
Parent Specified
Sections
” has the meaning set forth in
Section
8.3(a).
“
Parent Sub
” has the
meaning set forth in the recitals to this Agreement.
“
Participation
Agreements
” has the meaning set forth in
Section
3.16(v)
.
“
Paul Weiss
” means
Paul, Weiss, Rifkind, Wharton & Garrison LLP.
“
Permitted Liens
”
means any (a) mechanics’, materialmens’ and similar Liens with respect to
amounts not yet due and payable which were incurred in the ordinary course of
business or the validity of which is being contested in good faith by
appropriate proceedings (and in connection with such contested items,
appropriate reserves in accordance with GAAP have been set forth on the books of
the Group Company that is the owner of the property (if such reserves are
required by GAAP)) and in all such cases do not adversely affect in any material
respect the current use or operation or the Group Companies’ intended use or
operation as of the date hereof of the applicable property, (b) Liens for Taxes,
assessments or other government charges not yet due and payable or the validity
of which is being contested in good faith by appropriate proceedings and, in the
case of such contested items, for which appropriate reserves in accordance with
GAAP have been set forth on the books of the Group Company that is the owner of
the property (if such reserves are required by GAAP), (c) non-monetary Liens
encumbering any of the Owned Real Property or Leased Real Property which do not
adversely affect in any material respect the current use or operation of the
Owned Real Property or Leased Real Property, including all defects, exceptions,
restrictions, easements, rights of way and encumbrances disclosed in any
existing title insurance policies made available to Parent REIT prior to the
date hereof, (d) zoning, entitlement and other land use and environmental
regulations by any Government Entity, (e) matters affecting title of any lessor
to the property demised under any Company Ground Lease as a result of that
Company Ground Lease or that do not encumber the ground leasehold interest of
any Group Company under any such Company Ground Lease, (f) any Company Leases
that are in effect as of the date hereof or as of the Closing Date and (g) Liens
that secure debt or other obligations reflected as liabilities on the Financial
Statements or specifically identified in the Company Schedules.
8
Certain portions have been
omitted in connection with an application for confidential treatment
therefor.
“
Permitted
Qualifications
” means qualifications included in the 2008 Audited
Financial Statements other than qualifications with respect to recognition of
revenues or expenses relating to ongoing operations.
“
Permitted
Transaction
” has the meaning set forth in
Section
6.13(a)
.
“
Person
” means an
individual, partnership, corporation, limited liability company, joint stock
company, unincorporated organization or association, trust, joint venture,
association or other similar entity, whether or not a legal entity.
“
Post-Signing Allowances and
Commissions
” means (a) any out-of-pocket payments under any lease or
sublease (or amendment or modification of any existing lease or sublease
executed in compliance with this Agreement) executed on or after the date hereof
by any Group Company (as lessor or sublessor, as applicable) and any tenant
thereof that are required to be paid by the landlord thereunder to, or for the
benefit of, the tenant thereunder which is in the nature of a tenant inducement
or concession, including, without limitation, tenant improvement costs, design,
refurbishment and other work allowances, lease buyout costs, and moving
allowances (but excluding free rent); and (b) all brokerage commissions required
to be paid by any of the Group Companies, in each case with respect to any lease
or sublease (or amendment or modification of any existing lease or sublease
executed in compliance with this Agreement) executed on or after the date hereof
by any Group Company (including by reason of the exercise by a tenant under such
a lease or sublease of any renewal option, extension option, expansion option,
lease of additional space, right of first offer, right of first refusal or
similar right or option or the lapse or waiver by a tenant under any lease or
sublease (or amendment or modification of any existing lease or sublease
executed in compliance with this Agreement) executed by any Group Company on or
after the date hereof of any right of cancellation in each case on or after the
date hereof).
“
Post-Signing Returns
”
has the meaning set forth in
Section
6.2(a)
.
“
PR Manager
” has the
meaning set forth in the preamble to this Agreement.
“
Pre-Signing Allowances and
Commissions
” means (a) any unpaid out-of-pocket payments under any lease
or sublease executed prior to the date hereof by any Group Company (as lessor or
sublessor, as applicable) and any tenant thereof that are required to be paid by
the landlord thereunder to, or for the benefit of, the tenant thereunder which
is in the nature of a tenant inducement or concession, including, without
limitation, tenant improvement costs, design, refurbishment and other work
allowances, lease buyout costs, and moving allowances (but excluding free rent);
and (b) all unpaid brokerage commissions required to be paid by any of the Group
Companies, in each case with respect to any lease or sublease executed prior to
the date hereof by any Group Company (including by reason of the exercise by a
tenant under such a lease or sublease of any renewal option, extension option,
expansion option, lease of additional space, right of first offer, right of
first refusal or similar right or option or the lapse or waiver by a tenant
under any lease or sublease executed by any Group Company prior to the date
hereof of any right of cancellation in each case on or after the date
hereof).
“
Prime Manager
” means
Prime Retail Property Management, LLC, a Delaware limited liability
company.
“
Prime Retail Marks
”
means the “PRIME” name and the Company Owned Intellectual Property set forth on
Schedule 3.12
,
any translations, adaptations or derivations of the foregoing, and any mark or
name that incorporates, or is identical or confusingly similar to, any of the
foregoing.
“
Prime Retail Series C
Preferred
” means the Series C Preferred Units of Prime Retail,
L.P.
“
Property Employees
”
means all current employees of a Group Company, including those on short-term
disability (and expected to not go on long-term disability) or short-term leave
of absence, whether paid or unpaid, but not on a layoff or long-term disability,
providing individual services at a property of a Group Company (other than
Management Employees).
“
Proposed Closing Date
Calculations
” has the meaning set forth in
Section
2.3(d)(i)
.
“
Qualified Permitted
Lien
” means any (a) preemptive rights (none of which will be exercised in
a manner which causes the representations and warranties in
Section 3.2(f)
to be
untrue), restrictions on transfer or similar encumbrances arising under the
Governing Documents of the Group Companies or under applicable federal, state or
other Laws, (b) any CMBS Transfer Restrictions, and (c) any Liens set forth in
Item 5 under “Defaults” on
Schedule
3.4(f)
.
“
Rent Roll
” has the
meaning set forth in
Section
3.16(h)
.
“
Representative
” has
the meaning set forth in
Section
11.1(a)
.
“
Representative Assumable
Claim
” has the meaning set forth in
Section
10.3(d)
.
“
Required Consents
”
has the meaning set forth in
Section
8.1(b)
.
“
Responsible Party
”
has the meaning set forth in
Section
10.3(a)
.
“
Retained Management
Employees
” has the meaning set forth in
Section
6.10(e)
.
“
SEC
” means the United
States Securities and Exchange Commission.
“
Securities Act
” means
the United States Securities Act of 1933, as amended.
“
September 30 Unaudited
Financial Statements
” the meaning set forth in
Section
3.4(a)(ii)
.
“
Service Contracts
”
has the meaning set forth in
Section
3.16(j)
.
“
Severance, Employment and
Shut-Down Costs
” means any out-of-pocket costs or expenses (including
reasonable legal expenses) reasonably incurred, or otherwise required to be paid
by Parent REIT, Parent OP or any of their Affiliates (including any Group
Company at or after the Closing), relating to or arising out of (i) shutting
down any corporate-level offices of the Group Companies (which do not include,
for the avoidance of doubt, any property-level offices), including costs
incurred by a Group Company in order to terminate the leases set forth on
Schedule 1.1(E)
and
(ii) any liability or obligation, whether arising before or after the Closing
Date, relating to or arising out of (A) any Employee Benefit Plan or Employee
Agreement, (B) any employee benefit, welfare or pension or other obligation,
whether or not scheduled, of any Group Company or applicable to any Employee
that arises or is accrued on or prior to the Closing, (C) the termination of an
Employee at or prior to the Closing (including any change in control and/or
severance payments) other than liabilities under WARN as described in the
exception in
Section
6.10(f)
and (D) any legal action taken against Parent REIT, Parent OP or
any of their Affiliates (including any Group Company), by any Employee described
in the preceding clause (C);
provided
, however,
that claims arising out of any claim of employment discrimination relating to
events prior to the Closing (other than arising out of or relating to the
termination of any Employee as contemplated by
Section 6.10
) shall
not be included in the calculation of Severance Employment and Shut-Down
Costs.
“
Special Distribution
Amount
” means an amount in cash equal to eighty percent (80%) of the
Estimated Aggregate Consideration Value.
“
Specified
Representations
” has the meaning set forth in
Section
8.2(a)
.
“
St. Augustine
” means
LVP St. Augustine Outlets LLC, a Delaware limited liability
company.
“
St. Augustine Cash
Amount
” means, subject to adjustment pursuant to
Section 2.7(b)
,
(a) $19,989,529
minus
(b) the amount
of any sales, use, transfer, conveyance, recordation and filing fees, Taxes and
assessments, including fees in connection with the recordation of instruments
related to the sale of the St. Augustine Interests and/or the St. Augustine Land
and other similar transaction Taxes however designated (but not including
income, franchise or gains Taxes), that are properly levied by any Taxing
Authority and are required by Law, applicable to, imposed upon or arising out of
sale of the St. Augustine Interests and/or the St. Augustine Land.
“
St. Augustine
Interests
” has the meaning set forth in the recitals to this
Agreement.
“
St. Augustine Land
”
has the meaning set forth in the recitals to this Agreement.
“
Subsidiary
” means,
with respect to any Person, any corporation, limited liability company,
partnership, association, or other business entity of which (a) if a
corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers, or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other Subsidiaries
of such Person or a combination thereof or (b) if a limited liability company,
partnership, association, or other business entity (other than a corporation), a
majority of the partnership or other similar ownership interests thereof is at
the time owned or controlled, directly or indirectly, by such Person or one or
more Subsidiaries of such Person or a combination thereof and for this purpose,
a Person or Persons own a majority ownership interest in such a business entity
(other than a corporation) if such Person or Persons shall be allocated a
majority of such business entity’s gains or losses or shall be a, or control
any, managing director, managing member or general partner of such business
entity (other than a corporation). The term “Subsidiary” shall include all
Subsidiaries of such Subsidiary.
“
Survival Period Termination
Date
” has the meaning set forth in
Section
10.2(d)
.
“
Target Net Working
Capital
” means zero dollars ($0.00).
“
Tax
” or “
Taxes
” means (a) any
and all federal, state, provincial, local, foreign and other taxes, levies,
fees, imposts, duties, and similar governmental charges (including any interest,
fines, assessments, penalties or additions to tax imposed in connection
therewith or with respect thereto) including, without limitation (i) taxes
imposed on, or measured by, income, franchise, profits or gross receipts, and
(ii)
ad valorem
, value
added, capital gains, sales, goods and services, use, real or personal property,
capital stock, license, branch, payroll, estimated withholding, employment,
social security (or similar), unemployment, compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer and
gains taxes, and customs duties and (b) any and all liability for the payment of
any amounts as a result of any express or implied obligation to indemnify any
other person, or any successor or transferee liability, in respect of any items
described in
clause
(a)
above.
***
9
***
10
“
Tax Returns
” means,
with respect to any Tax, any information return for such Tax, and any return,
report, statement, declaration, claim for refund, elections, disclosures,
estimates or document filed or required to be filed under the Law for such Tax,
including any schedule or attachment thereto or amendment thereto.
“
Taxing Authority
”
means any Governmental Entity having jurisdiction over the assessment,
determination, collection, or other imposition of any Tax.
“
Terminated
Agreements
” has the meaning set forth in
Section
7.1(a)
.
***
11
“
Third Party Claim
”
has the meaning set forth in
Section
10.3(a)
.
“
Threshold
” has the
meaning set forth in
Section
10.4(d)
.
9
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
10
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
11
Certain portions have been omitted in
connection with an application for confidential treatment
therefor.
“
Transaction
Documents
” means this Agreement, the New Company Agreement, the LP
Purchase Agreement, the Tax Matters Agreements, the Escrow Agreement, the GPT
Sale Agreement and the Mill Run Letter Agreement.
“
Transaction Taxes
”
means any sales, use, transfer, conveyance, recordation and filing fees, Taxes
and assessments, including fees in connection with the recordation of
instruments related thereto and other similar transaction Taxes however
designated (but not including income, franchise or gains Taxes), that are
properly levied by any Taxing Authority and are required by Law, applicable to,
imposed upon or arising out of the Contributions.
“
Treasury
” means The
United States Department of the Treasury.
“
Treasury Regulations
”
means the Treasury regulations promulgated under the Code.
***
12
“
2008 Audited Financial
Statements
” has the meaning set forth in
Section
2.3(a)
.
“
2008 Unaudited Financial
Statements
” has the meaning set forth in
Section
3.4(a)(i)
.
“
Unit Consideration
”
means the Parent OP Common Units issuable to the Contributors and the Escrow
Account pursuant to
Section
2.3(c)
.
“
WARN
” means the
Federal Worker Adjustment and Retraining Notification Act, as amended, or any
similar state or local Law.
“
Working Capital Escrow
Amount
” means five million dollars ($5,000,000).
ARTICLE
2
THE
CONTRIBUTIONS
Section
2.1
Contributions
Upon the
terms and subject to the conditions set forth in this Agreement, at the Closing,
(a) each of Lightstone Holdings, Pro-DFJV, LVP OP, BRM, LRPV and PR Manager
shall contribute, convey and transfer to Parent Sub all of such Contributor’s
right, title and interest in and to the Other Group Companies Contributed
Interests (the “
Other
Group Companies Contributions
”) and (b) each of Lightstone Prime, LVP OP
and Pro-DFJV shall contribute, convey and transfer to Parent Sub all of such
Person’s right, title and interest in and to the Company Contributed Interests
(the “
Company
Contributions
,” and together with the Other Group Companies
Contributions, the “
Contributions
”).
12
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
Section
2.2
Closing of the
Contributions
The
closing of the Contributions and the sale of the St. Augustine Interests and St.
Augustine Land pursuant to
Section 2.7(a)
(the
“
Closing
”)
shall take place at 9:00 a.m., New York time, on the fifth (5
th
)
Business Day after satisfaction (or valid waiver) of the conditions set forth in
Article 8
(other than any conditions that by their terms are to be satisfied at the
Closing, but subject to the satisfaction or valid waiver of such conditions at
the Closing in accordance with this Agreement) (the “
Closing Date
”), at
the offices of Paul Weiss, 1285 Avenue of the Americas, New York, New York
10019-6064, unless another time, date or place is agreed to in writing by Parent
OP and the Representative;
provided
that if on
the fifth (5
th
)
Business Day after satisfaction (or valid waiver) of the conditions set forth in
Article 8
, a
Known Claim shall have been submitted to the Claim Arbitrator and the Claim
Arbitrator shall not have determined the aggregate value of such claim in
accordance with
Section 2.3(f)(iii)
,
the Closing Date shall be extended until five (5) Business Days after the Known
Claim value shall have been determined by the Claim Arbitrator.
Section
2.3
Aggregate
Consideration
Value
(a)
Determination of Final
Enterprise Value
. No later than the fourth (4th) Business Day prior
to the Closing Date, the Company shall deliver to Parent OP (i) a copy of the
audited combined consolidated balance sheet of the Group Companies (including
the St. Augustine Land) as of December 31, 2008 and the related audited combined
consolidated statements of income and cash flows for the fiscal year ended
December 31, 2008 (the “
2008 Audited Financial
Statements
”) together with (ii) a statement calculating the 2008 Adjusted
NOI. If the 2008 Adjusted NOI is less than the Trigger Amount (as defined
on Schedule 2.3(a)), the Enterprise Value shall be reduced by an amount equal to
the product of (A) the difference between the Trigger Amount and the 2008
Adjusted NOI and (B) twelve (12);
provided
that Parent
REIT, in its sole discretion shall have the right to waive (an “
NOI Waiver
”) any
portion of the adjustment set forth above in respect of any amount by which 2008
Adjusted NOI is less than the Bottom Amount (as defined on Schedule 2.3(a)), in
which case, 2008 Adjusted NOI shall be deemed to equal to the Bottom
Amount.
(b)
Estimated Aggregate
Consideration Value
. No later than the second (2) Business Day
prior to the Closing Date, the Company shall deliver to Parent OP a good faith
calculation of the Estimated Aggregate Consideration Value setting forth the
amount of each of the components thereof and accompanied by reasonable
supporting work papers used by the Company in the preparation thereof. The
Company shall consult with Parent REIT, Parent OP and the Representative in the
preparation of such calculations, shall provide Parent REIT, Parent OP and the
Representative with a draft thereof showing the components of Estimated
Aggregate Consideration Value (together with any supporting work papers) at
least four (4) Business Days prior to the Closing Date and shall take into
account the reasonable comments of Parent REIT, Parent OP and the Representative
prior to preparing the final calculation of Estimated Aggregate Consideration
Value to be delivered pursuant to this
Section
2.3(b)
.
(c) At
the Closing, subject to
Section 2.4
and
Section 2.6
, Parent
OP shall:
(i) issue
in the name of the Escrow Agent, for deposit on behalf of the Contributors into
the Escrow Account pursuant to the Escrow Agreement, a number of Parent OP
Common Units (the “
Escrow Units
”) equal
to the quotient of (a) an amount equal to ten percent (10%) of the Estimated
Aggregate Consideration Value
divided by
(b) the
Parent Closing Price; and
(ii) issue
to the Contributors, pro rata in accordance with each such Contributor’s
Applicable Percentage Interest, a number of Parent OP Common Units equal to the
quotient of (a) an amount equal to ten percent (10%) of the Estimated Aggregate
Consideration Value
divided by
(b) the
Parent Closing Price.
(d) Determination
of the Final Aggregate Consideration Value.
(i) As
soon as practicable, but no later than 120 calendar days after the Closing Date,
Parent OP shall prepare and deliver to the Representative (A) a proposed
calculation of the Net Working Capital as of immediately prior to the Closing,
(B) a proposed calculation of the amount of Closing Date Funded
Indebtedness, (C) a proposed calculation of the amount of Company Transaction
Expenses (including each of the components thereof), and (D) a proposed
calculation of the Aggregate Consideration Value, and, in each case, the
components thereof. The proposed calculations described in the previous
sentence shall collectively be referred to herein from time to time as the
“
Proposed Closing Date
Calculations
.”
(ii) If
the Representative does not give written notice of dispute (an “
Aggregate Consideration
Dispute Notice
”) to Parent OP by 5:00 p.m. New York City time on the
30
th
calendar day following receipt of the Proposed Closing Date Calculations, the
Representative (on behalf of the Contributors) and the Parent Parties agree that
the Proposed Closing Date Calculations shall be deemed to set forth the final
Net Working Capital, Closing Date Funded Indebtedness, Company Transaction
Expenses and Aggregate Consideration Value, in each case, for all
purposes hereunder
(including, without limitation, the determination of the Actual
Adjustment). If the Representative gives an Aggregate Consideration
Dispute Notice to Parent OP (which Aggregate Consideration Dispute Notice must
set forth, in reasonable detail, the items and amounts in dispute and all other
items and amounts not so disputed shall be deemed final) within such 30-day
period, Parent OP and the Representative shall use reasonable efforts to resolve
the dispute during the 30-day period commencing on the date Parent OP receives
the applicable Aggregate Consideration Dispute Notice from the
Representative. If the Representative and Parent OP do not agree upon a
final resolution with respect to such disputed items within such 30-day period,
then the remaining items in dispute shall be submitted immediately to
PricewaterhouseCoopers or, if such firm is unable or unwilling to serve, to an
independent nationally-recognized accounting firm mutually acceptable to Parent
OP and the Representative (excluding their respective regularly used accounting
firms) (such accounting firm, the “
Accounting
Firm
”). Parent OP and the Representative shall request the
Accounting Firm to render a determination (which determination shall be made
consistent with the terms of this Agreement for calculating the amount(s) in
dispute) with respect to the applicable dispute within 45 days after
referral of the matter to such Accounting Firm, which determination must be in
writing and must set forth, in reasonable detail, the basis therefor. The
determination made by the Accounting Firm with respect to each of the remaining
disputed items (and only the remaining disputed items) shall not be greater than
or less than the amounts proposed by the Representative and Parent OP, as the
case may be, for each of such disputed items. The terms of appointment and
engagement of the Accounting Firm shall be as agreed upon between the
Representative and Parent OP, and any associated engagement fees shall initially
be borne by Parent OP;
provided
, that such
fees shall ultimately be allocated in accordance with
Section
2.3(d)(iii)
. The Accounting Firm shall act as an arbitrator and not
an expert and the determination of such Accounting Firm shall constitute an
arbitral award and shall be conclusive and binding upon the Parent Parties, the
Contributors and the Representative upon which a judgment may be rendered by a
court having proper jurisdiction thereover. Parent OP and the
Representative shall jointly revise the Proposed Closing Date Calculations as
appropriate to reflect the resolution of any objections thereto pursuant to this
Section
2.3(d)(ii)
, and, as revised, such Proposed Closing Date Calculations
shall be deemed to set forth the final Net Working Capital, Closing Date Funded
Indebtedness, Company Transaction Expenses and Aggregate Consideration Value, in
each case, for all
purposes hereunder
(including, without limitation, the determination of the Actual
Adjustment). The procedures set forth in this
Section 2.3
shall be
the sole and exclusive remedy with respect to the determination of the Aggregate
Consideration Value and any disputes with respect to any components
thereof.
(iii) In
the event the Representative and Parent OP submit any unresolved objections to
the Accounting Firm for resolution as provided in
Section 2.3(d)(ii)
,
the responsibility for the fees and expenses of the Accounting Firm shall be as
follows:
(A) if
the Accounting Firm resolves all of the remaining objections in favor of Parent
OP’s position (the Aggregate Consideration Value so determined is referred to
herein as the “
Low
Value
”), then all of the fees and expenses of the Accounting Firm shall
be paid by Parent OP, and Parent OP and the Representative shall deliver joint
written instructions to the Escrow Agent instructing the Escrow Agent, subject
to
Section
10.7(e)
, to deliver to Parent OP (from the Escrow Cash then remaining in
the Escrow Account) Escrow Cash equal to the amount of such payment by Parent OP
(including, for this purpose, the amount of any initial engagement fees paid by
Parent OP pursuant to
Section
2.3(d)(ii)
);
(B) if
the Accounting Firm resolves all of the remaining objections in favor of the
Representative’s position (the Aggregate Consideration Value so determined is
referred to herein as the “
High Value
”), then
Parent OP shall be responsible for all of the fees and expenses of the
Accounting Firm; and
(C) if
the Accounting Firm neither resolves all of the remaining objections in favor of
Parent OP’s position nor resolves all of the remaining objections in favor of
the Representative’s position (the Aggregate Consideration Value so determined
is referred to herein as the “
Actual Value
”), then
all of the fees and expenses of the Accounting Firm shall be paid by Parent OP,
and Parent OP and the Representative shall deliver joint written instructions to
the Escrow Agent instructing the Escrow Agent, subject to
Section 10.7(e)
, to
deliver to Parent OP (from the Escrow Cash then remaining in the Escrow Account)
Escrow Cash equal to that fraction of the fees and expenses of the Accounting
Firm paid by Parent OP (including, for this purpose, the amount of any initial
engagement fees paid by Parent OP pursuant to
Section 2.3(d)(ii)
)
equal to (x) the difference between the High Value and the Actual Value over (y)
the difference between the High Value and the Low Value.
(iv) Parent
OP shall, and shall cause each Group Company to, make its relevant financial
records available to the Representative and its accountants (subject to the
execution of customary releases and indemnity agreements) and other
representatives at reasonable times during the review by the Representative of,
and the resolution of any objections with respect to, the Proposed Closing Date
Calculations.
(e) Adjustment
to Estimated Aggregate Consideration Value.
(i)
If the Actual
Adjustment is a positive amount, then within three (3) Business Days after the
date on which the Aggregate Consideration Value is finally determined pursuant
to
Section
2.3(d)
above, Parent OP shall distribute, or cause to be distributed, out
of the proceeds of additional borrowings pursuant to the Financing which have
the benefit of the Member Guarantees, to each of the Contributors an amount in
cash equal to its Applicable Percentage Interest of such positive amount and
Parent OP and the Representative shall deliver joint written instructions to the
Escrow Agent instructing the Escrow Agent to deliver an amount in cash equal to
the Working Capital Escrow Amount to the Representative for further distribution
to the Contributors in accordance with their Applicable Percentage Interests;
and
(ii) If
the Actual Adjustment is a negative amount, then, subject to
Section 10.7(e)
,
within three (3) Business Days after the date on which the Aggregate
Consideration Value is finally determined pursuant to
Section 2.3(d)
above,
Parent OP and the Representative shall deliver joint written instructions to the
Escrow Agent instructing the Escrow Agent to deliver to Parent OP (from the
Escrow Cash in the Escrow Account) Escrow Cash equal to the absolute value of
such negative amount and, if the Working Capital Escrow Amount is greater than
the absolute value of the Actual Adjustment, to distribute the amount by which
the Working Capital Escrow Amount exceeded the absolute value of the Actual
Adjustment to the Representative for further distribution to the Contributors in
accordance with their Applicable Percentage Interests. In the event that
the Working Capital Escrow Amount is less than the absolute value of the Actual
Adjustment, then the instruction described in the preceding sentence shall
include a joint written instruction to the Escrow Agent instructing the Escrow
Agent to deliver to Parent OP from the Escrow Units then remaining in the Escrow
Account) Escrow Units equal in value (valued at the Parent Closing Price) to the
difference between the absolute value of the Actual Adjustment and Working
Capital Escrow Amount.
(f)
Known Claims
Escrow
(i)
During the
period of ten (10) Business Days prior to the Closing Date, the Parent Parties
shall notify the Representative in writing, along with reasonable supporting
documentation, if they believe any representations or warranties contained in
Article 3
have
been breached (and not cured) in a manner that would give rise to a claim by the
Parent Indemnitees after the Closing pursuant to
Section 10.2(a)
,
after giving effect to the limitations set forth
Section 10.4
(other
than
Section
10.4(d)
) (each, a “
Known Claim
” and
collectively, the “
Known Claims
”).
Parent OP and the Representative shall attempt in good faith to agree upon the
value of each Known Claim within five (5) Business Days of the Representative’s
receipt of notice of the Known Claims.
(ii) If
Parent OP and the Representative are unable to agree upon the value of any Known
Claim within the five (5) Business Day period set forth in
Section 2.3(f)(i)
,
Parent OP and the Representative shall each promptly select an arbitrator with
expertise in the business of operating outlet centers or shopping malls, which
arbitrators shall then select and mutually-agree upon a third independent
arbitrator with similar expertise (the “
Claim Arbitrator
”)
and Parent OP and the Representative shall promptly submit all unresolved Known
Claims to the Claim Arbitrator, along with each party’s final estimate of the
value of the unresolved Known Claim(s) (together with such supporting
documentation as such party shall deem appropriate). Within no more than ten
(10) days after the submission of the unresolved Known Claims, the Claim
Arbitrator shall determine if each unresolved Known Claim has been property
asserted and, if so properly asserted, shall choose either the final estimate of
Parent OP or the final estimate of the Representative, selecting the final
estimate of the value of the Known Claim that the Claim Arbitrator determines to
be more reasonable, taking into account all of the factors deemed relevant by
the Claim Arbitrator. The party submitting the majority of the estimates
of Known Claims that were not selected by the Claim Arbitrator shall pay all of
the fees and expenses of the Claim Arbitrator. For purposes of
Section 2.3(f)(iii)
,
the value of any Known Claim shall be equal to the amount agreed upon by Parent
OP and the Company or determined by the Claim Arbitrator.
(iii) If,
as of the Closing Date, there shall be Known Claims which, in the aggregate,
have an aggregate value in excess of $20,000,000, an amount (the “
Known Claims Escrow
Amount
”) equal to (i)(A) the aggregate value of the Known Claims
minus
(B)
$20,000,000, or (ii) such smaller amount as shall be determined by Parent REIT
in its sole discretion, will be deposited with the Escrow Agent at the Closing
pursuant to
Section
2.5(b)
.
(iv) The
notification of a Known Claim, and any determination by the Claim Arbitrator
with respect to the validity or value of any Known Claim, shall be made for the
sole purpose of this
Section 2.3(f)
and
Section 2.5(b)
and shall not limit or otherwise affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement or the right of the Parent Indemnitees to be
indemnified and recover the full amount of any Claim pursuant to
Article
10
.
Section
2.4
Contribution of Unit
Consideration to New Company
The
Contributors shall be deemed to have received the Unit Consideration in exchange
for the Contributions and to have immediately contributed the Unit Consideration
to New Company in exchange for an equal number of New Company Common
Units. In furtherance of the preceding sentence, at or promptly following
the Closing, Parent OP shall, on behalf of each of the Contributors and the
Escrow Agent, contribute the Parent OP Common Units issuable to the Contributors
and the Escrow Agent to New Company in exchange for an equal number of New
Company Common Units to be issued in the name of such Contributor or the Escrow
Agent, as applicable. Each Contributor and the Escrow Agent has or shall
be deemed to have instructed Parent OP to make the foregoing contribution on its
behalf in accordance with the terms of this
Section 2.4
.
Notwithstanding any provision of this Agreement to the contrary, in no event
shall Parent OP Common Units be delivered or registered in the name of any
Contributor or the Escrow Agent. All references to Escrow Units in this
Agreement shall, to the extent applicable, be deemed to refer to the New Company
Common Units issued in the name of the Escrow Agent in accordance with the terms
of this
Section
2.4
.
Section
2.5 ***
13
Section
2.6
Book Entry; No Fractional
Units
(a) All
Parent OP Common Units and New Company Common Units issuable pursuant to this
Agreement shall be issued in book-entry form and shall not be represented by
certificates or scrip.
(b) In
lieu of the issuance of any fractional Parent OP Common Units, Parent OP shall
distribute to each Contributor who otherwise would be entitled to receive such
fractional Parent OP Common Unit an amount in cash (rounded to the nearest
cent), out of the proceeds of additional borrowings pursuant to the Financing
which have the benefit of the Member Guarantees, determined by multiplying (i)
the Parent Closing Price by (ii) the fraction of a Parent OP Common Unit
(rounded to the nearest thousandth when expressed in decimal form) of a Parent
OP Common Unit which such Member would otherwise be entitled to receive pursuant
to this
Article
2
.
Section
2.7
Purchase and Sale of St.
Augustine
Interests and St. Augustine
Land
(a) Subject
to the terms and conditions set forth in this Agreement, at the Closing, (i) LVP
OP shall sell, transfer, assign and deliver (or cause to be sold, transferred,
assigned and delivered) to Parent Sub, and Parent Sub shall purchase and
acquire, all of LVP OP’s right, title and interest in and to the St. Augustine
Interests and the St. Augustine Land and (ii) Parent Sub shall pay to LVP OP an
amount in cash equal to the St. Augustine Cash Amount.
(b) Real
and personal property Taxes with respect to the St. Augustine Interests and St.
Augustine Land for the taxable period which includes the Closing Date shall be
prorated between LVP OP and Parent Sub, with such Taxes being borne by LVP OP
based on the ratio of the number of days in the relevant period prior to and
including the Closing Date to the total number of days in the actual taxable
period with respect to which such Taxes are assessed, irrespective of when such
Taxes are due, become a lien or are assessed, and such Taxes being borne by
Parent Sub based on the ratio of the number of days in the relevant period after
the Closing Date to the total number of days in the actual taxable period with
respect to which such Taxes are assessed, irrespective of when such Taxes are
due, become a lien or are assessed. Following Closing, Parent Sub and LVP
OP shall cooperate to calculate and make such payments to each other to give
effect to the foregoing pro ration.
13
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
ARTICLE
3
REPRESENTATIONS
AND WARRANTIES
RELATING
TO THE GROUP COMPANIES
Except as
set forth in the disclosure schedules (the “
Company Schedules
”)
of the Company delivered to Parent REIT and Parent OP concurrently with the
execution and delivery of this Agreement (provided that any fact or condition
disclosed in any Schedule in the Company Schedules will be deemed to be
disclosed in any other Schedule in the Company Schedules and for purposes of any
other representation or warranty made elsewhere in
Article 3
to the
extent that it is reasonably apparent that such disclosure is applicable to such
other Schedule in the Company Schedules (notwithstanding the omission of a
reference or cross reference thereto) or such other representation or warranty)
and assuming, in each case, the accuracy of the representations and warranties
of the Parent Parties in
Article 5
, the
Company hereby represents and warrants to Parent OP as follows (it being
understood that the representations and warranties in this
Article 3
shall not
be deemed to have been breached as a result of (x) any action taken by a Group
Company after the date hereof (including the entry into any Contract), to the
extent such action was taken in compliance with this Agreement, (y) any action
not taken by a Group Company after the date hereof, to the extent such action
was prohibited by this Agreement, or (z) the fact that any matter described in
clause (x) or (y) above was (i) not included in the Company Schedules or (ii)
not disclosed to or made available to the Parent Parties prior to the date
hereof):
Section
3.1
Organization and
Qualification; Subsidiaries
(a) Each
Group Company is duly organized, validly existing and in good standing (or the
equivalent thereof) under the laws of its respective jurisdiction of
organization, and has all requisite company power and authority to own, lease
and operate its properties and to carry on its businesses as presently
conducted.
(b) Each
Group Company is duly qualified or licensed to transact business and is in good
standing (or the equivalent thereof) in each jurisdiction in which the property
owned, leased or operated by it, or the nature of the business conducted by it,
makes such qualification or licensing necessary.
(c) The
Company has made available to Parent REIT prior to the date hereof complete and
accurate copies of the Governing Documents and, to the extent in existence, the
stock record book, the minute book and other corporate or similar organizational
records of each Group Company. The other records (corporate, financial and
other) of each Group Company have been maintained in accordance with applicable
requirements of Law and in a manner consistent with accounting policies
appropriate for entities engaged in similar businesses.
Section
3.2
Capitalization of the Group
Companies
(a) The
authorized membership interests of the Company consist of an unlimited number of
authorized Company Membership Interests. All of the issued and outstanding
Company Membership Interests have been duly authorized and validly issued, and,
as of the date hereof, are owned of record and beneficially as set forth on
Schedule 3.2(a)(i)
free and clear of any preemptive rights, restrictions on transfer and Liens, in
each case other than Qualified Permitted Liens. As of the Closing Date,
the Company Membership Interests will be owned of record and beneficially as set
forth on
Schedule 3.2(a)(ii)
free and clear of any preemptive rights, restrictions on transfer and Liens, in
each case other than Qualified Permitted Liens. Except as set forth on
Schedule 3.2(a)(i)
or
Schedule 3.2(a)(ii)
,
there are (x) no other equity securities of the Company, (y) no
securities of the Company convertible into or exchangeable for equity securities
of the Company, and (z) no agreements, arrangements, or other
subscriptions, options, warrants, conversion rights, stock appreciation rights,
“phantom” stock, stock units, calls, claims, rights of first refusal, rights
(including preemptive rights), commitments, arrangements or agreements to which
the Company is a party or by which it is bound in any case obligating the
Company to issue, deliver, sell, purchase, redeem or acquire, or cause to be
issued, delivered, sold, purchased, redeemed or acquired, stock or other equity
securities of the Company, or obligating the Company to grant, extend or enter
into any such subscription, option, warrant, conversion right, stock
appreciation right, call, right, commitment, arrangement or
agreement.
(b)
Schedule 3.2(b)
sets
forth the jurisdiction of organization, the authorized capital stock or other
equity interests and the number and type of the issued and outstanding shares of
capital stock or other equity interests of each Subsidiary of the Company.
Except as set forth on
Schedule 3.2(b)
,
no Group Company directly or indirectly owns any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, at any
time, any equity or similar interest in, any corporation, partnership, limited
liability company, joint venture or other business association or entity.
Schedule 3.2(b)
sets forth the name, owner, jurisdiction of formation or organization (as
applicable) and percentages of outstanding equity securities owned, directly or
indirectly, by each Group Company, with respect to each corporation,
partnership, limited liability company, joint venture or other business
association or entity which such Group Company owns, directly or indirectly, any
equity or equity-related securities.
(c) Except
as set forth on
Schedule 3.2(c)
or as set forth in its Governing Documents made available to Parent REIT prior
to the date hereof, all outstanding equity securities of each Subsidiary of the
Company (except to the extent such concepts are not applicable under the
applicable Law of such Subsidiary’s jurisdiction of formation or other
applicable Law) have been duly authorized and validly issued, are free and clear
of any preemptive rights, restrictions on transfer and Liens, in each case other
than Qualified Permitted Liens, and are owned, beneficially and of record, by
another Group Company. Except as set forth on
Schedule 3.2(c)
,
there are (x) no other equity securities of the Subsidiaries of the
Company, (y) no securities of the Subsidiaries of the Company convertible
into or exchangeable for equity securities of the Subsidiaries of the Company,
and (z) no agreements, arrangements, or other subscriptions, options,
warrants, conversion rights, stock appreciation rights, “phantom” stock, stock
units, calls, claims, rights of first refusal, rights (including preemptive
rights), commitments, arrangements or agreements to which any of the
Subsidiaries of the Company is a party or by which it is bound in any case
obligating the Subsidiaries of the Company to issue, deliver, sell, purchase,
redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed
or acquired, stock or other equity securities of the Subsidiaries of the
Company, or obligating the Subsidiaries of the Company to grant, extend or enter
into any such subscription, option, warrant, conversion right, stock
appreciation right, call, right, commitment, arrangement or
agreement.
(d)
Schedule 3.2(d)(i)
sets forth the authorized membership interests of each of the Other Group
Companies. All of the issued and outstanding membership interests of the Other
Group Companies have been duly authorized and validly issued, are free and clear
of any preemptive rights, restrictions on transfer and Liens, in each case other
than Qualified Permitted Liens. As of the date hereof, the membership
interests of each Other Group Company are owned of record and beneficially as
set forth on
Schedule 3.2(d)(ii)
free and clear of any preemptive rights, restrictions on transfer and Liens, in
each case other than Qualified Permitted Liens. As of the Closing Date,
the membership interests of each Other Group Company will be owned of record and
beneficially as set forth on
Schedule 3.2(d)(iii)
free and clear of any preemptive rights, restrictions on transfer and Liens, in
each case other than Qualified Permitted Liens. Except as set forth on
Schedule 3.2(d)(i)
,
Schedule
3.2(d)(ii)
or
Schedule 3.2(d)(iii)
,
there are (x) no other equity securities of the Other Group Companies,
(y) no securities of the Other Group Companies convertible into or
exchangeable for equity securities of the Other Group Companies, and (z) no
agreements, arrangements, or other subscriptions, options, warrants, conversion
rights, stock appreciation rights, “phantom” stock, stock units, calls, claims,
rights of first refusal, rights (including preemptive rights), commitments,
arrangements or agreements to which any of the Other Group Companies is a party
or by which it is bound in any case obligating the Other Group Companies to
issue, deliver, sell, purchase, redeem or acquire, or cause to be issued,
delivered, sold, purchased, redeemed or acquired, stock or other equity
securities of the Other Group Companies, or obligating the Other Group Companies
to grant, extend or enter into any such subscription, option, warrant,
conversion right, stock appreciation right, call, right, commitment, arrangement
or agreement.
(e)
Schedule 3.2(e)
sets
forth the jurisdiction of organization, the authorized capital stock or other
equity interests and the number and type of the issued and outstanding shares of
capital stock or other equity interests of each Subsidiary of each Other Group
Company all of which are owned beneficially and of record, directly or
indirectly, by the relevant Other Group Company or a Subsidiary thereof.
Except as set forth on
Schedule 3.2(e)
, no
Other Group Company directly or indirectly owns any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for, at any
time, any equity or similar interest in, any corporation, partnership, limited
liability company, joint venture or other business association or entity.
Except as set forth on
Schedule 3.2 (e)
or as set forth in its Governing Documents, all outstanding equity securities of
each Subsidiary of each Other Group Company (except to the extent such concepts
are not applicable under the applicable Law of such Subsidiary’s jurisdiction of
formation or other applicable Law) have been duly authorized and validly issued,
are free and clear of any preemptive rights, restrictions on transfer and Liens,
in each case other than Qualified Permitted Liens, and are owned, beneficially
and of record, by such Other Group Company or its Subsidiary. Except as
set forth on
Schedule 3.2(e)
,
there are (x) no other equity securities of the Subsidiaries of any Other
Group Company, (y) no securities of the Subsidiaries of any Other Group
Company convertible into or exchangeable for equity securities of the
Subsidiaries of any Other Group Company, and (z) no agreements,
arrangements, or other subscriptions, options, warrants, conversion rights,
stock appreciation rights, “phantom” stock, stock units, calls, claims, rights
of first refusal, rights (including preemptive rights), commitments,
arrangements or agreements to which any of the Subsidiaries of any Other Group
Company is a party or by which it is bound in any case obligating the
Subsidiaries of any Other Group Company to issue, deliver, sell, purchase,
redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed
or acquired, stock or other equity securities of the Subsidiaries of any Other
Group Company, or obligating the Subsidiaries of any Other Group Company to
grant, extend or enter into any such subscription, option, warrant, conversion
right, stock appreciation right, call, right, commitment, arrangement or
agreement.
(f)
Except as set
forth on
Schedule
3.2(f)
, upon consummation of the Contemplated Transactions, including the
execution and delivery of the documents to be delivered at the Closing, Parent
OP shall be, as direct or beneficial owner, vested with good and marketable
title in and to all of the outstanding equity interests of each Group Company,
free and clear of any preemptive rights, restrictions on transfer and Liens (in
each case other than (i) Liens created pursuant to the Financing, (ii) Liens
otherwise created by the Parent Parties or any of their Affiliates (other than a
Group Company prior to Closing) or (iii) Qualified Permitted
Liens).
(g) Except
as set forth on
Schedule 3.2(b)
,
Schedule 3.2(c)
or
Schedule
3.2(d)(ii)
, no Employee (or Permitted Designee of an Employee as defined
in any Employee Agreement) has any ownership interests in any of the Group
Companies. After the Closing, there will not be any outstanding offers of an
opportunity to purchase an equity interest in any development project of any
Group Company, or any Group Company or any Owned Real Properties, in each case
with any Employees who are terminated at or prior to the Closing.
Section
3.3
Authority
(a) The
Company has the requisite limited liability company power and authority to
execute and deliver this Agreement and the other Transaction Documents to which
it is a party and to consummate the Contemplated Transactions. The
execution and delivery of this Agreement and the other Transaction Documents to
which it is a party and the consummation of the Contemplated Transactions that
are required to be performed by the Company have been duly authorized by all
necessary limited liability company action (including any member vote or
approval) on the part of the Company. This Agreement and the other
Transaction Documents to which it is a party has been duly executed and
delivered by the Company and constitutes the valid, legal and binding agreement
of the Company, enforceable against the Company in accordance with their terms,
except to the extent that enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors’ rights generally and (ii) general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
(b) Each
of Mill Run and Ewell has the requisite limited liability company power and
authority to execute and deliver the LP Purchase Agreement and to consummate the
transactions contemplated thereby. The execution and delivery of the LP
Purchase Agreement and the consummation of the transactions contemplated thereby
that are required to be performed by Mill Run and Ewell have been duly
authorized by all necessary limited liability company action (including any
member vote or approval) on the part of Mill Run and Ewell. The LP
Purchase Agreement has been duly executed and delivered by Mill Run and Ewell
and constitutes the valid, legal and binding agreement of Mill Run and Ewell,
enforceable against Mill Run and Ewell in accordance with its terms, except to
the extent that enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors’ rights generally and (ii) general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law). The limited liability company interests in Mill Run
and Ewell are uncertificated and have been maintained in book entry form
only.
Section
3.4
Financial
Statements
;
Indebtedness
(a) Attached
hereto as
Schedule 3.4
are
true and complete copies of the following financial statements (such financial
statements, the “
Financial
Statements
”):
(i)
the unaudited
combined consolidated balance sheet of the Group Companies (including the St.
Augustine Land) as of December 31, 2008 and the related unaudited combined
consolidated statements of income and cash flows for the fiscal year ended
December 31, 2008 (the “
2008 Unaudited Financial
Statements
”); and
(ii) the
unaudited combined consolidated balance sheet of the Group Companies (including
the St. Augustine Land) as of September 30, 2009 (the “
Latest Balance
Sheet
”) and the related unaudited combined consolidated statements of
income and cash flows for the nine month period ending on such date (the “
September 30 Unaudited
Financial Statements
”).
(b) Except
as set forth on
Schedule 3.4
,
each Financial Statement (x) has been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, from the
books and records of the Group Companies (including the St. Augustine Land),
except as may be indicated in the notes thereto and except for the absence of
footnotes and subject to year-end adjustments which are immaterial in amount,
and (y) fairly presents, in all material respects, the consolidated
financial position of the Group Companies as of the dates thereof, their results
of operations and cash flows for the periods then ended (subject, in the case of
the September 30 Unaudited Financial Statements, to the absence of footnotes and
to year-end adjustments which are immaterial in amount).
(c) Each
of the Group Companies maintains internal accounting controls which provide
reasonable assurance that (i) transactions are executed with management’s
authorization; (ii) transactions are recorded as necessary to permit preparation
of the financial and statutory statements of the Group Companies and to maintain
accountability for the Group Companies’ consolidated assets; (iii) access to the
Group Companies’ assets is permitted only in accordance with management’s
authorization; and (iv) the reporting of the Group Companies’ assets is compared
with existing assets at regular intervals. None of the Group Companies has
received or otherwise had or obtained knowledge of any material complaint,
allegation, assertion or claim, whether written or oral, regarding the
accounting or auditing practices, procedures, methodologies or methods,
including any complaint, allegation, assertion or claim that any of the Group
Companies has engaged in illegal accounting or auditing practices, in each case
which material complaint, allegation, assertion or claim remains
unresolved.
(d) Except
as set forth on
Schedule 3.4(d)
, none
of the Group Companies has entered into any Off Balance Sheet
Arrangements.
(e) Except
as set forth on
Schedule 3.4(e)
,
Schedule 3.4(f)
and
Schedule
3.4(g)
there is no outstanding Funded Indebtedness (except for Funded
Indebtedness incurred after the date hereof in compliance with
Section 6.1(b)
.
Schedule 3.4(e)
sets forth a list of all capitalized leases, letters of credit and “synthetic
loans” to which any Group Company is a party or beneficiary.
(f)
Schedule 3.4(f)
sets
forth a true and complete list of all Funded Indebtedness which has a fixed
interest rate (the “
Fixed Rate Debt
”)
(except for Funded Indebtedness incurred after the date hereof in compliance
with
Section
6.1(b)
). The Company has made available true, correct and complete
copies of documents evidencing each Fixed Rate Debt to Parent REIT. The
Group Companies have made all payments of principal, interest and any other sums
that are due and payable under, or with respect to the Fixed Rate Debt.
Except as set forth on
Schedule 3.4(f)
, no
Group Company, on the one hand, nor, to the knowledge of the Company, any other
party on the other hand, is in breach, default or an event of default under any
Fixed Rate Debt, which breach, default or an event of default remains uncured,
and no uncured event has occurred which with or without the lapse of time or the
giving of notice or opportunity to cure would constitute a breach, default or
event of default under any Fixed Rate Debt.
(g) ***
14
(h) At
the Closing, the Group Companies will have possession of all books, records and
other documents (whether in paper or electronic form) pertaining to their
businesses, properties and assets (including, without limitation business plans,
financial statements, work papers and Tax Returns);
provided
that the
Group Companies will be deemed to have possession of electronic records
maintained by an unaffiliated third party service provider if such Group
Companies have customary access thereto in accordance with contracts disclosed
in the Company Disclosure Schedules.
Section
3.5
Consents and Approvals; No
Violations
(a) Except
as set forth on
Schedule 3.5(a)
, no
consent, approval, order or authorization of, or registration, declaration or
filing with, notice to or permit from any Governmental Entity is necessary for
the execution, delivery or performance of this Agreement and the other
Transaction Documents to which it is a party by the Company, or the consummation
by the Company of the Contemplated Transactions. Neither the execution,
delivery and performance of this Agreement and the other Transaction Documents
to which it is a party by the Company nor the consummation by the Company of the
Contemplated Transactions will (a) conflict with or result in any breach of
any provision of any Group Company’s Governing Documents, (b) except as set
forth on
Schedule
3.5(a)
, and assuming the receipt of the Required Consents and repayment
of the Floating Rate Debt at Closing, result in a violation or breach of, or
cause acceleration, or constitute (with or without due notice or lapse of time
or both) a default (or give rise to any right of termination, cancellation or
acceleration), or require any notice or consent under any of the terms,
conditions or provisions of any Contract to which any Group Company is a party
or by which it or any of their respective properties is bound or affected,
(c) conflict with or violate any Law or Order applicable to any Group
Company or any of their respective properties or assets, or (d) except as
expressly contemplated by this Agreement and the other Transaction Documents to
which it is a party, result in the creation of any Lien upon any of the assets
of any Group Company, the Company Membership Interests or any membership or
other equity interest of any Group Company.
14
Certain portions have been omitted in connection with an application for
confidential treatment therefor.
(b) Without
limiting the generality of the foregoing, the Contemplated Transactions do not,
except as contemplated by the Required Consents, the terms of any Funded
Indebtedness, or the Governing Documents of the Group Companies, violate any
provision regarding direct or indirect transfers of interests in any Group
Company that are set forth in any agreement relating to the operation, financing
or ownership of any Group Company.
Section
3.6
Material
Contracts
(a) Except
as set forth on
Schedule 3.6(a)
(collectively, the “
Material Contracts
”)
and except for this Agreement and other Contracts entered into in compliance
with
Section
6.1(b)
after the date hereof, no Group Company is a party to or bound
by:
(i)
any mortgage, deed of trust, loan agreement, letter of credit, note, bond,
debenture or indenture or other similar document in respect of indebtedness for
borrowed money, including any such document relating to Funded Indebtedness or
any Owned Real Property;
(ii) any
agreement which would restrict it or any of its Affiliates (including Parent OP
or any of its Affiliates after the Closing) from prepaying any of their
indebtedness without penalty or premium at any time or which requires any of
them to maintain any amount of indebtedness;
(iii) any
Off Balance Sheet Arrangement;
(iv) any
guarantee of any indebtedness or debt securities or other obligation of another
Person (other than any Group Company), any “keep well” or other agreement to
maintain any financial statement condition of another Person or any arrangement
having the economic effect of any of the foregoing;
(v) any
partnership agreement, limited liability company agreement, joint venture or
other similar agreement (other than the Company LLC Agreement) relating to the
formation, creation, operation, management or control of any partnership or
joint venture;
(vi) any
agreement for the purchase or lease of materials, supplies, goods, services or
equipment that is not terminable on thirty (30) days notice by such Group
Company and that provides for or is reasonably likely to require either
(A) annual aggregate payments by, or other consideration from, such Group
Company of $100,000 or more, or (B) aggregate payments from such Group
Company of $100,000 or more over the remaining term of the
agreement;
(vii) any
contract or agreement that restricts it or any of its Affiliates (including
Parent OP or any of its Affiliates after the Closing) from (A) engaging in any
line of business, (B) owning any properties or assets, (C) conducting any
business operations, property ownership, or property development in any
geographic area, (D) engaging in business with, or providing or acquiring
services or products from or to, any Person;
(viii) any
agreement pursuant to which it manages or provides services with respect to any
real properties other than the Owned Real Properties;
(ix) any
agreement entered into by it providing for the sale of, or option to sell, any
Owned Real Properties or the purchase of, or option to purchase, any real estate
not yet consummated as of the date hereof;
(x) any
contract or agreement pursuant to which it agrees to indemnify or hold harmless
any director, officer or Employee (in each case other than the Governing
Documents for the Group Companies made available to Parent REIT prior to the
date hereof) or, other than indemnities provided in the ordinary course of
business, any third party;
(xi) any
agreement pursuant to which it has potential liability in respect of any
purchase price adjustment, earn-out or contingent purchase price;
or
(xii) any
agreement to consummate any future disposition or acquisition of assets or
properties, or any future merger or business combination with respect to any
Group Company.
(b) Except
as set forth on
Schedule 3.6(b)
,
each Material Contract is valid and binding on the applicable Group Company and
each other party thereto and enforceable in accordance with its terms (subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting generally the enforcement of creditors’ rights and subject to general
principles of equity). Except as set forth on
Schedule
3.6(b)
, since January
1, 2009, no Group Company has received written notice of any default under any
Material Contract and no Group Company is in, or alleged to be in, breach or
default under any of the Material Contracts and no condition or event exists
which with the giving of notice or the passage of time, or both, would
constitute a breach or default. The Company has made available to Parent
REIT prior to the date hereof true and complete copies of each Material
Contract.
Section
3.7
Absence of
Changes
Except as
set forth on
Schedule 3.7
,
(a) since the date of the Latest Balance Sheet, there have not been any events,
developments or occurrences (nor have any facts become known) that, individually
or in the aggregate, have had or would reasonably be expected to have a Company
Material Adverse Effect and (b) during the period beginning on the date of the
Latest Balance Sheet and ending on the date of this Agreement, the Group
Companies have not taken, or authorized the taking of, any of the actions of the
type described in
Section 6.1(b)(i)
,
Section
6.1(b)(ii)
,
Section 6.1(b)(iii)
,
Section
6.1(b)(iv)
,
Section 6.1(b)(v)
,
Section
6.1(b)(ix)
,
Section 6.1(b)(x)
,
Section
6.1(b)(xi)
,
Section 6.1(b)(xii)
,
Section
6.1(b)(xx)
,
Section 6.1(b)(xxi)
or
Section
6.1(b)(xxiii)
which had such action been taken after the date of this
Agreement would be in violation of such foregoing subsections of
Section
6.1(b).
Section
3.8
Litigation
Except as
set forth on
Schedule 3.8
,
there is no suit, litigation, arbitration, claim, action, proceeding or
investigation pending or threatened against any Group Company or any of their
respective properties or assets, including any facilities that are currently or
were formerly owned by any Group Company, before any Governmental Entity.
Except as set forth on
Schedule 3.8
, no
Group Company (or any of its properties or assets) is subject to any outstanding
Order.
Section
3.9
Compliance with Applicable
Law
(a) Except
as set forth on
Schedule 3.9(a)
,
the Group Companies hold all permits, licenses, approvals, certificates,
variances, exemptions, orders, franchises, consents and other authorizations of
and from all, and have made all declarations and filings with, Governmental
Entities necessary for the lawful conduct of their respective businesses, as
presently conducted or intended to be conducted by such Group Company as of the
date hereof, (“
Company
Permits
”). All of the Company Permits are valid and in full force
and effect and the Group Companies are in compliance with the terms of the
Company Permits. No suspension or cancellation of any Company Permit is
pending or threatened, and no such suspension or cancellation will result from
the Contemplated Transactions. The Company Permits collectively constitute
all of the permits necessary to permit the Group Companies to lawfully conduct
and operate their business as currently conducted and to own and use their
properties and assets in the manner in which such properties and assets are
currently owned and used.
(b) Except
as set forth on
Schedule 3.9(b)
,
the business of the Group Companies is, and has been at all times, operated in
compliance with all applicable Laws. No investigation or review by any
Governmental Entity with respect to the Group Companies is pending or
threatened.
(c) Within
the last five (5) years, none of the Group Companies or their respective
directors, officers, agents or employees acting for or on behalf of any of the
Group Companies, has, in violation of any applicable Law: (i) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (w) to obtain favorable treatment in securing business,
(x) to pay for favorable treatment for business secured, or (y) to obtain
special concessions or for special concessions already obtained, for or in
respect of any Group Company; (ii) received, directly or indirectly, any
rebates, payments, commissions, promotional allowances or any other economic
benefits, regardless of their nature or type, from any customer, governmental
employee or other person or entity with whom any Group Company will do business
directly or indirectly; or (iii) established or maintained any fund or asset
that has not been recorded in the books and records of the Group
Companies.
(d) This
Section 3.9
does not relate to (i) environmental matters (which are the subject of
Section 3.11
), Tax
matters (which are the subject of
Section 3.14
) or real
property matters (which are the subject to
Section 3.16
) or (ii)
Laws expressly addressed by
Section 3.10
(Employee Benefits Matters) or
Section 3.13
(Labor
Matters).
Section
3.10
Employee Benefit
Plans
(a)
Schedule 3.10(a)
contains a true and complete list of each Employee Benefit Plan and each
Employee Agreement. Neither the Group Companies nor any ERISA Affiliate
has any plan or commitment, whether legally binding or not, to establish any new
Employee Benefit Plan, to enter into any Employee Agreement or to modify or to
terminate any Employee Benefit Plan or Employee Agreement (except to the extent
required by Law or to conform any such Employee Benefit Plan or Employee
Agreement to the requirements of any applicable Law, in each case as previously
disclosed to Parent REIT and Parent OP, or as required by this Agreement), nor
has any intention to do any of the foregoing been communicated to
Employees.
(b) The
Group Companies have made available to Parent REIT (i) current, accurate and
complete copies of all documents constituting each Employee Benefit Plan and
each Employee Agreement, including all amendments thereto, side letters of
understanding and trust or funding agreements with respect thereto; (ii) the two
(2) most recent annual actuarial valuations, if any, prepared for each Employee
Benefit Plan; (iii) the two (2) most recent annual reports (Series 5500 and all
schedules thereto), if any, required under ERISA in connection with each
Employee Benefit Plan or related trust; (iv) a statement of alternative form of
compliance pursuant to Department of Labor Regulation §2520.104-23, if any,
filed for each Employee Benefit Plan which is an “employee pension benefit plan”
as defined in Section 3(2) of ERISA for a select group of management or highly
compensated employees; (v) the most recent determination letter received from
the IRS, if any, for each Employee Benefit Plan and related trust which is
intended to satisfy the requirements of Section 401(a) of the Code; (vi) the
most recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Employee Benefit Plan and (vii) IRS letters concerning the audit of the 2007
plan year of the Lightstone Group, LLC 401(k) Plan and the transfer of
administration to the Group Companies.
(c) No
Group Company or the Prime Manager contributes to or has been obligated to
contribute during the six (6) years preceding the date hereof to any
“multiemployer plan” (as defined in Section 3(37) of ERISA) or any “defined
benefit plan” (as defined in Section 3(35) of ERISA).
(d) Except
as set forth on
Schedule 3.10(d)
, (i)
the Group Companies and each ERISA Affiliate have performed all obligations
required to be performed by them under each Employee Benefit Plan and Employee
Agreement and none of the Group Companies nor any ERISA Affiliate is in default
under, or in violation of, any Employee Benefit Plan; (ii) each Employee Benefit
Plan has been established and administered in accordance with its terms, and in
compliance with the applicable provisions of ERISA, the Code, the Health
Insurance Portability and Accountability Act and other applicable Laws; (iii)
each Employee Benefit Plan which is intended to be qualified within the meaning
of Code Section 401(a) has received a favorable determination letter from the
IRS as to its qualification, and, to the knowledge of the Company, nothing has
occurred that would reasonably be expected to adversely affect such
determination; (iv) no Group Company or any ERISA Affiliate has any liability or
obligation under any Employee Benefit Plan which provides medical, life
insurance or death benefits to Employees beyond termination of their employment,
except as may be required by Section 4980B of the Code, or has ever contracted
(whether in oral or written form) to any Employee (either individually or to
Employees as a group) that such Employee(s) would be provided with life
insurance, medical, severance or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
Section 4980B of the Code; (v) no non-exempt “prohibited transaction,” within
the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred
with respect to any Employee Benefit Plan; (vi) the sponsorship of each Employee
Benefit Plan (and the administration of the Lightstone Group, LLC 401(k) Plan)
can be transferred from the Group Companies to an Affiliate other than another
Group Company without liability to the Group Companies and the Group Companies
will cease to be participating employers in any Employee Benefit Plan as of the
Closing; (vii) the Group Companies have made all payments with respect to all
periods through the date hereof which are required by each Employee Benefit
Plan, each related trust, or by Law to be made to, or with respect to, each
Employee Benefit Plan (including all insurance premiums or intercompany charges
with respect to, each Employee Benefit Plan); and (viii) the Group Companies do
not have an obligation to reimburse or indemnify any Employee with respect to
taxes under Section 409A of the Code relating to an Employee Benefit
Plan.
(e) No
actions, audits, proceedings, arbitrations, suits or claims (other than routine
claims for benefits in the ordinary course) are pending or, to the knowledge of
the Company, threatened or anticipated (other than routine claims for benefits)
against the Group Companies or any administrator, trustee or other fiduciary of
any Employee Benefit Plan with respect to any Employee Benefit Plan or Employee
Agreement, or against any Employee Benefit Plan or against the assets of any
Employee Benefit Plan.
(f)
From and after
the Closing, the Group Companies have no liability, contingent or otherwise, to,
or with respect to, any Employee Benefit Plan.
Section
3.11
Environmental
Matters
Except as
set forth on
Schedule 3.11
:
(a) (i) No
Group Company is in violation of any applicable Law or Order relating to
pollution or occupational health and safety, protection of the environment
(including indoor or ambient air, surface water, groundwater, land surface or
subsurface) or natural resources, including laws and regulations relating to the
release or threatened release of any Hazardous Substances or to the manufacture,
management, possession, presence, generation, processing, distribution, use,
treatment, storage, disposal, transportation, abatement, removal, remediation or
handling of, or exposure to, Hazardous Substances (collectively, “
Environmental Laws
”)
and (ii) each Group Company holds and is in compliance with all permits,
approvals, identification numbers, licenses and other authorizations required
under any Environmental Laws to own or operate its assets and businesses as
currently owned and operated (“
Environmental
Permits
”).
(b) Since
January 1, 2007, no Group Company has received any written notice of, and there
are no pending or threatened, administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to Hazardous Substances or any
Environmental Law against or affecting the Group Companies or any of the their
respective properties or assets.
(c) There
are no Hazardous Substances at, on, under or migrating to or from, any real
property currently or formerly owned, leased or operated by any Group Company or
any of its respective predecessors, or any other location, in each case, that
could reasonably be expected to result in liability of the Group Companies under
or pursuant to any Environmental Law.
(d) No
Group Company has received any written notice or claim alleging that such Group
Company is or may be in violation of, or liable under, or a potentially
responsible party pursuant to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 or any other Environmental Law and, to
the knowledge of the Company, there is no basis for any such notice or
claim. No Group Company has entered into or agreed to any consent
decree or order or is a party to any judgment, decree or judicial order relating
to compliance with Environmental Laws, Environmental Permits or the
investigation, sampling, monitoring, treatment, remediation, removal or cleanup
of Hazardous Substances that has not been resolved in all material respects and,
to the knowledge of the Company, no investigation, litigation or other
proceeding is pending or, threatened with respect to any of the
above. No Group Company has assumed by contract any liability under
any Environmental Law or relating to any Hazardous Substances, or is an
indemnitor in connection with any claim by any third party indemnity for any
liability under any Environmental Law or relating to any Hazardous
Substances.
(e) To
the knowledge of the Company, there are no past or present conditions, events,
circumstances, facts, activities, practices, incidents, actions, omissions or
plans: (x) that may reasonably be expected to interfere with or
prevent continued compliance by any Group Company with Environmental Laws and
the requirements of Environmental Permits, (y) that may result in liability of
or adversely affect any Group Company under or pursuant to any Environmental
Law, or (z) that may form the basis of any claim, action, suit,
proceeding, hearing, investigation, inquiry or lien against or any Group Company
under or pursuant to any Environmental Law.
(f) The
Company has made available to Parent REIT prior to the date hereof true and
complete copies and results of any material reports, studies, analyses or
monitoring in the possession of any Group Company with respect to actual or
potential liabilities of any Group Company under Environmental Laws or the
presence of Hazardous Substances at, on, under or migrating to or from, any real
property currently or formerly owned, leased or operated by any Group Company or
any of their respective predecessors.
Section
3.12
Intellectual
Property
(a)
Except as set forth on
Schedule 3.12
, the
Group Companies own, are licensed to use or otherwise have the right to use (in
each case free and clear of any Liens) all Intellectual Property required for
the operation of the business of the Group Companies (collectively, the “
Company Intellectual
Property
”).
Schedule 3.12
sets
forth all Intellectual Property owned by the Group Companies that is registered,
issued or the subject of a pending application for registration (collectively,
the “
Company Owned
Intellectual Property
”). None of the Company Owned
Intellectual Property has been adjudged invalid or unenforceable and the Company
Owned Intellectual Property is valid and enforceable, subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws.
(b)
Schedule 3.12
sets
forth all agreements (other than with respect to off-the-shelf software pursuant
to “shrink wrap” or “click wrap” license agreements) pursuant to which Company
Intellectual Property is licensed to the Group Companies by a third party or
pursuant to which any Group Company has granted to a third party the right to
use Company Owned Intellectual Property (collectively, the “
Company IP
Licenses
”). Each Company IP License is valid and enforceable,
subject to any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws and none of the Group Companies or, to the Company’s knowledge, any
other party to any Company IP License is in breach thereof or default
thereunder.
(c) There
are no claims pending or threatened in writing against any Group Company (i)
against the use by such Group Company of any copyrights, patents, trademarks,
trade names, service marks, trade secrets, technology, know-how or computer
software programs and applications used in the business of the Group Companies
as currently conducted, (ii) challenging the ownership, validity or
effectiveness of any of the Company Owned Intellectual Property, or (iii)
challenging the license or legally enforceable right to use of the Company IP
Licenses. The conduct of the business of the Group Companies as
currently conducted does not infringe or otherwise violate the U.S. Intellectual
Property rights of any Person. With respect to Intellectual Property
used by, owned by or licensed to any Group Company, the Group Company owns the
entire right, title and interest in the Company Owned Intellectual Property
purported to be owned by the Group Company and has the right to use the other
Intellectual Property in the continued operation of its business as currently
conducted. To the knowledge of the Company, no third party is
infringing or otherwise violating the Company Owned Intellectual Property
rights.
Section
3.13
Labor
Matters
(a) No
work stoppage or labor strike against any of the Group Companies by Employees is
pending or threatened in writing. The Group Companies (i) are not a
party to, or to the knowledge of the Company, threatened with any organized
labor dispute or litigation relating to labor matters involving any Employees,
including, without limitation, violation of any federal, state or local labor,
safety or employment Laws (domestic or foreign), charges of unfair labor
practices or discrimination complaints; (ii) have not engaged in any unfair
labor practices within the meaning of the National Labor Relations Act or the
Railway Labor Act; or (iii) are not presently, nor have been in the past party
to, or bound by, any collective bargaining agreement or union contract with
respect to Employees and no such agreement or contract is currently being
negotiated by the Group Companies or any of their Affiliates.
(b) No
Employees are currently represented by any labor union for purposes of
collective bargaining with any Group Company and no activities the purpose of
which is to achieve such representation of all or some of such Employees are
threatened or ongoing or have resulted in any petition for a representation
election filed with the National Labor Relations Board in the past three
months.
(c) To
the knowledge of the Company, no Employee is in violation of any employment
contract, patent disclosure agreement, or enforceable non-competition agreement
in any material respect.
Section
3.14
Tax
Matters
Except as
set forth on
Schedule
3.14
:
(a) Each
Group Company (i) has timely filed (or had filed on its behalf) all material Tax
Returns required to be filed by it (after giving effect to any filing extension
granted by a Governmental Entity) and (ii) has paid (or had paid on its behalf)
or will timely pay all material Taxes (whether or not shown on such Tax Returns)
that are required to be paid by it. Each such Tax Return is true,
correct and complete in all material respects. The Latest Balance
Sheet reflects an adequate reserve (excluding any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) for all
Taxes payable by the each Group Company for all taxable periods and portions
thereof through the date of the Latest Balance Sheet. No Group
Company has executed or filed with the IRS or any other Governmental Entity any
agreement, waiver or other document or arrangement extending the period for
assessment or collection of material Taxes payable by a Group Company (including
any applicable statute of limitation), which waiver or extension is currently in
effect, and no power of attorney with respect to any Tax matter is currently in
force with respect to any Group Company.
(b) Each
Group Company has since its formation been treated for U.S. federal income tax
purposes as a partnership or disregarded entity, as the case may be, and not as
a corporation or an association taxable as a corporation.
(c) All
material deficiencies asserted or material assessments made with respect to
taxes payable by any Group Company and that have been set forth in writing to
such Group Company as a result of any examinations by the IRS or any other
Governmental Entity have been fully paid and copies of all such deficiency
notices or assessments, as well as materials relating to the settlement of such
claims have been provided or made available to representatives of Parent
REIT. There are no other material audits, examinations or other
proceedings relating to any material Taxes payable by any Group Company by any
taxing Governmental Entity in progress. No Group Company has received
any written notice from any Governmental Entity that it intends to conduct such
an audit, examination or other proceeding in respect of a material amount of
Taxes payable by a Group Company or make any material assessment for such
Taxes. No Group Company is a party to any litigation or pending
litigation or administrative proceeding relating to a material amount of Taxes
payable by such Group Company (other than litigation dealing with appeals of
property tax valuations).
(d) Each
Group Company has complied, in all material respects, with all applicable laws,
rules and regulations relating to the payment and withholding of Taxes
(including withholding of Taxes pursuant to Sections 1441, 1442, 1445, 1446, and
3402 of the Code or similar provisions under any state, local, or non-U.S. Tax
law) and has duly and timely withheld and paid over to the appropriate taxing
authorities all material amounts required to be so withheld and paid over on or
prior to the due date thereof under all applicable Laws.
(e) No
material claim has been made in writing by a taxing authority in a jurisdiction
where a Group Company does not file Tax Returns that such Group Company is or
may be subject to taxation by that jurisdiction.
(f) No
Group Company has requested any extension of time within which to file any
material Tax Return, which material Tax Return has not yet been
filed.
(g) No
Group Company is a party to any Tax sharing or similar agreement or arrangement,
other than any agreement or arrangement solely between two Group Companies,
pursuant to which it will have any obligation to make any payments after the
Closing. For the avoidance of doubt, a Tax Protection Agreement shall not
constitute a Tax sharing or similar agreement or arrangement.
(h) No
Group Company has requested a private letter ruling from the IRS or comparable
rulings from other taxing authorities.
(i)
No Group Company is or has ever been a member of an
affiliated group filing a consolidated federal income tax return.
(j)
Other than Liens for Taxes not yet delinquent and Liens for
Taxes being contested in good faith and for which there are adequate reserves on
the financial statements of the Company (if such reserves are required pursuant
to GAAP), there are no Liens for a material amount of Taxes (other than Taxes
not yet due and payable for which adequate reserves have been made if required
pursuant to GAAP) upon any of the assets of the Group Companies.
(k)
Schedule 3.14(k)
lists each of the Tax Protection Agreements affecting the Group
Companies. As of the date of this Agreement, no person has raised in
writing, or threatened to raise, a material claim against a Group Company for
any breach of any such Tax Protection Agreement. Attached to
Schedule 3.14(k)
is a
true, correct and complete copy of each Tax Protection Agreement, including all
schedules that were attached thereto or completed in connection
therewith.
(l)
No Group Company is a party to any understanding or
arrangement described in Section 6662(d)(2)(c)(ii) of the Code or Treasury
Regulations Section 1.6011-4(b) or is a material advisor as defined in Section
6111(b) of the Code.
(m)
No Group Company has entered into any “closing agreement” as
described in Section 7121 of the Code (or any corresponding or similar provision
of state, local or foreign income Tax law).
(n) No
Group Company is a foreign person as such term is defined in the Code, and
Treasury Regulations thereunder, for purposes the Foreign Investment in Real
Property Tax Act.
(o) No
Group Company will be required to include any item of income in, or exclude any
item of deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date as a result of any: (i) change in method
of accounting for a taxable period ending on or prior to the Closing Date; (ii)
“closing agreement” as described in Code §7121 (or any corresponding or similar
provision of state, local, or non-U.S. income Tax law) executed on or prior to
the Closing Date; (iii) intercompany transactions or any excess loss account
described in Treasury Regulations under Code §1502 (or any corresponding or
similar provision of state, local, or non-U.S. income Tax law); (iv) installment
sale or open transaction disposition made on or prior to the Closing Date; or
(v) prepaid amount received on or prior to the Closing Date.
(p) The
maximum indemnity amount under the Tax Protection Agreements related to
contributions of direct or indirect interests in the Company to LVP OP does not
exceed $155 million. The maximum indemnity amount under the Tax
Protection Agreements related to contributions of direct or indirect interests
in Mill Run to LVP OP does not exceed $37 million. The maximum
indemnity amount under the Series C Optional Tax Indemnification does not exceed
$35 million. For purposes of determining the maximum indemnity amount
under a Tax Protection Agreement, it is assumed that each person entitled to
protection under such Tax Protection Agreement is subject to the highest
marginal U.S. federal, state and local income Tax rates applicable to an
individual residing in New York City, New York as of the date
hereof.
(q)
Schedule 3.14(q)
includes a schedule of the tax basis of each property listed on
Schedule
3.16(b)
.
(r)
Schedule 3.14(r)
outlines the impact of, and restrictions imposed by, the Tax Protection
Agreements on all Funded Indebtedness, including without limitation, a schedule
of all guarantees entered into pursuant to, or in connection with, a Tax
Protection Agreement.
Section
3.15
Brokers
No
broker, finder, financial advisor or investment banker, other than the Persons
listed as “Financial Advisor” on
Schedule 1.1(C)
is
entitled to any broker’s, finder’s, financial advisor’s, investment banker’s or
similar fee or commission in connection with the Contemplated Transactions based
upon arrangements made by or on behalf of any Group Company. True and
complete copies of the engagement letters between the Group Companies and each
Person listed in
Schedule 1.1(C)
have
been made available to Parent REIT prior to the date hereof.
Section
3.16
Real and Personal
Property
(a) Each
Group Company is the sole legal owner of and, except as set forth on
Schedule 3.16(a)
,
such Group Company has good and marketable title to all items of tangible
personal property reflected on the Latest Balance Sheet as owned or leased by
such Group Company free and clear of any Liens other than Permitted Liens that
do not materially detract from the value or intended use of such
property. All equipment and other items of tangible personal property
and assets of each Group Company (i) are in good operating condition and in a
state of good maintenance and repair, ordinary wear and tear excepted, (ii) are
usable in the regular and ordinary course of business for their intended use and
purpose and (iii) conform to all applicable Laws and Orders.
(b) Except
as listed in
Schedule
3.16(b)
, each Group Company (i) owns fee simple title to each of the real
properties (or the applicable portion thereof) described on
Schedule 3.16(b)
as
being owned in fee by such Group Company and (ii) has a valid leasehold interest
in each of the real properties (or the applicable portion thereof) described on
Schedule
3.16(b)
as being ground leased by such Group Company pursuant to those
certain ground leases (together with any amendments thereto, collectively, the
“
Company Ground
Leases
”) described on
Schedule 3.16(b)
(all
such owned and leased real property interests, together with all buildings,
structures and other improvements and fixtures located on or under such real
property and all easements, rights and other appurtenances to such real
property, and for the purposes of this
Section 3.16
only,
any real property owned by LVP St. Augustine Outlets LLC and the St. Augustine
Land, are referred to herein as collectively, the “
Owned Real
Properties
,”). The interests of the Group Companies in the
Owned Real Properties are good, marketable and insurable and the same are owned
free and clear of all Liens except for Permitted Liens.
(c)
Schedule 3.16(c)
sets
forth a true, correct and complete list of the Leased Real Property as of the
date hereof. With respect to each respective lease or sublease
underlying the Leased Real Property, (i) such lease or sublease constitutes the
entire agreement to which a Group Company is a party with respect thereto; (ii)
no Group Company has assigned, sublet, transferred or conveyed any interest in
the leasehold; and (iii) such lease or sublease is in full force and effect and
is valid, binding and enforceable in accordance with its terms against the
lessor or lessee thereunder, as applicable, (iv) no Group Company, on the one
hand, nor, to the knowledge of the Company, any other party, on the other hand,
is in breach, default or an event of default under any such lease or sublease,
which breach, default or an event of default remains uncured, and no uncured
basis for termination of any such lease or sublease has occurred and no uncured
event has occurred which with or without the lapse of time or the giving of
notice or opportunity to cure would constitute a breach, default, event of
default or give rise to a right of termination, and no written termination of or
notice of default (with respect to any matter that remains uncured) has been
received by any Group Company with respect to any such lease or
sublease.
Schedule 3.16(c)
sets
forth, the date of each lease or sublease of Leased Real Property, each
amendment thereto and the names of the parties to each such lease, as
amended. Except as set forth in
Schedule 3.16(c)
,
none of the rights of the Group Companies under the leases and subleases
underlying the Leased Real Property is subject to termination or modification as
a result of the Contemplated Transactions. The Company has made
available to Parent REIT a true, correct and complete copy of each lease and
sublease underlying the Leased Real Property. No purchase or other
option has been exercised under any lease or sublease underlying the Leased Real
Property, except options whose exercise has been evidenced by a written document
as described in
Schedule 3.16(c)
, a
true and complete copy of which has been made available to Parent REIT prior to
the date hereof with the corresponding lease or sublease underlying the Leased
Real Property. Except as set forth on
Schedule
3.16(c)
, there are not outstanding any options, rights of
first offer or rights of first refusal or any other rights in favor of any of
the Group Companies to acquire or sell any portion of the Leased Real Properties
(or rights to develop any portion of the Leased Real Properties).
(d) The
Owned Real Properties and the Leased Real Properties are all of the real
properties owned or leased by the Group Companies. Each of the Owned
Real Properties is suitable for its current use and its intended use by such
Group Company as of the date hereof and is in good operating condition, ordinary
wear and tear excepted. All repairs or maintenance for any Owned Real
Properties necessary over the next twelve-month period following the date of
this Agreement in order to maintain such properties in such operating condition
are reflected in the Budget or are set forth in
Schedule
3.16(d)
. Since January 1, 2008, none of the Owned Real
Properties has suffered any physical event or condition which has resulted in a
loss of value (other than ordinary wear and tear and depreciation) which is not
subject to insurance (subject to deductibles) or which renders the property
unfit for its intended use. None of the buildings or other
improvements on the Owned Real Properties has any latent or patent structural or
mechanical defect.
(e) Each
Company Ground Lease is valid, binding and enforceable against the Group Company
that is a tenant thereunder and, to the knowledge of the Company, the other
parties thereto in accordance with its terms, and is in full force and
effect. Except as listed in
Schedule 3.16(e)
, (i)
the applicable Group Company has performed all obligations required to be
performed by it to date under each of the Company Ground Leases, (ii) no Group
Company, on the one hand, nor, to the knowledge of the Company, any other party,
on the other hand, is in breach, default or an event of default under any
Company Ground Lease which breach, default or event of default remains uncured,
(iii) no uncured basis for termination of any such Company Ground Lease has
occurred, and (iv) no uncured event has occurred which with or without the lapse
of time or the giving of notice or opportunity to cure would constitute a
breach, default, event of default or give rise to a right of termination, and no
written termination of or notice of default (with respect to any matter that
remains uncured) has been received by any Group Company, with respect to any
such Company Ground Lease.
Schedule 3.16(e)
sets
forth, the date of each Company Ground Lease, each amendment thereto and the
names of the parties to each such lease, as amended. None of the
rights of the Group Companies under the Company Ground Leases is subject to
termination or modification as a result of the entry into the Transaction
Documents or the consummation of the Contemplated Transactions. The
Company has made available to Parent REIT prior to the date hereof a true,
correct and complete copy of each Company Ground Lease. No purchase
or other option has been exercised under any of such Company Ground Leases,
except options whose exercise has been evidenced by a written document as
described in
Schedule
3.16(e)
, a true and complete copy of which has been made available to
Parent REIT prior to the date hereof with the corresponding Company Ground
Lease.
(f)
Schedule 3.16(f)
contains a true, correct and complete list of (i) all leases, licenses and other
occupancy agreements demising space at the Owned Real Properties that were in
effect as of November 30, 2009 as to which any Group Company is a party as a
landlord (such leases, licenses and other occupancy agreements are, together
with all amendments, modifications, supplements, renewals, extensions and
guarantees related thereto, the “
Company Leases
”),
their respective terms, any renewal options, and the rent and other charges
payable thereunder, (ii) all of the guaranties under which a guarantor has
guaranteed the obligations of the tenant under any such Company Lease, (iii) all
consents to sublease and consents to assignment that in either case any Group
Company or, to the extent in a Group Company’s possession, any predecessor in
interest to a Group Company has heretofore executed and delivered in respect of
such Company Leases and for which the applicable subleases are in effect (the
items that are described in the foregoing clauses (i)-(iii) above being
collectively referred to herein as the “
Existing Company Lease
Documents
”). The Company has made available to Parent REIT
prior to the date hereof true, correct and complete copies of all Existing
Company Lease Documents. The Existing Company Lease Documents are in
full force and effect and are valid, binding on and enforceable against each
Group Company that is a party thereto and, to the knowledge of the Company, each
other party thereto, in accordance with their respective
terms. Except as set forth on
Schedule 3.16(f)
or
in the Existing Company Lease Documents, (1) no tenant under a Company Lease has
a right of set-off or claim or counterclaim against the landlord arising out of
the Company Lease; (2) no tenant under a Company Lease has a right to relocate
the premises in the center in which such tenant occupies space; (3) no tenant
under a Company Lease has a right to lease any additional space; (4) no tenant
under a Company Lease has a right to be the exclusive seller or provider of
products or services in a center in which such tenant occupies space; (5) no
tenant under a Company Lease has any “co-tenancy right,” (e.g., a right to
terminate the lease, reduce the rent, reduce store hours or “go dark” based upon
the actions or inactions of another tenant); (6) no Company Leases provide for
free rent periods or other rent concessions applicable to any period of time
after the date hereof; (7) no tenant under a Company Lease is permitted to
handle, store or dispose of Hazardous Substances in violation of Environmental
Laws; (8) no tenant under any Company Lease has a right to cancel or terminate
such Company Lease prior to the end of the current term; (9) no Group Company
has received notice of any insolvency or bankruptcy proceeding involving any
tenant under any Company Lease; and (10) no Company Lease contains a “most
favored nation” provision or other similar provision which limits the amount of
rent, common area maintenance charges or other amounts payable by the tenant
thereunder by reference to the rent, common area maintenance charges or other
amounts payable by one or more tenants under other Company Leases.
(g) No
Group Company has heretofore received from any of the counterparties under the
Existing Company Lease Documents to which such Group Company is a party a notice
to the effect that such Group Company is in default (with respect to any matter
that remains uncured) in any respect of the obligations of the lessor under the
applicable Company Lease (except for any such default that such Group Company
has heretofore cured or is disputing in good faith). No Group
Company, on the one hand, nor, to the Company’s knowledge, any other party, on
the other hand, is in breach, default or an event of default under any Existing
Company Lease Documents, which breach, default or event of default remains
uncured that relates to Company Leases in excess of 5,000 square feet of net
rentable area or Company Leases that provide for more than $500,000 in annual
rental payments, in the aggregate, from a tenant or related tenants under such
lease and all other leases at one or more Owned Real Properties (the “
Material Company
Leases
”), in effect, and no uncured basis for termination of any such
Material Company Lease has occurred, and no uncured event has occurred which
with or without the lapse of time or the giving of notice or opportunity to cure
would constitute a breach, default, event of default or give rise to a right of
termination, and no written termination of or notice of default (with respect to
any matter that remains uncured) has been received by any Group Company, with
respect to any such Material Company Lease. No Group Company has
heretofore received from any of the counterparties under the Existing Company
Lease Documents to which such Group Company is a party a notice from any tenant
of any intention to vacate prior to the end of the term of such Company
Lease. No tenant under any of the Company Leases has asserted any
claim of which any Group Company has heretofore received notice which would
affect the collection of rent from such tenant. No base rent due or
to become due under the Company Leases have been paid by the counterparty
thereunder more than one (1) month in advance. No Group Company has
heretofore pledged or otherwise hypothecated the lessor’s interest under any of
the Company Leases which pledge or other hypothecation remains outstanding,
except to secure any existing mortgage loan. No tenant under any of
the Company Leases has heretofore exercised its right to audit the lessor’s
books and records to confirm or challenge the lessor’s calculation of Overage
Rent or the lessor’s calculation of charges for electricity, heating,
ventilation and air-conditioning services, cleaning services, freight elevator
service or any other similar services, except for (i) any such audit that has
heretofore been settled or otherwise terminated and (ii) audits that are
currently being conducted by the tenants set forth on
Schedule
3.16(g)
. None of the rights of the Group Companies under the
Company Leases is subject to termination or modification as a result of the
transactions contemplated by this Agreement or by the consummation of the
Contemplated Transactions. No purchase or other option has been
exercised under any of such Company Leases, except options whose exercise has
been evidenced by a written document as described in
Schedule 3.16(g)
, a
true and complete copy of which has been made available to Parent REIT prior to
the date hereof with the corresponding Company Lease. Other than the
rights granted to Parent REIT under this Agreement or any Permitted Liens, there
are not outstanding any options, rights of first offer or rights of first
refusal or any other rights to acquire or sell any portion of the Owned Real
Properties (or rights to develop any portion of the Owned Real
Properties).
(h) The
rent roll for each of the Owned Real Properties as of November 30, 2009
(collectively, the “
Rent Roll
”) has been
made available to Parent REIT prior to the date hereof. Except as
disclosed in
Schedule
3.16(h)
, the Rent Roll lists all Company Leases as of the date
thereof. The Rent Roll is true, correct and complete as of the date
thereof.
(i)
Schedule 3.16(i)
sets
forth a true, correct and complete list of all brokerage agreements entered into
by each Group Company and entered into by any prior owner of the Owned Real
Properties, in each case relating to the Owned Real Properties and which are in
such Group Company’s possession and are binding on such Group Company and under
which any future commissions may become due and payable (the “
Brokerage
Agreements
”). The Company has made available to Parent REIT
prior to the date hereof true, correct and complete copies of each of the
Brokerage Agreements.
(j)
Schedule 3.16(j)
is a
true, correct and complete schedule of service, maintenance, construction and
supply contracts affecting the Owned Real Properties as of the date of this
Agreement (other than the Existing Company Lease Documents and the Brokerage
Agreements) (collectively, the “
Service
Contracts
”). Except as may be permitted under
Section 6.1(b)
, the
Service Contracts are the only service contracts which will affect the Owned
Real Properties on the Closing Date. The Service Contracts are in
full force and effect as of the date hereof and have not been modified, amended,
supplemented or extended. None of the Group Companies has received
from any of the counterparties under the Service Contracts a notice to the
effect that a Group Company is in default in any respect of its obligations
under the applicable Service Contract which default has not been cured or which
is being disputed by a Group Company in good faith. The Company has
made available true and complete copies of all of the Service Contracts to
Parent REIT.
(k)
Schedule 3.16(k)
is a
true, correct and complete list of the security deposits (whether cash or
letters of credit) held by or on behalf of the Group Companies as of the date
hereof under the Company Leases, and the Group Companies have held all such
security deposits in accordance with Law and the terms of the applicable Company
Leases.
(l)
The tenant arrearage schedules set forth on
Schedule 3.16(l)
are
true, correct and complete as of the date set forth on each such
schedule.
(m)
Schedule 3.16(m)
is a
correct and complete list of all properties as to which any Group Company has a
right to purchase or lease and which is not now owned or leased by any Group
Company and the Company has made available to Parent REIT true and complete
copies of all of the agreements relating to such rights to purchase or
lease.
Schedule 3.16(m)
lists all properties owned by a Group Company which are undeveloped land, in the
process of development but not yet fully constructed and operational or are
properties being held for future development or rehabilitation and all
development, construction, purchase and similar agreements relating to such
project and the budgets therefor and the Company has made available to Parent
REIT of all of the agreements relating thereto.
(n) Except
as listed in
Schedule
3.16(n)
, there is no certificate, permit or license from any Governmental
Entity having jurisdiction over any Owned Real Property or any agreement,
easement or any other right which is necessary to permit the current use and
operation of the buildings and improvements on any of the Owned Real Properties
or which is necessary to permit the current use and operation of all driveways,
roads, and other means of ingress and egress to and from any of the Owned Real
Property or which govern the use and operation of the Owned Real Properties that
has not been obtained and is not in full force and effect, or any pending or
threatened modification or cancellation of any of the same. Except as
listed in
Schedule
3.16(n)
, no Group Company is in violation of any of the foregoing
agreements, certificates, permits and rights and no uncured breach, default,
event of default or right of termination or modification has occurred or event
(with the lapse of time or giving of notice) which would give rise to a breach,
default, event of default or right of termination or modification has
occurred. No Group Company has received written notice from any
Governmental Entity of any violation of any Law affecting any portion of any of
the Owned Real Properties that has not been heretofore remedied.
(o) There
are no pending or, to the knowledge of the Company, threatened condemnation,
expropriation, eminent domain or rezoning proceedings affecting all or any
portion of any Owned Real Property. Except as set forth on
Schedule 3.16(o)
,
each Group Company is in possession of all licenses or rights required by
applicable Law for use and occupancy as are necessary to conduct such Group
Company’s business thereon as presently conducted or currently intended by a
Group Company to be conducted.
(p) None
of the Owned Real Properties are managed, as of the date hereof, by any Person
that is not a Group Company.
Schedule 3.16(p)
lists each property management agreement pursuant to which the Owned Real
Properties are managed as of the date hereof, including each amendment thereto,
true and complete copies of which have been made available to Parent REIT prior
to the date hereof.
(q) Except
as set forth in
Schedule 3.16(q)
,
valid policies of title insurance have been issued insuring any Group Company’s
fee simple title or leasehold estate to each of the Owned Real
Properties. The Group Companies have made available to Parent REIT
prior to the date hereof true, correct and complete copies of those policies of
title insurance relating to the Owned Real Properties (the “
Company Title Insurance
Policies
”). The Company Title Insurance Policies are in full
force and effect and no claim has been made under any such
policy. Except for liens, assessments or other encumbrances which,
individually or in the aggregate, are immaterial or are set forth in
Schedule 3.16(q)
, and
except for Permitted Liens, there are no liens for unpaid water and sewer
service charges, mechanics’, workmen’s, repairmen’s or materialmen’s liens,
brokers’ liens or assessments for street or other improvements or for any other
service or labor or any other encumbrances which could give rise to a Lien that
is not a Permitted Lien since the effective date of each Company Title Insurance
Policy.
(r) No
zoning, building, land-use, fire, safety and signage or other applicable Laws,
including the Americans with Disabilities Act, or orders are being violated or
will be violated by the continued maintenance, operation or use of any buildings
or other improvements on any of the Owned Real Properties or related parking
areas.
(s) The
Company has made available to Parent REIT prior to the date hereof all written
agreements in its possession pursuant to which any Group Company manages, acts
as leasing agent for or provides development services for any real property for
any third party (including any related guarantees) and any other contracts which
otherwise produce fee income to any of Group Company in excess of $100,000 per
year.
(t) Except
as set forth in
Schedule 3.16(t)
,
there are no options, rights of first refusal or offer, or other contractual
obligations to sell, dispose of or lease any of the Owned Real Properties or any
portion thereof or material interest therein other than leases to tenants in the
ordinary course.
(u) Except
as set forth in
Schedule 3.16(u)
, no
Group Company is subject to any obligation, whether pursuant to a written
agreement or otherwise, to make any improvements to any property not
constituting Owned Real Properties, whether the building of access roadways,
public plazas or otherwise.
(v) Except
for those contracts or agreements set forth in
Schedule 3.16(v)
or
as contemplated by, or provided in, the Company Leases, Material Contracts,
Ground Leases, Governing Documents of the Group Companies or any Employee
Agreement, none of the Group Companies is a party to any contract or agreement
with any unaffiliated third party that provides for a right of such third party
to participate in the profits, sale proceeds or revenues of any Owned Real
Property (collectively, the “
Participation
Agreements
”). Except as provided in
Schedule 3.16(v)
, no
Group Company has any obligation to offer the right to participate in the
development, ownership or management of any property, shopping center or mall or
development or purchase of any property, shopping center or mall to any third
party (with the name of the third party with such participation rights, the
markets in which such participation rights apply, and the number of
participation rights of such party set forth in
Schedule
3.16(v)
.
(w) LVP
OP has good, valid and insurable fee title to the St. Augustine Land, free and
clear of any Liens (other than Permitted Liens). The St. Augustine
Land is not subject to any right or option of any other Person to purchase or
lease an interest in such property. No Person other than LVP OP has
any right to use, occupy or lease the St. Augustine Land. There is no
pending or, to LVP OP’s knowledge, threatened condemnation, expropriation,
eminent domain or similar proceeding affecting all or any part of the St.
Augustine Land or LVP OP’s use or occupancy thereof or the conduct of its
operations thereon, and LVP OP has not received any written notice
thereof. None of LVP OP or, to LVP OP’s knowledge, any other Person
is in violation of a condition or agreement contained in any easement,
restrictive covenant or any similar instrument or agreement affecting the St.
Augustine Land in any material respect. To LVP OP’s knowledge, there
are no proposed reassessments of the St. Augustine Land by any taxing authority
and there are no threatened or pending special assessments or other actions or
proceedings that could give rise to a material increase in real property Taxes
or assessments against any of the St. Augustine Land.
Section
3.17
No Undisclosed
Liabilities
There are
no liabilities or obligations of any Group Company of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
other than (i) liabilities or obligations disclosed or provided for in the
Financial Statements; (ii) liabilities or obligations incurred in the ordinary
course of business consistent with past practice since the date of the Latest
Balance Sheet which are taken into account in connection with the calculation of
the Estimated Aggregate Consideration Value and/or the Final Aggregate
Consideration Value or incurred as a result of actions taken or not taken or
Contracts entered into, in each case, in compliance with
Section 6.1(b)
; (iii)
liabilities or obligations set forth in the Company Schedules, including
Schedule 3.17
; (iv)
liabilities incurred by or on behalf of any Group Company in connection with
this Agreement or the Contemplated Transactions and (v) liabilities for which
any Person, other than the Group Companies, shall have liability following the
Closing pursuant to the terms of the Tax Matters Agreements.
Section
3.18
Transactions with
Affiliates
Except as
set forth on
Schedule
3.18
and except for compensation and benefits received in the ordinary
course of business as an employee, no director, officer, employee, agent, or
Affiliate of any Group Company (including the Contributors, but excluding any
other Group Company), and no individual in any such foregoing Person’s immediate
family, is a party to or has any interest in: (a) any agreement, arrangement or
understanding with any Group Company, (b) any loan, arrangement, understanding
or other agreement for or relating to Funded Indebtedness or any other
indebtedness or (c) any property (real, personal or mixed), tangible, or
intangible, used or currently intended to be used in the business or operations
of any Group Company.
Section
3.19
Insurance
Schedule 3.19
sets
forth a true, correct and complete list of the insurance policies (including the
type, amount of coverage and premiums and expiration dates of such policies)
held by, or for the benefit of, the Group Companies. Except as set
forth on
Schedule
3.19
, (a) the applicable Group Company has timely paid, or caused to be
timely paid, all premiums due under such policies and is not in default with
respect to any obligations under such policies in any material respect and (b)
since January 1, 2004, no Group Company has received any written notice of
cancellation, non-renewal or termination with respect to any such insurance
policy. The Group Companies have not, made any claim against an
insurance policy as to which the insurer is denying coverage or defending the
claim under a reservation of rights.
Section
3.20
Investment Company Act
Status
Each
Group Company is not an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.
Section
3.21
No Other Representations and
Warranties Regarding the Group Companies
Except as
and to the extent expressly set forth in this
Article 3
, the
Company makes no representations or warranties, express or implied, with respect
to the Group Companies, or any of their businesses, assets or liabilities, to
Parent REIT, Parent OP and Parent Sub and hereby disclaim all liability and
responsibility for any other representation or warranty made, communicated, or
furnished to Parent REIT, Parent OP and Parent Sub.
ARTICLE
4
REPRESENTATIONS
AND WARRANTIES OF THE CONTRIBUTORS AND LVP REIT
Assuming,
in each case, the accuracy of the representations and warranties of the Company
in
Article 3
and
the accuracy of the representations and warranties of the Parent Parties in
Article 5
, each
Contributor and, solely with respect to
Section 4.3(b)
, LVP
REIT, hereby, severally, and not jointly or jointly and severally, represents
and warrants to Parent OP as follows:
Section
4.1
Organization
Such
Contributor is duly organized, validly existing and in good standing (or the
equivalent thereof) under the laws of the jurisdiction of its organization and
has all requisite power and authority to carry on its businesses as presently
conducted, except where the failure to be in good standing (or equivalent
thereof) or to have such power or authority would not prevent or materially
impair or delay the ability of such Contributor to perform its respective
obligations hereunder.
Section
4.2
Authority
Such
Contributor has all necessary power and authority to execute and deliver this
Agreement and the other Transaction Documents to which it will be a party and to
consummate the Contemplated Transactions. The execution and delivery
of this Agreement and the other Transaction Documents to which it will be a
party and the consummation of the Contemplated Transactions by such Contributor
have been duly authorized by all necessary action on the part of such
Contributor and no other proceeding (including, without limitation, by its
equity holders) on the part of such Contributor is necessary to authorize this
Agreement or the other Transaction Documents to which it will be a party or to
consummate the Contemplated Transactions. This Agreement has been,
and the other Transaction Documents to which it will be a party will be when
executed, duly and validly executed and delivered by such Contributor and
constitutes, or will constitute when executed after the date hereof, a valid,
legal and binding agreement of such Contributor, enforceable against such
Contributor in accordance with its terms, except to the extent that
enforceability may be limited (a) by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors’
rights generally and (b) by general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at
law).
Section
4.3
Consents and Approvals; No
Violations
(a) No
notice to, filing with, or authorization, consent or approval of any
Governmental Entity is necessary for the execution, delivery or performance of
this Agreement or the other Transaction Documents by such Contributor or the
consummation by such Contributor of the Contemplated
Transactions. Neither the execution, delivery and performance of this
Agreement or the other Transaction Documents by such Contributor nor the
consummation by such Contributor of the Contemplated Transactions will
(i) conflict with or result in any breach of any provision of such
Contributor’s Governing Documents, (ii) result in a violation or breach of,
or cause acceleration, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation of any material agreement to which such Contributor is
a party, or (iii) violate any Law or Order applicable to such Contributor,
except in the case of clauses (ii) and (iii) above, for violations which
would not prevent or materially impair or delay the ability of such Contributor
to perform its respective obligations hereunder.
(b) LVP
REIT’s board of directors have approved the entry into this
Agreement. No vote of any holder of any class or series of LVP REIT
capital stock is necessary to approve the transactions contemplated
hereby.
Section
4.4
Title
Such
Contributor has good and valid title to the Contributed Interests set forth
opposite such Contributor’s name on
Annex A
and/or
Annex B
free and
clear of any preemptive rights, restrictions on transfer and Liens, in each case
other than Qualified Permitted Liens. At the Closing, such
Contributor will have transferred and conveyed to Parent Sub and/or the Company,
as applicable, good and valid title to its Contributed Interests, free and clear
of any preemptive rights, restrictions on transfer and Liens, in each case other
than Qualified Permitted Liens.
Section
4.5
Accredited
Investor
Each
Contributor is an “accredited investor” as defined in Rule 501(a) of Regulation
D promulgated under the Securities Act. Each Contributor is acquiring
the Parent OP Common Units and New Company Common Units for investment purposes
only and not with a view to, or for, distribution, resale or fractionalization
thereof, in whole or in part, in each case under circumstances which would
require registration thereof under the Securities Act or any state securities
laws.
Section
4.6
Brokers
No
broker, finder, financial advisor or investment banker, other than the Persons
listed as “Financial Advisor” on
Schedule 1.1(C)
, is
entitled to any brokerage, finder’s, financial advisor’s or investment banker’s
fee or commission in connection with the Contemplated Transactions for which any
Group Company, Parent REIT, Parent OP or Parent Sub may be responsible based
upon arrangements made by such Contributor.
Section
4.7
Acknowledgment
Such
Contributor hereby acknowledges and agrees that it has conducted and completed
its own investigation, analysis and evaluation of Parent REIT and Parent OP,
that it has made all such reviews and inspections of the financial condition,
business, results of operations, properties, assets and prospects of Parent REIT
and Parent OP, that it has had the opportunity to request information relevant
to the foregoing from Parent REIT and Parent OP, and that in making its decision
to enter into this Agreement and to consummate the Contemplated Transactions it
has relied solely on its own investigation, analysis and evaluation of Parent
REIT and Parent OP and is not relying in any way on any representations and
warranties, including any implied warranties, made by Parent REIT and Parent OP
or on behalf of Parent REIT and Parent OP by any other Person other than the
representations and warranties made expressly by Parent REIT and Parent OP in
Article 5
of
this Agreement.
Section
4.8
No Other Representations and
Warranties Regarding the Contributors
Except as
and to the extent expressly set forth in this
Article 4
, the
Contributors and LVP REIT make no representations or warranties, express or
implied, with respect to the Contributors, LVP REIT, the Contributed Interests,
the Group Companies or their respective business, assets or liabilities, to
Parent REIT, Parent OP and Parent Sub and hereby disclaim all liability and
responsibility for any other representation or warranty made, communicated, or
furnished to Parent REIT, Parent OP and Parent Sub.
ARTICLE
5
REPRESENTATIONS
AND WARRANTIES OF PARENT REIT, PARENT OP AND PARENT SUB
Assuming,
in each case, the accuracy of the representations and warranties of the Company
in
Article 3
and
the accuracy of the representations and warranties of the Contributors and LVP
REIT in
Article
4
, Parent REIT, Parent OP and Parent Sub hereby jointly and severally
represent and warrant to the Company and the Contributors as
follows:
Section
5.1
Organization
Each of
Parent REIT, Parent OP and Parent Sub is duly organized, validly existing and in
good standing (or the equivalent thereof) under the laws of the jurisdiction of
its organization and has all requisite power and authority to carry on its
businesses as presently conducted, except where the failure to be in good
standing (or equivalent thereof) or to have such power or authority would not
have a Parent Material Adverse Effect.
Section
5.2
Authority
Each of
Parent REIT, Parent OP and Parent Sub has all necessary power and authority to
execute and deliver this Agreement and the other Transaction Documents and to
consummate the Contemplated Transactions. The execution and delivery
of this Agreement and the other Transaction Documents and the consummation of
the Contemplated Transactions have been duly authorized by all necessary action
on the part of Parent REIT, Parent OP and Parent Sub and no other proceeding
(including, without limitation, by their respective equity holders) on the part
of Parent REIT, Parent OP or Parent Sub is necessary to authorize this Agreement
or the other Transaction Documents or to consummate the Contemplated
Transactions. No vote of Parent REIT’s equity holders is required to
approve this Agreement or for Parent REIT, Parent OP or Parent Sub to consummate
the Contemplated Transactions. This Agreement has been, and the other
Transaction Documents will be when executed, duly and validly executed and
delivered by each of Parent REIT, Parent OP and Parent Sub and constitutes, or
will constitute when executed after the date hereof, a valid, legal and binding
agreement of each of Parent REIT, Parent OP and Parent Sub, enforceable against
each of Parent REIT, Parent OP and Parent Sub in accordance with its terms,
except to the extent that enforceability may be limited (i) by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors’ rights generally and (ii) by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
Section
5.3
Consents and Approvals; No
Violations
No notice
to, filing with, or authorization, consent or approval of any Governmental
Entity is necessary for the execution, delivery or performance of this Agreement
and the other Transaction Documents by Parent REIT, Parent OP and Parent Sub or
the consummation by Parent REIT, Parent OP and Parent Sub of the Contemplated
Transactions. Neither the execution, delivery and performance of this
Agreement or the other Transaction Documents by Parent REIT, Parent OP or Parent
Sub nor the consummation by Parent REIT, Parent OP or Parent Sub of the
Contemplated Transactions will (a) conflict with or result in any breach of
any provision of Parent REIT’s, Parent OP’s or Parent Sub’s Governing Documents,
(b) result in a violation or breach of, or cause acceleration, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation of any
material agreement to which Parent REIT, Parent OP or Parent Sub is a party or
by which any of them or any of their respective properties or assets may be
bound, or (c) violate any Law or Order applicable to Parent REIT, Parent OP
or Parent Sub or any of their respective Subsidiaries or any of their respective
properties or assets, except in the case of
clauses (b)
and
(c)
above, for
violations which would not have a Parent Material Adverse Effect.
Section
5.4
Capitalization
(a) The
total number of shares of capital stock which Parent REIT has authority to issue
is 850,000,000 shares, consisting of 511,990,000 shares of Common Stock, par
value $.0001 per share (“
Parent Common
Stock
”), 10,000 shares of Class B Common Stock, par value $.0001 per
share (“
Parent Class B
Common Stock
”), 100,000,000 shares of Preferred Stock, par value $.0001
per share, (“
Parent
Preferred Stock
”), and 237,996,000 of Excess Common Stock, par value
$.0001 per share. As of September 30, 2009, (i) 287,424,297 shares of
Parent Common Stock were issued and outstanding, (ii) 8,000 shares of Class B
Common Stock were issued and outstanding (iii) 796,948 shares of Parent
Preferred Stock were issued and outstanding and (iv) 4,123,116 shares of Parent
Common Stock were held in the treasury of the Parent.
(b) (i) As
of September 30, 2009, the issued and outstanding partnership interests of
Parent OP consisted of 57,959,705 limited partnership interests and 283,309,181
general partnership interests, all of which were validly issued and outstanding,
and not subject to or issued in violation of, any preemptive right, purchase
option, call option, right of first refusal, subscription or any other similar
right or Lien, and any capital contributions required to be made by the holders
thereof have been made other than as set forth in the Parent OP
Agreement.
(ii) Each
Parent OP Common Unit may be converted into or exchanged for one share of Parent
Common Stock or, at Parent REIT’s election, an equivalent amount of cash, in
each case as set forth in the Parent OP Agreement. Parent REIT is the
sole general partner of Parent OP.
(iii) Each
Parent OP Common Unit included in the Unit Consideration will have been duly
authorized and validly issued, and will be free and clear of any preemptive
rights, restrictions on transfer (other than restrictions under applicable
federal, state and other securities Laws and the terms of the Parent OP
Agreement), or Liens (other than Liens created by the Contributors, the
Representative or the Escrow Agent, or pursuant to this Agreement or the Escrow
Agreement).
Section
5.5
SEC
Documents
(a) Each
Parent SEC Report as of its respective date complied (and, when filed after the
date hereof, will comply) in all material respects with the Securities Exchange
Act of 1934, as amended, and the Securities Act and the rules and regulations of
the SEC promulgated thereunder applicable to such Parent SEC
Report. Except to the extent that information contained in any of the
Parent SEC Reports filed and publicly available prior to the date of this
Agreement has been revised or superseded by a Parent SEC Report filed or
furnished prior to the date hereof, none of the Parent SEC Reports contains (or,
when filed after the date hereof, will contain) any untrue statement of a
material fact or omits (or, when filed after the date hereof, will omit) to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) The
financial statements of Parent REIT and Parent OP included in the Parent SEC
Reports complied (and, when filed after the date hereof, will comply) in all
material respects with all applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared (and,
when filed after the date hereof, will be prepared) in accordance with GAAP
applied on a consistent basis during the periods presented and fairly presented
(and, when filed after the date hereof, will fairly present) the financial
position of Parent REIT and Parent OP as of the dates thereof and the results of
its operations and cash flows for the periods shown (subject, in the case of
unaudited financial statements, to the absence of footnotes and to year-end
adjustments which are immaterial in amount).
Section
5.6
Brokers
No
broker, finder, financial advisor or investment banker is entitled to any
brokerage, finder’s, financial advisor’s or investment banker’s fee or
commission in connection with the Contemplated Transactions for which any
Contributor or any Group Company or any of their respective Affiliates (other
than after the Closing, Parent REIT and its Subsidiaries) may be responsible
based upon arrangements made by and on behalf of Parent REIT, Parent OP or
Parent Sub or any of their respective Affiliates.
Section
5.7 ***
15
Section
5.8
Tax
Matters
Parent OP
qualifies and intends to continue to qualify as a partnership for federal income
tax purposes. Parent OP would not be treated as an investment company (within
the meaning of Section 351(e) of the Code and the Treasury Regulations
Section 1.351-1(c)) if it were incorporated. Parent OP is not a publicly
traded partnership, within the meaning of Section 7704(b) of the Code and
the Treasury Regulations promulgated thereunder. Parent REIT has been
organized and operated in conformity with the requirements for qualification as
a “real estate investment trust,” within the meaning of Section 856 of the
Code, for all taxable years since January 1, 1998.
Section
5.9
Certain
Activities
(a) Except
as set forth in the Parent SEC Reports filed prior to the date hereof (without
giving effect to any amendment to any such Parent SEC Report filed on or after
the date hereof and excluding any disclosures that contain general cautionary,
predictive or forward-looking statements set forth in any section of a Parent
SEC Report entitled “risk factors” or constituting “forward-looking statements”
or any other sections of such filings), since September 30, 2009, there have not
been any events, developments or occurrences (nor have any facts become known)
that, individually or in the aggregate, have had or would reasonably be expected
to have a Parent Material Adverse Effect.
(b) Parent
Sub was organized solely for the purpose of entering into this Agreement and
consummating the Contemplated Transactions and has not engaged in any activities
or business, and has incurred no liabilities or obligations whatsoever, in each
case, other than those incident to its organization and the execution of this
Agreement and the consummation of the Contemplated Transactions.
Section
5.10
New
Company
(a) New
Company is duly organized, validly existing and in good standing (or the
equivalent thereof) under the laws of its jurisdiction of
organization. New Company was organized solely for the purpose of
consummating the Contemplated Transactions and has not engaged in any activities
or business, and has incurred no liabilities or obligations and owns no assets
whatsoever, in each case, other than those incident to its organization and the
consummation of the Contemplated Transactions.
(b) Parent
REIT has provided to the Representative complete and accurate copies of the
Governing Documents of New Company.
15
Certain portions have
been omitted in connection with an application for confidential treatment
therefor.
(c) Except
for the New Company Common Units to be issued in exchange for the Contributions,
there are (x) no equity securities of New Company, (y) no securities
of New Company convertible into or exchangeable for equity securities of New
Company, and (z) no agreements, arrangements, or other subscriptions,
options, warrants, conversion rights, stock appreciation rights, “phantom”
stock, stock units, calls, claims, rights of first refusal, rights (including
preemptive rights), commitments, arrangements or agreements to which New Company
is a party or by which it is bound in any case obligating New Company to issue,
deliver, sell, purchase, redeem or acquire, or cause to be issued, delivered,
sold, purchased, redeemed or acquired, stock or other equity securities of New
Company, or obligating New Company to grant, extend or enter into any such
subscription, option, warrant, conversion right, stock appreciation right, call,
right, commitment, arrangement or agreement.
(d) Upon
issuance, each New Company Common Unit may be converted into or exchanged for
one Parent OP Common Unit, which Parent OP Common Unit shall then be immediately
converted into an amount of cash determined in accordance with the Parent OP
Agreement, at Parent OP’s election, or one share of Parent Common Stock, in each
case as set forth in the New Company Agreement and the Parent OP
Agreement. New Company Manager is a wholly owned subsidiary of Parent
OP and
the manager
of New Company.
(e) Each
New Company Common Unit to be issued in accordance with the terms of this
Agreement and the New Company Agreement will have been duly authorized and
validly issued, and will be free and clear of any preemptive rights,
restrictions on transfer (other than restrictions under applicable federal,
state and other securities Laws and the New Company Agreement), and Liens (other
than Liens created by the Contributors, the Representative or the Escrow Agent,
or pursuant to this Agreement or the Escrow Agreement).
Section
5.11
Acknowledgement
Each of
Parent REIT, Parent OP and Parent Sub hereby acknowledges and agrees that it has
conducted and completed its own investigation, analysis and evaluation of the
Group Companies and the Contributed Interests, that it has made all such reviews
and inspections of the financial condition, business, results of operations,
properties, assets and prospects of the Group Companies as it has deemed
necessary or appropriate, that it has had the opportunity to request all
information it has deemed relevant to the foregoing from the Company, the
Contributors and LVP REIT and has received responses it deems adequate and
sufficient to all such requests for information, and that in making its decision
to enter into this Agreement and to consummate the transactions contemplated
hereby it has relied solely on its own investigation, analysis and evaluation of
the Group Companies and the Contributed Interests and is not relying in any way
on any representations and warranties, including any implied warranties, made by
or on behalf the Company or the Contributors other than the representations and
warranties made expressly by the Company in
Article 3
and the
representations and warranties made expressly by the Contributors and LVP REIT
in
Article
4
. In connection with the due diligence investigation of the
Group Companies and the Contributed Interests by Parent REIT, Parent OP and
Parent Sub and their respective Affiliates and representatives, Parent REIT,
Parent OP and Parent Sub and their respective Affiliates and representatives
have received and may continue to receive after the date hereof from the Company
and its Affiliates (including the Contributors and LVP REIT) and representatives
certain estimates, projections, forecasts and other forward-looking information,
as well as certain business plan information and non-binding term sheets and
letters of intent, regarding the Group Companies and their businesses and
operations and the Contributed Interests. Parent REIT, Parent OP and
Parent Sub hereby acknowledge that there are uncertainties inherent in
attempting to make such estimates, projections, forecasts and other
forward-looking statements, as well as in such business plans and non-binding
term sheets and letters of intent, and that Parent REIT, Parent OP and Parent
Sub will have no claims against any of the Group Companies, or any of their
respective Affiliates and representatives, or any other Person, including the
Contributors and LVP REIT, with respect thereto. Accordingly, Parent
REIT, Parent OP and Parent Sub hereby acknowledge and agree that, none of the
Group Companies, nor any of their respective Affiliates (including the
Contributors and LVP REIT) and representatives, nor any other Person, has made
or is making any express or implied representation or warranty with respect to
such estimates, projections, forecasts, forward-looking statements, business
plans or, except as expressly provided in this Agreement, non-binding term
sheets and letters of intent.
Section
5.12
No Other Representations and
Warranties Regarding Parent REIT, Parent OP and Parent Sub
Except as
and to the extent set forth in this
Article 5
, Parent
REIT, Parent OP and Parent Sub make no representations or warranties with
respect to Parent REIT, Parent OP and Parent Sub to the Company or the
Contributors and hereby disclaim all liability and responsibility for any other
representation or warranty made, communicated, or furnished to the Company or
the Contributors.
ARTICLE
6
COVENANTS
Section
6.1
Conduct of Business of the
Group Companies
(a) Except
as contemplated by this Agreement or set forth on
Schedule 6.1
, from
and after the date hereof until the earlier of the Closing or the termination of
this Agreement in accordance with its terms, the Company shall, and shall cause
each other Group Company (whether or not a Subsidiary thereof) to, except as
consented to in writing by Parent REIT or Parent OP in their sole discretion,
conduct its business in the ordinary and regular course in substantially the
same manner heretofore conducted (including any conduct that is reasonably
related, complementary or incidental thereto).
(b) Without
limiting the generality of the foregoing, except as contemplated by this
Agreement or set forth on
Schedule 6.1
, from
the date hereof through the earlier of the Closing and the termination of this
Agreement in accordance with its terms, the Company shall not, and shall cause
each other Group Company to not, except as consented to in writing by Parent
REIT or Parent OP in their sole discretion:
(i) except
to the extent required to comply with its obligations under this Agreement or
the other Transaction Documents or with applicable Law, amend or otherwise
change any of its Governing Documents;
(ii) issue,
deliver, pledge, dispose of, grant, transfer, lease, license, guarantee,
encumber or sell, or authorize the issuance, delivery, pledge, disposition,
grant, transfer, lease, license, guarantee, encumbrance or sale of, any equity
interests or any options, warrants, or other rights of any kind to acquire
equity interests, in such Person;
(iii) declare,
set aside or pay any dividends on, or make any other distributions in respect
of, any of their outstanding equity interests, except for any dividend or
distribution by a wholly-owned Subsidiary of such Group Company to such Group
Company or another wholly-owned Subsidiary thereof;
(iv) reclassify,
combine, split, subdivide, redeem, purchase or otherwise acquire any equity
interests in such Person;
(v) amend
any term of any outstanding equity security or equity interest;
(vi) make
any expenditures, including capital expenditures, other than, with respect to
type, amount and timing, as set forth in the Budget;
(vii) (A)
incur or assume any Funded Indebtedness, issue any debt securities or otherwise
incur or guarantee any indebtedness for borrowed money, in each case other than
(1) in a manner consistent in all material respects with the Budget and (2)
which may be prepaid without any fee, penalty or breakage fee at any time or (B)
enter into any capitalized lease obligation or Off Balance Sheet
Arrangement;
(viii) guarantee
any indebtedness, debt securities or other obligations of another Person, enter
into any “keep well” or other agreement to maintain any financial statement
condition of another Person or enter into any arrangement having the economic
effect of any of the foregoing;
(ix) acquire,
enter into any option to acquire, or exercise an option or other right or
election or enter into any other commitment or agreement for the acquisition of
(A) any real property involving nonrefundable deposits or (B) any business or
other Person (other than a wholly-owned Group Company);
(x) create
any new subsidiary or enter into any joint venture or partnership or other
similar agreement or arrangement;
(xi) (A)
merge, consolidate or enter into any other business combination transaction with
any Person, (B) acquire (by merger, consolidation or acquisition of equity
interests or assets, or any other business combination) any corporation,
partnership or other entity (or division thereof), or (C) purchase any equity
interest in or all or substantially all of the assets of, any Person or any
division or business thereof, or any individual item of property;
(xii) make
any loans, advances or capital contributions to, or investments in, any Person
(other than a Group Company), in each case in an amount in excess of $100,000
individually or $500,000 in the aggregate;
(xiii) sell,
lease, mortgage, agree to subject to Lien, transfer, or otherwise dispose of, to
any Person (other than a Group Company) any Owned Real Property or Leased Real
Property (whether by merger, consolidation or otherwise), in each case other
than pursuant to entry into space leases of any Owned Real Property in the
ordinary course of business consistent with past practice and in accordance with
the Leasing Plan;
(xiv) (A)
cancel, terminate, or amend any Material Contract or (B) enter into any
agreement that would constitute a Material Contract if entered into prior to the
date hereof (it being understood that the Company shall not be deemed to have
breached this clause (xiv) if a Group Company enters into a Material Contract in
connection with taking an action permitted or required under any other provision
of this Agreement);
(xv) (A)
increase the salary, monetary compensation, incentive compensation or benefits
payable or to become payable to any Employees, (B) grant any retention,
severance or termination pay to any Employees (except pursuant to the terms in
effect on the date of this Agreement of existing agreements, plans or policies),
(C) enter into any new Employment Agreements, or (D) establish, adopt, enter
into, terminate, amend or take any action to accelerate rights under any
Employee Benefits Plan, except in each case to the extent required by applicable
Laws or pursuant to a binding written agreement in effect on the date hereof
with respect to an Employee Benefit Plan which is listed on
Schedule
3.10(a)
;
(xvi) hire
any new employee other than to hire a replacement for an employee who has left,
promote any employee to be an officer or member of senior management or engage
any consultant or independent contractor for a period exceeding thirty (30)
days;
(xvii) adopt
or enter into any collective bargaining agreement or other labor union contract
applicable to Employees;
(xviii) discuss
the transactions set forth in this Agreement with any employee representative
body without consulting with the Parent REIT prior to any such
discussion;
(xix) make
any change in accounting methods, principles or practices, except to the extent
required by GAAP or applicable Law;
(xx) settle
or compromise any claim, litigation or other legal proceeding, other than (A) in
connection with this Agreement or the Contemplated Transactions, (B) those
wholly-covered by insurance or (C) in the ordinary course of business consistent
with past practice in an amount not involving more than $25,000 individually or
$150,000 in the aggregate;
(xxi) commence
any litigation or any administrative proceeding against any Person, other than
in connection with this Agreement or the Contemplated Transactions or actions
brought in the ordinary course of business;
(xxii) permit
any insurance policy naming any Group Company as a beneficiary or a loss payable
payee to be canceled or terminated without notice to Parent OP unless such Group
Company shall have obtained, prior to or simultaneous with such cancellation or
termination, an insurance policy with substantially similar terms and conditions
to the canceled or terminated policy;
(xxiii) initiate
or consent to any zoning reclassification of any the Owned Real Properties or
Leased Real Properties or any material change to any approved site plan, special
use permit, planned unit development approval or other land use entitlement
affecting any Owned Real Properties or material Leased Real Properties except to
the extent any of the foregoing would not materially adversely affect the value
of the affected Owned Real Properties or Leased Real Properties;
(xxiv) make
or agree to make any new capital expenditures or development or construction
expenditures in excess of the amounts reflected in the Budget;
(xxv) enter
into, amend, or supplement any Tax Protection Agreement or take any action that
would, or would reasonably be expected to, violate any Tax Protection Agreement
or otherwise give rise to any material liability of the Company or any Group
Company with respect thereto;
(xxvi) take
any of the actions set forth on
Schedule
6.1(b)(xxvi)
; or
(xxvii) agree
in writing or otherwise commit to take any of the foregoing
actions.
Notwithstanding
the foregoing, the parties acknowledge and agree that any action expressly
permitted by any subsection of
Section 6.1(b)
shall
be deemed permitted by each subsection of
Section
6.1(b)
.
(c) Nothing
contained in this Agreement shall give Parent REIT, Parent OP and Parent Sub
directly or indirectly, rights to control or direct any Group Companies
operations prior to the Closing. Prior to the Closing, each Group
Company shall, consistent with the terms and conditions of this Agreement,
exercise complete control and supervision over the operations of such Group
Company.
(d) Notwithstanding
anything in this
Section 6.1
to the
contrary, Parent REIT and Parent OP shall not unreasonably withhold, condition
or delay providing consent for any action intended to prevent, or any payment
intended to remedy, (i) a breach, default or event of default under any loan
agreement or similar document by any Group Company (other than in connection
with obtaining the Required Consents and the matters disclosed on
Annex E
and
Schedule 8.1(b)
,
which shall be addressed in the manner set forth on
Annex E
and
Schedule 8.1(b)
),
(ii) a breach, default or event of default under any other Contract, (iii) a
violation of Law or (iv) a violation or loss of a Company Permit. The
consent of Parent REIT or Parent OP shall not be required for the Group
Companies to make any emergency repairs;
provided
, that the
Company shall notify Parent REIT or Parent OP with respect to any such emergency
repairs as promptly as practicable following the taking of such
action.
(e) The
Company shall cooperate and consult with Parent OP and Parent REIT in connection
with any action in lieu of condemnation described on
Schedule
3.16(b)
. Without limiting the foregoing, before taking any
such action in lieu of condemnation, the Company will provide Parent OP and
Parent REIT with advance notice at least three (3) Business Days prior to taking
any such action in lieu of condemnation and provide Parent OP and Parent REIT
with the opportunity to participate in any such action.
Section
6.2
Pre-Closing Tax
Matters
During
the period from the date of this Agreement through the earlier of the Closing
and the termination of this Agreement in accordance with its terms, except as
consented to in writing by Parent REIT or Parent OP (which consent shall not be
unreasonably withheld, delayed or conditioned):
(a) The
Company shall, and shall cause each other Group Company to, prepare and timely
file all material Tax Returns required to be filed by them on or before the
Closing Date (“
Post-Signing
Returns
”) in a manner consistent with past practice except as otherwise
required by applicable Laws;
(b) The
Company shall, and shall cause each other Group Company to, fully and timely pay
(or cause to be paid) all material Taxes due and payable by the Company or
another Group Company, as applicable, in respect of such Post-Signing Returns
that are so filed;
(c) The
Company shall furnish all material Post-Signing Returns (with respect to any
Group Company) to Parent REIT at least twenty (20) days before the due date for
such Tax Returns, and Parent REIT shall have the opportunity to discuss such Tax
Returns with the Company prior to the filing of such Tax Returns; provided
however, that this provision is not designed to imply that Parent REIT has an
approval right over the filing of such Tax Returns.
(d) Each
party shall cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any Transaction Taxes
that become payable in connection with the Contemplated Transactions, and shall
cooperate in attempting to minimize the amount of such Transaction
Taxes;
(e) The
Company shall not, and shall cause each other Group Company not to, make, change
or rescind any material Tax election or change a material method of Tax
accounting unless in each case such action is required by Law; if any action is
required by Law, the applicable Group Company shall promptly notify Parent
REIT;
(f) The
Company shall not, and shall cause each other Group Company not to, amend any
material Tax Return, or settle or compromise any material federal, state, local
or foreign income Tax liability, audit, claim or assessment, or enter into any
material closing agreement related to Taxes, or knowingly surrender any right to
claim any material Tax refund unless either (i) such action is not material and
would not affect the Taxes of the applicable Group Company in a post-Closing
period or (ii) such action is required by law; solely in the case of clause
(ii), the applicable Group Company will promptly notify Parent
REIT;
(g) The
Company shall, and shall cause each other Group Company to, promptly notify
Parent REIT of any suit, claim, action, investigation, proceeding or audit
brought against or with respect to the Company in respect of any Tax;
and
(h) No
Group Company shall enter into, amend or modify any Tax Protection Agreement, or
take any action that would, or could reasonably be expected to, violate any Tax
Protection Agreement or otherwise give rise to any liability of the Company or
any Subsidiary with respect thereto.
Section
6.3
Access to
Information
From and
after the date hereof until the earlier of the Closing or the termination of
this Agreement in accordance with its terms, upon reasonable notice, and subject
to restrictions contained in any confidentiality agreements to which the Group
Companies are subject, the Company shall, and shall cause the Group Companies
to, provide to Parent REIT, Parent OP and Parent Sub and their authorized
representatives, during normal business hours reasonable access to all books and
records (including computer files, retrieval programs and similar documentation,
which, for the avoidance of any doubt, includes all Tax Returns, Tax work
papers, and other information used to prepare Tax Returns), properties and
offices, and authorized representatives of the Group Companies (including
accountants, financial advisors and attorneys) in a manner so as to not
materially interfere with the normal business operations thereof and shall
furnish or cause to be furnished to Parent REIT, Parent OP and Parent Sub or
their authorized representatives such additional information concerning the
Group Companies as shall be reasonably requested. The Company shall
provide Parent REIT, Parent OP and Parent Sub and their authorized
representatives with appropriate office and conference room space as may be
requested by Parent REIT, Parent OP and Parent Sub and their authorized
representatives in connection with such access. All of such
information shall be treated as confidential information pursuant to the terms
of the Confidentiality Agreement, the provisions of which shall survive the
execution of this Agreement and are by this reference hereby incorporated
herein. Without limiting the foregoing, Parent REIT, Parent OP and
Parent Sub and their authorized representatives shall have the right to conduct
appraisal and environmental and engineering inspections of each of the Owned
Real Properties and Leased Real Properties;
provided
,
however
, that none of
Parent REIT, Parent OP and Parent Sub or their authorized representatives shall
have the right to take and/or analyze any samples of any environmental media
(including soil, groundwater, surface water, air or sediment) or any building
material or to perform any invasive testing procedure on any building or real
property unless such invasive testing procedure is (a) required, or would be
required after the Closing, by applicable Law or pursuant to the terms of, or to
prevent any default under, any Contract to which any Group Company is a party or
(b) based on the findings of any inspections or assessments conducted pursuant
to this
Section
6.3
, the performance of such invasive testing is reasonably required as a
result of such investigations or assessments revealing a material issue and in
either case subject to the consent of the Company (such consent not to be
unreasonably withheld, conditioned or delayed). The Company shall
instruct the employees, counsel, accountants and other representatives of the
Group Companies to cooperate with Parent REIT’s investigations of the Group
Companies.
Section
6.4
Efforts to
Consummate
(a) Subject
to the terms and conditions herein provided, each of Parent REIT, Parent OP,
Parent Sub, the Company and the Contributors shall use reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things reasonably necessary, proper or advisable under applicable Law to
consummate and make effective as promptly as practicable the Contemplated
Transactions (including, without limitation, the satisfaction, but not waiver,
of the closing conditions set forth in
Article 8
and the
entry into the Tax Matters Agreements, together with the Member Guarantees and
Capital Contribution Agreements that are exhibits thereto, and the New Company
Agreement). Notwithstanding the foregoing or anything in this
Agreement to the contrary (including the preceding sentence of this
Section 6.4(a)
and
Section
9.1(f))
, in exercising such reasonable efforts to obtain any consent,
waiver or other accommodation (including the Required Consents) from any Person
that is not a Governmental Entity, none of the Group Companies, the
Contributors, Parent REIT, Parent OP, Parent Sub, or any of their respective
Affiliates, shall be obligated, except as otherwise provided in
Annex E
or
Section 6.4(c)
or
Section 6.5
, to
incur any liability, commence or threaten to commence any litigation, agree to
any amendment to this Agreement or any other Transaction Document, make any
payment (other than to attorneys, accountants and other advisors), offer or
grant any accommodation (financial or otherwise) or agree or commit to any of
the foregoing.
(b) Subject
to the terms and conditions of this Agreement, each of the parties hereto shall
use its reasonable best efforts to (i) cooperate in all material respects with
each other in connection with obtaining any consent, waiver or other
accommodation (including the Required Consents) from any Person as may be
necessary or desirable to obtain any consent, waivers or approvals required to
consummate the Contemplated Transactions and (ii) keep the other party informed
in all material respects and on a reasonably timely basis of any material
communication received by such party or any of its Affiliates from, or given by
such party or any of its Affiliates to, any lender, servicer or agent in
connection with obtaining the Required Consents. Without limiting the
foregoing, (A) Parent OP and Parent REIT shall be given no less than three (3)
Business Days to review and comment on all materials or documents relating to
this Transaction or any of the parties hereto that is to be provided to any
lender, servicer or agent in connection with obtaining a Required Consent and
any such materials shall be revised to reflect any reasonable comments of Parent
REIT and Parent OP with respect thereto and (B) the Group Companies and their
representatives shall not engage or participate in any meeting or discussion or
proposed discussion with any lender, servicer or agent for the purpose of
discussing the Contemplated Transactions or the Required Consents without the
participation of Parent REIT or Parent OP and their advisors and representatives
and all such meetings and discussions will be scheduled to take place at times
and locations that are reasonably convenient for Parent REIT and Parent
OP.
(c) Subject
to the terms and conditions herein provided, in the event any claim, action,
suit, investigation or other proceeding by any Governmental Entity or other
Person is commenced which questions the validity or legality of the Contemplated
Transactions or seeks damages in connection therewith, each of the parties
hereto agrees to cooperate and use reasonable efforts to defend against such
claim, action, suit, investigation or other proceeding and, if an injunction or
other order is issued in any such action, suit or other proceeding, to use
reasonable efforts to have such injunction or other order lifted, and to
cooperate reasonably regarding any other impediment to the consummation of the
Contemplated Transactions.
(d) Parent
REIT, Parent OP and Parent Sub shall not, and shall not permit any of their
respective controlled Affiliates to, without the prior written consent of the
Representative, enter into any merger, acquisition, joint venture or debt or
equity financing, that would reasonably be expected to materially impair, delay
or prevent consummation of the Financing or the Contemplated
Transactions.
Section
6.5 ***
16
Section
6.6
Public
Announcements
Parent
REIT, Parent OP and Parent Sub, on the one hand, and the Company and the
Contributors, on the other hand, have agreed upon the form and substance of the
press releases to be issued to announce the execution of this Agreement, which
shall be issued promptly following the execution and delivery
hereof. Thereafter, Parent REIT, Parent OP and Parent Sub, on the one
hand, and the Company and the Contributors, on the other hand shall not issue
any other press release or make any other public announcement with respect to
this Agreement or the Contemplated Transactions without the prior consent of the
other parties (which consent shall not be unreasonably withheld, delayed or
conditioned), except as may be required by Law or by any listing agreement with
a national securities exchange, in which case the party proposing to issue such
press release or make such public announcement shall use its commercially
reasonable efforts to consult in good faith with the other parties before making
any such public announcements by providing the other parties with a copy of the
proposed press release or public announcement reasonably in advance of such
release or announcement.
Section
6.7
Indemnification
(a) Parent
REIT, Parent OP and Parent Sub agree that all rights to indemnification or
exculpation now existing in favor of any directors and officers of any Group
Company (collectively, the “
Exculpated Parties
”),
as provided in such Group Company’s Governing Documents and indemnification or
similar agreement disclosed in the Company Schedules with respect to any matters
occurring prior to the Closing, shall survive the Closing and shall continue in
full force and effect for a period of six (6) years from and after the
Closing.
(b) Without
limiting the generality of the foregoing, Parent OP agrees that the
indemnification and liability limitation or exculpation provisions of the
Governing Documents of the Group Companies shall not be amended, repealed or
otherwise modified at or after the Closing in any manner that would adversely
affect the rights thereunder of any Exculpated Party, except to the extent such
modification is required by applicable Law. In the event that any
Group Company or any of its successors or assigns (i) consolidates with or
merges into any other Person and shall not be the continuing or surviving Person
of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any Person, then, and in each
such case, Parent OP shall cause proper provision to be made so that the
successors or assigns of such Group Company shall succeed to the obligations set
forth in this
Section 6.7
.
(c) The
directors and officers of each Group Company entitled to the indemnification,
liability limitation and exculpation set forth in this
Section 6.7
are
intended to be third party beneficiaries of this
Section
6.7
. This
Section 6.7
shall
survive the Closing and shall be binding on all successors and assigns of Parent
REIT, Parent OP and Parent Sub.
16
Certain portions have
been omitted in connection with an application for confidential treatment
therefor.
Section
6.8
Documents and
Information
(a) If,
after the Closing, a Contributor shall determine that it, or one of its
Affiliates, has an original or a copy of the books, records (whether in paper or
electronic form) of the Group Companies, such Contributor shall promptly deliver
such original or copy of the books and records, and will not retain any copies
thereof except to the extent required by applicable Law.
(b) After
the Closing, Parent OP and Parent Sub shall, until the seventh (7
th
)
anniversary of the Closing Date, retain all books, records and other documents
pertaining to the business of the Group Companies in existence on the Closing
Date and to make the same available for inspection and copying by the
Representative during normal business hours upon reasonable request and upon
reasonable notice and at the Representative’s expense, subject to entry into a
customary confidentiality agreement. No such books, records or
documents shall be destroyed after the seventh (7
th
)
anniversary of the Closing Date by Parent REIT, Parent OP, Parent Sub or any of
their respective Subsidiaries, without first advising the Representative in
writing and giving the Representative a reasonable opportunity to obtain
possession thereof at Representative’s expense, subject to entry into a
customary confidentiality agreement. Without limiting the foregoing,
Parent REIT, Parent OP and Parent Sub shall (and shall cause their Subsidiaries
to) retain all Tax Returns, schedules and work papers, records and other
documents in its possession (or in the possession of their Affiliates) relating
to Tax matters relevant to the business of the Group Companies for each taxable
period first ending after the Closing and for all prior taxable periods until
the later of: (a) the expiration of the statute of limitations of the
taxable periods to which such Tax Returns and other documents relate; and (b)
six (6) years following the due date (with extension) for such Tax
Returns.
(c) Within
five (5) days after the end of each calendar month prior to the Closing, the
Company will provide Parent OP with an updated true, correct and complete set of
tenant arrearage schedules for the Group Companies.
Section
6.9 ***
17
Section
6.10
Employee Benefit
Matters
(a) For
one year after the Closing Date, Parent REIT and Parent OP shall, or shall cause
their Subsidiaries to, provide each Retained Property Employee and Retained
Management Employee with a base salary or base wages and pension and health
benefits (other than retention, sale, stay, special bonuses or other change of
control payments or awards) that are, in the aggregate, either, at the option of
Parent REIT and Parent OP, (A) no less favorable to each Retained Property
Employee and Retained Management Employee than the base salary or base wages and
pension and health benefits provided to similarly situated employees of Parent
REIT and Parent OP, or (B) in the aggregate no less favorable to each Retained
Property Employee and Retained Management Employee than the base salary or base
wages and pension and health benefits provided to such Retained Property
Employees and Retained Management Employees immediately prior to the Closing, in
either case to be determined for each Retained Property Employee and Retained
Management Employee in the sole discretion of Parent REIT and Parent
OP.
17
Certain portions have
been omitted in connection with an application for confidential treatment
therefor.
(b) For
all purposes under the employee benefit plans of Parent REIT and Parent OP and
their Subsidiaries after the Closing Date, Parent REIT and Parent OP shall, and
shall cause their Subsidiaries to, credit service for eligibility and vesting
(but not benefit accrual) rendered by Retained Property Employees and Retained
Management Employees prior to the Closing Date for purposes of pension and
health benefits under employee benefit plans, programs, policies and
arrangements of Parent REIT and Parent OP and their Subsidiaries from and after
the Closing Date, to the same extent as such service was taken into account
under the corresponding plans of the Group Companies for such purposes (except
to the extent such credit would result in a duplication of accrual of
benefits). Without limiting the foregoing, Parent OP shall use its
reasonable efforts to cause Retained Property Employees and Retained Management
Employees to be immediately eligible to participate, without waiting time and to
waive any pre-existing condition limitations otherwise applicable to Retained
Property Employees and Retained Management Employees and their eligible
dependents under any health or welfare plan of Parent REIT, Parent OP or their
Subsidiaries for any condition for which such Retained Property Employee and
Retained Management Employee would have been entitled to coverage under the
corresponding plans of the Group Companies in which such Retained Property
Employees and Retained Management Employees participated immediately prior to
the Closing. Parent REIT and Parent OP shall, and shall use
reasonable efforts to cause, such current Retained Property Employees and
Retained Management Employees to be given credit under such plans for
co-payments made, and deductibles satisfied, prior to the Closing
Date.
(c) Prior
to Closing, the Company shall, and shall cause each Group Company, to take such
actions as are necessary to ensure that no Group Company shall be the
administrator of the Lightstone Group, LLC 401(k) Plan or the sponsor of, or
participating employer in, any Employee Benefit Plan (including such plans
listed on
Schedule
3.10(a)
) from and after Closing.
(d) No
provision of this
Section 6.10
shall
create any third party beneficiary or other rights in any Employee (including
any dependent or beneficiary thereof). Parent REIT and Parent OP and
their Subsidiaries, as applicable, shall have the right in their sole discretion
to amend, modify, terminate or adjust benefit levels under any and all employee
benefit plans and arrangements covering the Employees after the Closing Date,
subject to this
Section
6.10
. No provision of this
Section 6.10
, or any
other provision of this Agreement, is intended to modify, amend or create any
employee benefit plan or arrangement of Parent REIT, Parent OP or any of the
Group Companies for purposes of ERISA or otherwise.
(e) (i)
Within thirty (30) days of the date hereof (or within forty five (45) days of
the date hereof with respect to 2009 compensation), the Group Companies shall
provide to Parent REIT and Parent OP a true and correct list of the following
information with respect to each Employee: their title and respective salaries,
wages, bonuses (and other material compensation and benefits to the extent not
otherwise made available to substantially all Employees) paid or payable during
2008 and 2009, date of hire, the date and amount of the last salary increase and
whether any such Employee is on short-term disability, long-term disability,
leave of absence or layoff. (ii) Within the later of five (5) days after
delivery of the information described in
Section 6.10(e)(i)
and January 31, 2010, Parent REIT and Parent OP may, if practicable, provide the
Company with a list of positions of Property Employees at each property and
Management Employees it desires to retain and the number of persons required for
each position. As soon as possible following delivery of the
information described in
Section 6.10(e)(i)
,
but in no event later than five (5) Business Days thereafter, the Company will
permit persons designated by Parent REIT and Parent OP to interview any and all
(x) Management Employees so that Parent REIT and Parent OP can determine those
Management Employees to be hired by and transferred to the Group Companies (or
retained by Prime Manager if Prime Manager is a Group Company) at the Closing
(the “
Retained
Management Employees
”), and (y) Property Employees so that Parent REIT
and Parent OP can determine those Property Employees to be retained (the “
Retained Property
Employees
”);
provided
, that such
interview process shall be effected with the least amount of interference with
the operation of the business of the Group Companies and Prime Manager as
practicable, as reasonably determined by the parties acting in good
faith. Parent REIT and Parent OP shall provide the Company with a
list of any designed Retained Management Employees (to whom offers of employment
will be made effective at the Closing if Prime Manager is not a Group Company)
and Retained Property Employees as soon as practicable but no later than 75 days
following the date hereof. The Company shall, and shall cause each
Group Company (including Prime Manager if it is a Group Company), to terminate
the employment of all Employees other than the Retained Management Employees and
the Retained Property Employees prior to the Closing. With respect to
each Employee terminated prior to the Closing, the Company shall, and shall
cause each Group Company, to use commercially reasonable efforts to obtain
releases from each terminated Employee, in a form approved by Parent REIT and
Parent OP, in which each Employee releases all claims against the Company and
the Group Companies with respect to such termination;
provided
that none of
the Group Companies or their Affiliates shall be required to incur any
liability, commence or threaten to commence any litigation, offer any cash or
other pecuniary consideration or grant any accommodation (financial or
otherwise) to any such Employee to secure such release other than as is required
pursuant to any Employee Agreement or Employee Benefit Plan.
(f) With
respect to all Employees of the Group Companies or Prime Manager other than
Retained Management Employees and Retained Property Employees, Parent REIT and
Parent OP shall not be responsible for any notices required to be given or
otherwise to comply with WARN with respect to any plant closing or mass layoff
(or similar triggering event) caused by the Group Companies or Prime Manager
prior to the Closing, and Parent REIT and Parent OP shall have no responsibility
or liability under WARN with respect to such Employees except to the extent that
any notice requirement or other liabilities under WARN are triggered in respect
of such Employees as a result of the termination of employment following the
Closing of one or more Retained Management Employees or Retained Property
Employees.
Section
6.11
Notification
The
Company shall give notice to Parent REIT if, to the Company’s knowledge, any of
the Company’s representations, warranties or covenants herein are breached in a
manner that would give rise to a claim by the Parent Indemnitees pursuant to
Article 10
(subject to
Section
10.4(b)
and
Section 12.15
);
provided
,
however
, that, except
as otherwise provided herein, the delivery of any notice pursuant to this
Section 6.11
shall
not limit or otherwise affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
Section
6.12
Transactions in Parent
Common Stock
From the
date hereof until the earlier of termination of this Agreement in accordance
with its terms and the Closing, no Contributor shall knowingly, directly or
indirectly, (i) purchase or sell any shares of Parent Common Stock, (ii) engage
in any hedging, short-sale, derivative or other transaction based upon the
value, or intended to hedge the risk of ownership, of shares of Parent Common
Stock,
provided
that this clause (ii) shall not apply until ten (10) days prior to the period of
time for the determination of the Parent Closing Price has begun, or (iii) enter
into any transaction with the intent to cause, or which would otherwise
reasonably be expected to result in, a decline in the trading price of the
Parent Common Stock.
Section
6.13
Exclusivity
(a) During
the period commencing on the date hereof through the earlier to occur of the
Closing and the termination of this Agreement in accordance with its terms, the
Contributors and LVP REIT shall not, and shall cause the Group Companies and
each of their respective directors, officers and representatives not to,
directly or indirectly, (x) knowingly initiate, solicit, discuss, negotiate,
provide non-public information with respect to, or respond affirmatively to any
inquiries, proposals or offers (whether initiated by them or otherwise), from
any Person other than the Parent Parties and their Affiliates and
representatives (a “
Third Party Bidder
”),
with respect to any transaction, however structured, resulting in or relating to
the acquisition by such Third Party Bidder of all or substantially all of the
equity interests or assets of the Group Companies or any individual mall or
development project (a “
Potential
Transaction
”) or (y) enter into any contract, agreement or arrangement
with any Third Party Bidder to consummate a Potential Transaction;
provided
, that “
Potential
Transaction
” shall not include, and this
Section 6.13(a)
shall
not apply to, any inquiry, proposal or offer to acquire, whether by merger,
purchase of assets, equity interests or other securities, tender offer or
otherwise, all or substantially all of the capital stock or consolidated assets
of LVP REIT (a “
Permitted
Transaction
”), but LVP REIT may only enter into an agreement with respect
thereto to the extent that the entry into any such transaction would not require
or otherwise provide for the sale of the Company Interests owned by the
Contributors other than the LVP Parties or prevent or materially impair the
ability of the Contributors, the Company and the Group Companies to complete the
Contemplated Transactions. The Contributors shall, and shall cause
the Group Companies to, immediately terminate any existing discussions with
respect to any Potential Transaction and request that all confidential
information relating to any of the Group Companies provided to any Third Party
Bidder in connection with a Potential Transaction be promptly returned or
destroyed.
(b) LVP
REIT shall not provide any non-public information with respect to the Group
Companies (the “
Group
Company Information
”) to any Third Party Bidder in connection with the
pursuit of a Permitted Transaction before March 1, 2010. On or after
March 1, 2010, LVP REIT may provide Group Company Information in connection with
the pursuit of a Permitted Transaction to a Person that executes a
confidentiality agreement with terms that are in the aggregate no less favorable
to LVP REIT (other than with respect to any standstill and non-solicitation
provisions) than those contained in the Confidentiality Agreement;
provided
that all
such Group Company Information (to the extent that such information has not been
previously provided or made available to Parent REIT) is concurrently made
available to Parent REIT. LVP REIT shall not waive any of its rights
under any such confidentiality agreement with respect to Group Company
Information and shall take all reasonable steps to enforce all of its rights
with respect to Group Company Information under any such confidentiality
agreement to the extent it becomes aware of any breach thereof in respect of
Group Company Information.
(c) Notwithstanding
the foregoing, nothing in this
Section 6.13
shall
prohibit the Contributors, LVP REIT or the Group Companies, or any of their
respective directors, officers and representatives, from (i) discussing the
Contemplated Transactions with any equity holders of the Group Companies, the
Contributors, LVP REIT or any of their respective subsidiaries, or with any
lender (subject to
Section 6.4(a)
),
servicer (subjection to
Section 6.4(a)
),
landlord, employee, tenant or prospective tenant of the Group Companies, the
Contributors, LVP REIT or any of their respective subsidiaries, (ii) providing
non-public information to its tenants and others with whom the Group Companies
do business in the ordinary course of business, (iii) making any communications
designed to inform a Third Party Bidder that such Person is not permitted to
engage in any discussions regarding a Potential Transaction or (iv) taking any
other action to the extent expressly permitted by this Agreement.
Section
6.14
Use of Prime
Retail
Mark
From and
after the Closing Date, except as set forth on
Schedule 6.14
, the
Contributors shall not, and shall cause their Affiliates not to: (a) establish
or create any corporation, partnership, joint venture or other business entity
or enterprise that uses as, or incorporates as part of, its legal or trade name
any Prime Retail Mark or (b) seek any registration of any trademark, copyright,
domain name or analogous right, that incorporates, or is identical or
confusingly similar to, any Prime Retail Mark or (c) use any Prime Retail Mark
in connection with the operation of any outlets or shopping
malls. Nothing in this Agreement shall be construed as granting to
any party any license to the Prime Retail Marks.
Section
6.15
Parent OP
Agreement
From and
after the date hereof, neither Parent REIT nor Parent OP shall amend the Parent
OP Agreement in a manner that would adversely and disproportionately affect the
rights of the Contributors with respect to the Parent OP Common Units to be
issued to the Contributors hereunder (assuming for this purpose that such Parent
OP Common Units have been issued to the Contributors as of the date hereof),
whether held by the New Company or received upon conversion or exchange of New
Company Common Units.
Section
6.16 ***
18
ARTICLE
7
CERTAIN
AFFILIATE MATTERS
Section
7.1
Termination of Agreements;
Resignations of Affiliates
(a) At
the Closing, and without any further action on the part of any party hereto and
without payment of any additional consideration, all rights and obligations of
any Group Company arising under or in connection with the agreements set
forth on
Schedule
7.1
(the “
Terminated
Agreements
”) shall be terminated in full and without any further
liability of any Person thereunder at or after the Closing. Prior to
the Closing, the Company shall, and shall cause each Group Company to, take all
action required to effect the foregoing in a manner reasonably satisfactory to
Parent REIT and Parent OP and shall deliver evidence of the termination of the
Terminated Agreements effective on the Closing Date as of no later than the
third (3) Business Day prior to the Closing in accordance with the preceding
sentence.
(b) Prior
to Closing, the Parent Parties and the Company shall cooperate in good faith to
evaluate the ability of Prime Manager to transfer, without payment of any
additional consideration, all of the assets (other than Contracts to manage
properties owned by Persons other than the Group Companies), including all of
the books and records (including computer files, retrieval programs and similar
documentation), relating to any of the Group Companies, or their properties, of
Prime Manager to the Company and the ability of the Company to transfer Prime
Manager to an entity that is not a Group Company. If the parties hereto mutually
agree in good faith to such reorganization without payment of any additional
consideration, the parties shall enter into an amendment to this Agreement to
reflect such mutually-agreed restructuring, including by revising
Schedule
7.1
.
(c) At
the Closing, and without any further action on the part of any party hereto and
without payment of any additional consideration, Lightstone Prime shall resign,
effective as of no later than immediately prior to the Closing, as the general
manager of the Company and as the general manager or general partner of any
other Group Company for which it acts as managing member.
(d) At
the Closing, each of the Company, Mill Run, Ewell and Barceloneta shall, if
requested by Parent REIT, amend its Governing Documents in a manner reasonably
satisfactory to Parent REIT in order to (i) enable the acquirers of the
Contributed Interests pursuant to this Agreement and the LP Purchase Agreement
to automatically become substitute members or substitute limited partners, as
applicable, and (ii) replace the manager, managing member or general partner of
each Group Company with a Person designated by Parent REIT, in each case
immediately upon consummation of the Contemplated Transactions and without the
application of any waiting period.
18
Certain portions have
been omitted in connection with an application for confidential treatment
therefor.
Section
7.2
Release
(a) Effective
at and after the Closing, the Parent Parties agree that each Group Company, on
behalf of itself and its successors and assigns (the “
Company Releasing
Parties
”), releases, acquits and forever discharges each of the
Contributors, LVP REIT, each of their respective Affiliates which are not Group
Companies, each of their respective shareholders, members, partners, managers,
directors, officers and employees, in their capacities as such, each of the
Persons set forth on
Schedule 7.2
, and
each of their respective successors and assigns (collectively, the “
Company Released
Parties
”) from any and all claims, demands, damages, actions, causes of
action, rights, costs, losses, expenses, compensation or suits in equity, of
whatsoever kind or nature, in contract or in tort, that such Company Releasing
Party might have (i) because of anything done, omitted, suffered or allowed to
be done by such Company Released Parties prior to or at the Closing, or (ii) in
connection with or by reason of the Governing Documents of such Group Companies,
in each case whether heretofore or hereafter accruing, whether foreseen or
unforeseen or whether known or unknown to the parties, including without
limitation, any claim for indemnification, contribution or other relief (“
Company Released
Matters
”). Notwithstanding the foregoing, the following shall
not constitute Company Released Matters: (A) in the case of any Company Released
Party that is a party to any Tax Protection Agreement with a Group Company, any
claims arising thereunder (except to the extent expressly set forth in the Tax
Matters Agreements), (B) any claims under the Tax Matters Agreements, (C) any
claim insofar as it is made to negate, limit or otherwise dispute any asserted
right to indemnification which a Company Released Party has asserted under
applicable Law, the Governing Documents of such Group Company or Section 6.7
hereof and (D) claims against any Contributor for Fraud. Effective at and
after the Closing, each of the Parent Parties agrees that no Company Releasing
Party will commence, aid or participate in a manner adverse to any Company
Released Party in any legal action or other proceeding based in whole or in part
upon any Company Released Matters. The Parent Parties acknowledge
that this release shall apply to all unknown or unanticipated results of any
action of any Company Released Party, as well as those known and
anticipated. The Parent Parties have provided the release in this
Section 7.2(a)
voluntarily, with the intention of fully and finally extinguishing all Company
Released Matters. Effective at and after the Closing, the Parent Parties
acknowledge and agree that no Company Releasing Party shall, directly or
indirectly, make any claim related to the Company Released Matters against any
person that has a right to seek indemnification, contribution or other relief
for such claim from any Company Released Party. If a Company Releasing
Party makes such a claim and a Company Released Party notifies the Company
Releasing Party of such obligation, Parent OP shall cause the Company Releasing
Party to promptly, but no later than three (3) Business Days following such
notice, withdraw all such claims with prejudice and enter into a release thereof
in form and substance reasonably acceptable to the Company Released Party. The
release contained in this
Section 7.2(a)
shall
also be deemed to be a covenant not to sue. Any breach of this covenant by a
Company Releasing Party not to sue shall be deemed a breach of this
Section
7.2(a)
(b) Effective
at and after the Closing, each Contributor and LVP REIT, on behalf of itself and
its successors and assigns (the “
Contributor Releasing
Parties
”), releases, acquits and forever discharges each of the Group
Companies, each of the other Contributors, and each of their respective
Affiliates (other than the Parent Parties), shareholders, members, partners,
managers, directors, officers and employees, in their capacities as such, and
each of their respective successors and assigns (but excluding, in each case,
any of the foregoing of the Parent Parties) (collectively, the “
Contributor Released
Parties
”) from any and all claims, demands, damages, actions, causes of
action, rights, costs, losses, expenses, compensation or suits in equity, of
whatsoever kind or nature, in contract or in tort, that such Contributor
Releasing Party might have (i) because of anything done, omitted, suffered or
allowed to be done by such Contributor Released Parties prior to or at the
Closing, or (ii) in connection with or by reason of the Governing Documents of
such Group Companies, in each case whether heretofore or hereafter accruing,
whether foreseen or unforeseen or whether known or unknown to the parties,
including without limitation, any claim for indemnification, contribution or
other relief (“
Contributor Released
Matters
”). Notwithstanding the foregoing, the following shall not
constitute Contributor Released Matters: (A) in the case of any Contributor
Released Party that is a party to any Tax Protection Agreement with a
Contributor Releasing Party, any claims arising thereunder (except to the extent
expressly set forth in the Tax Matters Agreements), (B) any claims against a
Parent Party under this Agreement or any other Transaction Document, including
the Tax Matters Agreements, (C) any claim but only insofar as it is made to
negate, limit or otherwise dispute any asserted right to indemnification which a
Contributor Released Party has asserted under applicable Law, the Governing
Documents of such Group Company and (D) claims against a party hereto for actual
and intentional fraud. Effective at and after the Closing, each
Contributor Releasing Party further agrees never to commence, aid or participate
in a manner adverse to any Contributor Released Party in any legal action or
other proceeding based in whole or in part upon any Contributor Released
Matters. Each Contributor and LVP REIT acknowledges that this release
shall apply to all unknown or unanticipated results of any action of any
Contributor Released Party, as well as those known and anticipated. Each
Contributor and LVP REIT has provided the release in this
Section 7.2(b)
voluntarily, with the intention of fully and finally extinguishing all
Contributor Released Matters. Effective at and after the Closing,
each Contributor and LVP REIT acknowledges and agrees that such Contributor
Releasing Party shall not, directly or indirectly, make any claim related to the
Contributor Released Matters against any person that has a right to seek
indemnification, contribution or other relief for such claim from any
Contributor Released Party. If a Contributor Releasing Party makes
such a claim and a Contributor Released Party notifies the Contributor Releasing
Party of such obligation, the Contributor Releasing Party shall promptly, but no
later than three (3) Business Days following such notice, withdraw all such
claims with prejudice and enter into a release thereof in form and substance
reasonably acceptable to the Contributor Released Party. The release contained
in this
Section
7.2(b)
shall also be deemed to be a covenant not to sue. Any breach of
this covenant by a Company Releasing Party not to sue shall be deemed a breach
of this
Section
7.2(b)
.
(c)
California Civil Code
Section 1542 Waiver
. Each of the Parent Parties and each
Contributor Releasing Party acknowledges that it may discover facts or law
different from, or in addition to, the facts or law that it knows or believes to
be true with respect to the claims released in this
Section 7.2
and
agrees, nonetheless, that the Release contained in this
Section 7.2
shall be
and remain effective in all respects notwithstanding such different or
additional facts or the discovery of them. Each of the Parent Parties and
each Contributor Releasing Party expressly acknowledges and agrees that all
rights under Section 1542 of the California Civil Code are expressly
waived. That section provides:
A GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
ARTICLE
8
CONDITIONS
TO CONSUMMATION OF THE CONTRIBUTIONS
Section
8.1
Conditions to the
Obligations of the Contributors, Parent REIT, Parent OP and Parent
Sub
The
obligations of the Contributors, Parent REIT, Parent OP and Parent Sub to
consummate the Contemplated Transactions are subject to the satisfaction (or, if
permitted by applicable Law, waiver by the party for whose benefit such
condition exists) of the following conditions:
(a) No
Order shall be in effect, and no Law shall have been enacted, which restrains,
enjoins, imposes conditions upon or makes illegal the Contemplated Transactions
in the United States (including Puerto Rico); and
(b) The
Company shall have procured the written consents specified on
Schedule 8.1(b)
(the
“
Required
Consents
”) and Parent REIT shall have received evidence reasonably
satisfactory to Parent REIT of the receipt thereof. All actions
necessary for all of the Fixed Rate Debt to remain outstanding following the
Closing in accordance with its original terms, as modified by the Required
Consents, without any breach, default or event of default (with or without
notice or lapse of time or both) with respect to any matter or circumstance of
which the parties are aware as of the Closing Date in accordance with the terms
of such Required Consents, and all conditions in the Required Consents, shall
have been taken or satisfied. Parent OP shall have received payoff
letters reasonably satisfactory to Parent OP with respect to all of the debt
constituting Floating Rate Debt being repaid by Parent OP at
Closing.
Section
8.2
Other Conditions to the
Obligations of Parent REIT, Parent OP and Parent Sub
The
obligations of Parent REIT, Parent OP and Parent Sub to consummate the
Contemplated Transactions are subject to the satisfaction or, if permitted by
applicable Law, waiver by Parent REIT or Parent OP of the following further
conditions:
(a) The
representations and warranties of the Company (i) set forth in
Section 3.2
,
Section 3.3
,
Section 3.7(a)
,
Section 3.14(b)
(with respect to any Group Companies that own, directly or indirectly, any
material interests in real property) and
Section 3.14(p)
(the
“
Specified
Representations
”) shall be true and correct in all respects on the
Closing Date as though made on the Closing Date (except for such representations
and warranties made as of a specified date, which shall have been true and
correct in all respects as of that specified date) other than in the case of
Section 3.2
for
de minimis
exceptions,
and (ii) set forth in
Article 3
(other than
the Specified Representations and the representations and warranties in
Section 3.4(b)
with
respect to the 2008 Unaudited Financial Statements), disregarding qualifications
therein as to “material,” “materiality” (or words of similar import) or “Company
Material Adverse Effect,” and excluding any Known Claims, to the extent included
in the calculation of the Known Claims Escrow Amount with respect thereto, shall
be true and correct in all respects on the Closing Date as though made on the
Closing Date (except for such representations and warranties made as of a
specified date, which, disregarding qualifications therein as to “materiality”
or “Company Material Adverse Effect,” shall have been true and correct in all
respects as of that specified date), unless, in the case of clause (ii) only,
the failure or failures of all such representations and warranties, disregarding
qualifications therein as to “materiality” or “Company Material Adverse Effect,”
to be so true and correct in all respects would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect;
(b) The
Company shall have performed and complied in all material respects with all
covenants (other than the covenants set forth in
Section 6.11
and
Section 6.13
)
required to be performed or complied with by the Company under this Agreement
(including any obligation relating to the Group Companies) on or prior to the
Closing Date;
(c) (i)
The representations and warranties of the Contributors and LVP REIT set forth in
Article 4
shall
be true and correct in all material respects on the Closing Date as though made
on the Closing Date (except for such representations and warranties made as of a
specified date, which shall have been true and correct in all material respects
as of that specified date), and (ii) the Contributors shall have performed and
complied in all material respects with all covenants required to be performed or
complied with by the Contributors under this Agreement (other than the covenants
set forth in
Section
6.13
) on or prior to the Closing Date;
(d) Parent
REIT and Parent OP shall have received the Audited 2008 Financial Statements and
the auditor’s report thereon shall not contain any qualifications that are not
Permitted Qualifications.
(e) At
the Closing, Parent OP shall have received:
(i) a
certificate of a senior executive officer of the Company in his or her
representative capacity, and not individually, certifying the satisfaction of
the conditions set forth in
Section 8.2(a)
and
Section
8.2(b)
;
(ii) the
Escrow Agreement, duly executed by the Representative and the Escrow
Agent;
(iii)
the GPT Sale Agreement, duly executed by GPT Outlet
Lender LLC;
(iv) evidence
reasonably satisfactory to Parent REIT that transactions set forth in
Section 7.1
shall
have been completed;
(v)
a duly executed recordable special warranty deed for the St.
Augustine Land, in a form reasonably acceptable to Parent REIT and Parent OP and
such documents of further assurance reasonably necessary and typical for
transactions similar to the sale of the St. Augustine Land in order to complete
the sale and transfer of the St. Augustine Land;
(vi) the
New Company Agreement, duly executed by each Contributor;
(vii) ***
19
; and
(viii) ***
20
Section
8.3
Other Conditions to the
Obligations of the Contributors
The
obligations of the Contributors to consummate the Contemplated Transactions are
subject to the satisfaction or, if permitted by applicable Law, waiver by the
Contributors of the following further conditions:
(a) The
representations and warranties of Parent REIT, Parent OP and Parent Sub (i) set
forth in
Section
5.1
,
Section
5.2
,
Section
5.9(a)
and
Section 5.10
shall be
true and correct in all respects on the Closing Date as though made on the
Closing Date (except for such representations and warranties made as of a
specified date, which shall have been true and correct in all respects as of
that specified date), (ii) set forth in
Section 5.4
and
Section 5.8
,
(collectively with
Section 5.1
,
Section 5.2
,
Section 5.9(a)
and
Section 5.10
the “
Parent Specified
Sections
”) shall be true and correct in all material respects on the
Closing Date as though made on the Closing Date (except for such representations
and warranties made as of a specified date, which shall have been true and
correct in all material respects as of that specified date), and (iii) set forth
in
Article 5
(other than the Parent Specified Sections), disregarding qualifications therein
as to “material,” “materiality” (or words of similar import) or “Parent Material
Adverse Effect,” shall be true and correct in all respects on the Closing Date
as though made on the Closing Date (except for such representations and
warranties made as of a specified date, which, disregarding qualifications
therein as to “materiality” or “Parent Material Adverse Effect,” shall have been
true and correct in all respects as of that specified date), unless, in the case
of clause (iii) only, the failure or failures of all such representations and
warranties, disregarding qualifications therein as to “materiality” or “Parent
Material Adverse Effect,” to be so true and correct in all respects would not,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect;
(b) Each
of Parent REIT, Parent OP and Parent Sub shall have performed and complied in
all material respects with all covenants required to be performed or complied
with by them under this Agreement on or prior to the Closing Date;
(c) ***
21
;
(d) ***
22
;
(e) ***
23
;
19
Certain portions have
been omitted in connection with an application for confidential treatment
therefor.
20
Certain portions have
been omitted in connection with an application for confidential treatment
therefor.
21
Certain portions have
been omitted in connection with an application for confidential treatment
therefor.
22
Certain portions have
been omitted in connection with an application for confidential treatment
therefor.
23
Certain portions have
been omitted in connection with an application for confidential treatment
therefor.
(f) ***
24
;
(g) At
the Closing, Parent OP shall have delivered to the Representative:
(i) a
certificate of a senior executive officer of each of Parent REIT and Parent OP,
in each case in his or her representative capacity, and not individually,
certifying the satisfaction of the conditions set forth in
Section 8.3(a)
and
Section 8.3(b)
;
and
(ii) the
Escrow Agreement, duly executed by Parent OP and the Escrow Agent;
and
(iii) the
DL Tax Matters Agreement, duly executed by each of Parent REIT, Parent OP and
New Company, together with the Member Guarantees and Capital Contribution
Agreements that are exhibits thereto, duly executed by the Lender and the
applicable Parent Parties, respectively; and
(iv) the
LVP Tax Matters Agreement, duly executed by each of Parent REIT and Parent OP
and New Company, together with the Member Guarantees and Capital Contribution
Agreements that are exhibits thereto, duly executed by the Lender and the
applicable Parent Parties, respectively.
Section
8.4
Frustration of Closing
Conditions
No party
hereto may rely on the failure of any condition set forth in this
Article 8
to be
satisfied if such failure was caused by such party, including such party’s
failure, subject to
Section 6.4(a)
, to
use reasonable efforts to consummate the Contemplated Transactions.
ARTICLE
9
TERMINATION;
AMENDMENT; WAIVER
Section
9.1
Termination
This
Agreement may be terminated at any time prior to the Closing:
(a) by
mutual written consent of Parent REIT, Parent OP and the
Representative;
24
Certain portions have
been omitted in connection with an application for confidential treatment
therefor.
(b) by
Parent REIT or Parent OP, if none of Parent REIT, Parent OP or Parent Sub is in
material breach of its representations, warranties, covenants or obligations
under this Agreement, and if (i) the representations and warranties of the
Company in
Article
3
become untrue or inaccurate such that
Section 8.2(a)
would not be satisfied (treating such time as if it were the Closing Date for
purposes of this
Section 9.1(b)
),
(ii) the representations and warranties of any Contributor in
Article 4
become
untrue or inaccurate such that
Section 8.2(c)
would not be satisfied (treating such time as if it were the Closing Date for
purposes of this
Section 9.1(b)
),
(iii) there has been a breach on the part of the Company of its covenants
and agreements contained in this Agreement such that
Section 8.2(b)
would not be satisfied (treating such time as if it were the Closing Date for
purposes of this
Section 9.1(b)
), or
(iv) there has been a breach on the part of any Contributor of its covenants and
agreements contained in this Agreement such that
Section 8.2(c)
would not be satisfied (treating such time as if it were the Closing Date for
purposes of this
Section 9.1(b)
), and,
in each of
clause
(i)
,
clause
(ii)
,
clause
(iii)
and
clause (iv)
such
breach is not capable of being cured or has not been cured within thirty (30)
days after notice to the Company and the Representative;
(c) by
the Representative, if none of the Company or any Contributor is in material
breach of its representations, warranties, covenants or obligations under this
Agreement, and if (i) the representations and warranties of Parent REIT, Parent
OP or Parent Sub herein become untrue or inaccurate such that
Section 8.3(a)
would not be satisfied (treating such time as if it were the Closing Date for
purposes of this
Section 9.1(c)
)
or (ii) there has been a breach on the part of Parent REIT, Parent OP or
Parent Sub of its respective covenants and agreements contained in this
Agreement such that
Section 8.3(b)
would not be satisfied (treating such time as if it were the Closing Date for
purposes of this
Section 9.1(c)
),
and, in both of
clause
(i)
and
clause (ii)
, such
breach is not capable of being cured or has not been cured within thirty (30)
days after notice to Parent OP;
(d) by
Parent REIT or Parent OP, if the Closing shall not have occurred by the
Termination Date, unless the failure to consummate the Closing is the result of
a breach by Parent REIT, Parent OP or Parent Sub of its respective obligations
or covenants under this Agreement.
(e) by
the Representative, if the Closing shall not have occurred by the Termination
Date, unless the failure to consummate the Closing is the result of a breach by
the Company or any Contributor of its obligations or covenants under this
Agreement; or
(f) by
Parent REIT, Parent OP or the Representative, if any Governmental Entity shall
have issued an Order permanently enjoining, restraining or otherwise prohibiting
the Contemplated Transactions and such Order shall have become final and
nonappealable;
provided
, that the
party hereto seeking to terminate this Agreement pursuant to this
Section
9.1(f)
shall, subject to
Section 6.4(a)
, have
used reasonable efforts to remove such Order.
Section
9.2
Effect of
Termination
In the
event of any termination of this Agreement pursuant to
Section 9.1
, this
entire Agreement shall forthwith become void (and there shall be no liability or
obligation on the part of Parent REIT, Parent OP, Parent Sub, any Group Company,
LVP REIT, any Contributor or any of the Company Released Parties) with the
exception of (a) the provisions of this
Section 9.2
, the
third sentence of
Section 6.3
,
Section 6.6
, the last
sentence of
Section
6.9
and
Article
12
, and (b) any liability of any party hereto for any material breach of
this Agreement resulting from an action or a knowing and intentional failure to
act which, at the time thereof, such party should reasonably have known would
constitute a breach of this Agreement, prior to such termination.
Section
9.3
Amendment
Prior to
the Closing, subject to applicable Law, this Agreement may be amended or
modified only by a written agreement executed and delivered by duly authorized
officers of Parent REIT, Parent OP, Parent Sub, the Company and the
Representative. After the Closing subject to applicable Law, this
Agreement may be amended or modified only by written agreement executed and
delivered by duly authorized officers of Parent OP and the
Representative. This Agreement may not be modified or amended except
as provided in the immediately preceding two sentences and any amendment
effected in a manner which does not comply with this
Section 9.3
shall be
void.
Section
9.4
Extension;
Waiver
The
Contributors shall not (except at the direction of the Representative)
(a) extend the time for the performance of any of the obligations or other
acts of Parent REIT, Parent OP or Parent Sub contained herein, (b) waive
any inaccuracies in the representations and warranties of Parent REIT, Parent OP
or Parent Sub contained herein or in any document, certificate or writing
delivered by Parent REIT, Parent OP or Parent Sub pursuant hereto or
(c) waive compliance by Parent REIT, Parent OP or Parent Sub with any of
the agreements or conditions contained herein. The Parent Parties may
(a) extend the time for the performance of any of the obligations or other
acts of the Company or the Contributors contained herein, (b) waive any
inaccuracies in the representations and warranties of the Company or the
Contributors contained herein or in any document or writing delivered by the
Company or the Contributors pursuant hereto or (c) waive compliance by the
Company or the Contributors with any of the agreements or conditions contained
herein. Any agreement on the part of any party to any such extension
or waiver shall be valid only if set forth in a written instrument signed on
behalf of such party. The failure of any party to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE
10
SURVIVAL;
INDEMNIFICATION
Section
10.1
Survival
Subject
to the provisions of this
Article 10
, (a)
the representations and warranties in this Agreement and in any certificate
delivered pursuant hereto shall survive until 5:00 p.m. New York City time on
the date that is the 18-month anniversary of the Closing Date;
provided
, that (i) to
the extent any claim for indemnification with respect to a breach of any
representation or warranty in this Agreement has been made in accordance with
Section 10.3
hereof prior to such time, then, solely to the extent of such claim, the
representations and warranties relevant thereto shall be deemed to survive until
the final resolution thereof and (ii) notwithstanding anything to the contrary
contained in this Agreement, the representations and warranties in (x)
Section 4.2
(Authority),
Section
4.4
(Title) and
Section 5.2
(Authority) shall survive indefinitely and (y)
Section 3.4(a)(i)
and, to the extent related to the 2008 Unaudited Financial Statements,
Section 3.4(b)
shall
not survive the Closing and no claims for indemnification may be made in respect
thereof (b) the covenants and agreements of the Parties in this Agreement to be
performed prior to the Closing shall not survive the Closing;
provided
, that the
expiration of such covenants and agreements shall not limit the right to any
Indemnified Party to seek or obtain indemnification with respect to any breach
thereof pursuant to this
Article 10
and (c)
all covenants and agreements in this Agreement to be performed at or after the
Closing shall survive the Closing in accordance with their respective terms or,
if no term is specified, indefinitely.
Section
10.2
Indemnification
(a) Subject
to the provisions of this
Article 10
and the
Escrow Agreement, from and after the Closing, Parent REIT, Parent OP and Parent
OP’s Subsidiaries (including the Group Companies after the Closing) (each a
“
Parent
Indemnitee
”) shall be entitled, in accordance with the provisions of this
Article 10
and
the Escrow Agreement, to receive proceeds from the Escrow Account as
indemnification in respect of any damages, losses, liabilities, costs, expenses
or obligations of any kind (including, without limitation, reasonable attorneys’
fees and costs of investigation) (each a “
Loss
” and,
collectively, “
Losses
”) suffered or
paid, directly or indirectly, as a result of, in connection with, or arising out
of or relating to (i) any breach of any representation or warranty in
Article 3
(other than
Section
3.4(a)(i)
and, to the extent related to the 2008 Unaudited Financial
Statements,
Section
3.4(b)
) or in any certificate delivered by or on behalf of the Company
pursuant hereto (without regard to any Company Material Adverse Effect or
materiality qualifications contained in any Non-Excluded Representation and
without regard to any knowledge qualifications), (ii) any breach of any
covenant or agreement contained herein to be performed by the Company (including
any failure of a Group Company to take or refrain from taking any action
contemplated hereby) prior to the Closing (other than
Section 6.11
and
Section 6.13
),
(iii) the amount of any Severance, Employment and Shut-Down Costs incurred by
Parent REIT, Parent OP, Parent Sub or any of their Affiliates (including any
Group Company after the Closing) which are not paid prior to Closing or taken
into account in connection with the calculation of the Estimated Aggregate
Consideration Value and/or the Final Aggregate Consideration Value, (iv)(A) any
claims against a Group Company by any member or other equity holder of any Group
Company prior to the Closing arising from and relating to the Contemplated
Transactions or the management, operation or conduct of the Group Companies at
or prior to the Closing (collectively, “
Minority Claims
”) or
(B) in the event the transactions contemplated by the LP Purchase Agreement
shall not have been fully consummated in accordance with their terms at the
Closing (other than as a result of a breach of such Agreement by the Parent
Parties) (1) any out-of-pocket, costs or expenses (including reasonable
attorneys fees) incurred by the Parent Parties to enforce the LP Purchase
Agreement or to defend any claims made by the selling parties under the LP
Purchase Agreement and (2) any additional amounts paid by the Parent Parties in
excess of the purchase price specified in the LP Purchase Agreement (excluding,
for the avoidance of doubt, any amendments thereto after the Closing) for the
applicable securities not acquired at the Closing (including pursuant to any
judgment or settlement); provided that the additional costs or expenses incurred
by the Parent Parties to acquire such securities shall be subject to the consent
of the Representative (such consent not to be unreasonably withheld, conditioned
or delayed), and (v) the amount of any Pre-Signing Allowances and Commissions
incurred by Parent REIT, Parent OP, Parent Sub or any of their Affiliates
(including any Group Company after the Closing) which are not taken into account
in connection with the calculation of the Estimated Aggregate Consideration
Value and/or the Final Aggregate Consideration Value.
(b) Subject
to the provisions of this
Article 10
, from and
after Closing, each Contributor and LVP REIT shall severally, and not jointly or
jointly and severally, indemnify, defend and hold harmless, the Parent
Indemnitees from and against any Losses suffered or paid, directly or
indirectly, as a result of, in connection with, or arising out of or related to
(i) any breach of any representation or warranty of such Contributor in
Article 4
or,
in the case of LVP REIT,
Section 4.3(b)
, as of
the Closing Date, as though such representation and warranty was made on the
Closing Date, (ii) any breach of any covenant or agreement contained herein
to be performed by such Contributor or, in the case of LVP REIT,
Section 6.13
, prior
to the Closing and (iii) any breach of any covenant or agreement contained
herein to be performed by such Contributor or, in the case of LVP REIT,
Section 6.16
or
Section 7.2(b)
, at or
after the Closing.
(c) Subject
to the provisions of this
Article 10
, from and
after Closing, each of Parent REIT, Parent OP and Parent Sub shall jointly and
severally indemnify, defend and hold harmless, the Contributors and each of
their respective Affiliates (other than the Group Companies), predecessors,
successors and assigns, and each of their respective officers, directors,
employees, members, partners, shareholders, managers, agents and representatives
(each a “
Member
Indemnitee
”) from and against any Losses suffered or paid, directly or
indirectly, as a result of, in connection with, or arising out of or related to
(i) any breach of any representation or warranty of Parent REIT, Parent OP
or Parent Sub in
Article 5
(without
regard to any Parent Material Adverse Effect or materiality qualifications
contained in any Non-Excluded Representation) or in any certificate delivered by
or on behalf of Parent REIT, Parent OP or Parent Sub pursuant hereto,
(ii) any breach of any covenant or agreement contained herein to be
performed by Parent REIT, Parent OP or Parent Sub prior to the Closing and (iii)
any breach of any covenant or agreement contained herein to be performed by
Parent REIT, Parent OP or Parent Sub at or after the Closing.
(d) Subject
to the provisions of this
Article 10
, the
ability of any Parent Indemnitee to receive proceeds from the Escrow Account
pursuant to
Section
10.2(a)
or indemnification pursuant to
Section 10.2(b)(i)
or
Section
10.2(b)(ii)
and the ability of any Member Indemnitee to receive
indemnification pursuant to
Section 10.2(c)(i)
or
Section
10.2(c)(ii)
shall survive the Closing and shall terminate on the date
that is the eighteen (18) month anniversary of the Closing Date (the “
Survival Period Termination
Date
”), in each case except to the extent such Parent Indemnitee or
Member Indemnitee, as applicable, shall have made, prior to the Survival Period
Termination Date, a claim in accordance with the terms of this
Article 10
, in which
case such claim, if then unresolved, shall not be extinguished at the Survival
Period Termination Date and shall survive the Survival Period Termination Date
until finally resolved in accordance with the provisions of this
Article 10
and,
if applicable, the Escrow Agreement;
provided
, that the
right of a Parent Indemnitee to receive indemnification pursuant to
Section 10.2(b)(i)
or
Section
10.2(b)(ii)
with respect to a breach of the representations and
warranties in
Section
4.2
(Authority) and
Section 4.4
(Title)
shall survive indefinitely and the right of a Member Indemnitee to receive
indemnification pursuant to
Section 10.2(c)(i)
with respect to a breach of the representations and warranties in
Section 5.2
(Authority) shall survive indefinitely. The right of a Parent
Indemnitee to receive indemnification pursuant to
Section 10.2(b)(iii)
or a Member Indemnitee to receive indemnification pursuant to
Section 10.2(c)(iii)
shall survive indefinitely.
Section
10.3
Indemnification
Procedures
(a) If
a claim, action, suit or proceeding by a Person who is not a party hereto or an
Affiliate thereof (a “
Third Party Claim
”)
is made against any Person entitled to indemnification pursuant to
Section 10.2
hereof
(an “
Indemnified
Party
”), and if such Indemnified Party intends to seek indemnity with
respect thereto under this
Article 10
, or if any
Indemnified Party otherwise determines that it wishes to seek indemnification
pursuant to
Section
10.2
hereof, such Indemnified Party shall, in the case of a Member
Indemnitee, promptly notify Parent REIT and Parent OP and, in the case of a
Parent Indemnitee, promptly notify the Representative (such notified party, the
“
Responsible
Party
”) of such claims;
provided
, that the
failure to so notify shall not relieve the Responsible Party of its obligations
hereunder, except to the extent that the Responsible Party is actually
prejudiced thereby. Such notice shall, to the extent reasonably
practicable, identify the basis under which indemnification is sought pursuant
to
Section 10.2
and, if applicable, enclose true and correct copies of any written document
furnished to the Indemnified Party by the Person that instituted the Third Party
Claim.
(b) Parent
REIT or Parent OP shall have thirty (30) days after receiving notice from any
Indemnified Party of any Third Party Claim which seeks solely cash damages (and
does not include any request for specific performance, or injunctive or other
equitable relief) (a “
Parent Assumable
Claim
”) to assume the conduct and control, through counsel reasonably
acceptable to the Representative at the expense of Parent REIT or Parent OP, of
the settlement or defense of such Third Party Claim, and the Indemnified Party
shall cooperate with the Responsible Party in connection
therewith. Parent REIT or Parent OP shall permit the Indemnified
Party to participate in such settlement or defense through counsel chosen by
such Indemnified Party (the fees and expenses of such counsel shall be borne by
such Indemnified Party and shall not be indemnified hereunder as a
Loss). So long as Parent REIT or Parent OP is reasonably contesting
(or causing any of its Subsidiaries to reasonably contest) any such Third Party
Claim in good faith, the Indemnified Party shall not pay or settle any such
Third Party Claim without the consent of Parent REIT or Parent OP (which consent
shall not be unreasonably withheld or delayed). Notwithstanding the
foregoing, Parent REIT and Parent OP shall not, except with the consent of the
Indemnified Party (which consent shall not be unreasonably withheld or delayed)
enter into any settlement that does not include as an unconditional term thereof
the giving by the Person(s) asserting such Third Party Claim to all Indemnified
Parties an unconditional release from all liability with respect to such claim
or consent to entry of any judgment. If Parent REIT does not elect to
undertake the defense of such Third Party Claim, the Indemnified Party shall
have the right to contest the Third Party Claim without waiving its right to
indemnity therefor pursuant to this Agreement;
provided
, that the
Indemnified Party shall not settle any such Third Party Claim or consent to any
judgment without the prior written consent of Parent REIT or Parent OP (which
consent shall not be unreasonably withheld or delayed).
(c) In
the event that Parent REIT or Parent OP receives notice from any Indemnified
Party of a Third Party Claim that is not a Parent Assumable Claim, Parent REIT
or Parent OP shall have the right to participate in the settlement or defense
thereof through counsel chosen by Parent REIT or Parent OP (the fees and
expenses of such counsel shall be borne by Parent REIT or Parent OP and shall
not be indemnified hereunder as a Loss) and the Indemnified Party shall not
settle any such Third Party Claim or consent to any judgment without the consent
of Parent REIT or Parent OP (not to be unreasonably withheld or
delayed).
(d) The
Representative shall have thirty (30) days after receiving notice from any
Indemnified Party of any Third Party Claim which seeks solely cash damages (and
does not include any request for specific performance, or injunctive or other
equitable relief) and the maximum liability in respect of such Third Party Claim
and all other pending unresolved indemnity claims pursuant to
Section 10.2(a)
does
not exceed the value of the Escrow Cash and Escrow Units then held in the Escrow
Account (valued at the Parent Closing Price (a “
Representative Assumable
Claim
”) to assume the conduct and control, through counsel reasonably
acceptable to Parent REIT and Parent OP at the expense of the Representative
(not to be paid out of or reimbursed from the Escrow Account) of the settlement
or defense of such Third Party Claim, and the Indemnified Party shall cooperate
with the Representative in connection therewith. The Representative
shall permit the Indemnified Party to participate in such settlement or defense
through counsel chosen by such Indemnified Party (the fees and expenses of such
counsel shall be borne by such Indemnified Party and shall not be indemnified
hereunder as a Loss). So long as the Representative is reasonably
contesting (or causing any of its Subsidiaries to reasonably contest) any such
Third Party Claim in good faith, the Indemnified Party shall not pay or settle
any such Third Party Claim without the consent of the Representative (not to be
unreasonably withheld or delayed). Notwithstanding the foregoing, the
Representative shall not, except with the consent of Parent REIT and Parent OP
enter into any settlement that does not include as an unconditional term thereof
the giving by the Person(s) asserting such Third Party Claim to all Indemnified
Parties an unconditional release from all liability with respect to such claim
or consent to entry of any judgment. If the Representative does not
elect to undertake the defense of such Third Party Claim, the Parent Indemnitees
shall have the right to contest the Third Party Claim without waiving their
right to indemnity therefor pursuant to this Agreement.
(e) In
the event the Representative receives notice from any Indemnified Party of a
Third Party Claim that is not a Representative Assumable Claim, the
Representative shall have the right to participate in the settlement or defense
thereof through counsel chosen by the Representative (the fees and expenses of
such counsel shall be borne by the Representative and shall not be payable out
of the Escrow Account) and Parent Indemnitee shall not settle any such Third
Party Claim or consent to any judgment without the consent of the Representative
(not to be unreasonably withheld or delayed).
(f) Notwithstanding
anything in this Agreement or the Escrow Agreement to the contrary, no Parent
Indemnitee shall directly or indirectly settle, compromise or consent to any
judgment of any Third Party Claim for which such Parent Indemnitee may be
entitled to seek indemnification hereunder, regardless of whether it is a
Representative Assumable Claim or whether the Representative has received notice
thereof or elected to exercise or waive its rights to assume the conduct and
control of the settlement or defense thereof, without the prior written consent
of the Representative (not to be unreasonably withheld or delayed), and in the
event of any such settlement, compromise or consent to judgment without the
prior written consent of the Representative, the Parent Indemnitees and their
respective Affiliates shall have no further rights (and shall be deemed to have
irrevocably waived any such rights) to indemnification hereunder, whether from
the Escrow Account or otherwise.
(g) Notwithstanding
anything in this Agreement or the Escrow Agreement to the contrary, the
Representative shall not directly or indirectly settle, compromise or consent to
any judgment of any Third Party Claim for which the Member Indemnitee may be
entitled to seek indemnification hereunder, regardless of whether the Parent
Indemnitees have received notice thereof or elected to exercise or waive their
rights to assume the conduct and control of the settlement or defense thereof,
without the prior written consent of the Parent REIT or Parent OP (not to be
unreasonably withheld or delayed), and in the event of any such settlement,
compromise or consent to judgment without the prior written consent of Parent
REIT or Parent OP, the Member Indemnitees and their respective Affiliates shall
have no further rights (and shall be deemed to have irrevocably waived any such
rights) to indemnification hereunder.
(h) The
parties hereto shall reasonably cooperate in the defense or prosecution of any
Third Party Claim in respect of which indemnity may be sought hereunder and
shall furnish such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and appeals, as may be
reasonably requested in connection therewith.
Section
10.4
Limitations on
Indemnification Obligations
The
rights to indemnification pursuant to the provisions of
Section 10.2
are
subject to the following limitations:
(a) the
amount of any and all Losses recoverable pursuant to
Section 10.2(a)
,
Section 10.2(b)
and
Section
10.2(c)
shall be determined net of any amounts recovered by the Parent
Indemnitees or their Affiliates, or the Member Indemnitees or their Affiliates,
as applicable, under insurance policies or other collateral sources (such as
contractual indemnities of any Person which are contained outside of this
Agreement), including the Tax Matters Agreements (to the extent includable in
indemnifiable Losses), with respect to such Losses;
(b) the
Parent Indemnitees shall not be entitled to recover in respect of any individual
claim pursuant to
Section 10.2(a)(i)
,
Section
10.2(a)(ii)
,
Section
10.2(a)(iv)(A)
,
Section 10.2(b)(i)
or
Section
10.2(b)(ii)
unless the aggregate Losses relating to or arising out of
such claim (together with any related claims or other claims which arise from a
substantially similar course of conduct or facts) equal or exceed $***
25
;
provided
, that this
Section 10.4(b)
shall not apply to any claim for indemnification pursuant to (x)
Section 10.2(a)(i)
to
the extent such claim is based upon a breach of the representations and
warranties set forth in
Section 3.2
(Capitalization of the Group Companies),
Section 3.3
(Authority) or
Section
3.15
(Brokers) or (y)
Section 10.2(b)(i)
to
the extent such claim is based upon a breach of a representation and warranty
set forth in
Section
4.2
(Authority),
Section 4.4
(Title)
or
Section 4.6
(Brokers);
(c) the
Member Indemnitees shall not be entitled to recover in respect of any individual
claim pursuant to
Section 10.2(c)(i)
or
Section
10.2(c)(ii)
unless the aggregate Losses relating to or arising out of
such claim (together with any related claims or other claims which arise from a
substantially similar course of conduct or facts) equal or exceed an amount
equal to $***
26
;
provided
, that this
Section 10.4(c)
shall not apply to any claim for indemnification pursuant to (x)
Section 10.2(c)(i)
to
the extent such claim is based upon a breach of the representations and
warranties set forth in
Section 5.2
(Authority),
Section
5.6
(Brokers) or
Section 5.10
(New
Company);
25
Certain
portions have been omitted in connection with an application for confidential
treatment therefor.
26
Certain
portions have been omitted in connection with an application for confidential
treatment therefor.
(d) the
Parent Indemnitees shall not be entitled to recover Losses pursuant to
Section 10.2(a)(i),
Section
10.2(a)(ii)
or
Section
10.2(a)(iv)(A)
until the aggregate amount which the Parent Indemnitees
would recover under such sections (as limited by the provisions of
Section 10.4(a)
and
Section 10.4(b)
and
Section
12.15
) exceeds $***
27
(the
“
Threshold
”),
in which case, the Parent Indemnitees shall only be entitled to recover Losses
in excess of the Threshold;
provided
, that the
Threshold shall not apply to any claim for indemnification pursuant to
Section 10.2(a)(i)
to
the extent such claim is based upon a breach of the representations and
warranties set forth in
Section 3.2
(Capitalization of the Group Companies) or
Section 3.3
(Authority);
(e) the
Member Indemnitees shall not be entitled to recover Losses pursuant to
Section 10.2(c)(i)
or
Section
10.2(c)(ii)
until the aggregate amount which the Member Indemnitees would
recover under
Section
10.2(c)(i)
and
Section 10.2(c)(ii)
(as limited by the provisions of
Section 10.4(a)
and
Section 10.4(d)
and
Section
12.15
) exceeds the Threshold, in which case, the Member Indemnitees shall
only be entitled to recover Losses in excess of the Threshold;
provided
, that the
Threshold shall not apply to any claim for indemnification pursuant to
Section 10.2(c)(i)
to
the extent such claim is based upon a breach of the representations and
warranties set forth in
Section 5.2
(Authority),
Section
5.6
(Brokers) or
Section 5.10
(New
Company);
(f) except
with respect to any claims resulting from the failure to complete the Financing
pursuant to the terms of this Agreement (including as a result of any waiver by
the Contributors of
Section 8.3(c)
, the
aggregate liability of Parent REIT, Parent OP and Parent Sub pursuant to
Section 10.2(c)(i)
and
Section
10.2(c)(ii)
shall not exceed the Aggregate Unit Value and the Member
Indemnitees, collectively, shall not be entitled to recover Losses pursuant to
Section
10.2(c)(i)
and
Section 10.2(c)(ii)
in excess of the Aggregate Unit Value;
(g) the
aggregate liability of any Contributor or LVP REIT pursuant to
Section 10.2(b)(i)
and
Section
10.2(b)(ii)
shall not exceed the aggregate consideration actually
received by such Person pursuant to
Article 2
(valued, in
the case of Parent OP Common Units, at the Parent Closing Price) less the amount
of Escrow Cash and Escrow Units allocated to such Person and not distributed
thereto and the Parent Indemnitees, collectively, shall not be entitled to
recover Losses pursuant to
Section 10.2(a)
,
Section
10.2(b)(i)
and
Section 10.2(b)(ii)
in excess of the Aggregate Consideration Value less the amount of Escrow Cash
and Escrow Units allocated to such Person;
(h) (x)
the Escrow Units and Escrow Cash in the Escrow Account at any given time shall
be the sole source of recovery with respect to Losses indemnifiable pursuant to
Section
10.2(a)
, and in no event shall the Parent Indemnitees be entitled to
recover more than the amount of Escrow Cash and Escrow Units available in the
Escrow Account pursuant to
Section 10.2(a)
and
(y) in the event any facts, conditions, conduct or claims, or series of related
or substantially similar facts, conditions, conduct or claims, result in Losses
pursuant to which the Parent Indemnitees are entitled to indemnification
pursuant to
Section
10.2(a)
and
Section 10.2(b)
, the
Parent Indemnitees shall only be entitled to recover for such Losses pursuant to
Section 10.2(a)
and shall have no rights to indemnification pursuant to
Section 10.2(b)
other
than in the case of a breach of
Section 3.2
(Capitalization of the Group Companies) and
Section 4.4
(Title),
in which case the Parent Indemnitees shall only be entitled to recover directly
from the applicable Contributor with respect to the dual claim (it being
understood that this shall not create a limit on claims relating to breaches of
provisions in
Section
3.2
that are not also contained in
Section 4.4
);
27
Certain portions have been
omitted in connection with an application for confidential treatment
therefor.
(i) Notwithstanding
anything contained herein to the contrary, after the Closing, on the date that
the Escrow Cash and the Escrow Units are reduced to zero, the Parent Indemnitees
shall have no further rights to indemnification under
Section
10.2(a)
. In any case where a Parent Indemnitee recovers, under
insurance policies or from other collateral sources, any amount in respect of a
matter for which such Parent Indemnitee was indemnified pursuant to
Section 10.2(a)
or
Section
10.2(b)
, such Parent Indemnitee shall promptly pay over to the
Representative (for further distribution to the Contributors) the amount so
recovered (after deducting therefrom the full amount of the expenses incurred by
such Parent Indemnitee in procuring such recovery), but not in excess of the
sum
of
(i) any
amount previously so paid to or on behalf of such Parent Indemnitee in respect
of such matter and (ii) any amount expended by the Representative in pursuing or
defending any claim arising out of such matter;
(j) Following
the Closing, the Parent Indemnitees and the Member Indemnitees shall take
commercially reasonable steps to mitigate any Losses with respect to which
indemnification may be requested under this
Article 10
and the
costs associated with such mitigation shall be included in the Losses with
respect to which indemnification may be requested under this
Article 10
;
and
(k) In
no event shall a Parent Indemnitee be entitled to recover Losses pursuant to
Section
10.2(b)(i)
in respect of a breach of the representations and warranties
in Article 3 hereof.
Section
10.5
The
Representative
The
parties hereto acknowledge and agree that the Representative may perform certain
administrative functions in connection with the consummation of the Contemplated
Transactions. Accordingly, the parties hereto acknowledge and agree
that the Representative (in its capacity as Representative) shall have no
liability to, and shall not be liable for any Losses of, any Member Indemnitee
or Parent Indemnitee in connection with any obligations of the Representative
under this Agreement or the Escrow Agreement or otherwise in respect of this
Agreement or the Contemplated Transactions.
Section
10.6
Exclusive
Remedy
Notwithstanding
anything contained in this Agreement to the contrary, except for any claim by
the Parent Parties against a Contributor for the Fraud of such Contributor, from
and after Closing, indemnification pursuant to the provisions of this
Article 10
shall be
the sole and exclusive remedy of any party hereto and each of its respective
Affiliates (including, in the case of the Parent Parties after the Closing, the
Group Companies) for any misrepresentation or any breach of any representation,
warranty, covenant or other provision or agreement contained in this Agreement,
in any certificate delivered pursuant hereto or otherwise (including, without
limitation, with respect to any matters arising under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended from
time to time, or any other environmental matters) and for any and all other
claims arising under, out of or related to this Agreement, the negotiation or
execution hereof, or the Contemplated Transactions, and no party hereto or any
of its respective Affiliates (including, in the case of the Parent Parties after
the Closing, the Group Companies) shall have any other entitlement, remedy or
recourse, at law or in equity, whether in contract, tort or otherwise, it being
agreed that all of such other remedies, entitlements and recourse (other than
with respect to any claim by the Parent Parties against a Contributor for the
Fraud of such Contributor) are expressly waived and released by the parties
hereto, on behalf of themselves and their respective Affiliates (including, in
the case of the Parent Parties after the Closing, the Group Companies), to the
fullest extent permitted by Law;
provided
, in each
case, that disputes as to financial matters referred to in
Section 2.3(d)
shall be resolved solely in accordance with
Section 2.3(d)
.
Section
10.7
Manner of Payment;
Escrow
(a) The
Escrow Agent shall accept the deposit of the Escrow Units and Escrow Cash and
shall administer the Escrow Units and Escrow Cash and release Escrow Units and
Escrow Cash in accordance with the terms and subject to the conditions set forth
herein and in the Escrow Agreement.
(b) Subject
to the terms and conditions of this Agreement and, if applicable, the Escrow
Agreement, (i) any indemnification of the Parent Indemnitees pursuant to
Section 10.2(a)
shall, except as otherwise provided herein, be effected by the Escrow Agent’s
delivery to such Parent Indemnitees (subject to
Section 10.7(e)
) of
an amount of Escrow Cash and/or Escrow Units Escrow Units (rounded to the
nearest whole Escrow Unit and valued at the Parent Closing Price (with no
issuance of fractional Escrow Units) that are, together, equal in value to the
amount of such Parent Indemnitees’ indemnification pursuant to
Section 10.2(a)
with
the composition of Escrow Cash and Escrow Units being determined by the
Representative, within five (5) Business Days after the final determination
thereof, (ii) any indemnification of the Parent Indemnitees pursuant to
Section 10.2(b)
shall
be effected by wire transfer of immediately available funds from the applicable
Persons to an account designated in writing by the applicable Parent
Indemnitees, as the case may be, within five (5) Business Days after the final
determination thereof and (iii) any indemnification of the Member Indemnitees
pursuant to
Section
10.2(c)
shall be effected by wire transfer of immediately available funds
from the applicable Persons to an account designated in writing by the
applicable Member Indemnitees, as the case may be, within five (5) Business Days
after the final determination thereof.
(c) Any
Escrow Units and Escrow Cash remaining in the Escrow Account as of the Survival
Period Termination Date (minus the maximum aggregate amount (valuing any Escrow
Units at their Parent Closing Price) which shall be retained in Escrow Units
and/or Escrow Cash in the proportion requested by the Representative, if any, of
claims asserted in accordance with this
Article 10
by the
Parent Indemnitees against the Escrow Account pursuant to
Section 10.2(a)
that
are not fully resolved as of the Survival Period Termination Date) shall be
released to the Representative on the Survival Period Termination Date and the
Representative and Parent REIT or Parent OP shall deliver joint written
instructions instructing the Escrow Agent to deliver such Escrow Units from the
Escrow Account to the Representative for further distribution to the
Contributors. To the extent that, as a result of resolution of
pending claims, the value of the Escrow Units and Escrow Cash held in the Escrow
Account (valued at the Parent Closing Price) exceeds, at any time following the
Survival Period Termination Date, the aggregate amount of claims then
outstanding by the Parent Indemnitees against the Escrow Account pursuant to
Section
10.2(a)
, such excess Escrow Units and/or Escrow Cash (at the
Representative’s election) shall be promptly released to the Representative for
further distribution to the Contributors.
(d) During
the period in which the Escrow Units and Escrow Cash are retained in the Escrow
Account, the Escrow Units and Escrow Cash will be held for the benefit of the
applicable Contributors (and the applicable Contributors shall be entitled to
vote and to receive, and the Escrow Agent shall promptly deliver to the
Representative for further distribution to the Contributors, all cash dividends
and cash distributions on such Escrow Units and all interest on such Escrow
Cash, which dividends and interest shall be income of the applicable
Contributors for Tax purposes), except to the extent it has been finally
determined that any Parent Indemnitee is entitled to recover such Escrow Units
in respect of indemnification claims pursuant to this
Article
10
. Any distributions on such Escrow Units made in the form of
Parent OP Common Units will be deemed to have been contributed by the Escrow
Agent, on behalf of each applicable Contributor, to New Company in exchange for
an equal number of New Company Common Units to be issued in the name of such
Contributor.
(e) The
Representative and Parent OP shall deliver joint written instructions to the
Escrow Agent instructing the Escrow Agent to make all deliveries of Escrow Units
and Escrow Cash from the Escrow Account expressly provided for herein and the
Escrow Agreement. In the event the Representative and Parent OP shall
have instructed the Escrow Agent to deliver any Escrow Units or Escrow Cash to a
Parent Indemnitee pursuant to the first sentence of
Section 10.7(b)
or
any Escrow Cash pursuant
Section 2.3(e)(ii)
,
such Escrow Units and Escrow Cash shall be allocated by the Escrow Agent among
the Escrow Units and Escrow Cash of the Contributors in proportion to their
respective Applicable Percentage Interest as set forth on
Annex D
.
(f) The
parties hereto agree that for Tax purposes: (i) the Contributors shall be
treated as the owner of the Escrow Units and Escrow Cash, (ii) the initial
amount distributed to the Contributors in consideration of the Contributions
shall include the Escrow Units and Escrow Cash, and (iii) the return to Parent
Indemnitees of Escrow Units and/or Escrow Cash upon settlement of claims in
accordance with
Article 10
shall be
treated as a reduction to the amount distributed to the Contributors in
consideration of the Contributions.
ARTICLE
11
REPRESENTATIVE
OF THE CONTRIBUTORS
Section
11.1
Authorization of
Representative
(a) Each
Contributor and LVP REIT, by its execution of this Agreement, hereby appoints,
authorizes and empowers Lightstone Prime, with full power of substitution and
resubstitution, to act as the representative (the “
Representative
”), for
the benefit of the Contributors and LVP REIT, and as the exclusive agent and
attorney-in-fact to act on behalf of each Contributor and LVP REIT, in
connection with and to facilitate the consummation of the Contemplated
Transactions, including, without limitation, pursuant to the Escrow Agreement,
which shall include the power and authority:
(i) to
execute and deliver the Escrow Agreement (with such modifications or changes
therein as to which the Representative, in its sole discretion, shall have
consented) and to agree to such amendments or modifications thereto as the
Representative, in its sole discretion, determines to be desirable;
(ii) to
execute and deliver such waivers and consents in connection with this Agreement
and the Escrow Agreement and the consummation of the Contemplated Transactions
as the Representative, in its sole discretion, may deem necessary or
desirable;
(iii) to
collect and receive all moneys and other proceeds and property payable to the
Representative from the Escrow Account as described herein or otherwise payable
to the Representative pursuant to this Agreement, and, subject to any applicable
withholding retention laws, and net of any out-of-pocket expenses incurred by
the Representative, the Representative shall disburse, deliver and pay the same,
no later than three (3) Business Days from the date of receipt of such moneys,
proceeds and/or property by the Representative, to each of the Contributors,
subject to
Section
10.7(e)
, in accordance with and to the extent of each such Contributor’s
respective contributions to the Escrow Account.
(iv) as
the Representative, to enforce and protect the rights and interests of the
Contributors and LVP REIT and to enforce and protect the rights and interests of
the Representative arising out of or under or in any manner relating to this
Agreement and the Escrow Agreement, and each other agreement, document,
instrument or certificate referred to herein or therein or the transactions
provided for herein or therein (including, without limitation, in connection
with any and all claims asserted in accordance with the terms of this
Article 10
), and to
take any and all actions which the Representative believes are necessary or
appropriate under the Escrow Agreement and/or this Agreement for and on behalf
of the Contributors and LVP REIT, including, without limitation, asserting or
pursuing any claim, action, proceeding or investigation (a “
Claim
”) against
Parent REIT, Parent OP and/or Parent Sub, defending any Third Party Claims or
Claims by the Parent Indemnitees, consenting to, compromising or settling any
such Claims, conducting negotiations with Parent REIT, Parent OP, Parent Sub and
their respective representatives regarding such Claims, and, in connection
therewith, to (A) assert any claim or institute any action, proceeding or
investigation, (B) investigate, defend, contest or litigate any claim,
action, proceeding or investigation initiated by Parent REIT, Parent OP, Parent
Sub or any other Person, or by any federal, state or local Governmental Entity
against the Representative and/or any of the Contributors or LVP REIT or the
Escrow Units or Escrow Cash, and receive process on behalf of any or all
Contributors and LVP REIT in any such claim, action, proceeding or investigation
and compromise or settle on such terms as the Representative shall determine to
be appropriate, and give receipts, releases and discharges with respect to any
such claim, action, proceeding or investigation, (C) file any proofs of
debt, claims and petitions as the Representative may deem advisable or
necessary, (D) settle or compromise any claims asserted under the Escrow
Agreement and (E) file and prosecute appeals from any decision, judgment or
award rendered in any such action, proceeding or investigation, it being
understood that the Representative shall not have any obligation to take any
such actions, and shall not have any liability for any failure to take any such
actions;
(v) to
refrain from enforcing any right of any Contributors, LVP REIT and/or the
Representative arising out of or under or in any manner relating to this
Agreement, the Escrow Agreement or any other agreement, instrument or document
in connection with the foregoing;
provided
,
however
, that no such
failure to act on the part of the Representative, except as otherwise provided
in this Agreement or in the Escrow Agreement, shall be deemed a waiver of any
such right or interest by the Representative or by such Contributors or LVP REIT
unless such waiver is in writing signed by the waiving Contributors, LVP REIT or
by the Representative (it being understood that no Contributor or LVP REIT shall
have any right to directly assert any claim against the Representative);
and
(vi) to
make, execute, acknowledge and deliver all such other agreements, guarantees,
orders, receipts, endorsements, notices, requests, instructions, certificates,
unit powers, letters and other writings, and, in general, to do any and all
things and to take any and all action that the Representative, in its sole and
absolute discretion, may consider necessary or proper or convenient in
connection with or to carry out the Contemplated Transactions, the Escrow
Agreement, and all other agreements, documents or instruments referred to herein
or therein or executed in connection herewith and therewith.
(b) The
Representative shall not be entitled to any fee, commission or other
compensation for the performance of its services hereunder. In
connection with this Agreement, the Escrow Agreement and any instrument,
agreement or document relating hereto or thereto, and in exercising or failing
to exercise all or any of the powers conferred upon the Representative hereunder
(i) the Representative and the Parent Indemnitees shall incur no
responsibility whatsoever to any Contributor or LVP REIT by reason of any error
in judgment or other act or omission performed or omitted hereunder or in
connection with the Escrow Agreement or any such other agreement, instrument or
document by the Representative, excepting only (in the case of the
Representative only) responsibility for any act or failure to act by the
Representative which represents bad faith or willful misconduct and
(ii) the Representative shall be entitled to rely on the advice of counsel,
public accountants or other independent experts experienced in the matter at
issue, and any error in judgment or other act or omission of the Representative
pursuant to such advice shall in no event subject the Representative to
liability to any Contributor or LVP REIT, except where such reliance is in bad
faith or is a result of the Representative’s willful misconduct. Each
Contributor and LVP REIT shall indemnify, pro rata based upon such Contributor’s
Applicable Percentage Interest (or in the case of LVP REIT, the combined
Applicable Percentage Interest of LVP OP and Pro-DFJV), the Representative
against all losses, damages, liabilities, claims, obligations, costs and
expenses, including, without limitation, reasonable attorneys’, accountants’ and
other experts’ fees and the amount of any judgment against them, of any nature
whatsoever (including, without limitation, any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claims whatsoever), arising out of
or in connection with any claim, investigation, challenge, action or proceeding
or in connection with any appeal thereof, relating to the acts or omissions of
the Representative hereunder, or under the Escrow Agreement or otherwise in its
capacity as the Representative. The foregoing indemnification shall
not apply in the event of any action or proceeding which finally adjudicates the
liability of the Representative hereunder for its willful
misconduct. In the event of any indemnification under this clause
(b), upon written notice from the Representative to the Contributor or LVP REIT
as to the existence of a deficiency toward the payment of any such
indemnification amount, each Contributor and LVP REIT shall promptly deliver to
the Representative full payment of its, his or her ratable share of the amount
of such deficiency, in accordance with such Contributor’s Applicable Percentage
Interest (or in the case of LVP REIT, the combined Applicable Percentage
Interest of LVP OP and Pro-DFJV).
(c) All
of the indemnities, immunities and powers granted to the Representative under
this Agreement shall survive the Closing and/or any termination of this
Agreement and/or the Escrow Agreement.
(d) Parent
REIT, Parent OP and Parent Sub shall have the right to rely upon all actions
taken or omitted to be taken by the Representative pursuant to this Agreement
and the Escrow Agreement, all of which actions or omissions shall be legally
binding upon the Contributors.
(e) The
grant of authority provided for herein (i) is coupled with an interest and
shall be irrevocable and survive the death, incompetency, bankruptcy or
liquidation of any Contributor or LVP REIT, and (ii) shall survive the
consummation of the Closing.
(f) Upon
the written request of any Contributor or LVP REIT, the Representative shall
provide such Contributor or LVP REIT with an accounting of all monies received
and distributed by the Representative, in its capacity as the Representative,
and shall provide such Contributor or LVP REIT with such other reasonable
information regarding the Representative’s actions, in its capacity as the
Representative, as such Contributor or LVP REIT may reasonably
request.
ARTICLE
12
MISCELLANEOUS
Section
12.1
Entire Agreement;
Assignment
(a) This
Agreement and the other Transaction Documents contain the entire agreement of
the parties hereto respecting the subject matter hereof and supersede all prior
agreements among the parties hereto respecting the same. The parties
hereto have voluntarily agreed to define their rights, liabilities and
obligations respecting the subject matter hereof exclusively in contract
pursuant to the express terms and provisions of this Agreement and the other
Transaction Documents and the parties hereto expressly disclaim that they are
owed any duties or are entitled to any remedies not expressly set forth in this
Agreement or the other Transaction Documents. Furthermore, the
parties hereto each hereby acknowledge that this Agreement embodies the
justifiable expectations of sophisticated parties derived from arm’s-length
negotiations; all parties to this Agreement specifically acknowledge that no
party has any special relationship with another party that would justify any
expectation beyond that of ordinary parties in an arm’s-length
transaction. . The sole and exclusive remedies for any
breach of the terms and provisions of this Agreement or the other Transaction
Documents (including any representations and warranties set forth herein or the
other Transaction Documents, made in connection herewith or the other
Transaction Documents or as an inducement to enter into this Agreement or the
other Transaction Documents) or any claim or cause of action otherwise arising
out of or related to the Contemplated Transactions shall be those remedies
available at law or in equity for breach of contract only (as such contractual
remedies have been further limited or excluded pursuant to the express terms of
this Agreement or the other Transaction Documents); and each party hereto hereby
agrees that no party hereto shall have any remedies or cause of action (whether
in contract or in tort) for any statements, communications, disclosures,
failures to disclose, representations or warranties not set forth in this
Agreement or the other Transaction Documents. Notwithstanding the foregoing,
claims by any Parent Party against any Contributor, to the extent arising from
the Fraud of such Contributor, shall not be prohibited by this
Section
12.1(a)
.
(b) This
Agreement may not be assigned by any party (whether by operation of law or
otherwise) without the prior written consent of Parent REIT, Parent OP, the
Company and the Representative. Any attempted assignment of this
Agreement not in accordance with the terms of this
Section 12.1
shall be
void;
provided
,
however
, that,
so long as such assignment would not prevent or materially impair or delay the
Closing of the Contemplated Transactions, Parent REIT, Parent OP or Parent Sub
may assign this Agreement and any of their rights under this Agreement to one or
more Affiliates of Parent REIT, Parent OP or Parent Sub, provided that any such
assignment shall not relieve Parent REIT, Parent OP or Parent Sub of any of
their obligations hereunder.
Section
12.2
Notices
All
notices, requests, claims, demands and other communications hereunder shall be
in writing and shall be given (and shall be deemed to have been duly given upon
receipt) by delivery in person, by cable, telegram, facsimile, scanned pages or
telex, or by registered or certified mail (postage prepaid, return receipt
requested) as follows:
To Parent REIT, Parent OP or
Parent Sub:
Simon
Property Group, Inc
225 West
Washington Street
Indianapolis,
Indiana 46204
Attention: James
M. Barkley, Esq.
Facsimile: 317.685.7377
with a
copy (which copy shall not constitute notice) to:
Fried,
Frank, Harris, Shriver and Jacobson LLP
One New
York Plaza
New York,
New York 10004
Tel:
212.859.8980
Attention: Peter
S. Golden, Esq.
To the Company (prior to the
Closing)
:
Prime
Outlets Acquisition Company LLC
217 East
Redwood Street, 20th Floor
Baltimore,
MD 21202
Attention: Kelvin
Antill, Esq.
Facsimile: 410.234.0275
with a copy (which shall not
constitute notice) to
:
Lightstone
Prime, LLC
c/o The
Lightstone Group
1985
Cedar Bridge Avenue
Lakewood,
NJ 08701
Attention: Joseph
E. Teichman, Esq.
Facsimile: 732.612.1444
and, with a copy (which
shall not constitute notice) to:
Paul,
Weiss, Rifkind, Wharton & Garrison LLP
1285
Avenue of the Americas
New York,
New York 10019-6064
Attention: Jeffrey
D. Marell, Esq.
Robert
B. Schumer, Esq.
Facsimile: 212.757.3990
To the
Representative
:
Lightstone
Prime, LLC
c/o The
Lightstone Group
1985
Cedar Bridge Avenue
Lakewood,
NJ 08701
Attention: Joseph
E. Teichman, Esq.
Facsimile: 732.612.1444
with a copy (which shall not
constitute notice) to
:
Paul,
Weiss, Rifkind, Wharton & Garrison LLP
1285
Avenue of the Americas
New York,
New York 10019-6064
Attention: Jeffrey
D. Marell, Esq.
Robert
B. Schumer, Esq.
Facsimile: 212.757.3990
or to
such other address as any party to whom notice is given may have previously
furnished to the others in writing in the manner set forth
above.
Section
12.3
Governing
Law
This
Agreement, and all claims or causes of action (whether in contract or tort) that
may be based upon, arise out of or relate to this Agreement, or the negotiation,
execution or performance of this Agreement (including any claim or cause of
action based upon, arising out of or related to any representation or warranty
made in or in connection with this Agreement or as an inducement to enter into
this Agreement), shall be governed by the internal laws of the State of Delaware
as applicable to agreements made and to be performed entirely within the State
of Delaware, without regard to conflict of law principles or rules.
Section
12.4
Fees and
Expenses
Except as
otherwise expressly set forth in this Agreement or
Annex E
, whether or
not the Closing is consummated, all fees and expenses incurred in connection
with this Agreement and the Contemplated Transactions, including, without
limitation, the fees and disbursements of counsel, financial advisors and
accountants, shall be paid by the party incurring such fees or
expenses.
Section
12.5
Construction;
Interpretation
The term
“this Agreement” means this Contribution Agreement together with all Schedules,
exhibits and annexes hereto, as the same may from time to time be amended,
modified, supplemented or restated in accordance with the terms
hereof. The headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement. No party, nor its respective counsel, shall be
deemed the drafter of this Agreement for purposes of construing the provisions
hereof, and all provisions of this Agreement shall be construed according to
their fair meaning and not strictly for or against any party
hereto. Unless otherwise indicated to the contrary herein by the
context or use thereof: (i) the words, “herein,” “hereto,” “hereof” and words of
similar import refer to this Agreement as a whole, including, without
limitation, the Schedules, exhibits and annexes, and not to any particular
section, subsection, paragraph, subparagraph or clause contained in this
Agreement; (ii) masculine gender shall also include the feminine and neutral
genders, and vice versa; and (iii) words importing the singular shall also
include the plural, and vice versa.
Section
12.6
Exhibits, Annexes and
Schedules
All
exhibits, annexes and Schedules, or documents expressly incorporated into this
Agreement, are hereby incorporated into this Agreement and are hereby made a
part hereof as if set out in full in this Agreement. The
specification of any dollar amount in the representations and warranties
contained in this Agreement or the inclusion of any specific item in any
Schedule is not intended to imply that such amounts, or higher or lower amounts
or the items so included or other items, are or are not material, and no party
shall use the fact of the setting of such amounts or the inclusion of any such
item in any dispute or controversy as to whether any obligation, items or matter
not described herein or included in a Schedule is or is not material for
purposes of this Agreement.
Section
12.7
Parties in
Interest
This
Agreement shall be binding upon and inure solely to the benefit of the parties
hereto and their respective successors and permitted assigns and, except as
expressly provided in
Section 6.7
,
Section 7.2
and
Article 10
and
Article 12
, nothing
in this Agreement, express or implied, is intend to or shall confer upon any
other Person (other than the Representative, in its capacity as set forth
herein) any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
Section
12.8
Severability
If any
term or other provision of this Agreement is invalid, illegal or unenforceable,
all other provisions of this Agreement shall remain in full force and effect so
long as the economic or legal substance of the Contemplated Transactions is not
affected in any manner materially adverse to any Party.
Section
12.9
Counterparts; Facsimile
Signatures
This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to
this Agreement by facsimile or scanned pages shall be effective as delivery of a
manually executed counterpart to this Agreement.
Section
12.10
Obligations Joint and
Several
The
obligations of Parent REIT, Parent OP and Parent Sub hereunder are jointly and
severally guaranteed by each other.
Section
12.11
Knowledge of the
Company
For all
purposes of this Agreement, the phrase “to the Company’s knowledge” and “known
by the Company” and any derivations thereof shall mean as of the applicable
date, the actual knowledge of the Company Knowledge Parties, none of whom shall
have any personal liability or obligations regarding such
knowledge.
Section
12.12
Waiver of Jury
Trial
Each
party hereto hereby waives, to the fullest extent permitted by law, any right to
trial by jury of any claim, demand, action, or cause of action (i) arising
under this Agreement or (ii) in any way connected with or related or
incidental to the dealings of the parties in respect of this Agreement or any of
the transactions related hereto, in each case, whether now existing or hereafter
arising, and whether in contract, tort, equity, or otherwise. Each
party hereto hereby further agrees and consents that any such claim, demand,
action, or cause of action shall be decided by court trial without a jury and
that the parties hereto may file a copy of this Agreement with any court as
written evidence of the consent of the parties hereto to the waiver of their
right to trial by jury.
Section
12.13
Jurisdiction and
Venue
Each of
the parties hereto (i) submits to the exclusive jurisdiction of any state or
federal court sitting in Delaware, in any action or proceeding (whether in
contract or tort) arising out of or relating to this Agreement, or the
negotiation, execution or performance of this Agreement (including any claim or
cause of action based upon, arising out of or related to any representation or
warranty made in or in connection with this Agreement or as an inducement to
enter into this Agreement), (ii) agrees that all such claims in respect of such
action or proceeding shall be heard and determined in any such court and (iii)
agrees not to bring any such action or proceeding in any other
court. Each of the parties hereto waives any defense of inconvenient
forum to the maintenance of any action or proceeding so brought and waives any
bond, surety or other security that might be required of any other parties
hereto with respect thereto. Each of the parties hereto agrees that
service of summons and complaint or any other process that might be served in
any action or proceeding may be made on such party by sending or delivering a
copy of the process to the party to be served at the address of the party and in
the manner provided for the giving of notices in
Section
12.2
. Nothing in this
Section 12.13
,
however, shall affect the right of any party hereto to serve legal process in
any other manner permitted by Law. Each party hereto agrees that a
final, non-appealable judgment in any action or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment or in any other manner
provided by Law.
Section
12.14
Waiver of
Conflicts
Recognizing
that Paul Weiss has acted as legal counsel to the Representative and its
Affiliates, and has acted as legal counsel to the Group Companies prior to the
Closing, and that Paul Weiss intends to act as legal counsel to the
Representative and its Affiliates after the Closing, each of Parent REIT, Parent
OP, Parent Sub and the Company hereby waives, on its own behalf and agrees to
cause its Affiliates to waive, any conflicts that may arise in connection with
Paul Weiss representing the Representative and its Affiliates (or any of the
other Contributors) after the Closing as such representation may relate to
Parent REIT, Parent OP, Parent Sub, any Group Company or the Contemplated
Transactions.
Section
12.15
Limitation on
Damages
;
Remedies
(a) Notwithstanding
anything to the contrary contained in this Agreement, the parties shall only be
entitled to recover such costs, damages, losses and expenses as would be
reasonably foreseeable by the parties hereto in connection with any proceeding
or claim pursuant to
Article 10
or
otherwise seeking damages with respect to a breach of this Agreement;
provided
, that in no
event shall any party be liable (directly or indirectly, including through any
recovery from the Escrow Account) for any punitive damages or damages in excess
of the actual damages of any other party.
(b) Notwithstanding
anything to the contrary in this Agreement, without limiting
Section 7.2(a)
, no
past or present director, officer, member, partner, shareholder, Affiliate,
attorney or representative of any Group Company (other than a Group Company) or
any of their respective Affiliates (including the Representative, but excluding
any Group Company) shall have any liability (whether in contract or in tort),
except to the extent of the Escrow Account following the Closing, for any
obligations or liabilities of the Group Companies arising under, in connection
with or related to this Agreement or the other Transaction Documents or for any
claim based on, in respect of, or by reason of, the Contemplated Transactions,
including, without limitation, any alleged non-disclosure or misrepresentations
made by any such Persons. Each such foregoing Person is an intended third-party
beneficiary of this
Section
12.16(b)
. Notwithstanding the foregoing, claims by any Parent
Party against any Contributor, to the extent arising from the Fraud of such
Contributor, shall not be prohibited by this
Section
12.15(b)
.
(c) The
ability of any Parent Party to assert claims for Fraud against the Contributors
with respect to representations, warranties or covenants of the Group Companies
shall not be limited by the fact that the Contributors have not provided any
representations or warranties with respect thereto and the Contributors hereby
waive any such defense.
Section
12.16
Specific
Performance
Prior to
Closing, each of the parties hereto (and the Representative, on behalf of the
Contributors) shall be entitled to an injunction or injunctions, without the
necessity of posting bond, to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement, in addition to any
other remedy to which such party is entitled at law or in equity. In
furtherance thereof, each of the parties hereto hereby waives (and agrees not to
assert) (i) any defense in any action for specific performance that a remedy at
law would be adequate, and (ii) any requirement under any Laws to post a bond or
other security as a prerequisite to obtaining equitable relief.
* * * * *
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
SIMON
PROPERTY GROUP, INC.
|
|
|
By:
|
/s/ David Simon
|
|
Name:
David Simon
|
|
Title:
Chief Executive Officer and
Chairman
of the
Board
|
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
SIMON
PROPERTY GROUP, L.P
|
By
Simon Property Group, Inc.
|
its
General Partner
|
|
By:
|
/s/ David Simon
|
|
Name:
David Simon
|
|
Title:
Chief Executive Officer and
Chairman
of the
Board
|
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
MARCO
CAPITAL ACQUISITION,
LLC
|
|
|
By:
|
/s/ Stephen E. Sterrett
|
|
Name:
Stephen E. Sterrett
|
|
Title:
Executive Vice President and
Chief
Financial Officer
|
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
PRIME
OUTLETS ACQUISITION
COMPANY
LLC
|
|
|
By:
|
/s/ Joseph E. Teichman
|
|
Name:
Joseph E. Teichman
|
|
Title:
Authorized
Signatory
|
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
|
LIGHTSTONE
VALUE PLUS REIT,
|
|
|
|
|
By:
|
/s/ Joseph E. Teichman
|
|
|
Name:
Joseph E. Teichman
|
|
|
Title:
Authorized
Signatory
|
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
|
PRO-DFJV
HOLDINGS LLC
|
|
|
|
|
By:
|
/s/ Joseph E. Teichman
|
|
|
Name:
Joseph E. Teichman
|
|
|
Title:
Authorized Signatory
|
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
|
LIGHTSTONE
HOLDINGS, LLC
|
|
|
|
|
By:
|
/s/ Joseph E. Teichman
|
|
|
Name:
Joseph E. Teichman
|
|
|
Title:
Authorized Signatory
|
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
LIGHTSTONE
PRIME, LLC
|
|
|
By:
|
/s/ David Lichtenstein
|
|
Name:
David Lichtenstein
|
|
Title:
President
|
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
|
BRM,
LLC
|
|
|
|
|
By:
|
/s/ Joseph E. Teichman
|
|
|
Name:
Joseph E. Teichman
|
|
|
Title:
Authorized Signatory
|
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
|
LIGHTSTONE
REAL PROPERTY
VENTURES
LIMITED LIABILITY
COMPANY
|
|
|
|
By:
|
/s/ Joseph E. Teichman
|
|
|
Name:
Joseph E. Teichman
|
|
|
Title:
Authorized
Signatory
|
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
|
PR
LIGHTSTONE MANAGER, LLC
|
|
|
|
|
By:
|
/s/ Joseph E. Teichman
|
|
|
Name:
Joseph E. Teichman
|
|
|
Title:
Authorized Signatory
|
IN WITNESS WHEREOF
, each of
the Parties has caused this Agreement to be duly executed on its behalf as of
the day and year first above written.
|
LIGHTSTONE
VALUE PLUS REAL
ESTATE
INVESTMENT TRUST, INC.
|
|
|
|
|
By:
|
/s/ Joseph E. Teichman
|
|
|
Name:
Joseph E. Teichman
|
|
|
Title:
Authorized Signatory
|
***
Exhibit
21.1
Subsidiaries
of Registrant
Property
Name
|
State
Organization
|
Lightstone
Value Plus REIT, LP
|
Delaware
|
LVP
Gulf Coast Industrial Portfolio
|
Delaware
|
LVP
120 Mallard LLC
|
Delaware
|
LVP
100 James LLC
|
Delaware
|
LVP
150 Canvasback LLC
|
Delaware
|
LVP
107 Mallard LLC
|
Delaware
|
LVP
143 Mallard LLC
|
Delaware
|
LVP
150 Teal LLC
|
Delaware
|
LVP
520 Elmwood Park LLC
|
Delaware
|
LVP
11301 Industriplex
|
Delaware
|
LVP
1141 Industriplex LLC
|
Delaware
|
LVP
6565 Exchequer LLC
|
Delaware
|
LVP
7042 Alamos Downs LLC
|
Delaware
|
Light
5405 Bandera LLC
|
Delaware
|
Light
1700 Grandstand LLC
|
Delaware
|
LVP
7402 Reindeer LLC
|
Delaware
|
Lake
Jackson Crossing Limited Partnership
|
Texas
|
Whitfield
Sarasota LLC
|
Delaware
|
TLG
Hotel Acquisitions, LLC
|
Delaware
|
ESD
# 5050 Houston – Katy Freeway, LLC
|
Delaware
|
ESD
# 5051 Houston – Sugar Land, LLC
|
Delaware
|
LVP
Acquisitions Corp
|
Delaware
|
LVP
Tampa Isles LLC
|
Delaware
|
LVP
Timber Creek LLC
|
Delaware
|
LVP
Eastchase LLC
|
Delaware
|
LVP
Wendover LLC
|
Delaware
|
LVP
Glen LLC
|
Delaware
|
LVP
Mallard Parking LLC
|
Delaware
|
LVP
Oakview Strip Center LLC
|
Delaware
|
LVP
Oakview Strip Center II LLC
|
Delaware
|
LVP
Camden Multi Family Portoflio, LLC
|
Delaware
|
Carriage
Hill MI LLC
|
Delaware
|
Carriage
Park MI LLC
|
Delaware
|
MaComb
Manor MI LLC
|
Delaware
|
Scotsdale
MI LLC
|
Delaware
|
LVP
Michigan MultiFamily Portfolio
|
Delaware
|
LVP
St. Augustine Outlets LLC
|
Delaware
|
LVP
1407 Broadway LLC
|
Delaware
|
PRO
DFJV Holdings, LLC
|
Delaware
|
1407
Broadway Mezz II LLC *
|
Delaware
|
Mill
Run LLC *
|
New
Jersey
|
Prime
Oulet Acqusitions Corp *
|
Delaware
|
*
Lightstone Value Plus REIT, LP owns a percentage interest in these
entities.
|
Exhibit
23.3
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby
consent to the use in this Registration Statement on Form S-11 of Lightstone
Value Plus Real Estate Investment Trust, Inc. of our report dated March 31,
2010, relating to the consolidated financial statements of Lightstone Value Plus
Real Estate Investment Trust, Inc. and Subsidiaries as of December 31, 2009 and
2008 and for each of the three years in the period ended December 31, 2009,
along with the consolidated financial statement schedule, Schedule III – Real
Estate and Accumulated Depreciation, as of December 31, 2009, which appear
elsewhere herein.
We also
consent to the reference to us under the heading “Experts” in such Registration
Statement.
/s/
Amper, Politziner & Mattia, LLP
Edison,
New Jersey
May 18,
2010
Exhibit
24
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints David Lichtenstein his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign the Registration Statement on Form S-11 any and all pre- and
post-effective amendments to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent and his substitutes may
lawfully do or cause to be done by virtue hereof.
NAME
|
CAPACITY
|
DATE
|
|
|
|
|
|
|
/s/
Bruno de Vinck
|
|
May
13, 2010
|
Bruno de
Vinck
|
|
|
/s/
Shawn R. Tominus
|
Director
|
May
13, 2010
|
Shawn R.
Tominus
|
|
|
/s/
Edwin J. Glickman
|
Director
|
May
13, 2010
|
Edwin
J. Glickman
|
|
|
/s/
George R. Whittemore
|
Director
|
May
13, 2010
|
George
R. Whittemore
|
|
|