UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
   
For the quarterly period ended March 31, 2012
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
   
For the transition period from ____ to _____
Commission file number:  1-16525
 
CVD EQUIPMENT CORPORATION
 
(Name of Registrant  in Its Charter)
New York
 
11-2621692
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
1860 Smithtown Avenue
Ronkonkoma, New York  11779
 
(Address including zip code of registrant’s Principal Executive Offices)
 
(631) 981-7081
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ   No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  þ   No o
 
Indicate by check mark whether 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).
 
Large accelerated filer   o                 Accelerated filer    o
Non-accelerated filer     o                 Smaller reporting company    þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   o      No   þ
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 5,992,495 shares of Common Stock, $0.01 par value at May 1, 2012.
______________________________________________________________________________

 
 

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Index
 
Part I -   Financial Information  
       
    Item 1 - Financial Statements (Unaudited)  
       
    Consolidated Balance Sheets (Unaudited) at March 31, 2012 and December 31, 2011
       
    Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2012 and 2011
       
    Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2012 and 2011
       
    Notes to Unaudited Consolidated Financial Statements
       
    Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12 
    Item 3 – Quantitative and Qualitative Disclosures About Market Risk 15
    Item 4 - Controls and Procedures 15
       
Part II -   Other Information 17 
       
    Item 1 - Legal Proceedings 17 
    Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 17 
    Item 3 – Defaults Upon Senior Securities 17 
    Item 4 – Mine Safety Disclosures 17 
    Item 5 - Other Information 17 
    Item 6 - Exhibits and Reports Filed on Form 8-K 18 
       
Signatures   19 
       
Exhibit Index 20 
 
 
1

 
 
PART 1 – FINANCIAL INFORMATION
Item 1 – Financial Statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
                             
    March 31, 2012        December 31, 2011  
ASSETS
           
Current Assets:
           
Cash and cash equivalents
  $ 19,018,184     $ 18,136,527  
Accounts receivable, net
    1,285,525       3,663,579  
Cost and estimated earnings in excess of billings on uncompleted contracts      
    3,569,657       3,410,824  
Inventories, net
    3,154,304       2,232,073  
Idle inventories
    -       975,000  
Deferred income taxes – current
    219,555       189,510  
Other current assets
    169,183       150,803  
                 
Total Current Assets
    27,416,408       28,758,316  
                 
Property, plant and equipment, net
    15,411,094       7,948,957  
                 
Deferred income taxes – non-current
    275,648       390,080  
                 
Restricted cash
    1,000,000       1,000,000  
                 
Other assets
    92,935       401,658  
                 
Intangible assets, net
    47,879       49,967  
                 
Total Assets
  $ 44,243,964     $ 38,548,978  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current Liabilities:
               
Current maturities of long-term debt
  $ 926,857     $ 623,953  
Billings in excess of costs and estimated e arnings on uncompleted contracts
    940,260       1,687,210  
Accounts payable and accrued expenses
    3,194,313       2,374,334  
Accrued professional fees – related party
    -       35,000  
Deferred revenue
    42,926       1,089,966  
Total Current Liabilities
    5,104,356       5,810,463  
                 
Long-term debt, net of current portion
    8,090,025       2,547,842  
Total Liabilities
    13,194,381       8,358,305  
                 
Commitments and Contingencies
    -       -  
                 
Stockholders’ Equity
               
Common stock - $0.01 par value – 10,000,000 shares authorized; issued and outstanding, 5,979,270 at March 31, 2012 and 5,958,785 at December 31, 2011
    59,792       59,589  
Additional paid-in-capital
    20,600,918       20,470,367  
Retained earnings
    10,388,873       9,660,717  
Total Stockholders’ Equity
    31,049,583       30,190,673  
                 
Total Liabilities and Stockholders’ Equity
  $ 44,243,964     $ 38,548,978  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
2

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
 
     
Three Months Ended
March 31,
 
      2012       2011   
Revenue
  $ 7,154,951     $ 6,205,700  
                 
Cost of revenue
    4,419,763       3,921,460  
                 
Gross profit
    2,735,188       2,284,240  
                 
Operating expenses
               
Selling and shipping
    381,930       286,519  
General and administrative
    1,279,836       1,100,767  
Related party – professional fees
    -       20,000  
Total operating expenses
    1,661,766       1,407,286  
                 
Operating income
    1,073,422       876,954  
                 
Other (expense) income
               
Interest income
    6,881       3,335  
Interest expense
    (32,299 )     (53,732 )
Other income
    11,792       84,404  
Total other (expense) income
    (13,626 )     34,007  
                 
Income before income taxes
    1,059,796       910,961  
                 
Income tax expense
    331,640       223,537  
                 
Net income
  $ 728,156     $ 687,424  
                 
Basic income per common share
  $ 0.12     $ 0.14  
                 
Diluted income per common share
  $ 0.12     $ 0.14  
                 
Weighted average common shares outstanding basic
    5,976,582       4,821,125  
                 
Effect of potential common share issuance:
    175,039       220,650  
                 
Weighted average common shares outstanding diluted
      6,151,621       5,041,775  

The accompanying notes are an integral part of these consolidated financial statements
 
 
3

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
 
    Three Months Ended
March 31,
 
    2012      2011   
Cash flows from operating activities
           
Net income
  $ 728,156     $ 687,424  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Stock-based compensation expense
    76,464       68,828  
Depreciation and amortization
    139,218       137,026  
Deferred tax benefit
    84,387       3,778  
Bad debt provision
    1,994       487  
Changes in operating assets and liabilities:
               
Accounts receivable
    2,376,060       (1,086,053 )
Cost in excess of billings on uncompleted contracts
    (158,833 )     (1,073,397 )
Inventories, net
    52,769       469,681  
Other current assets
    (18,380 )     (23,898 )
Increase (decrease) in operating liabilities:
               
Billings in excess of costs and estimated earnings on uncompleted contracts
    (746,950 )     4,413,501  
Accounts payable and accrued expenses
    784,976       788,395  
Deferred revenue
    (1,047,039 )     398,776  
Net cash provided by operating activities
    2,272,822       4,784,548  
                 
Cash flows from investing activities:
               
Capital expenditures
    (7,602,327 )     (57,733 )
Deposits
    311,781       -  
Net cash (used in) investing activities
    (7,290,546 )     (57,733 )
                 
Cash flows from financing activities:
               
Net proceeds from stock options exercised
    54,293       (44,038 )
Proceeds from long-term debt
    6,000,000       -  
Payments of long-term debt
    (154,912 )     (305,314 )
Net cash provided by (used in) financing activities
    5,899,381       (349,352 )
                 
Net increase in cash and cash equivalents
    881,657       4,377,463  
Cash and cash equivalents at beginning of period
    18,136,527       6,249,090  
                 
Cash and cash equivalents at end of period
  $ 19,018,184     $ 10,626,553  
                 
                 
Supplemental disclosure of cash flow information:
               
Income taxes paid
  $ 111,725     $ 305,100  
Interest paid
  $ 32,299     $ 53,732  

The accompanying notes are an integral part of these consolidated financial statements
 
 
4

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
 
 
NOTE 1:                      BASIS OF PRESENTATION

The accompanying unaudited financial statements for CVD Equipment Corporation and Subsidiary (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 Article 8 of Regulation S-X. 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the interim financials not misleading have been included and all such adjustments are of a normal recurring nature. The operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that can be expected for the year ending December 31, 2012.

The balance sheet as of December 31, 2011 has been derived from the audited financial statements at such date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, please refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, including the accounting policies followed by the Company as set forth in Note 2 to the consolidated financial statements contained therein.

All material intercompany transactions have been eliminated in consolidation. In addition, certain reclassifications have been made to prior period financial statements to conform to the current year presentation.

Subsequent events have been evaluated through the filing date of this Quarterly Report on Form 10-Q.

NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue and Income Recognition

The Company recognizes revenues using the percentage-of-completion method for custom production-type contracts while revenues from other products are recorded when such products are accepted and shipped. Profits on custom production-type contracts are recorded on the basis of the Company’s estimates of the percentage-of-completion of individual contracts, commencing when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. Under this method, revenues are recognized based on costs incurred to date compared with total estimated costs.
 
 
5

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The asset, “Cost and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed.

The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents amounts billed in excess of revenues recognized.

NOTE 3:                      CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company places its cash equivalents with high credit-quality financial institutions and invests its excess cash primarily in certificates of deposit, treasury bills and money market instruments. The Company has established guidelines relative to credit ratings and maturities that seek to maintain stability and liquidity. From time to time these temporary cash investments may exceed the Federal Deposit Insurance Corporation limit which at March 31, 2012 and December 31, 2011 was approximately $3,869,000 and $4,249,000, respectively. The Company sells products and services to various companies across several industries in the ordinary course of business. The Company assesses the financial strength of its customers and maintains allowances for anticipated losses.

NOTE 4:                      UNCOMPLETED CONTRACTS

Costs and estimated earnings in excess of billings on uncompleted contracts are summarized as follows:
 

    March 31, 2012     December 31, 2011  
    (Unaudited)     (Unaudited)  
                 
Costs incurred on uncompleted contracts
  $ 12,997,944     $ 11,253,624  
Estimated earnings
    11,400,529       10,120,760  
      24,398,473       21,374,384  
Billings to date
    (21,769,076 )     (19,650,770 )
      (2,629,397 )                   1,723,614  
 
 
6

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

NOTE 4:                      UNCOMPLETED CONTRACTS (continued)
 
   
March 31, 2012
   
December 31, 2011
 
   
(Unaudited)
   
(Unaudited)
 
Included in accompanying balance sheets under the following captions:
           
             
Cost and estimated earnings in excess of billings on uncompleted contracts
  $ 3,569,657     $ 3,410,824  
                 
Billings in excess of costs and estimated earnings on uncompleted contracts
  $ (940,260 )   $ (1,687,210 )
 
NOTE 5:                      INVENTORIES
 
Inventories consist of:
 
   
March 31,  2012
   
December 31, 2011
 
   
(Unaudited)
   
(Unaudited)
 
Raw materials
  $ 1,914,697     $ 1,986,880  
Work-in-process
    527,357       507,943  
Finished goods
    1,012,250       37,250  
Totals
    3,454,304       2,532,073  
Less: Reserve for obsolescence
    (300,000 )     (300,000 )
    $
3,154,304
    $ 2,232,073  
 
During the three months ended March 31, 2011, the Company recorded certain inventory write-downs of $560,000.

The Company held $975,000 of equipment returned from a terminated contract recorded as Idle Inventories, which it had not been granted permission to use or sell as a result of pending litigation, as a separate line item on the balance sheet as of December 31, 2011. On March 16, 2012, in accordance with a stipulation dated June 17, 2010 the Company may now sell or otherwise dispose of the goods referred to as Idle inventories. As of March 31, 2012, this inventory is included in Finished goods.
 
 
7

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

NOTE 6:                      FAIR VALUE MEASUREMENTS
 
We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, and the three levels of inputs that may be used to measure fair value are as follows:

Level 1 inputs which include quoted prices in active markets for identical assets or liabilities.

Level 2 inputs which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities 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 asset or liability.

Level 3 inputs which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

The following table summarizes, for each major category of assets and liabilities, the respective fair value and the classification by level of input within the fair value hierarchy:

   
March 31, 2012
   
  December 31, 2011
 
Description
 
Level (1)
   
Level (2)
   
Level (3)
   
Total
   
Level (1)
   
Level (2)
   
Level (3)
   
Total
 
Assets:
                                               
Cash equivalents
  $ 5,403,976     $ ---     $ ---     $ 5,403,976     $ 5,394,434     $ ---     $ ---     $ 5,394,434  
                                                                 
Total Liabilities
  $ ---     $ ---     $ ---     $ ---     $ ---     $ ---     $ ---     $ ---  

NOTE 7:                      BAD DEBTS

Accounts receivable are presented net of an allowance for doubtful accounts of $27,882 and $25,888 as of March 31, 2012 and December 31, 2011, respectively. The allowance is based on prior experience and management’s evaluation of the collectability of accounts receivable. Management believes the allowance is adequate. However, future estimates may change based on changes in future economic conditions.
 
 
8

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

NOTE 8:                      LONG-TERM DEBT
 
On August 5, 2011, the Company entered into a $9.1 million credit agreement with HSBC Bank, USA, N.A. (“HSBC”), to replace its $5.0 million revolving credit agreement and $2.1 million of existing mortgages previously held by Capital One Bank, N.A., which was secured by substantially all of the Company’s personal property. This new agreement consists of a $7 million revolving credit facility and a $2.1 million five (5) year term loan. The revolving credit facility permits the Company to borrow on a revolving basis until August 5, 2014. Interest on the unpaid principal balance on this facility accrues at either (i) the London Interbank Offered Rate (“LIBOR”) plus 1.75% or (ii) the bank’s prime rate minus 0.50%. Interest on the unpaid principal balance for the term loan, used to pay off the previous mortgages, accrues at a fixed rate of 3.045%. Borrowings under this term loan are additionally collateralized by $1 million of restricted cash deposits, provided that, so long as no event of default has occurred and is then continuing, HSBC will release $200,000 of the collateral on each anniversary of the closing date. This restricted cash is a separate line item on the balance sheet. The credit agreement also contains certain financial covenants with which the Company was in compliance at March 31, 2012.

Effective as of March 15, 2012, we closed on the purchase of a 120,000 square foot facility located at 355 S. Technology Drive, Central Islip, New York (the “Property”) through the Town of Islip Industrial Development Agency. The purchase price for the Property was $7,200,000 exclusive of closing costs. Pursuant to the terms of an Accommodation Agreement, we entered into a loan agreement with HSBC Bank, USA, N.A., in the amount of $6,000,000 (the “Loan”), the proceeds of which were used to finance a portion of the purchase price on the Property. The Loan is secured by the mortgage against the Property. Interest presently accrues on the Loan, at our option, at the variable rate of LIBOR plus 1.75%. The loan matures on March 15, 2022.
 
NOTE 9:                      STOCK-BASED COMPENSATION EXPENSE

During the three months ended March 31, 2012 and March 31, 2011, the Company recorded as part of selling and general administrative expense, approximately $76,000 and $69,000 respectively, for the cost of employee and director services received in exchange for equity instruments based on the grant-date fair value of those instruments. This expense was recorded based upon the guidance of ASC 718, “ Compensation-Stock Compensation.”
 
 
9

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

NOTE 10:                      INCOME TAXES

The provision for income taxes includes the following:

   
Three Months Ended March 31,
 
   
2012
   
2011
 
             
Current:
           
Federal
  $ 223,502     $ 194,886  
State
    23,751       24,873  
     Total Current Provision
    247,253       219,759  
Deferred:
               
Federal
  $ 51,280     $ 18,297  
State
    33,107       ( 14,519 )
     Total deferred
    84,387       3,778  
Income tax expense
  $ 331,640     $ 223,537  

We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed. Adjustments for differences between our tax provisions and tax returns are recorded when identified, which is generally in the third or fourth quarter of our subsequent year.

NOTE 11:                      EARNINGS PER SHARE

As per ASC 260, basic earnings per share are computed by dividing net earnings available to common shareholders (the numerator) by the weighted average number of common shares (the denominator) for the period presented. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

Stock options to purchase 268,540 shares of common stock were outstanding and 210,430 were exercisable during the three months ended March 31, 2012. Stock options to purchase 405,550 shares were outstanding and 332,550 were exercisable during the three months ended March 31, 2011. At March 31, 2012 and March 31, 2011, all outstanding options were included in the diluted earnings per share calculation because the average market price was higher than the exercise price.

The dilutive potential common shares on warrants and options is calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potential dilutive effect of the securities.
 
 
10

 
 
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

NOTE 12:                     LEGAL PROCEEDINGS

On January 26, 2010, the Company commenced an action against Taiwan Glass Industrial Corp. (“Taiwan Glass”) in the United States District Court for the Southern District of New York. By that action, the Company seeks monetary damages ($5,816,000) against Taiwan Glass for breach of contract.

The Company believes that Taiwan Glass has no legal basis for unilaterally refusing to accept and pay for equipment specially manufactured for them and shipped to them by the Company. Taiwan Glass has interposed an answer and counterclaims denying these allegations and is seeking unspecified monetary damages. On April 12, 2012, Taiwan Glass filed a Motion seeking Partial Summary Judgment in the amount of $3,564,000 (representing the portion of the purchase price that it had previously paid to the Company). The Company is vigorously pursuing its claims against Taiwan Glass and defending against the counterclaims and Motion for Partial Summary Judgment by Taiwan Glass.

NOTE 13                      SEGMENT REPORTING

The Company operates through (2) segments, CVD and SDC. The CVD division is utilized for silicon, silicon germanium, silicon carbide and gallium arsenide processes. SDC is the Company’s ultra-high purity manufacturing division in Saugerties, New York. The Conceptronic division of the Company is no longer considered a segment and has been merged into the CVD division as a result of decreasing revenues coupled with the growth of CVD and SDC. The respective accounting policies of CVD and SDC are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates performance based on several factors, of which the primary financial measure is income or (loss) before taxes.

2012
 
CVD
   
SDC
   
Eliminations *
   
Consolidated
 
Revenue
  $ 6,216,999     $ 1,473,941     $ (535,989 )   $ 7,154,951  
Pretax income
    822,188       237,608               1,059,796  
                                 
2011
                               
Revenue
  $ 5,711,775     $ 1,033,147     $ (539,222 )   $ 6,205,700  
Pretax income
    851,806       59,155               910,961  

*All elimination entries represent intersegment revenues eliminated in consolidation for external financial reporting.

NOTE 14:                     SUBSEQUENT EVENTS

On April 26, 2012, the Company closed on the sale of the facility located at 979 Marconi Avenue, Ronkonkoma, New York 11779, which housed our application laboratory, to K.A.V. Realty Associates, LLC. The selling price was $1,659,375 exclusive of closing costs.

 
11

 
 
Item 2.                        Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Except for historical information contained herein, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward-looking statements, include but are not limited to: competition in the Company’s existing and potential future product lines of business; the Company’s ability to obtain financing on acceptable terms if and when needed; uncertainty as to the Company’s future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the Company. Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements. Past results are no guaranty of future performance.
 
Results of Operations
Three Months Ended March 31, 2012 vs. Three Months Ended March 31, 2011

Revenue

Revenue for the three month period ended March 31, 2012 was approximately $7,155,000 as compared to $6,206,000 for the three month period ended March 31, 2011, an increase of 15.3%.  During the current quarter, we continued to convert into increased revenue the higher level of orders received beginning with the second half of 2011.

Gross Profit

We generated gross profits of approximately $2,735,000, resulting in a gross profit margin of 38.2%, for the three months ended March 31, 2012 as compared to gross profits of approximately $2,284,000 and a gross profit margin of 36.8%, for the three months ended March 31, 2011. This increase is a result of having recorded certain inventory write-downs during the three months ended March 31, 2011.
 
 
12

 

Selling, General and Administrative Expenses

Selling and shipping expenses for the three months ended March 31, 2012 and 2011 were approximately $382,000 and $287,000, respectively, representing an increase of 33.1% compared to the prior period. This increase can be primarily attributed to greater commissions earned as a result of the completion and shipment of several systems during the current period and increased participation in trade shows.

We incurred approximately $1,280,000 of general and administrative expenses during the three months ended March 31, 2012, compared to approximately $1,121,000 incurred during the three months ended March 31, 2011, representing an increase of 14.2%. This increase is primarily attributable to the costs associated with increased personnel to support our higher volume of revenue.
 
Operating Income

As a result of the foregoing factors, operating income was approximately $1,073,000 for the three months ended March 31, 2012 compared to operating income of approximately $877,000 for the three months ended March 31, 2011. The increase in operating income in 2012 versus the same period in 2011 is directly attributable to the increased revenue with increased gross margins during the current three month period which more than offset the increase in selling and general and administrative expenses.
 
Interest Expense, Net

Interest income for the three months ended March 31, 2012 was approximately $7,000 compared to approximately $3,000 for the three months ended March 31, 2011. This increase is a result of an increase in available cash. Interest expense for the three months ended March 31, 2012 was approximately $32,000 compared to approximately $54,000 for the three months ended March 31, 2011. This decrease was the result of refinancing three mortgage loans in August 2011, with a term loan at reduced interest rates as well as paying off several equipment loans which were outstanding as of March 31, 2011. The primary sources of this interest expense are the buildings that we own.

Income Taxes

For the three months ended March 31, 2012, we recorded approximately $247,000 of current income tax expense and $85,000 of deferred tax expense, compared to current income tax expense of approximately $220,000 and deferred tax expense of $4,000 for the three months ended March 31, 2011. Our tax rate has increased as we continue to utilize research and development and other tax credits that we have previously earned.
 
 
13

 

Net Income

Although income before taxes for the three months ended March 31, 2012 was approximately $1,060,000 compared to $911,000 for the three months ended March 31, 2011, an increase of 16.4%, net income of approximately $728,000 for the current three month period increased only 6.0% compared to the net income of approximately $687,000 for the three month period ended March 31, 2011. This was a result of incurring a higher tax rate during the current three months for reasons discussed above.

Liquidity and Capital Resources

As of March 31, 2012, we had aggregate working capital of approximately $22,312,000 compared to $22,948,000 at December 31, 2011, a decrease of $636,000 and cash and cash equivalents of $19,018,000, compared to $18,137,000 at December 31, 2011, an increase   of $881,000. Working capital decreased primarily as a result of the cash used to pay for the acquisition of our new facility in Central Islip, New York and the additional current debt associated with the mortgage obtained on this facility. The increase in cash and cash equivalents was primarily due to the timing of customer payments.

Accounts receivable, net, as of March 31, 2012 was $1,286,000 compared to $3,664,000 as of December 31, 2011. This decrease is primarily attributable to the timing of shipments and customer payments.

As of March 31, 2012, our backlog was approximately $12,506,000, a decrease of $3,692,000, or 22.8%, compared to $16,198,000 at December 31, 2011. During the three months ended March 31, 2012, we received approximately $5,503,000 in new orders. Timing for completion of the backlog varies depending on the product mix and can be as long as two years. Included in the backlog are all accepted purchase orders with the exception of those that are included in percentage-of-completion. Order backlog is usually a reasonable management tool to indicate expected revenues and projected profits; however, it does not provide an assurance of future achievement of revenues or profits as order cancellations or delays are possible.

So that we may expand our engineering, manufacturing, administration and Application Laboratory to further support the increase in our existing product sales and the development and sales of new products, on March 16, 2012, effective as of March 15, 2012, we closed on the purchase of a 120,000 square foot facility located in Central Islip, New York 11722 (the “Property”) through the Town of Islip Industrial Development Agency, (the “Islip IDA”). This building will replace our two Ronkonkoma facilities which total 63,275 square feet. The transaction was structured pursuant to Section 1031 of the Internal Revenue Code, as amended, as a reverse tax deferred exchange. In order to avail ourselves of certain real estate and sales tax abatements, the purchase took the form of an assignment and lease purchase agreement with fee title continuing to be vested in the Islip IDA. The property was purchased from SJA Industries, LLC. The purchase price for the Property was $7,200,000, exclusive of closing costs.

 
14

 

Pursuant to the terms of an Accommodation Agreement, we entered into a loan agreement with HSBC Bank, USA, N.A. in the amount of $6,000,000, (the “Loan”), the proceeds of which were used to finance a portion of the purchase price of the Central Islip facility. The Loan is secured by the mortgage against that facility. Interest accrues on the Loan, at our option, at the variable rate of LIBOR plus 1.75%. The Loan matures on March 15, 2022.

On April 26, 2012, we closed on the sale of our facility located at 979 Marconi Avenue, Ronkonkoma, New York 11779 which housed our Application Laboratory to K.A.V. Realty Associates, LLC. The selling price for the Premises was $1,659,375, exclusive of closing costs.

We believe we have a sufficient amount of cash, positive operating cash-flow and available credit facilities at March 31, 2012 to meet our working capital and investment requirements for the next twelve months.

We may also raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses, technologies or products. In addition, we may elect to raise additional funds even before we need them if the conditions for raising capital are favorable. On February 14, 2011, we filed a shelf registration statement on Form S-3 with the United States Securities and Exchange Commission (“SEC”) to register shares of our common stock and other securities for sale, giving us the opportunity to pursue possible future fundraising of up to $20 million (“the Registration Amount”) when needed or otherwise considered appropriate at prices and on terms to be determined at the time of any such offerings. This shelf registration was declared effective by the SEC on February 28, 2011. In May 2011, we sold securities under the shelf registration statement having an aggregate value of $10,163,475.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements at this time.

Item 3.                          Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.                            Controls and Procedures .

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act).  As required by Rule 13a-15(b) under the Exchange Act, management of the Company, under the direction of our Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Report”).

 
15

 
 
Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer, along with our management, have determined that as of the end of the period covered by this Report on Form 10-Q, the disclosure controls and procedures were and are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and were effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosures.
 
Changes in Internal Controls

There were no changes in our internal controls over financial reporting as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

Limitations on the Effectiveness of Controls

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
 
 
16

 
 
CVD EQUIPMENT CORPORATION

PART II

OTHER INFORMATION


Item 1.                          Legal Proceedings.

On January 26, 2010, the Company commenced an action against Taiwan Glass Industrial Corp. (“Taiwan Glass”) in the United States District Court for the Southern District of New York. By that action, the Company seeks monetary damages ($5,816,000) against Taiwan Glass for breach of contract.
 
The Company believes that Taiwan Glass has no legal basis for unilaterally refusing to accept and pay for equipment specially manufactured for them and shipped to them by the Company. Taiwan Glass has interposed an answer and counterclaims denying these allegations and is seeking unspecified monetary damages. On April 12, 2012, Taiwan Glass filed a Motion seeking Partial Summary Judgment in the amount of $3,564,000 (representing the portion of the purchase price that it had previously paid to the Company). The Company is vigorously pursuing its claims against Taiwan Glass and defending against the counterclaims and Motion for Partial Summary Judgment by Taiwan Glass.

Item 2.                          Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.

Item 3.                          Defaults Upon Senior Securities.

None.

Item 4.                          Mine Safety Disclosures.
 
Not applicable.
 
Item 5.                          Other Information.

None.
 
 
17

 
 
Item 6.                    Exhibits
 
The exhibits listed below are hereby furnished to the SEC as part of this report:

10.1*
Lease Agreement, dated February 9, 2012, by and between FAE Holdings 411519R, LLC and the Company

10.2*
Assignment Agreement, dated February 9, 2012, by and between FAE Holdings 411519R, LLC and the Company

10.3*
Qualified Exchange Accommodation Agreement, dated February 9, 2012, by and between FAE Holdings 411519R, LLC and the Company

10.4*
Joint and Several Hazardous Material Guaranty and Indemnification Agreement, dated March 15, 2012, by and between FAE Holdings 411519R, LLC and the Company

10.5*
Assignment of Leases and Rents, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association

10.6*
Amended and Restated Fee and Leasehold Mortgage, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association

10.7*
Amended and Restated Note, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association

10.8*
Note and Mortgage Assumption Agreement, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association

10.9*
Guaranty of Payment, dated March 15, 2012, by the Company

31.1*
Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 15, 2012

31.2*
Certification of Glen R. Charles, Chief Financial Officer, dated May 15, 2012

32.1*
Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 15, 2012, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.2*
Certification of Glen R. Charles, Chief Financial Officer, dated May 15, 2012, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**
XBRL Instance.

101.SCH**
XBRL Taxonomy Extension Schema.

101.CAL**
XBRL Taxonomy Extension Calculation.

101.DEF**
XBRL Taxonomy Extension Definition.

101.LAB**
XBRL Taxonomy Extension Labels.

101.PRE**
XBRL Taxonomy Extension Presentation.

________________
* Filed herewith Schedules and Exhibits omitted pursuant to Item 601(b)(2) of Regulations S-K.  The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
 
 
18

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 15 th day of May 2012.

 
   
CVD EQUIPMENT CORPORATION

By: /s/ Leonard A. Rosenbaum
Leonard A. Rosenbaum
Chief Executive Officer
(Principal Executive Officer)

By: /s/ Glen R. Charles
Glen R. Charles
Chief Financial Officer
(Principal Financial and
Accounting Officer)
 
 
 
19

 

EXHIBIT INDEX
 

10.1*
Lease Agreement, dated February 9, 2012, by and between FAE Holdings 411519R, LLC and the Company

10.2*
Assignment Agreement, dated February 9, 2012, by and between FAE Holdings 411519R, LLC and the Company

10.3*
Qualified Exchange Accommodation Agreement, dated February 9, 2012, by and between FAE Holdings 411519R, LLC and the Company

10.4*
Joint and Several Hazardous Material Guaranty and Indemnification Agreement, dated March 15, 2012, by and between FAE Holdings 411519R, LLC and the Company

10.5*
Assignment of Leases and Rents, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association

10.6*
Amended and Restated Fee and Leasehold Mortgage, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association

10.7*
Amended and Restated Note, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association

10.8*
Note and Mortgage Assumption Agreement, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association

10.9*
Guaranty of Payment, dated March 15, 2012, by the Company

31.1*
Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 15, 2012

31.2*
Certification of Glen R. Charles, Chief Financial Officer, dated May 15, 2012

32.1*
Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 15, 2012, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.2*
Certification of Glen R. Charles, Chief Financial Officer, dated May 15, 2012, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**
XBRL Instance.

101.SCH**
XBRL Taxonomy Extension Schema.

101.CAL**
XBRL Taxonomy Extension Calculation.

101.DEF**
XBRL Taxonomy Extension Definition.

101.LAB**
XBRL Taxonomy Extension Labels.

101.PRE**
XBRL Taxonomy Extension Presentation.

________________
* Filed herewith Schedules and Exhibits omitted pursuant to Item 601(b)(2) of Regulations S-K.  The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
 
 
20
Exhibit 10.1
LEASE AGREEMENT

THIS LEASE AGREEMENT (the “Lease”) is made and entered into as of 2/9/2012by and between FAE Holdings 411519R, LLC(“Landlord”), and CVD Equipment Corporation(“Tenant”).

W I T N E S S E T H :

In consideration of the mutual covenants and agreements contained herein, Landlord and Tenant agree and covenant as follows:

1.
BASIC LEASE PROVISIONS

 
1.1
Exchange .  Pursuant to a Qualified Exchange Accommodation Agreement (“QEAA”) between Landlord and CVD Equipment Corporation(“Exchangor”), Landlord is acting as an “Exchange Accommodation Titleholder” as that term is defined in Internal Revenue Service Revenue Procedure 2000-37, 2000-40 I.R.B. 1 (September 15, 2000) (“Rev. Proc. 2000-37”) for the purpose of effecting a like-kind exchange (the “Exchange”) within the meaning of Section 1031 of the Internal Revenue Code of 1986, as amended.  In accordance with its role as an Exchange Accommodation Titleholder, Landlord owns a leasehold interest of that certain real property commonly known as 355 South Technology Drive, Central Islip, in the County of , State of New York, more particularly described on Exhibit “A” attached hereto and made a part hereof, together with the buildings, fixtures and improvements currently located thereon and/or which may be constructed thereon (the “Premises”), and has entered into this Lease.  First American Exchange Company, LLC (“Intermediary”) is acting as the qualified intermediary in connection with the Exchange.

 
1.2
Lease of the Premises .  Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises.

 
1.3
Lease Term .  The term of this Lease shall commence as of the date that Landlord acquires title to the Premises (the “Commencement Date”) and shall expire on the earlier of the date Landlord no longer holds title to the Premises, or the date that is 180 days after the Commencement Date.

 
1.4
Permitted Uses .  Tenant may use the Premises for any purpose permitted by applicable law.

2.
RENT

 
2.1
Amount of Base Rent .  Tenant shall pay to Landlord rent (“base rent”) in the amount of One Dollar ($1.00) per month,due and payable on the first day of each month during the term.

 
2.2
Triple Net Lease .  This Lease shall be without cost or expense to Landlord of any kind. Tenant shall be responsible for, and shall pay promptly, all costs and expenses of whatever kind, character, nature or description concerning the Premises, including, without limitation, all costs of operating, maintaining, managing and restoring the Premises, capital costs, insurance premiums and deductibles, debt service payments pursuant to anyCredit Agreement contemplated by the QEAA, real estate taxes and assessments, sales taxes, other taxes imposed on rent or other income arising in connection with this Lease or the QEAA (but excluding taxes on Landlord’s income from any accommodation or exchange fees imposed in connection with the Exchange), costs of complying with laws and regulations, costs related to the leases affecting the Premises, costs to repair, maintain or improve the building systems, roof and any parking structure, and costs of designing and constructing improvements on the Premises.
 
 
Page 1 of 10

 
 
 
2.3
Additional Rent .  To the extent that Landlord pays for any costs of the Premises, Tenant shall reimburse Landlord for such costs and such amounts paid by Tenant shall be considered additional rent.  All additional rent shall be paid by Tenant to Landlord not less than seven (7) business days in advance of the date Landlord is required to make the payments set forth above or on the date the Lease terminates, whichever is earlier.

 
2.4
Payment of Rent .  Base rent and additional rent, together with all applicable sales or use taxes thereon, shall be paid by Tenant to Landlord, without deduction or setoff for any reason whatsoever, at Landlord’s address set forth in Section 10 below.  All amounts due from Tenant hereunder shall be considered “rent,” and all rent (including base rent and additional rent) shall be received by Landlord without set-off, offset, abatement, or deduction of any kind.  Landlord will use reasonable efforts to give Tenant notice of the due date of each item which constitutes additional rent, but the failure to give notice will not excuse Tenant’s obligation to pay each item of additional rent.

 
2.5
Direct Payments; Debt Service .   Tenant agrees to make all payments for costs and expenses of the Premises directly to the third party obligee, including, without limitation, the payments described in Section 2.2 above, and it shall be considered as if Landlord had paid such costs and Tenant had reimbursed Landlord in the form of additional rent under this Lease.  Notwithstanding anything to the contrary herein, the principal portion of any debt service shall be considered to be a loan from Exchangorto Landlord rather than the payment of additional rent.  This paragraph shall not apply to advances by the Intermediary to Landlord for construction costs, if any.

 
2.6
Late Payments .  Tenant acknowledges and agrees that any late payment of rent by Tenant to Landlord may cause Landlord to incur additional costs and expenses.  Accordingly, Tenant agrees that, in the event any payment of rent due under this Lease is not received by Landlord on or before the due date thereof, Tenant shall pay to Landlord interest on such delinquent rent at the rate and for the period specified in paragraph 11.5 below together with all costs and expenses of whatsoever kind, character, nature or description, paid or incurred by Landlord as a result, directly or indirectly, of the failure by Tenant to timely pay the rent due hereunder to Landlord.

3.
LANDLORD’S OBLIGATIONS

 
3.1
Quiet Enjoyment .  Provided Tenant fully and timely complies with all obligations of Tenant under the terms of this Lease, Landlord covenants and agrees that Tenant shall have the right to peaceably and quietly have, hold and enjoy the Premises hereby demised without interference by Landlord.

 
3.2
No Other Obligations of Landlord .  Landlord makes no representation, covenant or warranty of whatsoever kind, character, nature or description concerning the physical condition of the Premises, the value thereof, or the uses and activities which may be conducted thereon or therefrom.  Landlord shall have no obligation whatsoever to repair, maintain, renovate or otherwise incur any cost or expense with respect to the Premises or any lease or sublease affecting the Premises.
 
 
Page 2 of 10

 
 
4.
TENANT’S OBLIGATIONS

 
4.1
Maintenance and Repairs .  Tenant accepts the Premises “AS IS,” with all faults.  Tenant shall, at its sole expense, maintain and repair all improvements on the Premises, including the interior and exterior thereof, roof, structural systems, wastewater systems, appliances, mechanical items, heating, cooling, electrical and plumbing systems serving or comprising any part of the Premises.  Tenant shall bear sole responsibility for the provision of adequate lighting and security for the Premises and for ensuring that the Premises comply with all laws and regulations.

 
4.2
Taxes .

 
A.
Tenant shall pay when due all taxes, assessments, exactions and impositions of whatsoever kind, character, nature or description applicable to or in respect of the Premises, Tenant’s leasehold interest therein, and any other improvements constructed at the Premises and any personal property used at, on or in connection with the Premises.  In the event Tenant fails to pay when due any such taxes, assessments, impositions or exactions then, whether or not Landlord exercises its right to terminate this Lease as a result of Tenant’s default, Tenant shall also be obligated to pay all resulting interest and penalties on such delinquent taxes, assessments, impositions or exactions.  Tenant may exercise any rights provided by law to contest or pay under protest any such taxes, assessments, impositions or exactions, provided that such contest or payment under protest does not result in a lien on the Premises for any delinquent sum.

 
B.
Tenant shall also pay when due all sales or rent taxes due on any rent (whether base rent or additional rent) and on all other fees and charges accruing under any provision of this Lease.  Tenant shall be responsible for any interest or penalties resulting from its failure to pay any such taxes when due.

 
4.3
Utilities .  Tenant shall be responsible for the payment of all utility services used or consumed at the Premises, including, without limitation, electricity, gas, water, sewer and telephone.

 
4.4
Alterations and Construction .

 
A.
Tenant shall be permitted to make any alterations or additions to the Premises as Tenant deems appropriate, including, without limitation, installing signs, provided such alterations and additions comply with all laws and regulations.  All such permitted alterations and additions shall become the property of Landlord upon completion.

 
B.
Except for liens that may be placed upon the Premises pursuant to the QEAA, Tenant shall not permit any lien to attach to the Premises as a result of its construction or installation of improvements at the Premises.  If any such lien shall be filed against the Premises as a result of Tenant’s construction or installation of improvements at the Premises, then Tenant shall, within thirty (30) days after the filing thereof, cause the same to be discharged of record by payment, deposit, bond, order of a court of competent jurisdiction or otherwise.  Landlord shall not be liable for any labor or material or services furnished or to be furnished to Tenant upon credit and no mechanic’s or other lien for such labor, materials or services shall attach to or affect the fee or reversionary or other estate or interest of Landlord in the Premises or this Lease.
 
 
Page 3 of 10

 
 
 
4.5
Tenant’s Compliance with Laws .  Tenant shall comply with all Federal, State and local statutes, laws, ordinances, regulations, rules and judicial and administrative orders applicable to the Premises, its occupancy of the Premises and conduct of its business thereon.

 
4.6
Entry by Landlord .  Tenant shall permit Landlord or its agents to enter upon the Premises in the event of an emergency, but this provision shall impose no obligation on Landlord.

 
4.7
Return of Premises .  Tenant shall surrender the Premises at the expiration or earlier termination of the term of this Lease in its as-is condition.

 
4.8
Hazardous Substances .  Tenant has not used or stored, and Tenant shall not use or store, any hazardous substances at the Premises without the prior, written consent of Landlord, which Landlord may grant or withhold in its sole and absolute discretion, except that Tenant shall be permitted to use and store small quantities of hazardous substances routinely used by companies engaged in businesses of a similar nature so long as it does so in compliance with all applicable Federal, State and local statutes, laws, ordinances, regulations, rules and judicial and administrative orders.  Tenant shall indemnify, defend and hold Landlord harmless with respect to any loss, cost, liability, damage or expense, including consultant and attorneys’ fees, occasioned to Landlord, directly or indirectly, by reason of the release or discharge, or alleged release or discharge, of any hazardous substances upon any portion of the Premises during the term of this Lease.  For purposes hereof, “hazardous substances” shall mean any contaminant, toxic or hazardous waste, or any other substance the removal of which is required or the use of which is restricted, prohibited or penalized under any Federal, State or local statue, law, ordinance, regulation, rule or judicial or administrative order with respect to environmental conditions, health or safety, including, without limitation, asbestos or petroleum products.  The foregoing notwithstanding, the provisions of this Section 4.8 shall not extend to any release of Hazardous Substances caused solely by Landlord’s intentional misconduct or gross negligence not arising from or otherwise connected with such Landlord’s rights, responsibilities and obligations hereunder.  The provisions of this Section shall survive the termination of this Lease and the completion of the transactions contemplated under the QEAA.

 
4.9
Performance by Landlord .  If Tenant fails to perform any of its obligations under this Lease, and Landlord determines that the failure to perform such obligations may impose obligations on Landlord, then after five (5) days written notice from Landlord to Tenant, Landlord may (but shall not be required to) perform such obligation by and on behalf of Tenant.  In such event, Tenant shall pay to Landlord the cost of such performance within ten (10) days following receipt by Tenant of Landlord’s written demand for payment, failing which, the sums due to Landlord shall accrue interest at the highest rate allowable under the laws of the State in which the Premises are located from and after the expiration of such ten (10) day period through and including the date of receipt by Landlord of all sums including accrued interest.  The rights of Landlord under this Section 4.9 shall be in addition to all of its other rights under this Lease.

5.
ASSIGNMENT AND SUBLETTING

 
5.1
Tenant as Master Lessee .  Landlord hereby assigns to Tenant as master lessee all existing leases and occupancy agreements affecting the Premises, including all rights and obligations of the landlord thereunder.  Tenant accepts such assignment and assumes all obligations and liabilities of the landlord under such leases and occupancy agreements.  Tenant shall have the right to enter into new leases or subleases of all or any portion of the Premises without the consent of Landlord, and such leases may extend beyond the term of this Lease.  From and after the date hereof, Tenant shall be entitled to receive all rents, and shall be responsible for all liabilities and obligations,arising under or in connection with such leases.  Tenant acknowledges and agrees that Landlord shall have no obligations or liabilities under or with respect to any leases or occupancy agreements that exist as of the date hereof or are entered into on or after the date of this Lease. Any leases affecting the Premises shall not be terminated due to the transfer of the Premises to Tenant or Exchangor upon the completion of the Exchange.
 
 
Page 4 of 10

 
 
6.
INDEMNITY AND INSURANCE

 
6.1
Indemnity .  Tenant shall indemnify, defend and hold harmless the Landlord, its past, present and future parent companies, subsidiaries, and related entities as well as all past, present and future members, officers, directors, employees and agents of Landlord and such entities (collectively, the “Indemnified Parties”), from and against any suits, claims, fines, losses, damages, obligations, liabilities (including, without limitation, liability under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, etseq ., and any other federal, state or local environmental statute, law, ordinance, regulation, rule or judicial or administrative order) and expenses (including, without limitation, court costs, reasonable expert witness fees and reasonable attorneys’ fees at the pre-trial, trial and appellate levels), arising out of or in connection with the condition, use, occupancy or maintenance of the Premises, the construction of any improvements on the Premises, any existing or future leases, subleases or occupancy agreements affecting the Premises, and any and all acts and omissions occurring on or about the Premises, specifically including the negligence of the Landlord, its member (and the officers, directors and employees of such member), employees and agents.  The foregoing notwithstanding, the provisions of this Section 6.1 shall not extend to any claims or losses caused solely by Landlord’s intentional misconduct or gross negligence not arising from or otherwise connected with such Landlord’s rights, responsibilities and obligations hereunder.  The provisions of this Section shall survive the termination of this Lease and the completion of the transactions contemplated under the QEAA.

 
6.2
Insurance .  During the term hereof, Tenant shall obtain and maintain insurance coverage as described below.

 
A.
Tenant shall maintain property insurance covering loss or damage to the Premises and permitted improvements, alterations, and additions thereto made by the Tenant, in an amount equal to its replacement cost, with a reasonable self-insured retention or deductible amount.  Such policy shall provide protection against all perils included within the classification of fire and extended coverage, with loss payable to Landlord and such persons and entities as the Landlord shall designate.

 
B.
Tenant shall obtain commercial general liability insurance with respect to liability for death, bodily injury and property damage resulting from the use, occupancy and maintenance of the Premises in an amount acceptable to Landlord, with a reasonable self-insured retention or deductible amount, and Landlord shall be named as an additional insured under such insurance.  Such insurance shall provide that it is primary insurance as respects any other valid and collectable insurance Landlord, its member (and the officers, directors and employees of such member), employees and agents may possess, including an self-insured retention or deductible any of them may have, and that any other insurance any of them may have shall be considered excess insurance only.  If improvements are to be constructed on the Premises, Tenant shall obtain builder’s risk insurance in form and substance acceptable to Landlord.
 
 
Page 5 of 10

 
 
 
6.3
General Requirements with Respect to Insurance .  As soon as practical after the Commencement Date, and at least thirty (30) days prior to the expiration of any insurance policy provided by Tenant under the terms of this Lease, Tenant shall furnish to Landlord a certificate of insurance evidencing such coverage.  Such certificate shall specify that all required premiums have been paid and that the policy or policies may not be canceled without at least thirty (30) days prior written notice to Landlord.  Upon request, Tenant shall provide to Landlord copies of any of the insurance policies which Tenant is required to obtain hereunder.  All of the insurance policies which Tenant is required to obtain hereunder shall be in a form and with a company acceptable to Landlord.

 
6.4
Waiver of Subrogation and Right of Recovery .  Tenant hereby waives its right of recovery and relieves Landlord, its member (and such member’s employees, officers and directors), employees and agents of all liability for death or injury to persons and loss or damage to property, including loss of use thereof, whether real or personal, and whether due to any act of commission or omission of any of them, caused by fire and/or the other perils covered by any insurance which Tenant has or is required to obtain in accordance with the terms of Section 6.2 above, and Tenant shall, upon request, obtain from its respective insurers endorsements evidencing the agreement of the insurer that it shall not acquire by subrogation or otherwise any rights of recovery which the insured has expressly waived prior to loss and that such waiver shall not affect the rights of the insured under said insurance.

7.
CASUALTYAND CONDEMNATION

 
7.1
Notice of Casualty or Condemnation .  Tenant shall immediately give written notice to Landlord if any portion of the Premises is damaged or destroyed by fire or other casualty (a “Casualty”), or if all or a part of the Premises is taken by eminent domain or conveyance in lieu thereof (a “Taking”).

 
7.2
Restoration of Premises .  If a Casualty occurs, this Lease shall not terminate.  If a Taking occurs with respect to all of the Premises, this Lease shall terminate; if a Taking occurs with respect to less than all of the Premises, this Lease shall not terminate.  At Tenant’s option, in the event of a Casualty or Taking, Landlord shall repair and restore the Premises, provided that (a) Tenant shall manage the repair and restoration pursuant to a construction management agreement in form and substance acceptable to Landlord, (b) Landlord’s obligation to restore and reconstruct the Premises shall be limited to the amount of insurance proceeds or the condemnation award actually received by Landlord,(c) Landlord shall have no obligation to expend any money to repair or restore the Premises or any improvements, fixtures, equipment or other personal property in the Premises, and (d) Landlord’ obligation to restore shall be subject to the terms of any Credit Agreements, as defined in the QEAA.  Tenant shall also have the right to restore the Premises in accordance with all laws and regulations, subject to the terms and conditions in the QEAA.  In the event that Tenant elects to restore the Premises, Landlord shall pay to Tenant all insurance proceeds and condemnation awards actually paid to Landlord as a result of such Casualty or Taking, but Landlord shall have no other obligation to pay for such repairs or restoration.  If the Premises cannot be occupied, in whole or in part, as a result of such Casualty or Taking, the base rent and additional rent shall not be abated or reduced pending restoration of the Premises as described herein, but shall continue to be due and payable in full in accordance with the terms of Section 2 hereof.
 
 
Page 6 of 10

 
 
8.
DEFAULT

 
8.1
Default by Tenant

 
A.
Each of the following events is hereby declared an event of default:

 
1.
Failure of Tenant to pay any installment of base rent, additional rent or any other payment when the same becomes due and payable;

 
2.
Failure of Tenant to observe and perform any of its other covenants or agreements under this Lease for a period of fifteen (15) days after written notice from Landlord to Tenant specifying such failure and requesting that it be remedied; or, in the case of any such default which cannot with due diligence be cured within such fifteen (15) day period, failure to commence cure within such fifteen (15) day period and thereafter prosecute the curing of such default to completion with due diligence provided that such default is cured within a period of thirty (30) days after Landlord has given notice of such default; or

 
3.
Commencement by Tenant or by any surety or guarantor of this Lease, in any court pursuant to any statute of the United States or of any state, territory or government, of any insolvency or bankruptcy proceeding, including, without limitation, a proceeding for liquidation, reorganization or for the readjustment of its indebtedness; or

 
4.
The occurrence of an Exchangor Default or an Adverse Entity Event with respect to Exchangor under the QEAA.

Upon the occurrence of such an event of default, Landlord shall the right to recover from Tenant all damages incurred by Landlord as a result of such default, including, without limitation, unpaid rent, shall have the right to terminate this Lease, and shall have all other rights and remedies as may be available to Landlord at law or in equity.

 
8.2
Default by Landlord .If the Landlord commits a material default in the performance of any terms, covenants, or conditions of this Lease to be performed by the Landlord, and such default shall not have been remedied within fifteen (15) days after written notice by Tenant to Landlord specifying such default and requiring it to be remedied, then Tenant shall have the right to recover from Landlord all damages incurred by Tenant as a result of such default, and shall have all other rights and remedies as may be available to Tenant at law or in equity.

 
8.3
Attorneys’ Fees .  In the event any proceedings at law or in equity arise under this Lease or in connection herewith (including any appellate or bankruptcy proceedings), the prevailing party shall be awarded costs, reasonable expert witness fees and reasonable attorneys’ and paralegal fees incurred in connection with such proceedings.

9.
SUBORDINATION AND ATTORNMENT.

 
9.1
Subject to the provisions of this Section 9, this Lease shall be subject and subordinate to any mortgage or deed of trust (“Mortgage”) which is currently effective or which Landlord may hereafter enter into with respect to the Premises pursuant to the terms of the QEAA, and any renewal, replacement or modification thereof.  If the interest of Landlord under this Lease is transferred by reason of foreclosure or other proceedings for the enforcement of any such Mortgage, Tenant shall attorn to such mortgagee as its landlord in accordance with all of the terms and conditions of this Lease.  This provision shall be effective without the execution of any additional documents; provided, however, that Landlord and Tenant each agrees, upon request of the other party, to execute such additional documents as are reasonably appropriate to carry out the intent of this Section 9.
 
 
Page 7 of 10

 
 
10.
NOTICE

 
10.1
All notices, consents, approvals or demands required under this Lease shall be in writing, and shall be deemed delivered either (i) three (3) days after being deposited in the U. S. Mail, postage prepaid, certified or registered, return receipt requested, or (ii) on the day of delivery in person (including delivery by any courier service) provided that there is a written record confirming such personal delivery, in any event address to or delivered to the appropriate party at:

Tenant:          CVD Equipment Corporation

1860 Smithtown Avenue
Ronkonkoma, NY11779


Landlord:      FAE Holdings 411519R, LLC
c/o First American Exchange Company, LLC
Attn: Mark Bullock
560 South 300 East
Salt Lake City, UT84111
Tel:  (866) 516-1031


or to such other address(es) as either party may from time to time designate for this purpose.

11.
MISCELLANEOUS

 
11.1
Applicable Law.   This Lease has been entered into with reference to, and shall be construed, interpreted and enforced in accordance with, the laws of the State in which the Premises are located.

 
11.2
Successors and Assigns .  The covenants and agreements contained in this Lease shall extend to, be binding upon, and inure to the benefit of the parties hereto, and their respective heirs, executors, administrators, successors, and assigns.

 
11.3
Entire Understanding; Modification .  This Lease constitutes the entire agreement between the parties hereto with respect to the leasing of the Premises, and any prior agreements, representations or statements made with respect to such subject matter, whether oral or written, and any contemporaneous oral agreements, representations or statements, are merged therein.  This Lease may be modified only by a written instrument executed by the parties hereto.

 
11.4
Brokers .  Landlord and Tenant hereby represent and warrant each to the other that no brokers, agents or finders were involved on their behalf in negotiating or consummating this Lease.  Landlord and Tenant agree to indemnify and hold the other harmless from and against any and all liability, including reasonable attorneys’ fees, arising from any claims for commissions or finders’ fees resulting from any conversations, negotiations and/or agreements (written or oral) by Landlord or Tenant, as the case may be, with any broker, agent or finder.
 
 
Page 8 of 10

 
 
 
11.5
Interest .  Any rent or other sums due from either party hereto to the other in accordance with the terms of this Lease which are not paid when due, taking into account applicable periods of notice and/or grace, if any, shall accrue interest at the highest rate allowable under the laws of the State in which the Premises are located from the date due until paid.

 
11.6
Limitation of Liability .  The liability of Landlord under this Lease shall be limited to Landlord’s interest in the Premises, including any insurance proceeds and condemnation awards actually received in connection with the Premises.  In no event shall any member, shareholder, partner, employee or officer of Landlord have any liability under this Lease.

IN WITNESS WHEREOF , the parties hereto have executed this Lease as of the day and year first above written.


LANDLORD:

FAE Holdings 411519R, LLC

By:           First American Exchange Company, LLC
a Delaware limited liability company

Its:           Manager

By:             /s/ Mark Bullock
Name:           Mark Bullock
Its:           In House Counsel



TENANT:


CVD Equipment Corporation


By:            /s/ Glen Charles
Name:  Glen Charles
Its:            Chief Financial Officer

 
Page 9 of 10

 
 
EXHIBIT A

LEGAL DESCRIPTION OF PREMISES




 
Page 10 of 10
Exhibit 10.2
 

Re:  411519R-A

­ASSIGNMENT AGREEMENT
(Exchangor to EAT - Replacement Property)

This Assignment Agreement (hereinafter referred to as “Assignment”), is made as of 2/9/2012(the "Effective Date") by and between CVD Equipment Corporation(hereinafter referred to as "Exchangor"), andFAE Holdings 411519R, LLC (hereinafter referred to as "EAT").  Exchangor and EAT are collectively known as the "Parties" to this Assignment.

RECITALS:

A.           Exchangor, as Buyer, has entered into that certain Purchase and Sale Agreement (hereinafter referred to as “Replacement Property Agreement”), with SJA Industries LLC (“Seller”), for the acquisition ofa leasehold interest of 355 South Technology Drive,Central Islip, and located in the County of , State of New York, and further described on Exhibit “A” attached hereto (hereinafter, and collectively, if more than one, referred to as “Replacement Property”);

B.           Exchangor desires to exchange relinquished property for Replacement Property in such way as to qualify for tax-deferred treatment pursuant to and in accordance with Internal Revenue Code (hereinafter referred to as “I.R.C.”) § 1031, the Treasury Regulations promulgated thereunder (the "Treas. Reg."), Revenue Procedure 2000-37 and corresponding provisions of state tax law, if any;

C.           Pursuant to a certain Qualified Exchange Accommodation Agreement (the “QEAA”) by and between Exchangor and EAT, Exchangor desires to assign its rights, but not its obligations, in the Replacement Property Agreement to EAT, subject to the terms and conditions of this Assignment and the QEAA;

D.           EAT is willing to accept the assignment of Exchangor’s rights but not its obligations, in the Replacement Property Agreement, subject to the terms and conditions of this Assignment and the QEAA.

AGREEMENT:

NOW, THEREFORE, in consideration of the recitals above set forth in this Assignment, and other good and valuable consideration, Exchangor and EAT agree as follows:

1.            Assignment .   Exchangor hereby assigns Exchangor’s rights, but not its obligations, in the Replacement Property Agreement to EAT.EAT accepts the assignment of Exchangor's rights as Buyer in the Replacement Property Agreement, subject to the terms and conditions of this Assignment and the QEAA.

2.            Release and Acknowledgment .  Exchangor hereby releases EAT from all liability in connection with its participation in the Replacement Property Agreement, except liability arising from EAT’s own willful misconduct or gross negligence.  Exchangor acknowledges that EAT has made no representations or warranties concerning the Replacement Property, the physical condition of the Replacement Property, or the condition of legal title thereto.

3.            Survival of Terms .  All representations, covenants and warranties, express and implied made by Exchangor, with respect to Replacement Property, including, without limitation, those made in the Replacement Property Agreement and this Assignment, shall survive the transfers of the Replacement Property by Seller to EAT, to the extent provided in the Replacement Property Agreement or this Assignment.

4.            Notice of Assignment. Exchangor shall give notice of this Assignment to all parties to the Replacement Property Agreement.

5.            Counterparts .   This Assignment may be executed in counterparts and shall be binding on all the Parties hereto as if one agreement had been signed.  Transmittal and receipt of a facsimile copy of this Assignment with facsimile signatures shall be binding on the Parties hereto.
 

SEE NEXT PAGE FOR SIGNATURES

 
1

 
 
SIGNATURE PAGE
ASSIGNMENT AGREEMENT
(Replacement Property)




IN WITNESS WHEREOF, the parties have executed this Assignment as their free and voluntary act and deed as of the day and year first written above.


EAT:

FAE Holdings 411519R, LLC

By:           First American Exchange Company, LLC
Its:           Manager

By:            /s/ Mark Bullock
Name:      Mark Bullock
Title:        In House Counsel


EXCHANGOR:

CVD Equipment Corporation


By:         /s/ Glen Charles
Name:  Glen Charles
Its:       Chief Financial Officer

 
2

 
 
ACKNOWLEDGMENT OF RECEIPT OF A COPY OF ASSIGNMENT


SELLER:

The undersigned hereby acknowledges that they received a copy of the foregoing Assignment Agreement between CVD Equipment Corporation and FAE Holdings 411519R, LLC.




By:           /s/ Fran Austrian
Name:      Fran Austrian
Title:        Member of SJA Industries LLC

 
3

 

ASSIGNMENT EXHIBIT "A"

LEGAL DESCRIPTION OF REPLACEMENT PROPERTY

[Legal Description to be attached hereto]


 
 
4
Exhibit 10.3
 

QUALIFIED EXCHANGE ACCOMMODATION AGREEMENT
(REPLACEMENT PROPERTY HOLD)
Exchange No. 411519R-A

THIS QUALIFIED EXCHANGE ACCOMMODATION AGREEMENT (“ QEAA ”) is made and entered into as of 2/9/2012by and between CVD Equipment Corporation(“ Exchangor ”)andFAE Holdings 411519R, LLC(“ EAT ”).


RECITALS

A.
Exchangor presently owns for investment purposes or for use in its trade or business certain property (“ Currently Held Property ”)which Exchangor intends to identify as relinquished property, and/or Exchangor has disposed of as relinquished property certain property that Exchangor owned for investment purposes or used in Exchangor’s trade or business (“ Formerly Held Property ”).

B.
Exchangor has transferred or intends to transfer some or all of the identified Currently Held Property and/or Formerly Held Property (the “ Relinquished Property ”) to one or more third party buyers (the “ Transferees ”) pursuant to one or more purchase and sale agreements to be entered into between Exchangor and the Transferee or Transferees (each such agreement being referred to herein as a “ Relinquished Property Transfer Agreement ”).  Exchangor has advised EAT that it intends to dispose of the Relinquished Property through a qualified intermediary (the “ QI ”) within the meaning of Treasury Regulation (“ Treas. Reg .”) Section 1.1031(k)-1(g)(4) for the purpose of effectuating a like-kind exchange (the “ Exchange ”) within the meaning of Section 1031 of the Internal Revenue Code of 1986, as amended (the “ Code ”).  Pursuant to the Exchange, Exchangor and QI will enter into an Exchange Agreement (the “ Exchange Agreement ”).  First American Exchange Company, LLC will act as the QI in connection with the Exchange.

C.
EAT is willing to cooperate with and assist Exchangor and the QI in completing the Exchange upon the terms and conditions provided herein.  To that end, EAT will act as an “ Exchange Accommodation Titleholder ” as that term is defined in Internal Revenue Service Revenue Procedure 2000-37, 2000-40 I.R.B. 1 (September 15, 2000)(“Rev. Proc. 2000-37”). Exchangor has entered into a purchase and sale agreement(“ Replacement Property Purchase Agreement ”) to acquire a leasehold interest of 355 South Technology Drive, Central Islip, NY (“ Replacement Property ”) more particularly described in Exhibit “A,” attached hereto and made a part hereof, from the seller of such property(“ Seller ”). Exchangor is contemporaneously herewith assigning Exchangor’s rights under the Replacement Property Purchase Agreement to EAT pursuant to which assignment EAT will acquire from Seller the Replacement Property.

D.
EAT is also willing to lease the Replacement Property to Exchangor or an affiliate thereof pursuant to a lease in form and substance acceptable to EAT (“ Lease ”).  If improvements are to be constructed on the Replacement Property, EAT is willing to enter into a Construction Management Agreement in form and substance acceptable to EAT (the “ Construction Management Agreement ”).  The Lease and/or Construction Management Agreement are to be executed concurrently with the execution of this QEAA.  The improvements to be constructed on the Replacement Property shall be referred to herein as the “Replacement Property Improvements.”  As used in this Agreement, the Replacement Property shall include the Replacement Property Improvements that are constructed on the Replacement Property by or on behalf of EAT during the Parking Period, as defined below, in accordance with the Code and Rev. Proc 2000-37.
 
 
 

 
 
E.
Subject to the terms of this QEAA, EAT will: (1) to the extent required, borrow monies from a lender or lenders pursuant to a credit agreement or agreements providing the terms and conditions of the financing and/or from Exchangor pursuant to the terms of a loan from Exchangor for the purpose of acquiring the Replacement Property; (2) acquire ownership of a leasehold interest to the Replacement Property, and if applicable, construct the Replacement Property Improvements on the Replacement Property; and (3) enter into the Lease and/or the Construction Management Agreement.

F.
It is Exchangor’s intent that the Replacement Property held by EAT represents replacement property in an exchange that is intended to qualify for non-recognition of gain (in whole or in part) under Section 1031 of the Code.  To effectuate the Exchange, Exchangor will:  (1) designate to QI the Replacement Property as “replacement property” (within the meaning of Treas. Reg. § 1.1031(k)-1(a)); (2) assign Exchangor’s rights under each Relinquished Property Transfer Agreement to QI in order to allow QI to receive the net purchase price therefrom; (3) direct the QI to obtain the right to acquire the Replacement Property from EAT; and (4) direct QI to pay the purchase price for the Replacement Property and then transfer, or cause the transfer of, ownership of the Replacement Property to Exchangor in order to complete the Exchange.


AGREEMENT

NOW THEREFORE, in consideration of the mutual premises set forth herein, the parties hereby agree as follows:

1.
Acquisition and Ownership of the Replacement Property by EAT.

 
1.1.
Assignment to EAT of Replacement Property Purchase Agreement .

 
1.1.1.
Exchangor hereby assignsto EAT Exchangor’s rights (but not its obligations) to acquire the Replacement Property from the Seller pursuant to the terms of the Replacement Property Purchase Agreement.  EAT hereby accepts such assignment of Exchangor’s rights under the Replacement Property Purchase Agreement.  In addition, Exchangor shall obtain Seller’s written acknowledgment of the notice of such assignment.

 
1.1.2.
Subject to the terms of the Replacement Property Purchase Agreement, this QEAAand the assignment of Replacement Property Purchase Agreement, EAT shall acquire ownership of to the Replacement Property.

 
1.2.
Compliance with Rev. Proc. 2000-37 .  It is the intent of Exchangor and EAT in entering into this QEAAto fully comply with all of the terms and conditions of Rev. Proc. 2000-37.  Accordingly, the parties agree to the following:

 
1.2.1.
EAT shall acquire and hold the Replacement Property for the benefit of Exchangor in order to enable Exchangor to facilitate, under Section 1031 of the Code, and pursuant to Rev. Proc. 2000-37, an exchange of the Relinquished Property for the Replacement Property.

 
1.2.2.
To the extent consistent with applicable law, Exchangor and EAT agree to report, or cause to be reported, the acquisition, holding and disposition of the Replacement Property consistently with the terms of Rev. Proc. 2000-37 for federal and state income tax purposes, including, but not limited to treating EAT as the beneficial owner of the Replacement Property for federal and state income tax purposes from the date EAT acquires title thereto pursuant to the terms of this QEAAuntil the Replacement Property is transferred by EAT to Exchangor or to another person in compliance with the terms of this QEAA.  In connection therewith, Exchangor shall provide to EAT within thirty days after the completion of the Exchange all information necessary to prepare such tax returns, including, without limitation, a summary of the expenses for the Replacement Property, in a format acceptable to EAT.  Exchangor may use the form attached hereto as Exhibit “B” to report such information, or any other form reasonably acceptable to EAT and Exchangor.  EAT shall have no obligation to report any information on its tax return other than what is timely supplied by Exchangor.
 
 
 

 
 
 
1.2.3.
Exchangor shall, on or before the expiration of forty-five (45) days after the date on which EAT first acquires title to the Replacement Property, identify the Currently Held Properties and/or Formerly Held Properties, which may consist of one or more real properties or interests therein owned by Exchangor, which are to be exchanged by Exchangor for the Replacement Property.  Such identification shall be effectuated by one or more written notices signed by Exchangor, which written notices shall be hand delivered, mailed (certified, return receipt requested) or otherwise sent to QI before the expiration of such 45-day period referred to above, and shall otherwise comply with the requirements of Treas. Reg. §1.1031(k)-1(c) (to the extent such regulation is applicable to this transaction under the terms of Rev. Proc. 2000-37).  Exchangor may, at any time prior to the expiration of such 45-day period, revoke identification and (at the option of Exchangor) identify one or more substitute Currently Held Properties or Formerly Held Properties.  Any such revocation shall be made pursuant to the Code and applicable regulations, and shall be accomplished solely by written notice signed by Exchangor and hand delivered, mailed (certified, return receipt requested) or otherwise sent to QI before the expiration of such 45-day period.

 
1.2.4.
Exchangor acknowledges that Rev. Proc. 2000-37 requires that a safe harbor reverse and/or improvement exchange be completed (including the transfer of the relinquished property to a third party buyer and the transfer of the Replacement Property to Exchangor) within 180 days from the date that EAT acquires title to the Replacement Property (the “ Parking Period ”).  In no event shall EAT be required to hold ownership to the Replacement Property longer than the Parking Period. Exchangor also acknowledges that the Exchange must be completed prior to the expiration of the “exchange period” as defined in Treas. Reg. Section 1.1031(k)-1(b).

 
1.3.
Financing and Non-Recourse Language.

 
1.3.1.
The acquisition of the Replacement Property, including the cost to design and construct any Replacement Property Improvements which are undertaken by EAT pursuant to Section 1.8 hereof, shall be funded as set forth below.

 
1.3.1.1.
Exchange Proceeds .  In the event there are funds being held by QI from the sale of Relinquished Property, those funds, less fees and costs as provided in the Exchange Agreement (the “ Exchange Proceeds ”) will be supplied by QI except to the extent Exchangor elects to cause funds to be supplied by loans described below in Sections 1.3.1.2 and 1.3.1.3.
 
 
 

 
 
 
1.3.1.2.
Third Party Loans .  At Exchangor’s request, EAT shall borrow funds (the “ Third Party Loan ”) from a lender or lenders (“ Lender ”) pursuant to and in accordance with the terms and conditions acceptable to Exchangor and EAT, which terms shall be as set forth in the credit agreement or agreements (“ Credit Agreement ”) including refinancing, renewals, extensions and modifications thereof, all of which shall be completely non-recourse to EAT and to the sole member of EAT (with no carve-outs to the non-recourse provision) and shall permit transfer of the Replacement Property to Exchangor.

 
1.3.1.3.
Exchangor Loan .  In the event theExchange Proceeds and/or the Third Party Loan funds are insufficient to acquire the Replacement Property and pay the items listed below, Exchangor agrees to lend (or cause an affiliate of Exchangor to lend) to EAT sufficient funds to enable EAT to purchase the Replacement Property and pay any and all required closing costs, loan fees and costs, transfer and mortgage taxes (including documentary stamp taxes and intangible taxes), insurance premiums and other expenses incurred by EAT in connection with the purchase of the Replacement Property by EAT, the holding costs thereof (to the extent not paid by Exchangor as rent) and the construction of Replacement Property Improvements.  Such loan (the “ Exchangor Loan ”) shall be completely non-recourse to EAT and to the sole member of EAT (with no carve-outs to the non-recourse provision) and shall be evidenced by a non-recourse promissory note (the “ Exchangor Note ”) in form and substance acceptable to EAT.  The Exchangor Loan shall also include any amounts funded under the loan described in Section 1.3.4 below.

 
1.3.2.
No Obligation to Advance Funds .  EAT shall have no obligation to advance funds to acquire, own, manage, lease or transfer the Replacement Property or construct the Replacement Property Improvements in excess of the aggregate of any of the following that apply: (i) the Third Party Loan, (ii) the Exchangor Loan and (iii) Exchange Proceeds.

 
1.3.3.
Non-Recourse .  Neither EAT nor the sole owner of EAT shall have any personal liability in connection with the Third Party Loan or the Exchangor Loan.  Any and all promissory notes, loan documents and other agreements and documents to be signed by EAT in connection with the Third Party Loan or the Exchangor Loan, or related to the ownership, maintenance or operation of the Replacement Property or the construction of the Replacement Property Improvements, shall contain non-recourse language as set forth in Exhibit “C” attached hereto, without any exceptions or carve-outs to the non-recourse language.

 
1.3.4.
Amortization of Principal .  If the Credit Agreement requires that EAT make any principal payments to the Lender, Exchangor shall make such principal payments on behalf of EAT directly to the Lenderin a timely manner and each payment shall be accounted for between Exchangor and EATas an interest-free and unsecured loan from Exchangor to EAT.  Neither EAT nor the sole member of EAT shall have any obligation to repay the loan obligations incurred by EAT, except as otherwise provided in this Section 1.3.4.
 
 
 

 
 
 
1.4.
Environmental Report .  Prior to the acquisition of the Replacement Property, Exchangor shall, at Exchangor’s expense, provide EAT with a “Phase 1” environmental report on the Replacement Property.  EAT’s obligation to acquire title to the Replacement Property shall be subject to its review and approval, in its sole discretion, of the “Phase 1” environmental report of the Replacement Property.

 
1.5.
Lease and Construction Management Agreement .  Simultaneously with and as a condition concurrent with the acquisition of the Replacement Property, EAT and Exchangor(or an affiliate of Exchangor)shall enter into the Lease and/or Construction Management Agreement.  If requested by Exchangor, EAT and Exchangor (or an affiliate of Exchangor) shall enter into a property management agreement instead of a lease.

 
1.6.
Insurance .  Simultaneously with and as a condition concurrent with the acquisition of the Replacement Property, Exchangor shall obtain commercial general liability insurance, property insurance, builder’s risk insurance and other insurance in accordance with the requirements of the Lease and/or the Construction Management Agreement, or as otherwise approved by EAT, insuring both Exchangor and EAT with respect to the Replacement Property.

 
1.7.
Title Insurance .  Simultaneously with and as a condition concurrent with the acquisition of the Replacement Property, Exchangor shall cause a title insurance binder (or if not available, a title insurance policy) to be issued to EAT in the amount of the Purchase Price of the Replacement Property.

 
1.8.
Construction of Replacement Property Improvements . If so requested by Exchangor, EATshall construct the Replacement Property Improvements; provided that the construction of the Replacement Property Improvements shall be performed pursuant to the Construction Management Agreement and shall be managed by the Construction Manager named in the Construction Management Agreement. Construction shall commence as soon as reasonably possible after the Replacement Property is acquired, all documents acceptable to EAT and Exchangor are signed, financing acceptable to EAT and Exchangor has been obtained, all permits and approvals have been obtained, insurance has been obtained with EAT listed as an insured or additional insured, and all other applicable terms and conditions of this QEAA have been fulfilled.  Notwithstanding anything in this QEAA or any other document, agreement or instrument to the contrary, EAT is not responsible for monitoring the construction of the Replacement Property Improvements, the ability to obtain tax credits or condominium status, or for the performance or nonperformance by the architect or by the general contractor or any of its subcontractors under the construction contract.  EAT is also not responsible for the quality of workmanship or materials with respect to the Replacement Property Improvements.

 
1.9.
Fees Payable to EAT .  Exchangor agrees to pay to EAT for its services hereunder the fees (“ Fee ”) set forth in the Fee Schedule attached hereto as Exhibit “D.”

 
1.10.
Status of EAT as Exchangor’s Agent .  Exchangor hereby appoints EAT as Exchangor’s agent for all purposes with respect to the Replacement Property, except for any federal or state income tax purposes, or as otherwise prohibited by the requirements of Rev. Proc. 2000-37, as amended, and EAT accepts such appointment.
 
 
 

 
 
 
2.
 
 
 

 
 
Exchange Cooperation .

 
2.1.
Transfer of Relinquished Property and Replacement Property; QI Assignment

 
2.1.1.
At any time prior to the expiration of the Parking Period, Exchangor shall have the right to purchase the Replacement Property from EAT for the Purchase Price (as defined in Section 2.2.1.1 hereof).  Exchangor shall exercise its option to purchase the Replacement Property from EAT by giving written notice thereof to EAT, provided that the closing date shall be within the Parking Period. The transfer of ownership of the Replacement Property shall be accomplished either by an assignment/assumption of the leasehold interest to Exchangor or, at Exchangor’s option,by an assignment of the sole membership interest in EAT (provided that EAT is a single member limited liability company) to Exchangor.  Exchangor’s obligation to accept a transfer of ownership of the Replacement Property at such closing shall be as provided in Section 2.4 hereof.Exchangor acknowledges that thetransfer of the Replacement Property to Exchangor should occur only after the transfer of the Relinquished Property to the Transferees.

 
2.1.2.
Exchangor shall assign to QI Exchangor’s rights under this QEAAto acquire the Replacement Property pursuant to a form of QI Assignment described in Treas. Reg. § 1.1031(k)-1(g)(4)(v).  The QI Assignment shall provide for EAT to deliver  ownership of the Replacement Property (either by an assignment/assumption of the leasehold interest or of the sole membership interest in EAT) directly to Exchangor without the need for QI to take title thereto.  EAT will provide a written acknowledgement of receiving notice of the QI Assignment.

 
2.1.3.
Exchangor shall also assign to QI Exchangor’s rights (but not its obligations) under the Relinquished Property Transfer Agreement to sell the Relinquished Property to the Transfereespursuant to a form of QI Assignment described in Treas. Reg. § 1.1031(k)-1(g)(4)(v).  The QI Assignment shall provide for Exchangor to deliver title to and ownership of the Relinquished Property directly to such Transfereeswithout the need for QI to take title thereto.  In addition, Exchangor shall obtain such Transferee’s written acknowledgment of the notice of such assignment.

 
2.1.4.
Exchangor shall direct QI to use the Exchange Proceeds to acquire the Replacement Property from EAT for an amount equal to the Purchase Price, as provided in Section 2.2, and shall supply to QI any additional funds needed to make such purchase, in excess of the funds and credits described in Section 2.2.2.

 
2.1.5.
Upon receipt of the Purchase Price from QI, and consistent with the QI Assignment, EAT shall deliver to QI or, upon the direction of QI, to Exchangor an assignment of the leasehold interest of the Replacement Property(“ Replacement Property Deed ”), or in the alternative, the sole member of EAT shall deliver its one hundred percent membership interest in EAT (“ Assignment of Membership Interest ”) to Exchangor, using the form of assignment attached hereto as Exhibit “E.”

 
2.1.6.
At Exchangor’s request, EAT shall assign to Exchangor (without representation, covenant, warranty or variance) all representations, warranties and covenants from the Seller pertaining to the Replacement Property which have been obtained by EAT and all of EAT’s rights and obligations (which Exchangor shall assume) under the Lease.
 
 
 

 
 
 
2.2.
Purchase Price and Terms .

 
2.2.1.
For purposes of this QEAA, the following definitions shall apply:

 
2.2.1.1.
Purchase Price ” shall mean (i) the purchase price paid by EAT to Seller to acquire the Replacement Property (including any debt assumed or taken subject to), and (ii) the sum of any and all unreimbursed costs, liabilities and expenses of any kind incurred by EAT in connection with the acquisition, ownership, lease, operation, maintenance and transfer of the Replacement Property and the design and construction of the Replacement Property Improvements, including, without limitation, all sales, transfer or other taxes, and all charges, expenses and closing costs paid by EAT in connection with the acquisition, ownershipand the transfer of the Replacement Property, all interest and stated fees (including accrued but unpaid pre-payment fees in connection with mandatory pre-payments) under the Third Party Loan and the Exchangor Loan, all title search expenses and title insurance premiums and all taxes and other ownership costs of the Replacement Property.

 
2.2.1.2.
The Purchase Price shall not include costs and expenses that have been paid by Exchangor as rent pursuant to the Lease.

 
2.2.2.
The Purchase Price shall be paid as follows:

 
2.2.2.1
In cash, but only to the extent of Exchange Proceeds deposited at closingby the QI, plus

 
2.2.2.2
In the form of a credit for any remaining liabilities owed to Lender pursuant to the Credit Agreement which are assumed by Exchangor or which the Exchangor agrees to acquire the Replacement Property “subject to,” plus

 
2.2.2.3
In the form of a credit for any remaining amount due Exchangor pursuant to the Exchangor Loan.

 
2.2.3.
EAT shall use the Purchase Price as follows:

 
2.2.3.1
First, to pay any and all unpaid costs and expenses incurred by EAT in connection with the acquisition, ownership, leasing, operation, maintenance, financing and transfer of the Replacement Property, and the construction of any Replacement Property Improvements,

 
2.2.3.2
Second, to pay all principal and interest (if any) on the Exchangor Loan,

 
2.2.3.3
Third, to pay principal and interest on the Third Party Loan, to the extent requested by Exchangor.

 
2.2.3.4
If there is any excess cash after paying such amounts, such excess shall be paid to Exchangor.  Notwithstanding the foregoing, Exchangor acknowledges that, in the event QI holds cash in excess of the amount needed to pay the Purchase Price, the timing of the release of such funds is restricted in accordance with Treas. Reg. Section 1.1031(k)-1(g)(6).
 
 
 

 
 
 
2.3.
Casualty & Condemnation; Liens

 
2.3.1.
At such time as EAT delivers the Replacement Property Deed or Assignment of Membership Interest to Exchangor pursuant to Section 2.1.5 hereof, EAT shall also deliver to Exchangor, less costs incurred in pursuing such entitlement (i) any insurance or condemnation proceeds pertaining to the Replacement Property which EAT may have received, except to the extent such proceeds have been expended for the restoration or repair of the Replacement Property or otherwise applied as required under the Credit Agreement, or applied in accordance with the Lease, and (ii) assignments of any insurance or condemnation proceeds pertaining to the Replacement Property which EAT may be entitled to receive but has not received.

 
2.3.2.
EAT shall not encumber the Replacement Property, except to the extent such encumbrance is contemplated by the terms of this QEAA, the Lease, the Construction Management Agreement, any Credit Agreement or any other document related to the Exchange, or is authorized by or directly or indirectly caused by any act or omission of Exchangor or any other third party.

 
2.4.
Representations and Warranties; Title .  Except as expressly provided herein, EAT shall not be obligated to make any covenants, representations or warranties to Exchangor in connection with the transfer of title to the Replacement Property.  Without limiting the generality of the foregoing and except as prohibited by law, Exchangor shall be required to accept title to the Replacement Property regardless of (i) defects in title or encumbrances, except those that are caused by EAT in violation of the terms of Section 2.3.2 hereof; (ii) the absence of any required permits or approvals; (iii) any unfavorable tax rulings; or (iv) any other matter or condition affecting or relating to the Replacement Property or the right or power of Exchangor to acquire, own, or maintain possession of and operate the Replacement Property.

3.
Exchangor’s Failure to Complete Exchange .
 
If Exchangor is unable to complete the Exchange prior to the expiration of the Parking Period, EAT shall transfer the Replacement Property to Exchangor for a price equal to the Purchase Price, payable in full at the closing as provided in Section 2.2.2, except that Exchangor, rather than QI, shall be the source of any cash deposit. In such event, EAT shall assign (and Exchangor shall assume) the leasehold interest in the Replacement Property or shall cause the sole member of EAT to deliver the Assignment of Membership Interest to Exchangor. Exchangor shall have the obligation to pay all costs and expenses of such transfer, including without limitation, recording fees and transfer taxes.  Exchangor shall take title to the Replacement Property subject to any existing loan, and as provided in Section 2.4 hereof.  At Exchangor’s option, Exchangor may instruct EAT in writing to transfer the Replacement Property to a third party transferee instead of transferring it to Exchangor, provided that such transfer is done without any representations, warranties or liability to EAT whatsoever, is completed prior to the end of the Parking Period and does not result in taxable income to EAT.
 
4.
Exchangor's Default .  If an Exchangor Default or an Adverse Entity Event (as those terms are defined below) shall occur with respect to Exchangor, then EATmay terminate its obligation to complete the Exchange and shall have the right to transfer the Replacement Property to Exchangor (at EAT’s option, by an assignment of the leasehold interest or by an assignment of the membership interest in EAT) and shall have the right to recover any damages against Exchangor as provided by law, including, without limitation, escrow and recording fees, transfer taxes and all other costs of transferring the Replacement Property or the interest in EAT, and including all costs and expenses incurred by EAT in connection with the acquisition, ownership, construction and/or transfer of the Replacement Property. In such event, (a) Exchangor shall be obligated to acquire the Replacement Property from EAT, and (b) all principal and interest due under the Exchangor Loan shall be cancelled.
 
 
 

 
 
5.
EAT’s Default .  If an EATDefault or an Adverse Entity Event (as those terms are defined below) shall occur with respect to EAT, then Exchangor may terminate its obligation to complete the Exchange and shall have the right to recover any damages against EAT as provided by law.  Exchangor shall also have the right of specific performance to cause EAT to transfer the Replacement Property to Exchangor.

6.
Definitions .  “ Adverse Entity Event ” shall mean any one or more of the following events:  dissolution or liquidation, making a general assignment for the benefit of creditors, filing a petition in bankruptcy, filing a petition or applying to any tribunal for the appointment of a receiver or trustee of its properties, commencing any proceeding relating to itself under any bankruptcy, reorganization, readjustment of debt, dissolution or liquidation law of any jurisdiction, causing to have commenced against it any such proceeding which remains undismissed for a period of ninety (90) days, indicating its consent to, approval of or acquiescence in any of such proceedings or failing to contest the appointment of any receiver of, or trustee for, it or for substantially all of its properties which shall continue undischarged for a period of ninety (90) days.  “ Exchangor Default ” shall mean the failure of Exchangor to pay for, or to immediately reimburse EAT for, all costs and expenses of the Replacement Property, or if the exchange is not completed during the Parking Period, the failure of Exchangor to cooperate with EAT by setting up an escrow and paying all costs and expenses and transfer taxes, if any, in connection with the transfer of the Replacement Property to Exchangor, or any other material default by Exchangor under this QEAA, the Lease, the Construction Management Agreement or any ancillary document, and in any of such events, the failure or breach is not cured within ten (10) days after EAT sends Exchangor written notice thereof.  “ EAT Default ” shall mean any material default by EAT under this QEAA,the Lease, the Construction Management Agreement or any ancillary document, which is not cured within ten (10) days after Exchangor sends EAT written notice thereof.

7.
Representations and Warranties of the Parties .  EAT and Exchangor, hereby represent and warrant to each other as follows:

 
7.1.
Due Organization: Authority: Enforceability .  EAT, and Exchangor if it is an entity, each represents that it is an entity of the form specified in the preamble to this QEAA, and is duly organized and validly existing under the laws of the state of its formation.  Each party has the power and authority to make, execute, deliver and perform its obligations under this QEAAand all of the transactions contemplated under this QEAAand has taken all necessary actions to authorize the execution, delivery and performance of this QEAA. This QEAAconstitutes a valid and binding obligation of such party, enforceable against such party in accordance with its terms; subject, as to enforcement to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors rights and to general equitable principles.
 
 
 

 
 
 
7.2.
Conflict with Existing Laws or Contracts .  The execution and delivery of this QEAA, and all related documents, and the performance of their obligations hereunder and thereunder by each party (i) does not conflict with or result in a breach of or constitute a default under any of the terms, conditions or provisions of that party’s organizational documents, if any, including, but not limited to:  articles of incorporation, bylaws, articles of organization, regulations, operating agreements, partnership agreements, limited partnership agreement or certificate of limited partnership; or of any agreement or instrument to which such party is a party or by which such party is bound or any order or decree applicable to such party and (ii) will not result in the creation or imposition of any lien (except for those liens contemplated by the Lease, Exchangor Loan and Credit Agreement) on any of such party's assets or property which would materially and adversely affect the ability of such party to execute and deliver this QEAAand perform its obligations hereunder; and such party has obtained all consents, approvals, authorizations or orders of any court or governmental agency or body, if any, required for the execution and delivery by it of this QEAA.

 
7.3.
Legal Action Against a Party .  There are no judgments, orders, or decrees of any kind against the representing and warranting party unpaid or unsatisfied of record nor any legal action, suit or other legal or administrative proceeding pending or, to such party's knowledge, threatened against such party before any court or administrative agency which have, or are likely to have, any material or adverse effect on the business or assets or the condition, financial or otherwise, of such party or which prevent, or could reasonably be expected to prevent, the ability of such party to perform hereunder.

 
7.4.
Bankruptcy or Debt: Financial Condition .  The representing and warranting party has not filed any petition seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any law relating to bankruptcy or insolvency, nor has any such petition been filed against such party. No general assignment of such party’s property has been made for the benefit of creditors, and no receiver, master, liquidator or trustee has been appointed for such party or any of its property. Such party is not insolvent and the consummation of the transactions contemplated by this QEAAshall not render such party insolvent. Such party will have, as of the time of execution of this QEAA, sufficient financial resources to meet all of its obligations, including all of its obligations under this QEAA.

 
7.5.
Survival .  Each and every representation and warranty made by EAT and Exchangor in Section 7 hereof shall survive the execution and delivery of this QEAAand the consummation of the transactions contemplated hereunder.

8.
Environmental Release and Indemnity .

 
8.1.
General Release .  Exchangor represents and warrants to EAT, to the best knowledge of Exchangor, after inquiry, there have been no releases of any Hazardous Substances, as defined below, on, in, around or about the Replacement Property.  Exchangor hereby releases EAT and its past, present, and future members, partners, parent companies, subsidiaries, affiliates, and related entities, as well as past, present and future partners, members, shareholders, officers, directors, employees, agents, successors, heirs and assigns of each of them (collectively, the “ Indemnified Parties ” and individually, an “ Indemnified Party ”) from any and all claims, causes of action of every kind and character, fines, losses, damages, liabilities, costs and expenses whether known or unknown, existing, contingent or hereafter arising, which Exchangor may have now or in the future, in connection with or arising out of the actual or suspected presence in, on, under or about the Replacement Property of any Hazardous Substance.
 
 
 

 
 
 
8.2.
Environmental Indemnity .  Exchangor shall indemnify, protect, defend (with counsel reasonably satisfactory to the Indemnified Party) and hold harmless each of the Indemnified Parties of, from and against any and all cost, expense, loss, damage, claim, cause of action or liability suffered or incurred by such Indemnified Party in connection with or arising out of the actual or suspected presence in, on, under or about the Replacement Property, of any Hazardous Substance including, but not limited to:  (1) any and all expenses that the Indemnified Party may incur in complying with any of the Environmental Statutes (as defined below), (2) any and all costs that the Indemnified Party may incur in connection with the investigation, removal, clean up or remediation of the contamination and the restoration of the Replacement Property, (3) any and all fines or penalties assessed upon the Indemnified Party by reason of such contamination, (4) any and all costs arising from claims of third parties in connection with such contamination, and (5) any and all consultant and legal fees and costs incurred by the Indemnified Party in connection with any of the foregoing.  For purposes of this Section 8, the term “ contamination ” shall mean the presence of Hazardous Substances at the Replacement Property or any improvements thereon that requires or may require any remedial action under any of the Environmental Statutes.

 
8.3.
Certain Definitions :

 
8.3.1.
As utilized in this QEAA, the term “ Hazardous Substance ” shall mean any substance or material, including but not limited to lead in paint, which (a) constitutes a hazardous waste substance under any applicable federal, state or local law, rule, order or regulation now or hereafter adopted; (b) constitutes a “hazardous substance” under the Comprehensive Environmental Response, Compensation and Liability Act, (42 U.S.C. 9601 et seq.) and the regulations promulgated thereunder; (c) constitutes a “hazardous waste” under the Resource Conservation and Recovery Act, (42 U.S.C. 6901 et seq.) and the regulations promulgated thereunder; (d) constitutes a pollutant, contaminant, chemical or industrial, toxic or hazardous substance or waste; (e) exhibits any of the characteristics enumerated in 40 C.F.R. Sections 261.20-261.24, inclusive; (f) is an extremely hazardous substance listed in Section 302 of the Superfund Amendments and Reauthorization Act of 1986 (Public Law 99-499, 100 Stat. 1613) which are present in threshold planning or reportable quantities as defined under such Act; (g) is a toxic or hazardous chemical substance which is present in quantities which exceed exposure standards as those terms are defined under Sections 6 and 8 of the Occupational Safety and Health Act, as amended, (29 U.S.C. 655and 657and 29 C.F.R. Part 1910 subpart 2); (h) contains any asbestos, or (i) is a petroleum-based product, an underground storage tank, or an above ground storage tank.
 
 
 

 
 
 
8.3.2.
As utilized herein, the term “ Environmental Statutes ” shall mean the statutes, laws, rules, orders and regulations referred to in (a) through (i), inclusive, in the preceding Section 8.3.1. As utilized herein, contamination by a Hazardous Substance shall include contamination arising from the presence, creation, production, collection, treatment, disposal, discharge, release, storage, transport, or transfer of any such substance.

 
8.4.
Survival of Provisions .  The provisions of this Section 8 shall survive the termination of this QEAAfor any reason and the completion of all the transactions contemplated herein.

 
8.5.
Actions by Indemnified Parties . The foregoing notwithstanding, the provisions of this Section 8 shall not extend to any release of Hazardous Substances upon the Replacement Property caused solely by an Indemnified Party's intentional misconduct or gross negligence not arising from or otherwise connected with such party’s rights, responsibilities and obligations under this QEAA, the Credit Agreement, the Lease or the Construction Management Agreement.

9.
Due Diligence . EAT shall have no obligation or responsibility to pursue or complete any due diligence activities with respect to the Replacement Property; all such due diligence activity being the responsibility of the Exchangor. As used in the preceding sentence, “due diligence activities” include, without limitation, (i) environmental site assessments, (ii) subsurface soil studies, (iii) surveys, (iv) investigations to determine the availability of all utilities required for the operation of the Replacement Property, (v) examination of title insurance commitments, title insurance policies and all instruments referred to therein, (vi) verification of compliance with all applicable comprehensive land use plans, zoning, restrictions, prohibitions and other requirements imposed by governmental authority, (vii) review of all space leases affecting the Replacement Property, (vii) inspections to determine active termite infestation or visible damage from termite infestation, (viii) confirmation of access to the Replacement Property, (ix) confirmation of the value of the Replacement Property, and (x) inspections of all improvements comprising any part of the Replacement Property to determine the existence of any water damage or structural damage and to verify that all appliances, mechanical items, heating, cooling, electrical, plumbing systems and machinery are in good working order.

10.
Indemnity .  Exchangor shall indemnify, protect, defend with counsel reasonably satisfactory to EAT, and hold EAT and all the Indemnified Parties harmless with respect to any claim, cause of action, liability, loss, cost, damage or expense, including reasonable attorneys’ fees (collectively, “ Claims ”), arising out of or resulting, directly or indirectly, from (a) the failure by Exchangor to complete all required due diligence activities pertaining to the Replacement Property, (b) the existence of any facts or conditions affecting any part of the Replacement Property which were or could have been determined or discovered as a result of the conduct and completion of due diligence activities with respect to the Replacement Property, (c) the condition, use, occupancy or maintenance of the Replacement Property, or the failure of the Replacement Property to comply with all laws and regulations, (d) the design, installation and construction of any improvements to the Replacement Property, including any Claims arising in connection with liens against the Replacement Property, (e) any existing or future leases, subleases or occupancy agreements affecting the Replacement Property, (f) any and all acts and omissions with respect to the Replacement Property, specifically including the negligence of the Indemnified Parties, (g) any documents, agreements and instruments executed or entered into by or on behalf of EAT in connection with the Replacement Property, including, without limitation, ground leases, occupancy leases, license agreements, tenancy-in-common agreements, change of ownership reports, service contracts, construction contracts, agreements and documents related to the design, development and construction of improvements to the Replacement Property, promissory notes, deeds of trust and mortgages, environmental indemnity agreements, loan agreements and other loan documents, (h) any and all taxes and assessments which are due in connection with the acquisition, holding, ownership, transferand/or disposition of the Replacement Property or otherwise in connection with the Exchange, other than taxes due as a result of the payment of the Fee, and/or (i) the acquisition, financing, ownership, leasing, subleasing, design, construction, management, operation, maintenance, restoration and/or transfer by EAT of the Replacement Property (including the Replacement Property Improvements). In the event the Replacement Property is reassessed and EAT receives a supplemental tax bill, either during or after the Parking Period, and such bill applies to the period during which EAT held title to the Replacement Property, Exchangor shall immediately pay such tax bill in full, and this indemnity shall include all such obligations to pay taxes.  The provisions of this Section 10 shall survive the termination of this QEAAand the completion of the transactions contemplated hereunder.
 
 
 

 
 
11.
Miscellaneous .

 
11.1.
Time .  Time is of the essence of this QEAAand of each covenant and condition to be performed hereunder.

 
11.2.
Waiver . No failure or delay on the part of either party in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies provided hereunder are cumulative and not exclusive of any remedies provided by law.

 
11.3.
Commissions . No real estate commission shall be paid as a result of the transfer of the Replacement Property from EAT to Exchangor.  Exchangor hereby indemnifies and agrees to protect, defend with counsel reasonably satisfactory to EAT, and hold EAT harmless from any liability, loss claim, damage, cost, expense or cause of action for commissions.

 
11.4.
Amendments . No amendment, modification, termination or waiver of this QEAAor any provision hereof nor any consent to any departure herefrom shall be effective unless the same is in writing and signed by the partyto be bound thereby and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on either party shall entitle such party to any other or further notice or demand in similar or other circumstances.

 
11.5.
Governing Law .  This QEAA and all rights and obligations of the parties hereunder shall be governed by and be construed and enforced in accordance with the laws of the the State of California (“ Forum State ”). Each party hereby consents to the jurisdiction of the courts of the ForumState.
 
 
 

 
 
 
11.6.
Assignment . This QEAAshall bind and inure to the benefit of the parties hereto and their respective successors and assigns. Except as specifically provided in this QEAA, no party shall have the right to assign any of its rights or interests herein without the prior written consent of the other party, and under no circumstances shall EAT assign or attempt to assign its interest hereunder to a person that would be a “disqualified person” within the meaning of Treas. Reg. § 1.1031(k)-1(k). No person not a party hereto is intended to be benefited hereby. Exchangor's release and indemnities contained in this Agreement shall survive any assignment of this QEAA, any termination of this QEAAand/or the completion of the Exchange.

 
11.7.
Severability . Any provision hereof which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without affecting the validity or enforceability of the remainder of this QEAAor the enforceability of such provision in any other jurisdiction.

 
11.8.
Captions and Recitals . Captions herein are included for convenience of reference only and shall not constitute a part hereof; they shall be ignored in construing and enforcing this QEAA. Each of the Recitals set forth above are true and correct and are incorporated herein by this reference.

 
11.9.
Notices . All notices, requests, demands, directions, declarations and other communications provided for herein shall be in writing and shall, except as otherwise expressly provided, be mailed by registered or certified mail, return receipt requested, sent by overnight courier or  delivered by hand to the applicable party at its address indicated below:

If to Exchangor:
CVD Equipment Corporation
1860 Smithtown Avenue
Ronkonkoma, NY11779
 
If to EAT :
FAE Holdings 411519R, LLC
c/o First American Exchange Company, LLC
Attn:  Mark Bullock
560 South 300 East
Salt Lake City, UT84111

 
Any notice so given, delivered or made by mail or by overnight courier shall be deemed to have been duly given, delivered or made on the date the same is received, as established by the return receipt.  Any party may change the address to which notices are sent to such party by written notice to the other party specifying said change of address.

 
11.10.
State Withholding . If Exchangor is subject to withholding under state or local law, EAT and/or QI shall be entitled to withhold and pay those amounts required to be withheld by them pursuant to such state or local law unless and until proper exemption from such state or local withholding requirements have been obtained by Exchangor.
 
 
 

 
 
 
11.11.
Counterparts and Facsimile Execution . This QEAAmay be executed in two or more identical counterparts. If so executed, each of such counterparts is to be deemed an original for all purposes and all such counterparts shall, collectively, constitute one agreement.  A facsimile, telecopy or other reproduction of this QEAAmay be executed by the parties (in counterparts or otherwise) and shall be considered valid, binding and effective for all purposes. At the request of any party, the parties hereto agree to execute an original of this QEAAas well as any facsimile, telecopy or other reproduction.

 
11.12.
Attorneys’ Fees . Should any litigation arise between the parties hereto concerning or arising out of this QEAA, including, but not limited to, actions for damages, specific performance, declaratory, injunctive or other relief, and whether at law or in equity, and including appellate and bankruptcy proceedings as well as at arbitration or at the trial level, the prevailing party in any such litigation or proceeding shall be entitled to recover reasonable fees and costs of attorneys and legal assistants.

 
11.13.
Entire Agreement . This QEAAcontains the entire understanding and agreement between the parties relating to the subject matter hereof or the transactions contemplated hereby, and all prior or extrinsic agreements, understandings, representations and statements, oral or written, are merged herein and/or superseded hereby. There are no other agreements, written or oral, between the parties with respect to the subject matter hereof or the transactions contemplated hereby except those contained in this QEAA.

 
11.14.
Gender: Singular and Plural Usages . Wherever in this QEAA the singular is used, the same shall include the plural, and vice-versa, and wherever in this QEAAthe masculine gender is used, the same shall include the feminine and neuter genders, and vice-versa.

 
11.15.
Construction of QEAA . All parties to this QEAAhaving participated fully and equally in the negotiation and preparation hereof, and all parties having been represented by counsel in connection with the negotiation, preparation and execution of this QEAA, the fact that one of the parties to this QEAA, or its attorney, may be deemed to have drafted or structured any provision of this QEAAshall not be considered in construing or interpreting any particular provision of this QEAA, either in favor of or against such party.

 
11.16.
Federal Withholding . In the event Exchangor is a “ Foreign Person ,” EAT shall be entitled to withhold and pay those amounts required to be withheld by Section 1445 of the Code and the Regulations promulgated thereunder. In the event Exchangor presents to EAT a “ Withholding Certificate ,” issued by the Internal Revenue Service pursuant to Treas. Reg. § 1.1445-3, EAT may, in the exercise of its reasonable judgment, comply with the Withholding Certificate.  By signing this QEAAbelow, Exchangor certifies under penalty of perjury that it is not a “Foreign Person” as that term is defined in Section 1445 of the Code and the Regulations promulgated thereunder, and further certifies the accuracy of such Taxpayer I.D. Number inserted below and the accuracy of its address as indicated above.

 
11.17.
Independent Tax and Legal Advice .   EXCHANGOR ACKNOWLEDGES AND AGREES THAT IT HAS CONSULTED WITH AND RELIED SOLELY UPON THE ADVICE AND JUDGMENT OF ITS OWN INDEPENDENT TAX ADVISORS, ATTORNEYS, AND/OR CERTIFIED PUBLIC ACCOUNTANTS AS TO THE TAX AND OTHER ASPECTS OF THE EXCHANGE, THE TRANSACTIONS CONTEMPLATED HEREBY, AND ALL DOCUMENTS SIGNED AND/OR TO BE SIGNED IN CONNECTION HEREWITH.  EXCHANGOR HAS NOT RELIED UPON EAT OR QI OR THEIR RESPECTIVE ADVISORS, EMPLOYEES, ATTORNEYS AND/OR CERTIFIED PUBLIC ACCOUNTANTS FOR ANY TAX, BUSINESS OR LEGAL ADVICE.  QI AND EAT MAY PERIODICALLY GIVE EXCHANGOR NOTICES OF ESTIMATED DEADLINES AND ALSO MAY DISCUSS INCOME TAX MATTERS IN GENERAL WITH EXCHANGOR, BUT SUCH NOTICES AND GENERAL DISCUSSIONS DO NOT ENLARGE THE DUTIES AND RESPONSIBILITIES OF QI OR EATAND DO NOT DIMINISH THE RESPONSIBILITY OF EXCHANGOR TO DETERMINE THE TAX CONSEQUENCES OF THE EXCHANGE AND TO SEEK INDEPENDENT TAX ADVICE CONCERNING SUCH TAX CONSEQUENCES.  EXCHANGOR UNDERSTANDS IT MUST ACCURATELY AND TIMELY REPORT THE EXCHANGE, INCLUDING FILING IRS FORM 8824.
 
 
 

 
 
IN WITNESS WHEREOF, Exchangor and EAT each have caused this QEAAto be duly executed pursuant to proper authorization as of the day and year first above written.

EAT:

FAE Holdings 411519R, LLC

By:      First American ExchangeCompany, LLC,
a Delaware limited liability company
Its:       Manager

By:                    /s/ Mark Bullock
Mark Bullock
In House Counsel


EXCHANGOR:

CVD Equipment Corporation


By:            /s/ Glen Charles
Name:     Glen Charles
Its:           Chief Financial Officer

 
 

 
 
EXHIBIT “A”

REPLACEMENT PROPERTY LEGAL DESCRIPTION

[See attached]
 
 
 

 
 
EXHIBIT “B”

Intentionally Omitted.
 
 
 

 

EXHIBIT “C”

NON-RECOURSE LANGUAGE

Notwithstanding anything to the contrary in this document, the promissory note, the deed of trust, environmental indemnity agreement, if any, or any other loan document (collectively, the “ Documents ”), by acceptance of this instrument, Lender hereby waives any right to obtain a money judgment or equitable relief against __________ and any and all members, shareholders, partners and employees of __________, whether by an action brought upon this document or any other Document, or an action brought for a deficiency judgment against _________ and/or the members, shareholders, partners and employees of _________, and agrees that the extent of liability on the part of such parties with respect to this document or any other Document is and shall for all purposes be limited to the interest of __________ in the Property, including policies of hazard insurance on the Property and any proceeds thereof and any award of damages on account of condemnation for public use of the Property, Lender agreeing to look solely to __________’s interest in the Property and such insurance policies and condemnation awards in satisfaction of all obligations.  The terms of this paragraph shall supersede any and all other terms and conditions herein or in any Document.

 
 

 

EXHIBIT “D”

FEE SCHEDULE

 
EAT ACCOMMODATION FEE: $5,000.00
   
MISCELLANEOUS FEES (only if applicable)  
   
Wire Transfers:
$15.00
   
Fede ral Express:
$15.00
   
Construc tion Draws:
$50.00 (after first two)
   
Cancella tion:
$5,000.00
Exhibit 10.4
 
JOINT AND SEVERAL HAZARDOUS MATERIAL
GUARANTY AND INDEMNIFICATION AGREEMENT

Melville, New York
As of March 15, 2012


WHEREAS, CVD EQUIPMENT CORPORATION (“CVD”) contemplates effecting, pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, a tax-deferred exchange (the “Exchange”) of certain premises known by the street address 355 South Technology Drive, Central Islip, New York (the “Premises”), as more particularly described in the Mortgage (as defined on Exhibit A);

WHEREAS, it is a condition of the Exchange that FAE Holdings 411519R, LLC, a New York limited liability company having an office at c/o First American Exchange Company, LLC, 560 South 300 East, Salt Lake City, Utah  84111 (the “Borrower”), on behalf of CVD, obtain funds sufficient to acquire a leasehold interest in the Premises;

WHEREAS, CVD has applied to HSBC BANK USA, NATIONAL ASSOCIATION, a national banking association (being hereinafter called “Lender”), for a loan (the “Loan”) to the Borrower in the principal sum of $6,000,000.00 to be evidenced by the Note (as defined on Exhibit A) and secured by the Mortgage;

WHEREAS, the Borrower and CVD have entered into a certain Qualified Exchange Accommodation Agreement, dated as of March 15, 2012 (the “Accommodation Agreement”) pursuant to which the Borrower has agreed to enter into a certain Lease Agreement, dated as of March 1, 2012 (the “Lease Agreement”) whereby the Town of Islip Industrial Development Agency (the “IDA”) will lease the Premises to the Borrower;

WHEREAS, pursuant to the Accommodation Agreement, CVD shall acquire a subleasehold estate in the Premises and, prior to the date which is six (6) months from the date hereof, either (a) acquire all of the membership interests in the Borrower from First American Exchange Company, LLC or (b) assume the Borrower’s leasehold interest in the Premises, and thereupon assume Borrower’s obligations and liabilities under the Note, the Mortgage and all related documents executed by the Borrower in connection with the Loan;

WHEREAS, the undersigned wishes to grant Lender security and assurance in order to secure the payment and performance by the Borrower of all of its present and future obligations under the Note and Mortgage, and, to that effect, to guaranty the Loan as set forth herein.

WHEREAS, Lender is willing to make the Loan only if the undersigned execute and deliver this Guaranty and Indemnification Agreement;

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and in order to induce Lender to make the Loan, the undersigned hereby acknowledge, agree and confirm that all of the above recitals are true, correct and complete and hereby covenant and agree with Lender as follows:
 
 
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1.           For the purposes of this Guaranty and Indemnification Agreement the following terms shall have the following meanings:

(a)           the term “Hazardous Material” shall mean any material or substance that, whether by its nature or use, is now or hereafter defined as hazardous waste, hazardous substance, pollutant or contaminant under any Environmental Requirement, or which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and which is now or hereafter regulated under any Environmental Requirement, or which is or contains petroleum, gasoline, diesel fuel or another petroleum hydrocarbon product;

(b)           the term “Environmental Requirements” shall collectively mean all present and future laws, statutes, common law, ordinances, rules, regulations, orders, codes, licenses, permits, decrees, judgments, directives or the equivalent of or by any Governmental Authority and relating to or addressing the protection of the environment or human health;

(c)           the term “Governmental Authority” shall mean the Federal government, or any state or other political subdivision thereof, or any agency, court or body of the Federal government, any state or other political subdivision thereof, exercising executive, legislative, judicial, regulatory or administrative functions;

(d)           the term “Mortgaged Property” shall have the meaning given to such term in the Mortgage; and

(e)           the term “Debt” shall mean all principal, interest, additional interest (including specifically all interest accruing from and after the commencement of any case, proceeding or action under any existing or future laws relating to bankruptcy, insolvency or similar matters with respect to the Borrower) and other sums of any nature whatsoever which may or shall become due and payable pursuant to the provisions of the Note, the Mortgage or any other document or instrument now or hereafter executed and/or delivered in connection therewith or otherwise with respect to the Loan (said Note, Mortgage and other documents and instruments, collectively, the “Loan Documents” ) (all of the above unaffected by modification thereof in any bankruptcy or insolvency proceeding), and even though Lender may not have an allowed claim for the same against the Borrower as a result of any bankruptcy or insolvency proceeding.

2.           The undersigned hereby represent and warrant to Lender that to the best of each of the undersigned’s knowledge after diligent inquiry:

(a)           no Hazardous Material is currently located at, on, in, under or about the Mortgaged Property;

(b)           the undersigned has not released, emitted, discharged, leached, dumped or disposed of any Hazardous Material from the Mortgaged Property onto or into any other property or from any other property onto or into the Mortgaged Property in violation of any Environmental Requirement, nor is the undersigned aware of any releasing, emitting, leaching, dumping or disposing of any Hazardous Materials from the Mortgaged Property onto or into any other property or from any other property onto or into the Mortgaged Property in violation of any Environmental Requirement;
 
 
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(c)           no notice of violation, lien, complaint, suit, order or other notice with respect to the Mortgaged Property is presently outstanding under any Environmental Requirement; and

(d)           the Mortgaged Property and the operation thereof are in full compliance with all Environmental Requirements.

3.           The undersigned absolutely and unconditionally guarantee to Lender that the Borrower will fully comply with all of the terms, covenants and provisions of paragraph 9 of the Mortgage.  If the Borrower does not fully comply with all of the terms, covenants and provisions of paragraph 9 of the Mortgage, the undersigned shall reimburse Lender upon demand for all sums and costs and expenses incurred by Lender to the extent not otherwise reimbursed to Lender pursuant to said paragraph in the Mortgage and/or in connection with Lender performing the Borrower’s obligations as set forth in paragraph 9 of the Mortgage (including specifically all such sums and interest thereon accruing from and after the commencement of any case, proceeding or action under any existing or future laws relating to bankruptcy, insolvency or similar matters with respect to the Borrower), it being understood and agreed that, the undersigned’s obligations hereunder shall be unaffected by modification of any of the Borrower’s obligations in any bankruptcy or insolvency proceeding, nor by the fact that Lender may not have an allowed claim for the same against the Borrower as a result of any bankruptcy or insolvency proceeding.

4.           The undersigned will defend, indemnify, and hold harmless Lender, its employees, agents, officers, and directors, from and against any and all claims, demands, penalties, causes of action, fines, liabilities, settlements, damages, costs, or expenses of whatever kind or nature, known or unknown, foreseen or unforeseen, contingent or otherwise (including, without limitation, counsel and consultant fees and expenses, investigation and laboratory fees and expenses, court costs, and litigation expenses) arising out of, or in any way related to:

(a)           any breach by the Borrower of any of the provisions of paragraph 9   of the Mortgage;

(b)           the presence, disposal, spillage, discharge, emission, leakage, release, or threatened release of any Hazardous Material which is at, in, on, under, about, from or affecting the Mortgaged Property, including, without limitation, any damage or injury resulting from any such Hazardous Material to or affecting the Mortgaged Property or the soil, water, air, vegetation, buildings, personal property, persons or animals located on the Mortgaged Property or on any other property or otherwise;

(c)           any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to any such Hazardous Material;

(d)           any lawsuit brought or threatened, settlement reached, or order or directive of or by any Governmental Authority relating to such Hazardous Material; or

(e)           any violation of any Environmental Requirement.

5.           The undersigned hereby agree to indemnify and shall hold harmless and defend Lender at the undersigneds’ sole cost and expense against any loss or liability, cost or expense (including, but not limited to, reasonable attorneys’ fees and disbursements of Lender’s counsel, whether in-house staff, retained firms or otherwise), and all claims, actions, procedures and suits arising out of or in connection with:
 
 
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(a)           any ongoing matters arising out of this Guaranty and Indemnification Agreement and any document or instrument now or hereafter executed and/or delivered in connection herewith (the “Indemnity Documents” );

(b)           any amendment to, or restructuring of the obligations of the undersigned hereunder; and

(c)           any and all lawful action that may be taken by Lender in connection with the enforcement of the provisions of this Guaranty and Indemnification Agreement or any of the other Indemnity Documents and the obligations of the undersigned thereunder, whether or not suit is filed in connection with the same, or in connection with the Borrower, and/or any partner, joint venturer or shareholder thereof becoming a party to a voluntary or involuntary federal or state bankruptcy, insolvency or similar proceeding.

All sums expended by Lender shall be payable on demand and, until reimbursed by the undersigned pursuant hereto, shall bear interest at the default interest rate set forth in the Note.

6.           In addition to any right available to Lender under applicable law or any other agreement, the undersigned hereby give to Lender a continuing lien on, security interest in and right of set-off against all moneys, securities and other property of the undersigned and the proceeds thereof, now on deposit or now or hereafter delivered, remaining with or in transit in any manner to Lender, its correspondents, participants or its agents from or for the undersigned, whether for safekeeping, custody, pledge, transmission, collection or otherwise or coming into possession of Lender in any way, and also, any balance of any deposit account and credits of the undersigned with, and any and all claims of the undersigned against, Lender at any time existing, as collateral security for all of the obligations of the undersigned under this Guaranty and Indemnification Agreement, including fees, contracted with or acquired by Lender, whether joint, several, absolute, contingent, secured, matured or unmatured (for the purposes of this paragraph 6 and paragraphs 8, 10 and 18 below, collectively, the “Liabilities” ), hereby authorizing Lender at any time or times, without prior notice, to apply such balances, credits or claims, or any part thereof, to such Liabilities in such amounts as it may select, whether contingent, unmatured or otherwise and whether any collateral security therefore is deemed adequate or not.  The collateral security described herein shall be in addition to any collateral security described in any separate agreement executed by the undersigned.  Lender, in addition to any right available to it under applicable law or any other agreement, shall have the right, at its option, to immediately set off against any Liabilities all monies owed by Lender in any capacity to the undersigned, whether or not due, and Lender shall, at its option, be deemed to have exercised such right to set off and to have made a charge against any such money immediately upon the occurrence of any events of default set forth below, even though such charge is made or entered on the books of Lender subsequent to those events.

7.           The obligations and liabilities of the undersigned under this Guaranty and Indemnification Agreement shall survive and continue in full force and effect and shall not be terminated, discharged or released, in whole or in part, irrespective of whether the Debt has been paid in full and irrespective of any foreclosure of the Mortgage, sale of the Mortgaged Property pursuant to the provisions of the Mortgage or acceptance by Lender, its nominee or wholly owned subsidiary of a deed or assignment in lieu of foreclosure or sale and irrespective of any other fact or circumstance of any nature whatsoever.
 
 
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8.           The undersigned hereby expressly agree that this Guaranty and Indemnification Agreement is independent of, and in addition to, all collateral granted, pledged or assigned under the Loan Documents, and the undersigned hereby consents that from time to time, before or after any default by the Borrower:

(a)           any security at any time held by or available to Lender for any obligation of the Borrower, or any security at any time held by or available to Lender for any obligation of any other person or party primarily, secondarily or otherwise liable for all or any portion of the Debt, any other Liabilities and/or any other obligations of the Borrower or any other person or party, other than Lender, under any of the Loan Documents ( “Other Obligations” ), including any guarantor of the Debt, the Liabilities and/or of any of such Other Obligations, may be accelerated, settled, exchanged, surrendered or released and Lender may fail to set off and may release, in whole or in part, any balance of any deposit account or credit on its books in favor of the Borrower, or any such other person or party;

(b)           any obligation of the Borrower, or of any such other person or party, may be changed, altered, renewed, extended, continued, accelerated, surrendered, compromised, settled, waived or released in whole or in part, or any default with respect thereto waived; and

(c)           Lender may extend further credit in any manner whatsoever to the Borrower, and generally deal with the Borrower or any of the above-mentioned security, deposit account, credit on its books or other person or party as Lender may see fit;

and the undersigned shall remain bound under this Guaranty and Indemnification Agreement, without any loss of rights by Lender and without affecting the liability of the undersigned, notwithstanding any such exchange, surrender, release, change, alteration, renewal, extension, continuance, compromise, waiver, inaction, extension of further credit or other dealing.  In addition, all moneys available to Lender for application in payment or reduction of the Debt, the Liabilities and/or any Other Obligations may be applied by Lender in such manner and in such amounts and at such time or times and in such order, priority and proportions as Lender may see fit.

9.           The undersigned hereby waive:

(a)           notice of acceptance of this Guaranty and Indemnification Agreement;

(b)           protest and notice of dishonor or default to the undersigned or to any other person or party with respect to any obligations hereby guaranteed;

(c)           except as provided herein or in the Loan Documents, all other notices to which the undersigned might otherwise be entitled; and

(d)           any demand under this Guaranty and Indemnification Agreement.

10.           If any of the following events should occur:

(a)           default under any of the Loan Documents and its continuance beyond any applicable notice and/or grace period therein contained; or
 
 
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(b)           the undersigned violates any provision of this Guaranty and Indemnification Agreement or any other guaranty or other agreement executed by it with respect to the Loan or this Guaranty and Indemnification Agreement;

then, and in such event, Lender may declare the Liabilities to be, and the same shall become, immediately due and payable and/or may exercise any or all of its remedies as set forth herein or at law or in equity.

11.           This is a guaranty of payment and not of collection and the undersigned further waives any right to require that any action be brought against the Borrower or any other person or party or to require that resort be had to any security or to any balance of any deposit account or credit on the books of Lender in favor of the Borrower or any other person or party.  Any payment on account of or reacknowledgment of the Debt by the Borrower, or any other party liable therefor or action taken, payment or reacknowledgment made, of any of the obligations of the Borrower under paragraph 9 of the Mortgage or otherwise with respect to any Environmental Requirements or to Lender in connection therewith, shall be deemed to be taken or made on behalf of the undersigned and shall serve to start anew the statutory period of limitations applicable to the obligations of the Borrower and/or the undersigned pursuant to said paragraph 9   of the Mortgage, hereunder or otherwise with respect to any Environmental Requirement or to Lender in connection therewith or herewith.

12.           Each reference herein to Lender shall be deemed to include its successors and assigns, in whose favor the provisions of this Guaranty and Indemnification Agreement shall also inure.  Each reference herein to the undersigned shall be deemed to include the heirs, executors, administrators, legal representatives, successors and assigns of the undersigned, all of whom shall be bound by the provisions of this Guaranty and Indemnification Agreement, provided, however, that the undersigned shall in no event nor under any circumstance have the right, without obtaining the prior written consent of Lender, to assign or transfer the undersigned’s obligations and liabilities under this Guaranty and Indemnification Agreement, in whole or in part, to any other person, party or entity.

13.           The term “undersigned” as used herein shall, if this Guaranty and Indemnification Agreement is signed by more than one party, unless otherwise stated herein, mean the “undersigned and each of them” and each undertaking herein contained shall be their joint and several undertaking.  If the Guaranty is signed by more than one party, all singular references to the undersigned shall be deemed to be plural.  Lender may proceed against none, one or more of the undersigned at one time or from time to time as it sees fit in its sole and absolute discretion.  If any party hereto shall be a partnership, the agreements and obligations on the part of the undersigned herein contained shall remain in force and application notwithstanding any changes in the individuals composing the partnership and the term “undersigned” shall include any altered or successive partnerships but the predecessor partnerships and their partners shall not thereby be released from any obligations or liability hereunder.  If any party hereto shall be a corporation, the agreements and obligations on the part of the undersigned herein contained shall remain in force and application notwithstanding the merger, consolidation, reorganization or absorption thereof, and the term “undersigned” shall include such new entity, but the old entity shall not thereby be released from any obligations or liabilities hereunder.  The Borrower is executing this Guaranty and Indemnification Agreement as a further assurance that its obligations set forth herein will remain in full force and effect, notwithstanding the assignment or discharge of record of the Mortgage or any other fact or circumstances whatsoever.
 
 
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14.           No delay on the part of Lender in exercising any right or remedy under this Guaranty and Indemnification Agreement or failure to exercise the same shall operate as a waiver in whole or in part of any such right or remedy.  No notice to or demand on the undersigned shall be deemed to be a waiver of the obligation of the undersigned or of the right of Lender to take further action without notice or demand as provided in this Guaranty and Indemnification Agreement.  No course of dealing between the undersigned and Lender shall change, modify or discharge, in whole or in part, this Guaranty and Indemnification Agreement or any obligations of the undersigned hereunder.

15.           This Guaranty and Indemnification Agreement may only be modified, amended, changed or terminated by an agreement in writing signed by Lender and the undersigned.  No waiver of any term, covenant or provision of this Guaranty and Indemnification Agreement shall be effective unless given in writing by Lender and if so given by Lender shall only be effective in the specific instance in which given.  The execution and delivery hereafter to Lender by the undersigned of a new instrument of guaranty or any reaffirmation of guaranty, of whatever nature, shall not terminate, supersede or cancel this instrument, unless expressly so provided therein, and all rights and remedies of Lender hereunder or under any instrument of guaranty hereafter executed and delivered to Lender by the undersigned shall be cumulative and may be exercised singly or concurrently.

16.           The undersigned acknowledges that this Guaranty and Indemnification Agreement and the undersigned’s obligations under this Guaranty and Indemnification Agreement are and shall at all times continue to be absolute, irrevocable and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Guaranty and Indemnification Agreement and the obligations of the undersigned under this Guaranty and Indemnification Agreement or the obligations of any other person or party relating to this Guaranty and Indemnification Agreement or the obligations of the undersigned hereunder or otherwise with respect to the Debt, including, but not limited to, a foreclosure of the Mortgage or the realization upon any other collateral given, pledged or assigned as security for all or any portion of the Debt, or the filing of a petition under Title 11 of the United States Code with regard to the Borrower, or the commencement of an action or proceeding for the benefit of the creditors of the Borrower or the undersigned, or the obtaining by Lender of title to, respectively, the Mortgaged Property or to any collateral given, pledged or assigned as security for the Debt by reason of the foreclosure or enforcement of the Mortgage or any other pledge or security agreement, the acceptance of a deed or assignment in lieu of foreclosure or sale, or otherwise.  This Guaranty and Indemnification Agreement sets forth the entire agreement and understanding of Lender and the undersigned with respect to the matters covered by this Guaranty and Indemnification Agreement, and the undersigned acknowledges that no oral or other agreements, understandings, representations or warranties exist with respect to this Guaranty and Indemnification Agreement or with respect to the obligations of the undersigned under this Guaranty and Indemnification Agreement, except those specifically set forth in this Guaranty and Indemnification Agreement.
 
 
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17.           This Guaranty and Indemnification Agreement has been validly authorized, executed and delivered by the undersigned.  Each of the undersigned represents and warrants to Lender, to the extent applicable, that it has the corporate power to do so and to perform its obligations under this Guaranty and Indemnification Agreement and this Guaranty and Indemnification Agreement constitutes the legally binding obligation of the undersigned fully enforceable against the undersigned in accordance with the terms hereof.  The undersigned further represent and warrant to Lender that:

(a)           neither the execution and delivery of this Guaranty and Indemnification Agreement nor the consummation of the transactions contemplated hereby nor compliance with the terms and provisions hereof will violate any applicable provision of law or any applicable regulation or other manifestation of governmental action; and

(b)           all necessary approvals, consents, licenses, registrations and validations of any governmental regulatory body, including, without limitation, approvals required to permit the undersigned to execute and carry out the provisions of this Guaranty and Indemnification Agreement, for the validity of the obligations of the undersigned hereunder and for the making of any payment or remittance of any funds required to be made by the undersigned under this Guaranty and Indemnification Agreement, have been obtained and are in full force and effect.

18.           To the extent applicable, notwithstanding any payments made by the undersigned pursuant to the provisions of this Guaranty and Indemnification Agreement, the undersigned irrevocably waives all rights to enforce or collect upon any rights which it now has or may acquire against the Borrower either by way of subrogation, indemnity, reimbursement or contribution for any amount paid under this Guaranty and Indemnification Agreement or by way of any other obligations whatsoever of the Borrower to any of the undersigned, nor shall any of the undersigned file, assert or receive payment on any claim, whether now existing or hereafter arising, against the Borrower in the event of the commencement of a case by or against the Borrower under Title 11 of the United States Code.  In the event either a petition is filed under said Title 11 of the United States Code with regard to the Borrower or an action or proceeding is commenced for the benefit of the creditors of the Borrower, this Guaranty and Indemnification Agreement shall at all times thereafter remain effective in regard to any payments or other transfers of assets to Lender received from or on behalf of the Borrower prior to notice of termination of this Guaranty and Indemnification Agreement and which are or may be held voidable on the grounds of preference or fraud, whether or not the Debt has been paid in full.  Any payment on account of or reacknowledgment of the Debt by the Borrower, or any other party liable therefor, or action taken, or payment or reacknowledgment made, of any of the obligations of the Borrower to take and complete the actions specified in paragraph 9 of the Mortgage shall serve to start anew the statutory period of limitations applicable to the Borrower with respect to said paragraph 9 and the undersigned hereunder.  The provisions of this paragraph 18 shall survive the term of this Guaranty and the payment in full of the Debt and all other Liabilities.
 
 
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19.           Any notice, request or demand given or made under this Guaranty and Indemnification Agreement shall be in writing and shall be hand delivered or sent by Federal Express or other reputable courier service or by postage prepaid registered or certified mail, return receipt requested, and shall be deemed given (a) when received at the following addresses if hand delivered or if sent by Federal Express or other reputable courier service, and (b) three (3) business days after being postmarked and addressed as follows if sent by registered or certified mail, return receipt requested:

If to Lender:

HSBC Bank USA, National Association
534 Broad Hollow Road, Room 130
Melville, New York  11747

Attention:                      Mr. Robert J. Caruana, Jr.
         Vice President

With a copy to:

Farrell Fritz, P.C.
1320 RXR Plaza
Uniondale, New York  11556-1320

Attention:                      Jodi L. Gladstone, Esq.

If to the undersigned:

FAE Holdings 411519R, LLC
 c/o First American Exchange Company, LLC
560 South 300 East
Salt Lake City, Utah  84111

and

CVD Equipment Corporation
1860 Smithtown Avenue
Ronkonkoma, New York 11779

Attention: Glen Charles

With a copy to:

CVD Equipment Corporation
1860 Smithtown Avenue
Ronkonkoma, New York 11779

Attention:                      Martin J. Teitelbaum, Esq.
        General Counsel

it being understood and agreed that each party will use reasonable efforts to send copies of any notices to the addresses marked “With a copy to” hereinabove set forth; provided, however, that failure to deliver such copy or copies shall have no consequence whatsoever to the effectiveness of any notice made to the undersigned or Lender.  Each party to this Guaranty and Indemnification Agreement may designate a change of address by notice given, as herein provided, to the other party fifteen (15) days prior to the date such change of address is to become effective.
 
 
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20.           This Guaranty and Indemnification Agreement is, and shall be deemed to be, a contract entered into under and pursuant to the laws of the State of New York and shall be in all respects governed, construed, applied and enforced in accordance with the laws of the State of New York without regard to principles of conflicts of laws.

21.           The undersigned agrees to submit to personal jurisdiction in the State of New York in any action or proceeding arising out of this Guaranty and Indemnification Agreement.  In furtherance of such agreement, the undersigned hereby agrees and consents that without limiting other methods of obtaining jurisdiction, personal jurisdiction over the undersigned in any such action or proceeding may be obtained within or without the jurisdiction of any court located in New York or Nassau County and that any process or notice of motion or other application to any such court in connection with any such action or proceeding may be served upon the undersigned by registered or certified mail to, or by personal service at, the last known address of the undersigned, whether such address be within or without the jurisdiction of any such court.  The undersigned hereby further agrees that the venue of any litigation arising in connection with the Debt or in respect of any of the obligations of the undersigned under this Guaranty and Indemnification Agreement, shall, to the extent permitted by law, be in New York or Nassau County.  Nothing in this paragraph shall limit the right of Lender to bring an action or proceeding arising out of the Guaranty and Indemnification Agreement in any other jurisdiction.

22.           The undersigned absolutely, unconditionally and irrevocably waive any and all right to assert or interpose any defense, setoff, counterclaim or crossclaim of any nature whatsoever with respect to this Guaranty and Indemnification Agreement or the obligations of the undersigned under this Guaranty and Indemnification Agreement, or the obligations of any other person or party (including, without limitation, the Borrower) relating to this Guaranty and Indemnification Agreement, or the obligations of the undersigned hereunder or otherwise with respect to the Loan in any action or proceeding brought by Lender to collect the Debt, or any portion thereof, or to enforce the obligations of the undersigned under this Guaranty and Indemnification Agreement (provided, however, that the foregoing shall not be deemed a waiver of the right of the undersigned to assert any compulsory counterclaim maintained in a court of the United States, or of the State of New York if such counterclaim is compelled under local law or rule of procedure, nor shall the foregoing be deemed a waiver of the right of the undersigned to assert any claim which would constitute a defense, setoff, counterclaim or crossclaim of any nature whatsoever against Lender in any separate action or proceeding).  The undersigned hereby undertakes and agrees that this Guaranty shall remain in full force and effect for all of the obligations and liabilities of the undersigned hereunder, notwithstanding the maturity of the Loan, whether by acceleration, scheduled maturity or otherwise.

23.           No exculpatory provisions which may be contained in any Loan Document shall in any event or under any circumstances be deemed or construed to modify, qualify, or affect in any manner whatsoever the obligations and liabilities of the undersigned under this Guaranty and Indemnification Agreement.

24.           The obligations and liabilities of the undersigned under this Guaranty and Indemnification Agreement are in addition to the obligations and liabilities of the undersigned under the Other Guaranties (as hereinafter defined).  The discharge of any or all of the undersigned’s obligations and liabilities under any one or more of the Other Guaranties by the undersigned or by reason of operation of law or otherwise shall in no event or under any circumstance constitute or be deemed to constitute a discharge, in whole or in part, of the undersigned’s obligations and liabilities under this Guaranty and Indemnification Agreement.  Conversely, the discharge of any or all of the undersigned’s obligations and liabilities under this Guaranty and Indemnification Agreement by the undersigned or by reason of operation of law or otherwise shall in no event or under any circumstance constitute or be deemed to constitute a discharge, in whole or in part, of the undersigned’s obligations and liabilities under any of the Other Guaranties.  The term “Other Guaranties” as used herein shall mean any other guaranty of payment, guaranty of performance, completion guaranty, indemnification agreement or other guaranty or instrument creating any obligation or undertaking of any nature whatsoever (other than this Guaranty and Indemnification Agreement) now or hereafter executed and delivered by the undersigned to Lender in connection with the Loan.
 
 
-10-

 

25.           This Guaranty and Indemnification Agreement may be executed in one or more counterparts by some or all of the parties hereto, each of which counterparts shall be an original and all of which together shall constitute a single agreement of guaranty.  The failure of any party listed below to execute this Guaranty and Indemnification Agreement, or any counterpart hereof, or the ineffectiveness for any reason of any such execution, shall not relieve the other signatories from their obligations hereunder.

26.           The undersigned hereby irrevocably and unconditionally waive, and Lender by its acceptance of this Guaranty and Indemnification Agreement irrevocably and unconditionally waive, any and all right to trial by jury in any action, suit or counterclaim arising in connection with, out of or otherwise relating to this Guaranty and Indemnification Agreement.

27.           Notwithstanding anything to the contrary in this Guaranty and Indemnification Agreement, the Mortgage, the Note, or any other document executed in connection with any of the foregoing (the “Loan Documents”), by acceptance of this instrument, Lender hereby waives any right to obtain a money judgment or equitable relief against FAE Holdings 411519R, LLC and any and all members, shareholders, partners and employees of FAE Holdings 411519R, LLC, whether by an action brought upon this Guaranty and Indemnification Agreement   or any other Loan Document, or an action brought for a deficiency judgment against FAE Holdings 411519R, LLC and/or the members, shareholders, partners and employees of FAE Holdings 411519R, LLC, and agrees that the extent of liability on the part of such parties with respect to this document or any other Loan Document is and shall for all purposes be limited to the interest of FAE Holdings 411519R, LLC in the Premises, including policies of hazard insurance on the Premises and any proceeds thereof and any award of damages on account of condemnation for public use of the Premises, Mortgagee agreeing to look solely to FAE Holdings 411519R, LLC’s interest in the Premises a nd such insurance policies and condemnation awards in satisfaction of all obligations. The terms of this paragraph shall supersede any and all other terms and conditions herein or in any Loan Document.  THE PROVISIONS OF THIS PARAGRAPH SHALL BE APPLICABLE ONLY UNTIL, AND SHALL BE DEEMED DELETED FROM THIS ASSIGNMENT AND OF NO FURTHER FORCE OR EFFECT FROM AND AFTER, THE DATE THAT EITHER ALL OF THE MEMBERSHIP INTERESTS IN FAE HOLDINGS 411519R, LLC ARE TRANSFERRED TO CVD OR CVD ASSUMES THE OBLIGATIONS AND LIABILITIES OF FAE HOLDINGS 411519R, LLC UNDER THE LEASE AGREEMENT, THE NOTE, THE MORTGAGE AND THE OTHER LOAN DOCUMENTS PURSUANT TO THE TERMS OF THE ACCOMMODATION AGREEMENT OR OTHERWISE.

[END OF PAGE]
 
 
-11-

 

IN WITNESS WHEREOF, the undersigned have duly executed this Guaranty and Indemnification Agreement the day and year first above set forth.



 
FAE HOLDINGS 411519R, LLC
 

By:            /s/ Mark Bullock
Name:  Mark Bullock
Title:    In House Counsel





 
CVD EQUIPMENT CORPORATION
 

By:             /s/ Glen Charles
Name:   Glen Charles
Title:     Chief Financial Officer
 
 
-12-

 



State of New York                )
)ss.:
County of                              )

On the ___ day of March in the year 2012 before me, the undersigned, personally appeared __________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.


________________________________________
Notary Public                                   




State of New York                )
)ss.:
County of                              )

On the ___ day of March in the year 2012 before me, the undersigned, personally appeared Glen Charles, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.


________________________________________
Notary Public                                   

[UNIFORM OUT OF STATE ACKNOWLEDGMENT, IF APPLICABLE]

STATE OF Utah
)
   
 
)
SS:
 
COUNTY OF Salt Lake
)
   

On the 14 day of March in the year 2012 before me, the undersigned, personally appeared Mark Bullock, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument, and that such individual made such appearance before the undersigned in the City of Salt Lake, State of Utah.
 

 
        /s/ Coty E. Romero
Notary Public
 
 
-13-

 
 
EXHIBIT A


Guaranty :  The term “ Payment Guaranty ” as used in this Guaranty and Indemnification Agreement shall mean a certain Guaranty of Payment, dated the date hereof, given by CVD Equipment Corporation for the benefit of Lender, together with any and all modifications, supplements, extensions, replacements or substitutions therefor as may exist from time to time.

Note :   The term “Note” as used in this Guaranty and Indemnification Agreement shall mean a certain Amended and Restated Note, dated the date hereof, in the consolidated principal sum of $6,000,000.00, between the Lender and the Borrower, together with any and all modifications, supplements, extensions, replacements or substitutions therefor as may exist from time to time.

Mortgage :  The term “Mortgage” as used in this Guaranty and Indemnification Agreement shall mean a certain Amended and Restated Fee and Leasehold Mortgage, dated the date hereof, in the consolidated principal sum of $6,000,000.00, to be given by the Borrower to the Lender covering the fee simple estate of the Borrower in certain premises located in Suffolk County, New York, as more particularly described therein, and intended to be duly recorded in Suffolk County, New York, together with any and all modifications, supplements, extensions, replacements or substitutions therefor as may exist from time to time.

 
A-1
Exhibit 10.5


ASSIGNMENT OF LEASES AND RENTS

Dated:  March 15, 2012

-from-

FAE HOLDINGS 411519R, LLC,
 a New York limited liability company
with an address at:
 c/o First American Exchange Company, LLC
560 South 300 East
Salt Lake City, Utah  84111
(the “Borrower”)

and

THE TOWN OF ISLIP INDUSTRIAL
DEVELOPMENT AGENCY,
a corporate governmental agency,
having an office at:
40 Nassau Avenue
Islip, New York 11751
(the “Assignor”)

-to-

HSBC BANK USA, NATIONAL ASSOCIATION
a national banking association,
having an office at:
534 Broad Hollow Road
Melville, New York 11747
(the “Assignee”)

LOCATION OF PREMISES :
 
    Address: 355 South Technology Drive
      Central Islip, New York
    District: 0500
    Section: 206.00
    Block: 03.00
    Lot: 001.003
County of Suffolk
State of New York


After recording, please return to
Farrell Fritz, P.C.
1320 RXR Plaza
Uniondale, New York 11556-1320
Attention:  Jodi L. Gladstone, Esq.
This instrument was prepared by the above-named Attorney
 
 
 

 

ASSIGNMENT OF LEASES AND RENTS


            THIS ASSIGNMENT OF LEASES AND RENTS (the “Assignment”), is made as of the 15 th day of March, 2012, by FAE HOLDINGS 411519R, LLC , a New York limited liability company, having an address at c/o First American Exchange Company, LLC, 560 South 300 East, Salt Lake City, Utah  84111   (herein called the “Borrower”) and THE TOWN OF ISLIP INDUSTRIAL DEVELOPMENT AGENCY, a corporate governmental agency, having an office at 40 Nassau Avenue, Islip, New York 11751 (herein called the “Assignor”) and HSBC BANK USA, NATIONAL ASSOCIATION , a national banking association, with offices at 534 Broad Hollow Road, Melville, New York 11747 (herein called the “Assignee”).


RECITALS

A.            The Assignor is the fee owner of the premises described on Exhibit A (the “Premises”).

B.            The Assignor, as lessor, and the Borrower, as lessee, have entered into a Lease Agreement dated as of  March 1, 2012 (the “Lease Agreement”) whereby the Assignor leased the Premises to the Borrower.

C.            Title 1 of Article 18-A of the General Municipal Law of the State of New York authorizes and provides for the creation of industrial development agencies for the benefit of the several counties, cities, villages and towns in the State of New York and empowers such agencies, among other things, to acquire, construct, reconstruct, lease, improve, maintain, equip and sell land and any building or other improvement, and all real and personal properties, including, but not limited to, machinery and equipment deemed necessary in connection therewith, whether or not now in existence or under construction, which shall be suitable for manufacturing, warehousing, research, civic, commercial or industrial facilities, including industrial pollution control facilities, in order to advance the job opportunities, health, general prosperity and economic welfare of the people of the State of New York and to improve their prosperity and standard of living (the “Public Purposes”) and further authorizes each such agency to lease and sell any or all of its facilities on such terms and conditions as it deems advisable, to mortgage any or all of its facilities in furtherance of such Public Purposes.

D .            Borrower and CVD EQUIPMENT CORPORATION (“CVD”) have entered into a certain Qualified Exchange Accommodation Agreement dated as of February 9, 2012 (the “Accommodation Agreement”), pursuant to which the Borrower agreed to acquire the leasehold interest under the Lease Agreement and sublease the same to CVD pursuant to agreement dated March 1, 2012 (the “Sublease”),  in order to facilitate CVD’s intended property exchange pursuant to Internal Revenue Code Section 1031 and Revenue Procedure 2000-37.

E.            Pursuant to the terms of the Accommodation Agreement, either (a) all of the membership interests in the Borrower will be transferred by First American Exchange Company, LLC to CVD or (b) the Borrower’s leasehold interest under the Lease Agreement will be assumed by CVD, on the earlier to occur of (i) the closing of the transactions contemplated by the Accommodation Agreement or (ii) six (6) months from the date hereof.
 
 
 

 

F.            It is a condition of the Accommodation Agreement that Borrower, on behalf of CVD, obtain funds sufficient to acquire the tenant’s interest under the Lease Agreement,

G .           CVD has applied to Assignee for a loan (the “Loan”) to the Borrower in the principal sum of SIX MILLION and 00/100 DOLLARS ($6,000,000.00), the payment of which Loan  is to be guaranteed by CVD.

H.            The Assignee has agreed to extend the Loan to the Borrower, subject to, among other things, receipt of the this Assignment.

I.             The Assignor has determined that granting this Assignment will accomplish, in part, its Public Purposes.

            NOW THEREFORE, FOR VALUE RECEIVED , the Borrower and the Assignor each hereby grants, transfers, and assigns to the Assignee, its successors and assigns, all of the right, title and interest of the Assignor and the Borrower in and to the Lease Agreement (except, as to the Assignor, for the Unassigned Rights, as defined in the Lease Agreement), and any and all leases, subleases, occupancy agreements and tenancies (individually and collectively, the “Lease”) whether now existing or hereafter entered into affecting the Premises or the Improvements, as defined in the Mortgage (defined below), except, however, the Lease Agreement, for the purpose of securing (a) payment of all sums now or at any time hereafter due the Assignee from Borrower pursuant to a certain Amended and Restated Mortgage Note in the principal amount of $6,000,000 (the “Note”) dated the date hereof, made by the Borrower in favor of the Assignee and secured by a certain Amended and Restated Fee and Leasehold Mortgage (the “Mortgage”) dated the date hereof, granted by the Assignor and the Borrower to the Assignee; and (b) performance and discharge of each obligation, covenant and agreement of the Assignor and Borrower contained herein and in the Mortgage, and each obligation, covenant and agreement of the Borrower contained in the Note secured thereby.

I.           THE ASSIGNOR AND THE BORROWER EACH AGREES, WITH RESPECT TO EACH LEASE THAT:

           1.           The Borrower will fulfill or perform each and every condition and covenant of the Lease by lessor thereunder (individually and collectively, depending upon the context used, the “Lessor”) to be fulfilled or performed; give prompt notice to the Assignee of any notice of default by the Lessor under the Lease received by the Assignor or the Borrower together with a complete copy of any such notice; at the sole cost and expense of the Borrower, enforce, short of termination of the Lease, the performance or observance of each and every material covenant and condition of the Lease by the lessee thereunder (individually and collectively, depending upon the context used, the “Lessee”) to be performed or observed; not modify nor in any way alter the terms of the Lease so as to diminish Lessor’s security in the Premises; not terminate the term of the Lease nor accept a surrender thereof unless required to do so by the terms of the Lease; not anticipate the rents thereunder for more than thirty (30) days prior to accrual; and not waive or release the Lessee from any obligations or conditions by the Lessee to be performed.  This Assignment is made with reference to Section 291-f of the New York Real Property Law.

           2.           The rights assigned hereunder include all the Assignor’s and Borrower’s right and power to modify the Lease or to terminate the term or to accept a surrender thereof or to waive, or release the Lessee from the performance or observance by the Lessee of any obligation or condition thereof or to anticipate rents thereunder for more than thirty (30) days prior to accrual.
 
 
 

 

           3.           At the Borrower’s sole cost and expense, the Assignor and/or the Borrower will appear in and defend any action growing out of or in any manner connected with the Lease or the obligations or liabilities of the Lessor, Lessee or any guarantor thereunder, and the Assignee, if made a party to any such action, may employ counsel and incur and pay necessary costs and expenses and reasonable attorney’s fees and all such sums, with interest at the Involuntary Rate (as defined in the Mortgage), shall immediately be due from the Borrower and secured hereby and by the Mortgage.

           4.           Should the Borrower fail to make any payment or should the Assignor or Borrower fail to do any act as herein provided after notice and demand, then the Assignee, but without obligation so to do and without releasing the Assignor or Borrower from any obligation herein, may make or do the same, including specifically, without limiting its general powers, appearing in and defending any action purporting to affect the security hereof or the rights or powers of the Assignee and performing any obligation of the Lessor in the Lease contained, and, in exercising any such powers paying necessary costs and expenses, employing counsel and incurring and paying reasonable attorneys’ fees; and the Borrower will pay immediately upon demand all sums expended by the Assignee under the authority hereof, together with interest thereon at the Involuntary Rate (defined in the Mortgage), and the same shall be added to the Indebtedness and shall be secured hereby and by the Mortgage.

           5.           The whole of the Indebtedness shall become due (a) upon the election by the Assignee to accelerate the maturity of the Indebtedness pursuant to the provisions of the Note, or of the Mortgage, or any other instru­ment which may be held by the Assignee as security for the Indebtedness, or (b) at the option of the Assignee, after any attempt by the Assignor or Borrower to exercise any of the rights described in Paragraph 2 or after any other default by the Assignor or the Borrower hereunder and the continuance of such default for ten (10) days after notice and demand from Assignee to remedy same.

           6.           After any attempt by the Assignor or the Borrower to exercise any of the rights described in Paragraph 2 or after any default in the performance of an­y obligation of the Assignor or the Borrower herein, or upon the occurrence of an Event of Default under the Mortgage, the Assignee, at its option, without notice and without regard to the adequacy of security for the Indebtedness hereby secured, either in person or by agent with or without bringing any action or proceed­ing, or by a receiver to be appointed by a court, may:  enter upon, take possession of, and operate the Premises; make, enforce, modi­fy, and accept the surren­der of leases; obtain and evict tenants; fix or modify rents; and do any acts which the Assignee deems proper to protect the security hereof until all Indebtedness secured hereby is paid in full, and either with or without taking possession of the Premises, in its own name, sue for or otherwise collect and receive all rents, issues and profits, other than under the Lease Agreement, including those past due and unpaid, and apply the same, less costs and expenses of operation and col­lection, including reasonable attor­neys’ fees, upon any Indebted­ness secured hereby in such order as the Assignee may determine.  Any income received from the Premises by the Assignee in excess of the amount necessary to meet all obliga­tions for the subsequent six (6) month period shall be paid over by the Assignee to the Borrower promptly after the expiration of each six (6) month period following the date of such entry.  The enter­ing upon and taking possession of said Pre­mises, the collection of such rents, issues and profits and the application thereof as aforesaid, shall not cure or waive any default or waive, modify or affect any notice of default under the Mortgage or invalidate any act done pursuant to said notice.

           7.           Intentionally Omitted.
 
 
 

 

           8.           (a)  Each of the Assignor and the Borrower has not executed any prior assignment of any of its rights under the Lease except to Assignee; (b) each of the Assignor and the Borrower has not done anything which might prevent the Assignee from or limit the Assignee in operating under any of the provisions hereof; (c) each of the Assignor and the Borrower has not accepted rent under the Lease more than thirty (30) days in advance of its due date; (d) so far as the Assignor and the Borrower know, there is no present default by the Lessee under the Lease; and (e) the Lease is unmodified and in full force and effect.

9.           The Assignee shall not be obligated to perform or discharge any obligation under the Lease, or under or by reason of this Assignment, and the Borrower hereby agrees to indemnify the Assignee against and hold it harmless from any and all liability, loss or damage which it may or might incur under the Lease or under or by reason of this Assignment and of and from any and all claims and demands whatsoever which may be asserted against it by reason of any alleged obligation or undertaking on its part to perform or discharge any of the terms of the Lease; should the Assignee incur any such liability, loss or damage under the Lease or under or by reason of this Assignment, or in defense against any such claims or demands, the amount thereof, including costs, expenses and reason­able attorneys’ fees, together with interest thereon at the Involuntary Rate, shall be secured hereby and by the Mortgage, and the Borrower shall reimburse the Assignee there­for immediately upon demand.

10.           This Assignment shall inure to the benefit of the successors and assigns of the Assignee and shall bind each of the Assignor’s and the Borrower’s legal representatives, successors and assigns.

11.           (a)           The Borrower agrees that the Assignor, its directors, members, officers, agents (except the Borrower) and employees shall not be liable for and agrees to defend, indemnify, release and hold the Assignor, its directors, members, officers, agents (except the Borrower) and employees harmless from and against any and all (i) liability for loss or damage to property or injury to or death of any and all persons that may be occasioned by, directly or indirectly, any cause whatsoever pertaining to the Premises or arising by reason of or in connection with the use thereof or under this Assignment or (ii) liability arising from or expense incurred by the Assignor’s acquiring, construction, renovation, installation, owning and leasing of the Premises, including without limiting the generality of the foregoing, all claims arising from the breach by the Borrower of any of its covenants contained herein and all causes of action and reasonable attorneys’ fees and any other expenses incurred in defending any claims, suits or actions which may arise as a result of any of the foregoing, provided that any such losses, damages, liabilities or expenses of the Assignor are not incurred or do not result from the gross negligence or intentional or willful wrongdoing of the Assignor or any of its directors, members, officers, agents (except the Borrower) or employees.  The foregoing indemnities shall apply notwithstanding the fault or negligence on the part of the Assignor, or any of its members, directors, officers, agents or employees and irrespective of the breach of a statutory obligation or the application of any rule of comparative or apportioned liability.  The foregoing indemnities are limited only to the extent of any prohibitions imposed by law.

(b)           Notwithstanding any other provisions hereof, the obligations of the Borrower pursuant to this Section 11 shall remain in full force and effect after the termination of this Assignment until the expiration of the period stated in the applicable statute of limitations during which a claim, cause of action or prosecution relating to the matters herein described may be brought and payment in full or the satisfaction of such claim, cause of action or prosecution relating to the matters herein described and the payment of all reasonable expenses and charges incurred by the Assignor, or its respective members, directors, officers, agents (except the Borrower) and employees, relating to the enforcement of the provisions herein specified.
 
 
 

 

(c)           In the event of any claim against the Assignor or its members, directors, officers, agents (except the Borrower) or employees by any employee or contractor of the Borrower or anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable, the obligations of the Borrower hereunder shall not be limited in any way by any limitation on the amount or type of damages, compensation, disability benefits or other employee benefit acts.

12.           Borrower directs the Assignor to execute and deliver this Assignment of Leases and Rents to the Assignee, and further agrees to indemnify and hold harmless the Assignor (and its members, officers, directors, agents, servants and employees).  Borrower shall pay all costs and expenses, including reasonable attorney’s fees and expenses, incurred by the Assignor in connection with the execution, delivery, recording, performing and enforcing of this Assignment of Leases and Rents.

II.           THE ASSIGNEE AGREES THAT:

1.           So long as there shall exist no default after applicable grace periods, if any, by the Borrower in the payment of any indebtedness secured hereby or in the performance of any obligation of the Assignor or Borrower under the Mortgage, the Assignor or the Borrower shall have the right to collect, but not more than thirty (30) days prior to accrual, all rents, issues and profits of the Premises and to retain, use and enjoy the same.

2.           Upon the payment in full of all Indebtedness (as defined in the Mortgage) secured hereby, as evidenced by the recording or filing of an instrument of satisfaction or full release of the Mortgage without the recording of another Mortgage in favor of the Assignee affecting the Premises, this Assignment shall become and be void and of no effect.

3.           The general credit of the Assignor is not obligated for or available for the payment of any sums due hereunder.  The Assignee will not look to the Assignor or any principal, member, director, officer or employee of the Assignor with respect to the Indebtedness secured hereby and any covenant, stipulation, promise, agreement or obligation contained herein.  The Assignee will not seek a deficiency or other money judgment against the Assignor or any principal, member, director, officer or employee of the Assignor and will not institute any separate action against the Assignor by reason of any default that may occur in the performance of any of the terms and conditions of this Assignment, the Mortgage or the Note.  The agreement on the part of the Assignee shall not be construed in any way so as to effect or impair the lien hereof or the Assignee’s right to foreclose hereunder as provided by law or construed in any way so as to limit or restrict any of the rights or remedies of the Assignee against the Borrower in any foreclosure proceedings or other enforcement of payment of the Indebtedness secured hereby out of any of the security given therefor.

4.           All covenants, stipulations, promises, agreements and obligations of the Assignor contained herein shall be deemed to be the covenants, stipulations, promises, agreements and obligations of the Assignor and not of any member, director, officer, agent, servant or employee of the Assignor in his individual capacity, and no recourse under or upon any obligation, covenant or agreement in this Assignment, or for any claim based hereon or otherwise in respect hereof, shall be had against any past, present or future member, officer, agent, servant or employee, as such, of the Assignor or of any successor public benefit corporation or political subdivision or any person so executing this Assignment, it being expressly understood that this Assignment is solely a special obligation of the Assignor, and that no such personal liability whatever shall attach to, or is or shall be incurred by, any such member, director, officer, agent, servant or employee of the Assignor or of any successor public benefit corporation or political subdivision or any person so executing this Assignment by reason of the obligations, covenants or agreements contained herein or implied herefrom; and that any and all such personal liability of, and any and all such rights and claims against every such member, officer, director, agent, servant or employee by reason of the obligations, covenants or agreements contained in this Assignment or implied therefrom, are, to the extent permitted by law, expressly waived and released as a condition of, and as a consideration for, the execution of this Assignment.
 
 
 

 

III.             THE PARTIES AGREE that all notices, demands or documents which are required or permitted to be given or served hereunder shall be in writing and shall be given in accordance with Section 5.2 of the Mortgage.

IV.             THE PARTIES AGREE that, notwithstanding anything to the contrary in this Assignment, the Mortgage, the Note, or any other document executed in connection with any of the foregoing (the “Loan Documents”), by acceptance of this instrument, Assignee hereby waives any right to obtain a money judgment or equitable relief against FAE Holdings 411519R, LLC and any and all members, shareholders, partners and employees of FAE Holdings 411519R, LLC, whether by an action brought upon this Assignment or any other Loan Document, or an action brought for a deficiency judgment against FAE Holdings 411519R, LLC and/or the members, shareholders, partners and employees of FAE Holdings 411519R, LLC, and agrees that the extent of liability on the part of such parties with respect to this document or any other Loan Document is and shall for all purposes be limited to the interest of FAE Holdings 411519R, LLC in the Premises, including policies of hazard insurance on the Premises and any proceeds thereof and any award of damages on account of condemnation for public use of the Premises, Mortgagee agreeing to look solely to FAE Holdings 411519R, LLC’s interest in the Premises a nd such insurance policies and condemnation awards in satisfaction of all obligations. The terms of this paragraph shall supersede any and all other terms and conditions herein or in any Loan Document.  THE PROVISIONS OF THIS SECTION IV SHALL BE APPLICABLE ONLY UNTIL, AND SHALL BE DEEMED DELETED FROM THIS ASSIGNMENT AND OF NO FURTHER FORCE OR EFFECT FROM AND AFTER, THE DATE THAT EITHER ALL OF THE MEMBERSHIP INTERESTS IN FAE HOLDINGS 411519R, LLC ARE TRANSFERRED TO CVD OR CVD ASSUMES THE OBLIGATIONS AND LIABILITIES OF FAE HOLDINGS 411519R, LLC UNDER THE LEASE AGREEMENT, THE NOTE, THE MORTGAGE AND THE OTHER LOAN DOCUMENTS PURSUANT TO THE TERMS OF THE ACCOMMODATION AGREEMENT OR OTHERWISE.



[END OF PAGE]
 
 
 

 
 
            IN WITNESS WHEREOF , each of the Assignor and the Borrower has duly executed this Assignment as of the day and year first above written.

 
FAE HOLDINGS 411519R, LLC
 

By:             /s/ Mark Bullock
Name:    Mark Bullock
Title:      Authorized Person of Manager


THE TOWN OF ISLIP INDUSTRIAL
DEVELOPMENT AGENCY


By:           /s/ William G. Mannix
Name:      William G. Mannix
Title:        Executive Director
 
 
 

 
 
STATE OF NEW YORK                      )
) ss.:
COUNTY OF                                         )

On this ___ day of March, 2012, before me, the undersigned notary public, personally appeared ______________ personally known to be or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her capacity, and that by his/her signature on the instrument, the individual, or the person or entity upon behalf of which the individual acted, executed the instrument.


______________________________________
Notary Public
My Commission Expires:


STATE OF NEW YORK                      )
) ss.:
COUNTY OF Suffolk                           )

On this 15th day of March, 2012, before me, the undersigned notary public, personally appeared William G. Mannix personally known to be or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her capacity, and that by his/her signature on the instrument, the individual, or the person or entity upon behalf of which the individual acted, executed the instrument.


Kimberly Samuels
Notary Public
My Commission Expires: October 15, 2014


 
[UNIFORM OUT OF STATE ACKNOWLEDGMENT, IF APPLICABLE]

STATE OF Utah
)
   
 
)
SS:
 
COUNTY OF Salt Lake
)
   

On the 14 day of March in the year 2012 before me, the undersigned, personally appeared Mark Bullock, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument, and that such individual made such appearance before the undersigned in the City of Salt Lake, State of Utah.

/s/ Coty E. Romero
Notary Public
Exhibit 10.6
 
AMENDED AND RESTATED FEE AND LEASEHOLD MORTGAGE

 
from
 
THE TOWN OF ISLIP INDUSTRIAL DEVELOPMENT AGENCY
(the “IDA”)

 
and
 
FAE HOLDINGS 411519R, LLC
(the “Borrower”)

 
(the IDA together with the Borrower, collectively as “Mortgagor”)
 
to
 
HSBC BANK USA, NATIONAL ASSOCIATION
(as “Mortgagee”)

 

 

 

Street Address:                        355 South Technology Drive
Central Islip, New York
District:                                      0500
Section:                                     206.00
Block:                                        03.00
Lot:                                            001.003

County:                                     Suffolk

 


 

 


 
Record and Return to:
 

Jodi L. Gladstone, Esq.
Farrell Fritz, P.C.
1320 RXR Plaza
Uniondale, New York 11556-1320

 
 

 
 
AMENDED AND RESTATED FEE AND LEASEHOLD MORTGAGE

 
This AMENDED AND RESTATED FEE AND LEASEHOLD MORTGAGE (“Mortgage”) executed as of this 15 th day of March, 2012, by and among THE TOWN OF ISLIP INDUSTRIAL DEVELOPMENT AGENCY, a corporate governmental agency (being hereinafter called the “IDA”), having an office at 40 Nassau Avenue, Islip, New York 11751, FAE HOLDINGS 411519R, LLC, a New York limited liability company (being hereinafter called “Borrower”, and together with the IDA, collectively “Mortgagor”), having an address at c/o First American Exchange Company, LLC, 560 South 300 East, Salt Lake City, Utah  84111 and HSBC BANK USA, NATIONAL ASSOCIATION, a national banking association (being hereinafter called “Mortgagee”), with offices at 534 Broad Hollow Road, Melville, New York 11747.

WITNESSETH:
 
WHEREAS, the IDA acquired record title to certain real property located in Suffolk County, New York and more particularly defined below as the Land and the Improvements to provide certain benefits to the Borrower; and

WHEREAS, Title 1 of Article 18-A of the General Municipal Law of the State of New York authorizes and provides for the creation of industrial development agencies for the benefit of the several counties, cities, villages and towns in the State of New York and empowers such agencies, among other things, to acquire, construct, reconstruct, lease, improve, maintain, equip and sell land and any building or other improvement, and all real and personal properties, including, but not limited to, machinery and equipment deemed necessary in connection therewith, whether or not now in existence or under construction, which shall be suitable for manufacturing, warehousing, research, civic, commercial or industrial pollution control facilities, in order to advance the job opportunities, health, general prosperity and economic welfare of the people of the State of New York and to improve their prosperity and standard of living (the " Public Purposes " ) and further authorizes each such agency to lease and sell any or all of its facilities on such terms and conditions as it deems advisable, and to mortgage any or all of its facilities in furtherance of such Public Purposes;

WHEREAS, the Borrower occupies the Land and Improvements under a Lease Agreement dated as of March 1, 2012 with the IDA (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, the “Master Lease”), a memorandum of which is intended to be recorded in the Office of the Clerk of Suffolk County simultaneously herewith pursuant to which the Borrower has the right and obligation to purchase the Mortgaged Property upon the expiration or sooner termination of the lease term; and

WHEREAS, Borrower and CVD EQUIPMENT CORPORATION (“CVD”) have entered into a certain Qualified Exchange Accommodation Agreement dated as of February 9, 2012  (the “Accommodation Agreement”), pursuant to which the Borrower agreed to acquire the leasehold interest under the Master Lease and sublease the same to CVD pursuant to agreement dated March 1, 2012 (the “Sublease”),  in order to facilitate CVD’s intended property exchange pursuant to Internal Revenue Code Section 1031 and Revenue Procedure 2000-37; and
 
 
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WHEREAS, pursuant to the terms of the Accommodation Agreement, either (a) all of the membership interests in the Borrower will be transferred by First American Exchange Company, LLC to CVD or (b) the Borrower’s leasehold interest under the Master Lease will be assumed by CVD, on the earlier to occur of (i) the closing of the transactions contemplated by the Accommodation Agreement or (ii) six (6) months from the date hereof;

WHEREAS, it is a condition of the Accommodation Agreement that Borrower, on behalf of CVD, obtain funds sufficient to acquire the tenant’s interest under the Master Lease;

WHEREAS, CVD has applied to Mortgagee for a loan (the “Loan”) to the Borrower in the principal sum of SIX MILLION and 00/100 DOLLARS ($6,000,000.00);
 
WHEREAS, the Mortgagee has agreed to extend the Loan to the Borrower, which Loan is evidenced by, and the Mortgagee is the present owner and holder of, a certain existing note (the “Existing Note”) secured by that certain existing mortgage held by the Mortgagee (the “Existing Mortgage”) and described on Exhibit B attached hereto and made a part hereof, and which Existing Mortgage encumbers the Premises; and

WHEREAS, on the date hereof, the Borrower and the Mortgagee are amending, restating and modifying in its entirety the Existing Note pursuant to a certain Amended and Restated Mortgage Note (the Existing Note, as the same may hereafter be amended, restated, modified, extended or replaced, is herein referred to as the “Note”) in the principal amount of SIX MILLION AND 00/100 ($6,000,000.00) DOLLARS; and

WHEREAS, the Mortgagor and the Mortgagee desire to amend and restate the terms and conditions contained in the Existing Mortgage, in its entirety, all on the terms and conditions provided in this Mortgage, as hereinafter set forth; and

WHEREAS, the Mortgagor and the Mortgagee intend these Recitals to be a material part of this Mortgage.

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows:

I.            This Mortgage constitutes a mortgage and security agreement encumbering the Mortgaged Property (as herein defined) upon the terms and conditions set forth herein to secure the indebtedness evidenced by the Note, and interest thereon as provided therein, it being understood and agreed that the Mortgage secures the repayment of the entire indebtedness evidenced by the Note.

II.           The Borrower hereby represents and warrants that the indebtedness evidenced by the Existing Note, constitutes a single indebtedness in the principal amount of the indebtedness evidenced by the Note, and interest thereon as provided therein, and that the Existing Mortgage constitutes a single, valid, first priority lien upon the Premises fully securing the indebtedness evidenced by the Note, together with interest thereon as provided therein.
 
 
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III.           From and after the date hereof, the terms, covenants and provisions of the Existing Mortgage are hereby modified, amended and restated in its entirety as provided herein, and the Existing Mortgage, as so modified, amended and restated, is hereby ratified and confirmed in all respects by the Mortgagor and the Mortgagee.

IV.           Neither this Mortgage nor anything contained herein shall be construed as a substitution or novation of the indebtedness evidenced by the Existing Note or of the Existing Mortgage, which shall remain in full force and effect, as hereby confirmed, modified, amended, restated, consolidated and superseded.

NOW, THEREFORE, to secure the payment of an indebtedness the Obligations (as hereinafter defined), and in consideration of the further sum of One ($1.00) Dollar unto Borrower in hand well and truly paid by Mortgagee at or before the sealing and delivery hereof, the receipt whereof is hereby acknowledged, and intending to be legally and firmly bound hereby, has mortgaged, granted, bargained, assigned, sold, alienated, released, conveyed and confirmed, and by these presents does mortgage, grant, bargain, assign, sell, alien, release, convey and confirm unto Mortgagee and its successors and assigns, for the benefit of Mortgagee and its successors and assigns, the fee simple estate of the IDA and all right title and interest of Borrower under the Master Lease, in and to the following property, rights and interests and the proceeds thereof (hereinafter collectively referred to as the "Mortgaged Property"):
 
A.           THE LAND.    The land (the “Land”) situated in Suffolk County, New York, which is described in detail in Exhibit A annexed hereto and incorporated herein and made a part of this document for all purposes and all development rights and air rights pertaining thereto;
 
B.           MASTER LEASE.    The leasehold estate and all claims, right, title, interest, privileges and options of the Borrower under and pursuant to the Master Lease (collectively, the “Leasehold Estate”), including, without limitation, all rights to possession or use of the Land, the Improvements (as hereinafter defined) and the other Mortgaged Property subject thereto, and the right to give consents under the Master Lease or to modify, extend, renew or terminate the Master Lease or to purchase the fee simple estate of the IDA in the Mortgaged Property and all other present and future rights of the Borrower as lessee thereunder;
 
C.           THE IMPROVEMENTS:     TOGETHER WITH (1) all the buildings, structures and improvements of every nature whatsoever now or hereafter situated on the Land, and (2) all fixtures, machinery, appliances, equipment, furniture and personal property of every nature whatsoever now or hereafter owned by Mortgagor and located in or on, or attached to, and used or intended to be used in connection with, the operation of the Land, buildings, structures or other improvements, or in connection with any construction being conducted or which may be conducted thereon, and all extensions, additions, improvements, betterments, renewals, substitutions and replacements to any of the foregoing, and all of the right, title and interest of Mortgagor in and to any such personal property or fixtures, which, to the fullest extent permitted by law, shall be conclusively deemed fixtures and a part of the real property encumbered hereby, excluding any inventory or personal property owned by any tenant which would not be deemed to be affixed to or a part of real property pursuant to the terms of any lease governing such tenant's occupancy (hereinafter called the “Improvements”);

 
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D.           EASEMENTS:  TOGETHER WITH all easements, rights-of-way, gores of land, streets, ways, alleys, passages, sewer rights, water courses, water rights and powers, and all appurtenances whatsoever, in any way belonging, relating or appertaining to any of the property described in Paragraphs A, B and C hereof, or which hereafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by Mortgagor;
 
E.           TOGETHER WITH (1) all of the estate, right, title and interest of Mortgagor of, in and to all judgments, insurance proceeds, awards of damages and settlements now or hereafter made resulting from condemnation proceedings or the taking of the property described in Paragraphs A, B, C and D hereof or any part thereof under the power of eminent domain, or for any damage  (whether caused by such taking or otherwise) to the property described in Paragraphs A, B, C and D hereof or any part thereof, or to any rights appurtenant thereto, and all real estate tax refunds and the proceeds of any sale or other disposition of the property described in Paragraphs A, B, C and D hereof or any part thereof; and Mortgagee is hereby authorized to collect and receive said awards, refunds and proceeds and to give proper receipts and acquittances therefor, and (if it so elects) to apply the same toward the payment of the Obligations, notwithstanding the fact that the amount owing thereon may not then be due and payable; and (2) all contract rights, general intangibles, actions and rights in action, including without limitation all rights to insurance proceeds and unearned premiums now or hereafter arising from or relating to the property described in Paragraphs A, B, C and D above; and (3) all proceeds, products, replacements, additions, substitutions, renewals and accessions of and to the property described in Paragraphs A, B, C and D;
 
F.           TOGETHER WITH all rents, income and other benefits to which Mortgagor may now or hereafter be entitled from the property described in Paragraphs A, B, C and D hereof (the “Rents”) to be applied against the Obligations, except for the Unassigned Rights of the IDA under the Master Lease (“Unassigned Rights” of the IDA shall have the meaning as defined in the Master Lease), which Unassigned Rights of the IDA are not pledged, mortgaged or assigned hereunder; provided, however, that permission is hereby given to Borrower, so long as no Event of Default (as hereinafter defined) has occurred, to collect and use such Rents as they become due and payable, but not more than one month in advance thereof. Upon the occurrence of any such Event of Default, the permission hereby given to Borrower to collect such Rents from the property described in Paragraphs A, B, C and D hereof shall terminate and such permission shall not be reinstated upon a cure of such Event of Default without Mortgagee's specific written consent;
 
The foregoing provisions hereof shall constitute an absolute and present assignment of the Rents from the property described in A, B, C and D above, subject, however, to the conditional permission given to Borrower to collect and use such Rents as hereinabove provided; and the existence or exercise of such right of Borrower shall not operate to subordinate this assignment to any subsequent assignment, in whole or in part, by Mortgagor, and any such subsequent assignment by Mortgagor shall be subject to the rights of the Mortgagee hereunder;
 
 
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G.           TOGETHER WITH all right, title and interest of Mortgagor in and to any and all leases now or hereafter on or affecting the property described in Paragraphs A, B, C and D hereof, including, without limitation, the Sublease (the “Leases”), together with all security therefor and all monies payable thereunder, and all books and records which contain payments made under the leases and all security therefor, but excluding the Unassigned Rights of the IDA under the Master Lease, and further subject, however, to the conditional permission hereinabove given to Borrower to collect the Rents arising under any such lease. Mortgagee shall have the right, at any time and from time to time, to notify any lessee of the rights of Mortgagee as provided by this Paragraph; and
 
H.           TOGETHER WITH all rights and remedies at any time arising under or pursuant to Section 365(h) of Title 11 of the United States Code, or under or pursuant to any other provision of Title 11 of the United States Code, including, without limitation, all of the Borrower's rights to remain in possession of any property that is subject to a real estate lease (collectively “Bankruptcy Rights”).
 
TO HAVE AND TO HOLD the Mortgaged Property and all parts thereof unto Mortgagee, its successors and assigns, to and for the proper use and benefit of Mortgagee and its successors and assigns, forever.

This Mortgage is executed and delivered by Borrower and Mortgagor to secure the payment and performance of all of the following obligations of Borrower to the Mortgagee (collectively referred to herein as the “Obligations”):
 
(a)          all principal of due and owing by Borrower in respect of the Loan; and
 
(b)           all interest, indemnification obligations, costs and expenses (including reasonable attorneys’ fees and expenses), other charges and fees provided to be paid by Borrower under or in connection with advances made by Mortgagee to protect or preserve the Mortgaged Property, any part thereof, or the interests of Mortgagee therein or for payment of taxes, assessments, insurance premiums and other amounts as provided therein and herein ; provided, however, and subject to Section 5.11 of this Mortgage, that the maximum principal amount of the Obligations at any time secured hereby shall be the principal sum of SIX MILLION AND 00/100 DOLLARS ($6,000,000.00) at any time and from time to time outstanding, plus all interest due thereon , indemnification obligations, costs and expenses   (including reasonable attorneys' fees and expenses), other charges and fees provided to be paid under or in connection with the Note or this Mortgage, advances made by Mortgagee to protect or preserve the Mortgaged Property, or any part thereof, or the interests of Mortgagee therein or for payment of taxes, assessments, insurance premiums and other amounts as provided therein and herein. In no event shall the limitation on the principal amount of Obligations secured hereby limit or impair the security interests and liens of Mortgagee in property of Mortgagor or the Borrower as provided under the other Loan Documents (as herein defined).
 
The parties hereto agree that all sums that may or shall become due and payable by Borrower to Mortgagee in accordance with one or more Rate Management Transaction Agreements (as that term is defined in Section 5.18 below) shall be secured by this Mortgage, as additional interest, and shall constitute part of the Obligations, as additional interest. The lien of this Mortgage insofar as it secures payment of sums that may or shall become due and payable by the Borrower to Mortgagee in accordance with a Rate Management Transaction Agreement is and shall continue to be equal in lien to the lien of this Mortgage insofar as it secures the payment of the balance of the Obligations. The parties hereto agree that all sums that become available to the Mortgagee as the result of the foreclosure of this Mortgage shall be applied to payment of all of the Obligations on a pro rata basis, including, without limitation, sums due under the Rate Management Transaction Agreements.
 
 
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This Mortgage and the Assignment of Leases and Rents to be entered into by and among Borrower, Mortgagor and Mortgagee on the date hereof, and the Note to be entered into between Borrower and Mortgagee on the date hereof, and all other documents and instruments executed in connection with the same, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, are collectively referred to herein as the “Loan Documents”.
 
ARTICLE ONE
 
COVENANTS OF MORTGAGOR
 
The Borrower and the IDA respectively covenant and agree for itself, and not for each other, with Mortgagee  as follows:
 
1.1.            Payment and Performance.   Borrower shall perform and observe and shall comply with all provisions of the Note and shall promptly pay to Mortgagee as the Note shall direct, all Obligations required to be paid by Borrower thereunder when payment shall become due.  The Note provides for a variable rate of interest which is equal to either (a) LIBOR plus one and three-quarters percent (1.750%) or (b) the prime rate less one-half of one percent (0.50%).
 
1.2.             General Representations, Warranties and Covenants.   The Borrower represents, warrants and covenants that (a) the IDA holds a fee simple estate and the Borrower holds a leasehold estate in the Land and the buildings and improvements thereon, and has good and absolute title to its respective interest in the Mortgaged Property s ubject only to those exceptions to title specifically set forth in the title policy issued or to be issued by   Fidelity National Title Insurance Company   to the Mortgagee and insuring the lien of this Mortgage (the “Permitted Encumbrances”) ; and each Mortgagor has good right, full power and lawful authority to convey, assign, mortgage or encumber the Mortgaged Property as provided herein and Mortgagee may at all times peaceably and quietly enter upon, hold, occupy and enjoy the Mortgaged Property in accordance with and subject to the terms hereof; (b) the Mortgaged Property is and at all times shall continue to be free and clear of all liens, security interests, and encumbrances whatsoever other than the Permitted Encumbrances (c) Mortgagor shall not grant any right of way or easement with respect to the Land or agree to any covenants and restrictions not now in effect without the prior written consent of Mortgagee, which consent shall not be unreasonably withheld, conditioned or delayed; (d) the Borrower will maintain and preserve the lien of this Mortgage as a first and prior lien, subject only to the Permitted Encumbrances; and (e) this Mortgage is and at all times shall continue to be a valid and binding obligation enforceable in accordance with the terms contained herein, and the e xecution and delivery hereof does not contravene any contract or  agreement to which Mortgagor is a party or by which Mortgagor or any of its properties may be bound and does not contravene any law, order, decree, rule or regulation to which Mortgagor is subject,
 
 
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1.3.            Compliance with Laws. Borrower covenants and warrants that Borrower and the Mortgaged Property presently complies in all respects with and shall continue to comply in all respects with all applicable restrictive covenants, applicable zoning and subdivision ordinances and building codes, all applicable health and Environmental Laws (as hereinafter defined) and regulations and other applicable laws, rules and regulations, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. If Borrower receives notice from any federal, state or other governmental body that it or the Mortgaged Property is not in compliance with any such covenant, ordinance, code, law or regulation, Borrower will provide Mortgagee with a copy of such notice promptly.  For purposes of this Mortgage, the term “Material Adverse Effect” shall mean a material adverse effect on (a) the business, assets, operations, prospects, or condition, financial or otherwise, of Borrower or the Mortgaged Property, (b) the ability of the Borrower to perform any of its obligations under this Mortgage or any of the other Loan Documents or (c) the validity or enforceability of this Mortgage or any of the other Loan Documents, or the rights or benefits available to Mortgagee under this Mortgage or any of the other Loan Documents.
 
1.4.            Taxes and Other Charges.
 
(a)            Borrower shall pay, or cause to be paid, prior to the time any interest or penalty may be imposed due to late payment, all taxes, assessments, water rates, sewer rentals, dues, charges, fees, levies, fines, impositions, liabilities, obligations and encumbrances and other charges of every nature and to whomever assessed, including, without limitation, all obligations of Borrower under the Second Amended and Restated PILOT Agreement referred to in the Master Lease, that may now or hereafter be levied or assessed upon the Mortgaged Property or any part thereof, or upon Borrower's interest in the Rents, or upon this Mortgage or the Obligations or upon or against the interest of Mortgagee in the Mortgaged Property, whether any or all of such items be levied directly or indirectly, as well as income taxes, assessments and other governmental charges levied and imposed by the United States of America or any state, county, municipality or other taxing authority upon or against Borrower or in respect of the Mortgaged Property (all of the foregoing herein referenced to as “Taxes” or individually as a “Tax”) and, upon request, Borrower shall deliver to Mortgagee receipted bills evidencing payment therefor. Notwithstanding anything to the contrary contained herein, Borrower shall have the right, at its own expense and after prior written notice to Mortgagee, by appropriate proceedings duly instituted and diligently prosecuted, to contest in good faith the validity or amount of any such Taxes in the manner provided by law, in which event, Borrower shall:
 
(i)  pay in full, under protest in the manner provided by law, any Tax that Borrower may desire to contest, or
 
(ii) withhold the payment thereof, if contest of any Tax may be made without the payment thereof, provided, however, that:
 
 
(A)
such contest shall have the effect of preventing the sale or forfeiture of the Mortgaged Property or any part thereof, or any interest therein, to satisfy such Tax;
 
 
(B)
Borrower has, not less than five (5) days prior to the date the amount of such Tax shall be increased by reason of interest, penalties or costs, notified Mortgagee in writing of the intention of Borrower to contest the same;
 
 
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(C)
Borrower shall have furnished Mortgagee from time to time as Mortgagee may request such security or bond or indemnification satisfactory to Mortgagee for the final payment and discharge thereof and an additional sum to cover possible interest, costs and penalties; and
 
 
(D)
in the event of a final ruling or adjudication adverse to Borrower, Borrower shall promptly pay such Tax, plus any interest, penalty or additional charge thereon; and
 
(iii)  all costs and expenses incidental to any such contest shall be paid by Borrower.
 
(b)           Notwithstanding anything to the contrary contained herein, in order to more fully protect the security afforded hereby, Borrower shall, at Mortgagee's request, to be exercised if there exists a pattern of delinquencies in payment of the Obligations or Taxes or upon the occurrence of two defaults beyond applicable grace periods within any six (6) month period, pay to Mortgagee, on the first of each month, a sum equal to  one-twelfth (1/12) of the annual taxes, payments in lieu of taxes, municipal water rates, sewer rents and assessments, if any, levied or to be levied against the Mortgaged Property and of the fire and other hazard insurance premiums  next becoming due  (all  hereinafter referred to  as  the “Charges”), all as reasonably estimated by Mortgagee, so that Mortgagee shall have sufficient funds to pay the Charges on the first day of the month preceding the month in which they become due. If, from time to time, Mortgagee shall reasonably determine that the balance of the funds held by it to pay the Charges is or will be insufficient to pay any of the Charges when the same shall become due, Borrower shall pay to Mortgagee, on demand, any amount necessary to remedy any deficiency.  Mortgagee shall hold all amounts to pay the Charges before same become delinquent, with the right, however, of Mortgagee to apply, after an Event of Default, any sum so received as hereinafter provided. If, after an Event of Default, there is a public or private sale of the Mortgaged Property covered hereby, or if Mortgagee acquires any of the Mortgaged Property otherwise after an Event of Default, Mortgagee shall have the right to apply the balance then remaining in the funds accumulated to pay the Charges, either as a credit against the balance of the Obligations then remaining unpaid or to the payment of any of the Charges. The funds held by Mortgagee under this section may be commingled with the general funds of Mortgagee who shall not be liable for interest thereon. Mortgagee, in its discretion, may at any time terminate, or thereafter reinstate, any requirement for such payments.
 
(c)           In the event of the passage of any state, federal, municipal or other governmental law, order, rule or regulation, subsequent to the date hereof, in any manner changing or modifying the laws now in force governing the taxation of debts secured by mortgages or the manner of collecting taxes so as to adversely affect Mortgagee, then, Borrower shall take such action as is necessary to insure, to Mortgagee's satisfaction, that the lien of Mortgagee upon the Mortgaged Property is not adversely affected by any such legislative change within thirty (30) days after written notice of such change by Mortgagee.
 
 
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(d)            Borrower shall not claim, demand or be entitled to receive any credit against the principal or interest payable on the Obligations for so much of the taxes, assessments or similar impositions assessed against the Mortgaged Property or any part thereof or that are applicable to the Obligations or to the interest in the Mortgaged Property of Mortgagee.  No deduction shall be claimed from the taxable value of the Mortgaged Property or any part thereof by reason of the Obligations, this Mortgage or any other instrument securing the Obligations.
 
1.5.            Mechanics' and Other Liens.   Except as otherwise set forth herein, Borrower shall not permit any mechanics' or other liens to be filed or to exist against the Mortgaged Property by reason of work, labor, services or materials supplied or claimed to have been supplied to, for or in connection with the Mortgaged Property or to Borrower or anyone holding the Mortgaged Property or any part thereof through or under Borrower, which is likely to cause a Material Adverse Effect; provided, however, that if any such lien shall at any time be filed, Borrower shall, within thirty (30) days after notice of the filing thereof but subject to the right of contest as set forth herein, cause the same to be discharged of record by payment, deposit, bond, order of a court of competent jurisdiction or otherwise. Notwithstanding anything to the contrary contained herein, Borrower shall have the right, at its own expense and after prior written notice to Mortgagee, by appropriate proceedings duly instituted and diligently prosecuted, to contest in good faith the validity, applicability or amount of any such lien if Borrower establishes an escrow or other security acceptable to Mortgagee (or, at its option, Mortgagee may establish a reserve against loans otherwise available to Borrower or its affiliates) in an amount estimated by Mortgagee to be adequate to cover the payment of the amount being contested with interest, costs and penalties and an additional sum to cover possible interest, costs and penalties; and, if the amount of such escrow or other security (or reserve) is insufficient to pay any amount adjudged by a court of competent jurisdiction to be due, with all interest, costs and penalties thereon, Borrower shall pay such deficiency no later than the date such judgment becomes final.
 
1.6.            Insurance.
 
(a)           In addition to all insurance required to be maintained by the Borrower under the Master Lease, Borrower shall, at its expense, obtain (or cause to be obtained) for, deliver to, assign and maintain for the benefit of Mortgagee, the following insurance policies, upon and relating to the Mortgaged Property:
 
(i)            Insurance against physical loss or damage to the improvements and equipment as provided under a standard Special Form (formerly known as “All Risk”) property policy with endorsements for flood (if the Mortgaged Property is in a flood zone) and earthquake coverage in amounts not less than the actual replacement cost of the improvements and equipment. Such policies shall contain Replacement Cost and Agreed Amount Endorsements and shall contain deductibles not more than $100,000.00 per occurrence (provided that earthquake insurance shall have such deductibles as are commercially reasonable);
 
(ii)            Commercial General Liability Insurance against claims for personal and bodily injury, death or property damage occurring on, in or as a result of the use of the Mortgaged Property, in an amount not less than $1,000,000 per occurrence, $2,000,000 annual aggregate and all other coverages that are usual and customary for properties of the size and type of the Mortgaged Property, and umbrella liability insurance in excess of primary liability coverages in an amount not less than $5,000,000 per occurrence/annual aggregate;
 
 
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