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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(iii) Worker's Compensation Insurance covering all persons employed by Borrower in connection with any work done on or about any of the Mortgaged Property;
 
(iv)           Business Income/Interruption Insurance with a period of indemnity not less than twelve (12) months from the time of loss; and
 
(v)           Such other insurance or such higher policy limits on or in connection with any of the Mortgaged Property as Mortgagee may reasonably require, which at the time is usual and commonly obtained in connection with properties in the same region that are similar in type of building size, construction and use to the Mortgaged Property.
 
Borrower shall pay promptly when due any premiums on such insurance policies and on any renewals thereof. The form of such policies and the companies issuing them shall be reasonably acceptable to Mortgagee (i.e. having a Best's rating of A or above at the time such policy is issued or renewed and, at any other time, having a Best's rating of A- or above). All such insurance may be included in blanket policies maintained by Borrower. All such policies and renewals thereof shall name Mortgagee as a loss payee and Mortgagee as an additional insured (but without liability for any premiums), shall be held by Mortgagee as collateral and further security for the payment of the Obligations and shall contain a non-contributory standard mortgagee's endorsement making losses payable to Mortgagee its successors and/or assigns. Not less than five (5) business days after the expiration date of the insurance policies required to be maintained by Borrower, Borrower shall deliver to Mortgagee one or more certificates of insurance evidencing renewal of the insurance coverage required hereunder plus such other evidence of payment of premiums therefor as Mortgagee may request. In the event of loss, Borrower will give immediate written notice to Mortgagee and Mortgagee may make proof of loss if not made promptly by Borrower. In the event of the foreclosure of this Mortgage or any other transfer of title to the Mortgaged Property in extinguishment of the Obligations, all right, title and interest of Mortgagor in and to all insurance policies and renewals thereof then in force shall pass to the purchaser or grantee. All such policies shall provide that (i) they shall not be subject to cancellation or modification without at least thirty (30) days prior written notice to Mortgagee, (ii) they shall not be invalidated as to Mortgagee by any act or neglect of Borrower or any other insured and (iii) the insurance carrier waives subrogation, if such waiver of subrogation can be obtained at rates which are determined by Mortgagee to be commercially reasonable.
 
(b)            Pursuant to its rights granted hereunder in all proceeds from any insurance policies, Mortgagee is hereby authorized and empowered (but not obligated) at its option to act as attorney-in-fact for Mortgagor in adjusting, settling or compromising any loss under any insurance policies on the Mortgaged Property and at all times to collect and receive the proceeds from any such policies. Each insurance company is hereby authorized and directed to make payment for all such losses directly and solely to Mortgagee and not to Mortgagor and Mortgagee jointly. After deducting from such insurance proceeds any expenses incurred by Mortgagee in the collection or handling of such funds, Mortgagee may apply the net proceeds, at its option, either as a credit on any portion of the Obligations secured hereby whether then matured or to mature in the future, or such sums either wholly or in part may be paid over to Mortgagor to be used to repair such Improvements or to build new Improvements in their place or for any other purpose or object satisfactory to Mortgagee, without affecting the lien of this Mortgage for the full amount secured hereby before such payment took place. Mortgagee shall not be responsible for any failure to collect any insurance proceeds due under the terms of any policy. The provisions of subsection 4 of Section 254 of the Real Property Law of New York covering the insurance of buildings against loss by fire shall not apply to the terms of this Mortgage.
 
 
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1.7.            Condemnation.   Borrower, immediately upon obtaining knowledge of the institution of any eminent domain or other proceedings for the condemnation of the Mortgaged Property, or any portion thereof, shall notify Mortgagee of the pendency of such proceedings. Mortgagee shall be entitled to all compensation awards, damages, claims, rights of action and proceeds of, or on account of, any damage or taking through eminent domain or other condemnation proceedings and is hereby authorized, at its option, upon prior written notice to Mortgagor, to commence, appear in and prosecute in its own or Mortgagor's name any action or proceeding relating to eminent domain or condemnation and to settle or compromise any claim in connection therewith.  All such compensation awards, damages, claims, rights of action and proceeds, and any other payments or relief, and the right thereto, are included in the Mortgaged Property (excluding the rights and claims of any tenant) and Mortgagee, after deducting therefrom all its expenses including reasonable attorneys' fees and expenses, may release any monies received by it to Mortgagor without affecting the lien of this Mortgage or may apply the same, in such manner as Mortgagee shall determine, to the reduction of the Obligations.  Subject to applicable law, any balance of such monies then remaining shall be paid to Mortgagor.  Mortgagor agrees to execute such further assignments of any compensation awards, damages, claims, rights of action and proceeds as Mortgagee may require. Notwithstanding any such condemnation, Borrower shall continue to pay interest on the entire unpaid principal amount of the Obligations.
 
1.8.            Care of Mortgaged Property.
 
(a)           Borrower shall preserve and maintain, or cause to be preserved and maintained, the Mortgaged Property including all appurtenances thereto in good repair and condition, normal wear and tear excepted, and in compliance with the requirements, if any, of the Permitted Encumbrances, at its own cost, and will from time to time make, or cause to be made, all  repairs,  replacements, renewals  and payments necessary to continue  to  maintain the Mortgaged Property in such state of repair, condition and compliance.   Borrower shall not permit, commit or suffer any waste, impairment or deterioration of the Mortgaged Property or of any part thereof which is likely to cause a Material Adverse Effect, and will not take any action which will increase the risk of fire or other hazard to the Mortgaged Property or to any part thereof.
 
(b)           No part of the Mortgaged Property shall be removed, demolished or altered, without the prior written consent of Mortgagee .    Mortgagor shall have the right, without such consent, to remove and dispose of, free from the lien of this Mortgage, any part of the Mortgaged Property consisting of equipment and fixtures as from time to time may become worn out or obsolete; provided that, either simultaneously with or prior to such removal, any such property shall be replaced with other property of equal utility and value (prior to such Mortgaged Property becoming worn out or obsolete) and free from any security interest of any other person.   Any substituted property shall be deemed to be part of the Mortgaged Property and shall be subject to the lien of this Mortgage.
 
 
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(c)           Mortgagee may enter upon and inspect the Mortgaged Property, prior to an Event of Default during reasonable times upon reasonable prior notice, and after an Event of Default or in the case of emergency, at any time this Mortgage is in effect.
 
(d)           If any part of the Mortgaged Property shall be lost, damaged or destroyed by fire or any other cause, Borrower shall give immediate written notice thereof to Mortgagee and, if Mortgagee has paid over to Mortgagor the proceeds of any insurance to be used to restore the damaged Mortgaged Property, Borrower shall promptly restore the Mortgaged Property to the equivalent of its original condition.   If a part of the Mortgaged Property shall be lost, physically damaged, or destroyed through condemnation and provided Mortgagee has exercised its option set forth in Section 1.7 hereof to pay over to Mortgagor the proceeds of any condemnation awards to be used to restore, repair or alter the remaining property, Borrower shall promptly restore, repair or alter the remaining property in a manner satisfactory to Mortgagee.
 
1.9.            Compliance with Leases.   Borrower represents that all Leases, if any, are presently in full force and effect and that no default exists thereunder. As any such Lease shall expire, Borrower shall so notify Mortgagee in order that at all times, Mortgagee shall have a current list of all Leases. Borrower shall not, without the express prior written consent of Mortgagee, enter into any new Lease. The assignment contained in the granting clauses hereof shall not be deemed to impose upon Mortgagee any of the obligations or duties of Borrower provided in any such Lease (including, without limitation, any liability under the covenant of quiet enjoyment contained in any Lease in the event that any tenant shall have been joined as a party defendant in any action to foreclose under this Mortgage and shall have been barred and foreclosed thereby of all right, title and interest and equity of redemption in the Mortgaged Property or any part thereof), and Borrower shall comply with and observe its obligations as landlord under all Leases. Borrower shall enforce the terms of each Lease and shall provide written notice to Mortgagee if there is a default by any tenant under a Lease. Borrower, if required by Mortgagee, shall furnish promptly to Mortgagee original or certified copies of all such Leases. Borrower shall not, without the express prior written consent of Mortgagee, amend, modify, extend, terminate or cancel, accept the surrender of, subordinate, accelerate the payment of rent as to, or change the terms of any renewal option of any such Lease , or permit or suffer an assignment or sublease,. Borrower shall not accept payment of rent more than one (1) month in advance without the prior written consent of Mortgagee, except that Borrower may accept security deposits in respect of the Leases in excess of such amount. In addition to the foregoing, Mortgagee shall have all the rights against lessees of the Mortgaged Property or any part thereof as set forth in Section 291-f of the Real Property Law of New York.
 
1.10.            Environmental Compliance.
 
(a)           For purposes of this Paragraph 1.10, (i) the term “Hazardous Material” shall mean any material or substance that, whether by its nature or use, is now or hereafter defined or regulated as a 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, or which is or contains petroleum, gasoline, diesel fuel, another petroleum hydrocarbon product, asbestos, asbestos-containing materials or polychlorinated biphenyls, (ii) 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, and (iii) 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.
 
 
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(b)           Borrower has not generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off the Mortgaged Property in any manner which at any time violates any applicable Environmental Law or any license, permit, certificate, approval or similar authorization issued to Borrower thereunder, and the operations of Borrower comply in all respects with all applicable Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder.
 
(c)           There is no investigation, proceeding, complaint, order, directive, claim, citation or notice of violation by any governmental authority or any other person, nor is any pending, or threatened, with respect to any non-compliance with or violation of the requirements of any applicable Environmental Law by Borrower.  There has not been any release, spill or discharge, overtly threatened or actual, of any Hazardous Material on the Mortgaged Property or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter on or with respect to the Mortgaged Property which would create a Material Adverse Effect.
 
(d)            Borrower has no material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials.
 
(e)           Borrower has  all  licenses, permits, certificates, approvals or similar authorizations required to be obtained or filed in connection with the operations of Borrower under any Environmental Law, all of such licenses, permits, certificates, approvals or similar authorizations are valid and in full force and effect.
 
(f)           The Mortgaged Property has never been used by Borrower or, to the knowledge of Borrower, by any prior owner of the Mortgaged Property as (A) a dump site for Hazardous Materials or (B) a storage (whether temporary or permanent) site for Hazardous Materials in violation of applicable Environmental Laws.
 
 
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(g)           Borrower shall, at all times, comply in all respects with all Environmental Laws.
 
(h)           Borrower shall take all measures, at its expense, so as to maintain continued compliance with all applicable Environmental Laws in all of its operations. Copies of all future environmental surveys, audits, assessments, feasibility studies and results of remedial investigations and remediation programs conducted or prepared by environmental consultants or professionals that indicate facts or conditions on any Mortgaged Property shall be promptly furnished, or caused to be furnished, by Borrower to Mortgagee. Borrower shall take prompt and appropriate action to respond to any non-compliance with any of the Environmental Laws for which the Borrower is or could reasonably be expected to be responsible (whether initially or ultimately) and shall regularly report to Mortgagee on each such response.
 
(i)            Borrower shall give both oral and written notice to Mortgagee, within five (5) business days upon Borrower's receipt of any written notice, or Borrower's otherwise obtaining actual knowledge, of, (i) the occurrence of any event involving the release, spill or discharge, threatened or actual, of any Hazardous Material in violation of any Environmental Law or (ii) any investigation, proceeding, complaint, order, directive, claims, citation or notice with respect to: (A) any alleged or actual non-compliance with or violation of any Environmental Law by Borrower to the extent relating to the Mortgaged Property or for which non-compliance or violation Borrower is or may be directly or ultimately responsible or held liable to any party or (B) the release, spill or discharge, threatened or actual, of any reportable quantity of any Hazardous Material on the Mortgaged Property or for which release, spill or discharge Borrower is or may be directly or ultimately responsible or held liable to any party, or (C) the alleged or actual generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials not in compliance with all Environmental Laws occurring on the Mortgaged Property or for which non-compliance Borrower is or may be directly or ultimately responsible or held liable to any party or (D) any other environmental, health or safety matter which is likely to create a Material Adverse Effect.
 
(j)            Without limiting the generality of the foregoing, whenever Mortgagee reasonably determines that there is non-compliance, or any condition which requires any action by or on behalf of Borrower in order to avoid any non-compliance, with any Environmental Law which is likely to create   a Material Adverse Effect , Borrower shall, at Mortgagee's request and Borrower's expense: (1) cause an independent environmental engineer reasonably acceptable to Mortgagee to conduct such tests of the site where Borrower's non-compliance or alleged non-compliance with such Environmental Laws has occurred as to such non-compliance and prepare and deliver to Borrower and Mortgagee a report as to such non-compliance setting forth the results of such tests, a proposed plan for responding to any environmental problems described therein, and an estimate of the costs thereof and (ii) provide to Mortgagee a supplemental report of such engineer whenever the scope of such non-compliance, or Borrower's response thereto or the estimated costs thereof, shall change in any material respect.
 
(k)           Upon Mortgagee's receipt of any written notice from any person or entity, including, but not limited to, the United States Environmental Protection Agency or the New York State Department of Environmental Conservation, asserting the existence of any Hazardous Materials on, or any violation of any Environmental Laws pertaining to the Mortgaged Property that, if true, could result in an order, suit or other action against Mortgagor and/or any part of the Mortgaged Property by any governmental agency or otherwise that, in the reasonable opinion of Mortgagee, is not being adequately addressed by Borrower in Mortgagee's sole opinion and could create a Material Adverse Effect, Mortgagee shall have the right, but not the obligation, upon prior notice to Mortgagor, to enter onto the Mortgaged Property or to take such other actions as it deems reasonably necessary or advisable to clean up, remove, resolve or minimize the impact of, or otherwise deal with, any such Hazardous Materials or violation of any Environmental Laws. Any and all sums expended by Mortgagee for such purposes, together with interest thereon at the post-default rate of interest set forth in the Note (the “Default Rate”) shall be immediately due and payable by Borrower and shall be indebtedness secured by this Mortgage.

 
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(l)            Borrower shall indemnify and hold harmless Mortgagee, its directors, officers, employees, agents, invitees, representatives, successors and assigns, from and against any and all losses, claims, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and legal expenses) directly or indirectly arising out of or attributable to the use, generation, manufacture, reproduction, storage, release, threatened release, spill, discharge, disposal or presence of a Hazardous Material on the Mortgaged Property and/or on to any adjoining property, including, without limitation, the costs of any repair, cleanup or other remedial work required under any Environmental Law or by any governmental authority with respect to the Mortgaged Property and the preparation and implementation of any closure, remedial or other required plans, except that Borrower shall not be required to indemnify any person for any such losses, claims, damages, liabilities, costs and expenses directly caused by such person's own gross negligence or willful misconduct as determined by a final, non-appealable judgment of a court of competent jurisdiction.

(n)            The indemnity provisions of this Paragraph 1.10 shall survive indefinitely, notwithstanding any payment of the indebtedness secured hereby or any satisfaction, cancellation or release of this Mortgage or the delivery of a deed in lieu of foreclosure with respect to the Mortgaged Property.
 
1.11.            Further Assurances.   At any time and from time to time, upon Mortgagee's request, Mortgagor, at Borrower's sole cost and expense, shall make, execute and deliver, or cause to be made, executed and delivered, to Mortgagee and where appropriate shall cause to be recorded or filed, and from time to time thereafter to be re-recorded and refiled at such time and in such offices and places as shall be deemed desirable by Mortgagee, any and all such further mortgages, instruments or further assurances, certificates and other documents as Mortgagee may consider necessary or desirable in order to effectuate, complete, or perfect, or to continue and preserve the Obligations, and the lien of this Mortgage as a lien upon all of the Mortgaged Property, whether now owned or hereafter acquired by Mortgagor.  Upon any failure by Mortgagor to do so, Mortgagee may make, execute, record, file, re-record or refile any and all such mortgages, instruments, certificates and documents for and in the name of Mortgagor, and Mortgagor hereby irrevocably appoints Mortgagee as agent and attorney-in-fact of Mortgagor to do so.
 
 
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1.12.            Security Agreements and Financing Statements.
 
(a)           Mortgagor (as Debtor) hereby grants to Mortgagee (as Creditor and Secured Party) a security interest in and continuing lien upon all fixtures, machinery, appliances, equipment, furniture and personal property of every nature whatsoever constituting part of the Mortgaged Property.
 
(b)           Mortgagor, at Borrower's sole cost and expense, shall execute any and all such documents, including without limitation, financing statements pursuant to the Uniform Commercial Code of the State of New York (the “Uniform Commercial Code”), as Mortgagee may request, if Mortgagor's signature is required under the Uniform Commercial Code, to preserve and maintain the priority of the lien created hereby on the portion of Mortgaged Property which may be deemed personal property or fixtures, and Borrower shall pay to Mortgagee on demand any expenses incurred by Mortgagee in connection with the preparation, execution and filing of any such documents.    Mortgagor hereby authorizes and empowers Mortgagee to execute (if necessary) and  file, on Mortgagor's behalf, all financing statements and refilings and continuations thereof as Mortgagee deems necessary or advisable to create, preserve and protect said lien. When and if Mortgagor and Mortgagee shall respectively become the Debtor and Secured Party in any Uniform Commercial Code financing statement affecting the Mortgaged Property, this Mortgage shall be deemed a security agreement as defined in said Uniform Commercial Code and the remedies for any violation of the covenants, terms and conditions of the agreements herein contained shall be (i) as prescribed herein and in the other Loan Documents, (ii) governed by general law, or (iii) as to such part of the security which is also reflected in said financing statement, governed by the specific statutory provisions now or hereafter enacted and specified in the Uniform Commercial Code, all at Mortgagee’s election.
 
(c)           Mortgagor and Mortgagee agree that the filing of a financing statement in the records normally having to do with personal property shall never be construed as in any way derogating from or impairing the express declaration and intention of the parties hereto, hereinabove stated, that everything used in connection with the production of income from the Mortgaged Property (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) and/or adapted for use therein and/or which is described or reflected in this Mortgage is, and at all times and for all purposes and in all proceedings both legal or equitable, shall be regarded as part of the real estate encumbered by this Mortgage irrespective of whether (i) any such item is physically attached to the Improvements, (ii) serial numbers are used for the better identification of certain equipment items capable of being thus identified in a recital contained herein or in any list filed with Mortgagee, or (iii) any such item is referred to or reflected in any such financing statement so filed at any time. Similarly, the mention in any such financing statement of (A) rights in or to the proceeds of any fire and/or hazard insurance policy, or (B) any award in eminent domain or condemnation proceedings for a taking or for loss of value, or (C) Borrower's interest as lessor in any present or future lease or rights to income growing out of the use and/or occupancy of the Mortgaged Property, whether pursuant to lease or otherwise, shall never be construed as in any way altering any of the rights of Mortgagee as determined by this instrument or impugning the priority of the lien granted hereby or by any other recorded document, but such mention in the financing statement is declared to be for the protection of Mortgagee in the event any court or judge shall at any time hold with respect to (A), (B) and (C) that notice of Mortgagee's priority of interest to be effective against a particular class of persons, including but not limited to the federal government and any subdivisions or entity of the federal government, must be filed in the Uniform Commercial Code records.

 
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1.13.            Assignment of Rents.   The assignment of Leases and Rents contained in the Granting Clauses of this Mortgage shall be (i) fully operative without any further action on the part of either party and specifically Mortgagee shall be entitled, at its option, upon the occurrence of an Event of Default, to all Rents from the property described in the Granting Clauses (except with respect to the Unassigned Rights of the IDA) hereof whether or not Mortgagee takes possession of such property and (ii) upon the occurrence of an Event of Default, an irrevocable direction to and full authority to each lessee and sublessee under any Leases to pay all Rents to Mortgagee, without proof of the default relied upon and an automatic revocation of the permission hereby granted to Borrower to collect and use the Rents and any Rents collected by Borrower shall be held in trust for Mortgagee, and Borrower shall be a trustee with respect to all Rents received and shall hold these Rents for the account of Mortgagee, to be applied toward the Obligations. Borrower hereby irrevocably authorizes each lessee, sublessee, guarantor, person and entity to rely upon and comply with any notice or demand by Mortgagee for the payment to Mortgagee, of any Rents due or to become due. Borrower hereby further grants to Mortgagee the right upon the occurrence and during the continuance of any Event of Default (a) to enter upon and take possession of the Mortgaged Property for the purpose of collecting the said Rents, (b) to dispossess by the usual summary proceedings any tenant defaulting in the payment thereof to Mortgagee, (c) to let the Mortgaged Property or any part thereof, and (d) to apply said Rents, after payment of all necessary charges and expenses, on account of the Obligations. Such assignment and grant shall continue in effect until the Obligations secured hereby are indefeasibly paid in full, the execution of this Mortgage constituting and evidencing the irrevocable consent of Borrower to the entry upon and taking possession of the Mortgaged Property by Mortgagee pursuant to such grant, whether or not foreclosure has been instituted upon the occurrence and during the continuance of any Event of Default. Neither the exercise of any rights under this Paragraph by Mortgagee nor the application of any such Rents, income or other benefits to the Obligations secured hereby, shall cure or waive any default or notice of Event of Default hereunder or invalidate any act done pursuant hereto or to any such notice, but shall be cumulative of all other rights and remedies.
 
1.14.            After-Acquired Mortgaged Property.   To the extent permitted by and subject to applicable law, the lien of this Mortgage will automatically attach, without further act, to all after-acquired property located in or on, or attached to, or used or intended to be used in connection with, or with the operation of, the Mortgaged Property or any part thereof.
 
1.15.            Leases Affecting Mortgaged Property.   To the extent granted herein, Borrower shall, from time to time upon the request of Mortgagee, specifically assign to Mortgagee, as additional security hereunder, by an instrument in writing in such form as may be approved by Mortgagee, all right, title and interest of Borrower in and to any and all Leases now or hereafter on or affecting the Mortgaged Property, together with all security therefor and all monies payable thereunder, subject to the conditional permission hereinabove given to Borrower to collect the rentals under any such Lease. Borrower shall also execute and deliver to Mortgagee any notification, financing statement or other document required by Mortgagee to perfect the foregoing assignment as to any such lease.
 
 
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1.16.            Expenses.   Borrower will pay to Mortgagee on demand all appraisal fees, recording fees, taxes, brokerage fees and commissions, abstract fees, title policy fees, escrow fees, reasonable attorneys' fees and expenses, court costs, and all other costs and expenses of every character which have been incurred or which may hereafter be incurred by Mortgagee in connection with: (a) the preparation and execution of the Loan Documents; (b) the funding of Loan; (c) preparation for enforcement of the Loan Documents , whether or not suit or other action is actually commenced or undertaken; (d) enforcement of the Loan Documents; (e) court or administrative proceedings of any kind to which Mortgagee may be a party, either as plaintiff or defendant, by reason of the Loan Documents ; (f) preparation for and actions taken in connection with Mortgagee's taking possession of the Mortgaged Property; (g) negotiations with Borrower or any of its agents in connection with the existence or cure of any Event of Default; (h) any proposed refinancing of the Obligations secured hereby; (i) the transfer of the Mortgaged Property in lieu of foreclosure; and (j) the approval by Mortgagee of actions taken or proposed to be taken by Mortgagor or other person or entity which approval is required by the terms of this Mortgage or the other Loan Documents.   Borrower will, upon demand by Mortgagee, reimburse Mortgagee for all such expenses which have been incurred or which shall be incurred by it; and will indemnify and hold harmless Mortgagee, its directors, officers, employees, agents, invitees, representatives, successors and assigns from and against, and reimburse Mortgagee for, all claims, demands, liabilities, losses, damages, judgments, penalties, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) which may be imposed upon, asserted against or incurred or paid by them by reason of, on account of or in connection with any bodily injury or death or property damage occurring in or upon or in the vicinity of the Mortgaged Property through any cause whatsoever or asserted against them on account of any act performed or omitted to be performed hereunder or on account of any transaction arising out of or in any way connected with the Mortgaged Property, or with this Mortgage, the other Loan Documents or any of the Obligations, provided that such obligation to indemnify shall not apply to any losses, claims, liabilities, costs or expenses caused by any such indemnitee's own gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. It is the intention of the parties hereto that the costs and expenses set forth 'in this Paragraph shall survive maturity, acceleration and entry of judgment and continue to accrue until such costs and expenses are paid in full by Borrower.
 
1.17.            Mortgagee's Cure of Defaults.   If Borrower defaults in the payment of any tax, assessment, encumbrance or other imposition, in its obligation to furnish insurance hereunder, or in the performance or observance of any other covenant, condition or term in this Mortgage or the other Loan Documents, without limiting Mortgagee's rights to establish availability reserves for any of such matters at any time, Mortgagee may (but shall not be obligated to) advance funds for the account of Borrower to pay any such charges or items or perform or observe the same.  In addition, Mortgagee may at any time and from time to time advance such additional sums as Mortgagee in its reasonable discretion may deem necessary to preserve and protect the Mortgaged Property or any portion thereof and to protect the security of this Mortgage.  All such advanced costs and expenses incurred or paid by Mortgagee in connection therewith shall be due and payable on demand, shall bear interest at the Default Rate, shall be added to the Obligations and secured by the lien of this Mortgage. Mortgagee is hereby empowered to enter and authorize others to enter upon the Mortgaged Property or any part thereof for the purpose of performing or observing any such defaulted covenant, condition or term, without thereby becoming liable to Borrower or any person in possession holding under Borrower.

 
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1.18.            Master Lease.
 
(a)           Mortgagor, each for themselves and not the other, represents and warrants that: (i) to the best of its knowledge, the Master Lease is valid and in full force and effect in accordance with its terms without modification and no default under the Master Lease has occurred and is continuing; and (ii) as of the date hereof, all of the fees, rentals, additional rentals and other charges payable under the Master Lease prior to the date hereof have been paid.
 
(b)           With respect to the Master Lease, the Borrower covenants that :
 
(i) The Borrower shall: (A) promptly pay when due and payable the fees, royalties, rentals, additional rentals and other charges provided for under the terms and provisions of the Master Lease, (B) promptly perform and observe all of the terms, covenants and conditions required to be performed and observed by the Borrower under the Master Lease, within the grace periods provided for in the Master Lease or such lesser grace periods as are provided in this Mortgage, and do all things reasonably necessary to preserve and to keep unimpaired its rights under the Master Lease and the Borrower shall enforce the obligations of the IDA under the Master Lease, to the extent that the Borrower may enjoy all of the rights granted to it under the Master Lease; (C) promptly notify Mortgagee of any default by the Borrower or the IDA in the performance and observance of any of the terms, covenants or conditions on the part of the Borrower or the IDA to be performed or observed under the Master Lease; (D) promptly notify Mortgagee of the receipt by the Borrower of any written default notice from the IDA under the Master Lease pursuant to the provisions thereof and promptly cause a copy of each of such default notice received by the Borrower under the Master Lease to be delivered to Mortgagee; and (E) within fifteen (15) days after written demand from Mortgagee, obtain from the IDA under the Master Lease and deliver to Mortgagee a certificate that the Master Lease is unmodified and in full force -and effect and the date to which the fees, rentals, additional rentals and other charges payable thereunder have been paid and stating whether to the IDA's actual knowledge without inquiry the Borrower is in default in the performance of any covenants, agreements or conditions contained in the Master Lease, and, if so, specifying such defaults.
 
(ii) Borrower shall not, without the prior consent of Mortgagee, terminate, cancel, modify, supplement or surrender or suffer or permit any termination, modification or surrender of the Master Lease and will not subordinate or consent to the subordination of the Master Lease to any mortgage on the IDA's interest in the property demised by the Master Lease. Borrower hereby assigns to Mortgagee, as additional collateral for repayment of the Obligations, all of Borrower's rights and privileges as lessee under the Master Lease to terminate, cancel, surrender, modify, change, supplement, extend, renew or amend the Master Lease and any such termination, cancellation, surrender, modification, change, supplement, extension, renewal, or amendment of the Master Lease without the prior written consent of Mortgagee shall, at Mortgagee's option, be void and of no force and effect.
 
(iii) If Borrower shall fail to comply fully with any of its obligations under the Master Lease, and that failure in any manner threatens to impair Mortgagee's security under this Mortgage, Mortgagee may, at its option but without any obligation to do so, upon notice to Borrower take any action necessary or desirable to cure any such failure by Borrower in the performance of any of the terms, covenants and conditions of the Master Lease, Mortgagee being authorized to enter upon the Mortgaged Property for such purposes provided, that, any payment made or act done by Mortgagee to cure such failure shall not constitute an assumption of the Master Lease or any of the obligations of Mortgagor or any other person thereunder or otherwise. Borrower shall, immediately on demand, pay to Mortgagee all costs of Mortgagee incurred in curing any such default, together with all interest on such costs from the date of expenditure at the then highest rate being charged on any of the Obligations.

 
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(iv) The provisions hereof shall be deemed to be obligations of the Borrower in addition to the Borrower's obligations as lessee with respect to similar matters contained in the Master Lease; provided, however, the inclusion herein of any covenants and agreements relating to similar matters as to which the Borrower is obligated under the Master Lease shall not restrict or limit the Borrower's duties and obligations to keep and perform when due all its covenants, agreements and obligations as lessee under the Master Lease, and nothing in this Mortgage shall be construed as requiring the Borrower or Mortgagee to take or omit to take any action which would cause a default under the Master Lease.
 
(c) There shall be no merger of the Master Lease or any interest therein nor of the leasehold estate or other estate created thereby with the fee estate to the Mortgaged Property or any portion thereof by reason of the fact that the Master Lease or any interest therein or the leasehold or other estate thereunder may be held directly or indirectly by or for the account of any person who also holds the fee estate to the Mortgaged Property or a portion thereof or any interest therein. In case the Borrower acquires the fee title or any other estate, title or interest to the Mortgaged Property, whether pursuant to the purchase option contained in the Master Lease or otherwise, this Mortgage shall attach to and over and be a lien upon the fee title of such other estate so acquired, and such fee title or other estate shall, without further assignment., mortgage or conveyance, become and be subject to the lien -of and covered by this Mortgage. The Borrower shall notify Mortgagee of any such acquisition by the Borrower and, on written request by Mortgagee, and, at the Borrower's sole cost and expense, shall cause to be executed and recorded all such other and further assurances or other instruments in writing as may in the opinion of Mortgagee be required to carry out the intent and meaning hereof and shall provide a title insurance policy which shall insure that the lien of this Mortgage is a lien on the Borrower's interest in the Mortgaged Property subject only to the Permitted Encumbrances.
 
(d)           Borrower shall, at least thee (3) months prior to the last day upon which Borrower may validly exercise any option to renew or extend the term of the Master Lease: (i) exercise such option in such manner as will cause the term of the Master Lease to be effectively renewed or extended for the period provided by such option; and (ii) give immediate written notice thereof to Mortgagee; provided that in the event of failure of Borrower to do so, Mortgagee shall have, and is hereby granted, the irrevocable right to exercise any such option, whether in its own name and behalf, or in the name and behalf of a designee or nominee of Mortgagee or in the name and behalf of Borrower, as Mortgagee shall in its sole discretion determine.
 
(e)           The Borrower agrees:
 
(i) that it shall exercise its purchase option under the Master Lease prior to allowing the IDA thereunder (or any other party) to exercise any right it may have to take possession of the Mortgaged Property or any part thereof; and
 
(ii) that it shall, upon the request of Mortgagee, use reasonable efforts to amend the Master Lease in respects material to the interests of Mortgagee hereunder, as the same shall be reasonably determined from time to time by Mortgagee.
 
 
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Without limiting the generality of this Section 1.18(e), if the Borrower fails to comply with clause (i) above, Mortgagee shall have, and is hereby granted by Borrower, the irrevocable right to exercise any purchase option under the Master Lease, whether in its own name and behalf, or in the name and behalf of a designee or nominee of Mortgagee or in the name or behalf of the Borrower, as Mortgagee shall in its discretion determine.
 
(f)           The IDA covenants and agrees not to take any enforcement action under the Master Lease which interferes with any enforcement action taken by the Mortgagee under this Mortgage; provided, however, nothing shall prevent the IDA from taking any action under the Master Lease to terminate the Master Lease and reconvey the Mortgaged Property to the Borrower.
 
1.19.            The IDA's Bankruptcy.
 
(a) The Borrower hereby unconditionally assigns, transfers and sets over to Mortgagee all of the Borrower's claims and rights to the payment of damages arising from any rejection by the IDA of the Master Lease under the provisions of the 11 U.S.C. §101 et seq. (as in effect as of the date hereof and as amended from time to time, the “Bankruptcy Code”). Mortgagee shall have the right, at its option, to proceed in its own name or in the name of the Borrower in respect of any claim, suit, action or proceeding relating to the rejection of the Master Lease, including, without limitation, the right to file and prosecute, to the exclusion of the Borrower, any proofs of claim, complaints, motions, applications, notices and other documents, in any case in respect of the IDA under the Bankruptcy Code. This assignment constitutes a present, irrevocable and unconditional assignment of the foregoing claims, rights and remedies, and shall continue in effect until all of the Obligations secured by this Mortgage shall have been satisfied and discharged in full. Any amounts received by Mortgagee as damages arising out of the rejection of the Master Lease as aforesaid shall be applied to the Obligations in such order and manner as Mortgagee shall determine.
 
(b)           The Borrower shall not, without Mortgagee's prior written consent, elect to treat the Master Lease as terminated under Section 365(h)(l)(A) of the Bankruptcy Code. Any such election made without Mortgagee's prior written consent shall be void.
 
(c)           If pursuant to Section 365(h)(l)(A) of the Bankruptcy Code, the Borrower seeks to offset against the rent provided for in the Master Lease the amount of any damages caused by the non-performance by the IDA of any of the IDA's obligations under the Master Lease after the rejection by the IDA of the Master Lease under the Bankruptcy Code, the Borrower shall, prior to effecting such offset, notify Mortgagee of its intention to do so, setting forth the amount proposed to be offset and the basis therefor. Mortgagee shall have the right to object to all or any part of such offset, and, in the event of such objection, the Borrower shall not effect any offset of the amounts so objected to by Mortgagee. If Mortgagee has failed to object as aforesaid within ten (10) days after notice from the Borrower in accordance with the first sentence of this Section 1.18(c), the Borrower may proceed to effect such offset in the amounts set forth in the Borrower's notice.  Neither Mortgagee's failure to object as aforesaid nor any objection or other communication between Mortgagee and the Borrower relating to such offset shall constitute an approval of any such offset by Mortgagee. The Borrower shall indemnify and save Mortgagee harmless from and against any all claims, demands, actions, suits, proceedings, damages, losses, costs and expenses of every nature whatsoever (including, without limitation, attorneys' fees and legal expenses) arising from or relating to any such offset by the Borrower against the rent provided for in the Master Lease.

 
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(d)            If any action, proceeding, motion or notice shall be commenced or filed with respect to the Borrower or the Mortgaged Property in connection with any case under the Bankruptcy Code, Mortgagee shall have the option, to the exclusion of the Borrower, exercisable upon notice from Mortgagee to the Borrower, to conduct and control any such litigation with counsel of Mortgagee's choice.  Mortgagee may proceed in its own name or in the name of the Borrower in connection with any such litigation, and the Borrower agrees to execute any and all powers, authorizations, consents and other documents required by Mortgagee in connection therewith.  The Borrower shall pay to Mortgagee all costs and expenses (including, without limitation, attorneys' fees and legal expenses) paid or incurred by Mortgagee in connection with the prosecution or conduct of any such proceedings within five (5) days after notice from Mortgagee setting forth such costs and expenses in reasonable detail.  Any such costs or expenses not paid by the Borrower as aforesaid shall be secured by the lien of this Mortgage and shall be added to the Obligations.  The Borrower shall not commence any action, suit, proceeding or case, or file any application or make any motion, with respect to the Master Lease in any such case under the Bankruptcy Code without the prior written consent of Mortgagee.
 
(e) The Borrower shall promptly, after obtaining knowledge thereof, notify Mortgagee orally of any filing by or against the IDA of a petition under the Bankruptcy Code. The Borrower shall thereafter forthwith give written notice of such filing to Mortgagee, setting forth any information available to the Borrower as to notice of such filing to Mortgagee, the court in which such petition was filed, and the relief sought therein. The Borrower shall promptly deliver to Mortgagee following receipt any and all notices, summonses, pleadings, applications and other documents received by the Borrower in connection with any such petition and any proceedings relating thereto.
 
1.20.            The Borrower's Bankruptcy.
 
(a)           If there shall be filed by or against the Borrower a petition under the Bankruptcy Code, and the Borrower, as the tenant under the Master Lease, shall determine to reject the Master Lease pursuant to Section 365(a) of the Bankruptcy Code, then the Borrower shall give Mortgagee not less than ten (10) days' prior notice of the date on which the Borrower shall apply to the Bankruptcy Court for authority to reject the Master Lease.   Mortgagee shall have the right, but not the obligation, to serve upon the Borrower within such ten (10) day period a notice stating that (i) Mortgagee demands that the Borrower assume and assign the Master Lease to Mortgagee pursuant to Section 365 of the Bankruptcy Code and (ii) Mortgagee covenants to cure or provide adequate assurance of prompt cure of all defaults and provide adequate assurance of future performance under the Master Lease. If Mortgagee serves upon the Borrower the notice described in the preceding sentence, the Borrower shall not seek to reject the Master Lease and shall comply with the demand provided for in clause (i) of the preceding sentence within thirty (30) days after the notice shall have been given, subject to the performance by Mortgagee of the covenant provided for in clause (ii) of the preceding sentence.
 
(b)           Effective upon the entry of an order for relief in respect of the Borrower under the Bankruptcy Code, the Borrower hereby assigns and transfers to Mortgagee a non-exclusive right to apply to the Bankruptcy Court under Section 365(d)(4) of the Bankruptcy Code for an order extending the period during which the Master Lease may be rejected or assumed.
 
1.21           Books and Records .  The Borrower will keep and maintain, or will cause to be kept and maintained, on a fiscal year basis in accordance with generally accepted accounting practices consistently applied, proper and accurate books, records and accounts reflecting all of the financial affairs of the Borrower and all items of income and expense in connection with the operation of the Mortgaged Property or in connection with any services, equipment or furnishings provided in connection with the operation of the Mortgaged Property, whether such income or expense be realized by the Borrower or by any other person whatsoever, excepting lessees unrelated to and unaffiliated with the Borrower who have leased from the Borrower portions of the Mortgaged Property for the purpose of occupying the same.  The Mortgagee shall have the right from time to time on reasonable notice to Borrower to examine such books, records and accounts during normal business hours at the office of the Borrower or other person maintaining such books, records and accounts and to make copies or extracts thereof as the Mortgagee shall desire.

 
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ARTICLE TWO
 
DEFAULTS

2.1.            The Obligations shall become due at the option of the Mortgagee upon the occurrence of any one or more of the following events (each herein referred to as an “Event of Default”):

(a)           if any portion of the Obligations is not paid when due;

(b)           if the Borrower shall fail to pay, within twenty (20) days of notice and demand by the Mortgagee, any installment of any assessment against the Mortgaged Property for local improvements heretofore or hereafter laid, which assessment is or may become payable in annual or periodic installments and is or may become a lien on the Mortgaged Property;

(c)           if any Federal tax lien is filed against the Borrower, any Guarantor (defined below) or the Mortgaged Property and the same is not discharged of record within thirty (30) days after the same is filed;

(d)           if, without the consent of the Mortgagee (which consent in any and all circumstances may be withheld in the sole and absolute discretion of the Mortgagee), any part of the Mortgaged Property or any interest of any nature whatsoever therein or any interest of any nature whatsoever in the Borrower or any Guarantor (whether partnership, stock, equity, beneficial, profit, loss or otherwise) is in any manner, by operation of law or otherwise, whether directly or indirectly, further encumbered, sold, transferred, assigned or conveyed, and irrespective of whether any such further encumbrance, sale, transfer, assignment or conveyance is voluntary, by reason or operation of law or is otherwise made;

(e)           if, without the consent of the Mortgagee, any Improvement is removed, demolished or materially altered, or if the Mortgaged Property is not kept in good condition and repair;

(f)           if the Borrower shall fail to comply with any requirement or order or notice of violation of law or ordinance issued by any governmental department claiming jurisdiction over the Mortgaged Property within three (3) months from the issuance thereof, or the time period set forth therein, whichever is less;
 
 
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(g)           if the Borrower shall be in default with respect to its obligations under Section 1.10 of this Mortgage beyond any applicable grace period and/or after the giving of any applicable notice as stated in Section 1.10;

(h)           if the insurance policies required hereunder are not kept in full force and effect, or are not delivered to the Mortgagee upon request;

(i)           if on application of the Borrower two or more fire insurance companies lawfully doing business in the State of New York refuse to issue the insurance policies required hereunder;

(j)           if the Borrower shall fail to pay the Mortgagee on demand for all Taxes or Charges paid by the Mortgagee pursuant to this Mortgage, together with any late payment charge and interest thereon calculated at the Default Rate;

(k)           if, without the consent of the Mortgagee, any Leases are made, canceled or modified in violation of Section 7 above, or if any portion of the Rents is paid for a period of more than two (2) months in advance, or if any of the Rents are further assigned;

(l)           if any representation or warranty of the Borrower, or and any other person or entity (collectively herein referred to as a “Guarantor”) guaranteeing payment of the Obligations or any portion thereof, or guaranteeing performance by the Borrower of any of the terms of this Mortgage made herein or in any such guaranty (the “Guaranty”), or in any certificate, report, financial statement or other instrument furnished in connection with the making of the Note, this Mortgage, or any such Guaranty, shall prove false or misleading in any material respect;

(m)           if the Mortgagor or any Guarantor shall make an assignment for the benefit of creditors;

(n)           if a court of competent jurisdiction enters a decree or order for relief with respect to the Mortgagor or any Guarantor under Title 11 of the United States Code as now constituted or hereafter amended, or under any other applicable Federal or state bankruptcy law or other similar law, or if such court enters a decree or order appointing a receiver, liquidator, assignee, trustee, sequestrator (or similar official) of the Mortgagor or any Guarantor, or of any substantial part of their respective properties, or if such court decrees or orders the winding up or liquidation of the affairs of the Mortgagor or any Guarantor;

(o)           if the Mortgagor or any Guarantor files a petition or answer or consent seeking relief under the Bankruptcy Code as now constituted or hereafter amended, or under any other applicable Federal or state bankruptcy law or other similar law, or if the Mortgagor or any Guarantor consents to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Mortgagor or any Guarantor, or of any substantial part of their respective properties, or if the Mortgagor or any Guarantor fails generally to pay their respective debts as such debts become due, or if the Mortgagor or any Guarantor takes any action in furtherance of any action described in this subparagraph;
 
 
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(p)           if the Mortgagor or any Guarantor shall be in default beyond any applicable grace period under the Note, or under any other mortgage, instrument or document evidencing, securing or guaranteeing payment of the Obligations, in whole or in part, or otherwise executed and delivered in connection with the Note, this Mortgage or the loan evidenced and secured thereby;

(q)           if the Mortgagor or any Guarantor shall be in default under any mortgage or deed of trust covering any part of the Mortgaged Property whether superior or inferior in lien to this Mortgage, and including, without limitation, any such mortgage or deed of trust now or hereafter held by the Mortgagee, or if the Borrower shall be in default beyond the expiration of any applicable notice and/or grace period therein expressly provided in respect of any other obligations, indebtedness and liabilities owed by the Borrower to the Mortgagee, including, but not limited to, any guarantees executed by the Borrower in favor of the Mortgagee, all bank services provided to the Borrower, such as commercial credit cards, stored value cards and treasury management services (including, without limitation, controlled disbursement, automated clearinghouse transactions, return items, overdrafts and interstate depository network services);

(r)           if the Mortgaged Property shall become subject (i) to any tax lien, other than a lien for local real estate taxes and assessments not due and payable, or (ii) to any lis pendens, notice of pendency, stop order, notice of intention to file mechanic’s or materialman’s lien, mechanic’s or materialman’s lien or other lien of any nature whatsoever, and the same shall not either be discharged of record or in the alternative insured over to the satisfaction of the Mortgagee by the title company insuring the lien of this Mortgage within a period of sixty (60) days after the same is filed or recorded, and irrespective of whether the same is superior or subordinate in lien or other priority to the lien of this Mortgage and irrespective of whether the same constitutes a perfected or inchoate lien or encumbered on the Mortgaged Property or is only a matter of record or notice;

(s)            if the Mortgagor shall continue to be in default under any of the other terms, covenants or conditions of this Mortgage for ten (10)   days after notice from the Mortgagee, in the case of any default which can be cured by the payment of a sum of money, or for twenty (20) days after notice from the Mortgagee in the case of any other default, provided that if such default cannot reasonably be cured within such twenty (20)   day period and the Mortgagor shall have commenced to cure such default within such twenty (20)   day period and thereafter diligently and expeditiously proceeds to cure the same, such twenty (20)   day period shall be extended for so long as it shall require the Mortgagor in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of sixty (60) days;

(t)           the occurrence or existence of any default, event of default or other similar condition or event (however described) with respect to any Rate Management Transactions;
 
 
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(u)           if any Guarantor shall be in default beyond any applicable grace period under any Guaranty;

(v)           if the Borrower or any Guarantor shall be in default beyond any applicable grace period under any other note, mortgage, agreement, obligation or instrument between the Borrower or any Guarantor and the Mortgagee or any affiliate or subsidiary of the Mortgagee;

(w)           if the Borrower shall incur any judgments in excess of $50,000 which are not otherwise covered by insurance which are not discharged or bonded within thirty (30) days;

(x)           if the Borrower or any Guarantor shall fail to occupy at least (100%) percent of the Improvements throughout the term of this Mortgage;

(y)           if the Borrower or any Guarantor shall, during the term of this Mortgage, fail to maintain with the Mortgagee all of its operating accounts, escrow accounts, funding accounts and tenant security accounts;.

(z)           if a default beyond any applicable grace period shall occur under the Master Lease;

(aa)           if a default beyond any applicable grace period shall occur under that certain Credit Agreement dated as of August 5, 2011, between CVD and the Mortgagee; or

(bb)           the failure of Borrower and CVD to close the Exchange Purchase (as defined in Section 5.21 below) in accordance with the terms of the Accommodation Agreement prior to the date which is six (6) months from the date hereof and otherwise in accordance with the terms of the Accommodation Agreement and this Mortgage or the failure to otherwise comply with the requirements of Section 5.21 below.
 
 
ARTICLE THREE
 
REMEDIES
 
3.1.             Acceleration of Maturity.   If an Event of Default shall have occurred and is continuing, then all of the Obligations shall, at Mortgagee's option, immediately become due and payable without notice or demand, time being of the essence hereof; and no omission on the part of Mortgagee to exercise such option when entitled to do so shall be construed as a waiver of such right.
 
3.2.            Mortgagee's Power of Enforcement.   If an Event of Default shall have occurred and is continuing, Mortgagee may, either with or without entry or taking possession as hereinabove provided or otherwise, and without regard to whether or not the Obligations shall be due and without prejudice to the right of Mortgagee thereafter to bring an action of foreclosure or any other action for any default existing at the time such earlier action was commenced, proceed by any appropriate action or proceeding: (a) to enforce payment of the Obligations or the performance of any term hereof or any other right; (b) to foreclose this Mortgage and/or to sell, as an entirety or in separate lots or parcels, the Mortgaged Property under any power of sale provided by State statute or the judgment or decree of a court or courts of competent jurisdiction; (c) to specifically enforce any provision of this Mortgage; and (d) to pursue any other remedy available to it.  Mortgagee shall take action either by such proceedings or by the exercise of its powers with respect to entry or taking possession, or both, as Mortgagee may determine,
 
 
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3.3.            Mortgagee's Right to Enter and Take Possession, Operate and Apply Income.
 
(a)           If an Event of Default shall have occurred and is continuing, (i) Mortgagor and Borrower upon demand of Mortgagee shall forthwith surrender to Mortgagee the actual possession and if and to the extent permitted by law, Mortgagee itself, or by such officers or agents as it may appoint, may enter upon and take possession of the Mortgaged Property and may exclude Mortgagor, Borrower and their respective agents and employees wholly therefrom and may have joint access with Borrower to the books, papers and accounts of Borrower; and (ii) Borrower will pay monthly in advance to Mortgagee, on Mortgagee's entry into possession, or to any receiver appointed to collect the Rents of the Mortgaged Property, the fair and reasonable rental value for the use and occupation of such part of the Mortgaged Property as may be in possession of Mortgagor, and upon default in any such payment will vacate and surrender possession of such part of the Mortgaged Property to Mortgagee or to such receiver and, in default thereof, Mortgagor may be evicted by summary proceedings or otherwise.
 
(b)           If Mortgagor shall for any reason fail to surrender or deliver the Mortgaged Property or any part thereof after Mortgagee's demand, Mortgagee may obtain a judgment or decree conferring on Mortgagee the right to immediate possession or requiring Mortgagor to deliver immediate possession of all or part of the Mortgaged Property to Mortgagee, to the entry of which judgment or decree Mortgagor hereby specifically consents. Borrower shall pay to Mortgagee, upon demand, all costs and expenses of obtaining such judgment or decree and compensation to Mortgagee, its attorneys and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien of this Mortgage.
 
(c)           Upon every such entering upon or taking of possession, Mortgagee may hold, store, use, operate, manage and control the Mortgaged Property and conduct the business thereof, and, from time to time:
 
(i)             make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personalty and other property;
 
(ii)            insure or keep the Mortgaged Property insured;
 
(iii)            manage and operate the Mortgaged Property and exercise all the rights and powers of Mortgagor in its name or otherwise with respect to the same;
 
(iv)           enter into agreements with others to exercise the powers herein granted Mortgagee, all as Mortgagee from time to time may determine; and Mortgagee may collect and receive all the Rents thereof, including those past due as well as those accruing thereafter; and shall apply the monies so received by Mortgagee in such priority as Mortgagee may determine to (A) the payment of the Obligations; (B) the deposits for taxes and assessments and insurance premiums due; (C) the cost of insurance, taxes, assessments and proper charges upon the Mortgaged Property or any part thereof; (D) the expenses of operating, maintaining, repairing and improving the Mortgaged Property, including, without limitation, renting commissions and rental collection commissions paid to an agent of Mortgagee or of the receiver; and (E) the compensation, expenses and disbursements of the agents, attorneys and other representatives of Mortgagee.

 
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(d) Mortgagee shall surrender possession of the Mortgaged Property to Mortgagor only when all Obligations secured hereby and all amounts under any of the terms of this Mortgage shall have been indefeasibly paid in full and all defaults made good. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and is continuing.
 
3.4.            Purposely Deleted.
 
3.5.             Leases.   Mortgagee, at its option, is authorized to foreclose this Mortgage subject to the rights of any tenants of the Mortgaged Property, and the failure to make any such tenants parties defendant to any such foreclosure proceedings and to foreclose their rights will not be, nor be asserted by Mortgagor to be, a defense to any proceedings instituted by Mortgagee to collect the sums secured hereby or to collect any deficiency remaining unpaid after the foreclosure sale of the Mortgaged Property.
 
3.6.            Purchase by Mortgagee.   Upon any such foreclosure sale, Mortgagee may bid for and purchase the Mortgaged Property and, upon compliance with the terms of sale, may hold, retain and possess and dispose of the Mortgaged Property in its own absolute right without further accountability.
 
3.7.             Application of Obligations Toward Purchase Price.   Upon any such foreclosure sale, Mortgagee may, if permitted by law, and after allowing for costs and expenses of the sale, compensation and other charges, in paying the purchase price, apply any portion or all of the Obligations due under the Loan Documents, in lieu of cash, to the amount which shall, upon distribution of the net proceeds of such sale, be payable thereon, to the extent of the purchase price,
 
3.8.            Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws. Mortgagor agrees to the full extent permitted by law that in case of a default in its part hereunder, neither Mortgagor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, valuation, extension or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereat, and Mortgagor, for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets comprising the Mortgaged Property marshalled upon any foreclosure of the lien hereof and agrees that the Mortgagee or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property in part or as an entirety.
 
3.9.            Receiver.   If an Event of Default shall have occurred and is continuing, Mortgagee to the extent permitted by law and without regard to the value or adequacy of the security for the Obligations secured hereby, shall be entitled as a matter of right if it so elects and without notice to Mortgagor to the appointment of a receiver to enter upon and take possession of the Mortgaged Property and to collect all Rents thereof and apply the same as the court may direct.  The expenses, including receiver's fees, reasonable attorneys' fees, costs and agent's compensation, incurred pursuant to the powers herein contained shall be secured by this Mortgage.  The right to enter and take possession of and to manage and operate the Mortgaged Property and to collect all Rents thereof, whether by a receiver or otherwise, shall be cumulative to any other right or remedy hereunder or afforded by law and may be exercised concurrently therewith or independently thereof.   Mortgagee shall be liable to account only for such Rents actually received by Mortgagee, whether received pursuant to this Paragraph or Paragraph 3.3. Notwithstanding the appointment of any receiver or other custodian, Mortgagee, shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Mortgage to, Mortgagee.
 
 
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3.10.            Suits to Protect the Mortgaged Property.   Mortgagee shall have the power and authority to institute and maintain any suits and proceedings as Mortgagee may deem advisable (a) to prevent any impairment of the Mortgaged Property by any acts which may be unlawful or in violation of this Mortgage, (b) to preserve or protect its interest in the Mortgaged Property, and (c) to restrain the enforcement of or compliance with any legislation or other government enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to the interest of Mortgagee.
 
3.11.            Application of Monies by Mortgagee.
 
(a) Upon the occurrence and continuance of an Event of Default, Mortgagee shall be entitled to sue for and to recover judgment against Borrower for the whole amount of the Obligations due and unpaid together with costs and expenses, including without limitation, the compensation, expenses and disbursements of Mortgagee's agents, attorneys and other representatives, either before, after or during the pendency of any proceedings for the enforcement of this Mortgage, and the right of Mortgagee to recover such judgment shall not be affected by any taking possession or foreclosure sale hereunder, or by the exercise of any other right, power or remedy for the enforcement of the terms of this Mortgage, or the foreclosure of the lien hereof.
 
(b)           In case of a foreclosure sale of all or any part of the Mortgaged Property and the application for the proceeds of sale to the payment of the Obligations secured hereby, Mortgagee shall be entitled to enforce payment from Borrower of all Obligations then remaining due and unpaid and to recover judgment against Borrower for any portion thereof remaining unpaid, with interest.
 
(c)           Borrower hereby agrees, to the extent permitted by law, that no recovery of any such judgment by Mortgagee and no attachment or levy of any execution upon any of the Mortgaged Property or any other property shall in any way affect the lien of this Mortgage upon the Mortgaged Property or any part thereof or any lien, rights, powers or remedies of Mortgagee hereunder, but such lien, rights, powers or remedies shall continue unimpaired as before.
 
(d)           Any monies collected or received by Mortgagee under this Paragraph 3.11 shall be applied to the payment of compensation, expenses and disbursements of the agents, attorneys and other representatives of Mortgagee, and the balance remaining shall be applied to the payment of the Obligations secured hereby in such order and priority as Mortgagee elects.
 
(e)           The provisions of this Paragraph shall not be deemed to limit or otherwise modify the provisions of any guaranty of the Obligations of Borrower to Mortgagee.
 
 
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3.12.            Delay or Omission; No Waiver. No delay or omission of Mortgagee to exercise any right, power or remedy accruing upon any Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to waive any such Event of Default or to constitute acquiescence therein. Every right, power and remedy given to Mortgagee may be exercised from time to time and as often as may be deemed expedient by Mortgagee.
 
3.13.            No Waiver of One Default to Affect Another.   No waiver of any Event of Default hereunder shall extend to or affect any subsequent or any other Event of Default then existing, or impair any rights, powers or remedies consequent thereon. If Mortgagee (a) grants forbearance or an extension of time for the payment of any Obligations secured hereby; (b) takes other or additional security for the payment thereof; (c) waives or does not exercise any right granted in the Loan Documents; (d) releases any part of the Mortgaged Property from the lien of this Mortgage; (e) consents to the filing of any map, plat or replat of the Land; (f) consents to the granting of any easement on the Land; or (g) makes or consents to any agreement changing the terms of this Mortgage or subordinating the lien or any charge hereof, no such act or omission shall release, discharge, modify, change or affect the Obligations of Borrower or any other party liable for payment or performance of the Obligations.  No such act or omission shall preclude Mortgagee from exercising any right, power or privilege herein granted or intended to be granted in case of any Event of Default then existing or of any subsequent Event of Default nor shall the lien of this Mortgage be altered hereby, except to the extent of releases as described in Subparagraph (d) above of this Paragraph 3.13.
 
3.14.            Discontinuance of Proceedings; Position of Parties Restored.   If the Mortgagee shall have proceeded to enforce any right or remedy under this Mortgage by foreclosure, entry or otherwise and such proceedings shall have been discontinued or abandoned for any reason, or such proceedings shall have resulted in a final determination adverse to Mortgagee, then and in every such case Mortgagor and Mortgagee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Mortgagee shall continue as if no such proceedings had occurred or had been taken.
 
3.15.            Remedies Cumulative.   No right, power or remedy conferred upon or reserved to Mortgagee by the Loan Documents is exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given under the Loan Documents, or now or hereafter existing at law, in equity or by statute.
 
3.16.            Defeasance.   If Borrower shall pay or cause to be paid the Obligations secured hereby in accordance with the terms thereof, and shall comply with all the terms, conditions and requirements of the Note, this Mortgage and the other Loan Documents and, then upon complete and indefeasible payment and satisfaction thereof, this Mortgage shall be released by Mortgagee upon the written request and at the expense of Borrower.
 
3.17.            Foreclosure Solely Against Borrower's Leasehold Estate
 
The Mortgagee may institute proceedings to foreclosure solely against the Borrower's leasehold interest in the Mortgaged Property as if this Mortgage was solely a leasehold mortgage, or simultaneously against such leasehold interest and the IDA's fee simple interest in the Mortgaged Property. The exercise of any such right of foreclosure and sale solely against the Borrowers' leasehold interest in the Mortgaged Property shall not preclude the Mortgagee from thereafter exercising the same or any other right of foreclosure and sale against the IDA's fee simple interest in the Mortgaged Property.

 
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ARTICLE FOUR
 
TRANSFER OR FURTHER ENCUMBRANCE OF THE MORTGAGED PROPERTY
 
4.1. Transfer or Further Encumbrance of the Mortgaged Property.   Except for Borrower's acquisition of fee title to the Mortgaged Property pursuant to the purchase option contained in the Master Lease, in the event (a) of any direct or indirect sale, conveyance, transfer, lease, pledge or further encumbrance of the Mortgaged Property or any interest in or any part of the Mortgaged Property, or (b) any further assignment of Rents from the Mortgaged Property without the prior written consent of Mortgagee, then, at Mortgagee's option, Mortgagee may declare all Obligations of Borrower to be due and payable immediately without demand or notice. Mortgagor agrees that in the event the ownership of the Mortgaged Property or any part thereof becomes vested in a person other than Mortgagor, Mortgagee may, without notice to Mortgagor, deal in any way with such successor or successors in interest with reference to this Mortgage and the Obligations hereby secured without in any way vitiating or discharging Borrower's liability hereunder or under the Loan Documents. No transfer or encumbrance of the Mortgaged Property or any interest therein and no forbearance or assumption by any person with respect to this Mortgage and no extension to any person of the time for payment of the Obligations hereby secured given by Mortgagee shall operate to release, discharge, modify, change or affect the liability of Borrower either in whole or in part, unless Mortgagee specifically agrees in writing to the contrary.
 
ARTICLE FIVE
 
MISCELLANEOUS PROVISIONS
 
5.1            Successors and Assigns Included in Parties. Whenever one of the parties hereto is named or referred to herein, the successors and assigns of such party shall be included and all covenants and agreements contained in this Mortgage, by or on behalf of Mortgagor or Mortgagee shall bind and inure to the benefit of their respective successors and assigns, whether so expressed or not.
 
5.2.            Addresses for Notices, Etc.
 
(a)           All notices, requests and demands hereunder shall be in writing and deemed to have been given or made:  if delivered in person immediately upon delivery; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if by certified mail, return receipt requested, three (3) business days after mailing.   All notices, requests and demands are to be made to Mortgagee and to Borrower at their respective addresses set forth below  (or to such other address as either party may designate by written notice to the other in accordance with this provision):
 
 
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If to Borrower, to:

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

With a copy to:

CVD Equipment Corporation
1860 Smithtown Avenue
Ronkonkoma, New York 11779
Attention:  Martin J. Teitelbaum, Esq., General Counsel
 

If to the IDA, to:

The Town Of Islip Industrial Development Agency
40 Nassau Avenue
Islip, New York 11751
Attention:  Executive Director

With a copy to:

Law Offices of Mark A. Cuthbertson
434 New York Avenue
Huntington, New York 11743
Attention:  Mark A. Cuthbertson, Esq.

If to Mortgagee, to:

HSBC Bank USA, National Association,
534 Broad Hollow Road
Melville, New York 11747
Attention:  Robert J. Caruana, Jr.

With a copy to:

Farrell Fritz, P.C.
1320 RXR Plaza
Uniondale, New York  11556-1320
Attention:   Jodi L. Gladstone, Esq.
 
(b)           Any party may change the address to which any such notice, report, demand or other instrument is to be delivered or mailed, by furnishing written notice of such change to the other parties, but no such notice of change shall be effective unless and until received by such other parties.

 
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5.3.            Headings.   The headings of the articles, sections, paragraphs and subdivisions of this Mortgage are for convenience of reference only, are not to be considered a part hereof, and shall not limit or expand or otherwise affect any of the terms hereof.
 
5.4.            Invalid Provisions to Affect No Others.   In the event that any of the covenants, agreements, terms or provisions contained in the Note, this Mortgage or in the other Loan Documents shall be deemed invalid, illegal or unenforceable in any respect, the validity of the remaining covenants, agreements, terms or provisions contained therein shall be in no way affected, prejudiced or disturbed thereby; and if any application of any term, restriction or covenant to any person or circumstances is deemed illegal or unenforceable, the application of such term, restriction or covenant to other persons and circumstances shall remain unaffected to the extent permitted by law.
 
5.5.            Changes. Etc.   Neither this Mortgage nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by Mortgagor and Mortgagee.  The modification hereof or of any of the other Loan Documents or the release of any part of the Mortgaged Property from the lien hereof shall not impair the priority of the lien of this Mortgage.
 
5.6.            Governing Law.   This Mortgage shall be construed, interpreted, enforced and governed by and in accordance with the laws of the State of New York without regard to the choice of law provisions of such State.
 
5.7.            Construction.   The words “Mortgagor” and “Mortgagee” include singular or plural, individual or corporation, and the respective heirs, executors, administrators, successors and assigns of Mortgagor and Mortgagee, as the case may be.  The use of any gender applies to all genders.
 
5.8.            [Intentionally Omitted .]
 
5.9.            WAIVER OF JURY TRIAL.   MORTGAGOR AND MORTGAGEE EACH HEREBY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS MORTGAGE OR THE OTHER LOAN DOCUMENTS.
 
5.10.            Statement of Obligations.   After request by Mortgagee, Borrower, within ten (10) days and at its expense, will furnish Mortgagee with a statement, duly acknowledged and certified, setting forth the amount of the Obligations and the offsets or defenses thereto, if any.
 
5.11.            Post-Judgment Interest, Rights and Remedies; Non-Merger.   It is the intention of the parties hereto that (a) the interest rates set forth in the Note and any evidence of indebtedness issued pursuant thereto shall survive maturity, acceleration and entry of judgment, and continue to accrue on the outstanding principal balance of the Obligations until such Obligations are paid in full, and (b) the covenants and obligations of the Mortgagor and the rights and remedies of the Mortgagee hereunder and under the Note and any other Loan Document shall not merge with or be extinguished by the entry of judgment hereunder or thereunder and such covenants, obligations, rights and remedies shall survive any entry of judgment and continue until payment in full of the indebtedness secured hereby.

 
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5.12.            Lien Law.   Pursuant to Section 13 of the Lien Law of New York, Borrower shall receive the advances secured hereby, and shall hold the right to receive such advances as. a trust fund to be applied first for the purpose of paying the cost of any improvement and shall apply such advances first to the payment the cost of any such improvement on the Mortgaged Property before using any part of the total of the same for any other purpose.
 
5.13.            Special Additional Mortgage Recording Tax.   This Mortgage does not cover real property improved or to be improved with a structure containing six residential units or less, each dwelling unit having its own special cooking facilities.
 
5.14.            [Intentionally Omitted]
 
5.15.            No Recourse Against the IDA.   The general credit of the IDA is not obligated or available for the payment of this Mortgage.   The Mortgagee will not look to the IDA or any principal, member, director, officer or employee of the IDA with respect to the indebtedness evidenced by this Mortgage or any covenant, stipulation, promise, agreement or obligation contained herein.  In enforcing its rights and remedies under this Mortgage, the Mortgagee will look solely to the Mortgaged Property and/or the Borrower for the payment of the indebtedness secured by this Mortgage and for the performance of the provisions hereof. The Mortgagee will not seek a deficiency or other money judgment against the IDA or any principal, member, director, officer or employee of the IDA and will not institute any separate action against the IDA by reason of any default that may occur in the performance of any of the terms and conditions of this Mortgage or the other Loan Documents.   This agreement on the part of the Mortgagee shall not be construed in any way so as to affect or impair the lien of this Mortgage or the Mortgagee'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 Mortgagee in any foreclosure proceedings or other enforcement of payment of the indebtedness secured hereby out of and from the security given therefor. All covenants, stipulations, promises, agreements and obligations are the IDA's and not of any member, director, officer, employee or agent (except the Borrower) of the IDA in his or her individual capacity, and no recourse shall be had for the payment of the principal of any debt or interest thereon or for any claim based thereon or hereunder against any member, director, officer, employee or agent (except the Borrower) of the IDA or any natural person executing this Mortgage on behalf of the IDA, No covenant contained herein shall be deemed to constitute a debt of the State of New York or of the Town of Islip, Suffolk County, and neither the State of New York nor the Town of Islip, Suffolk County shall be liable on any covenant contained herein, nor shall any obligations hereunder be payable out of any funds of the IDA.
 
5.16.   Hold Harmless Provisions.
 
(a)           The Borrower agrees that the IDA, its directors, members, officers, agents (except the Borrower) and employees shall not be liable for and agrees to defend, indemnify, release and hold the IDA, its director, 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 Mortgaged Property or arising by reason of or in connection with the use thereof or under this Mortgage, or (ii) liability arising from or expense incurred by the  IDA's  acquiring,  constructing and  equipping,  installing,  owning  and  leasing of the Mortgaged Property, 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 (whether by reason of third party claims or by reason of the enforcement of any provision of this Mortgage) and any other expenses incurred in defending any claims, suits or actions which may arise as a result of the foregoing, provided that any such losses, damages, liabilities or expenses of the IDA are not incurred or do not result from the gross negligence or intentional or willful wrongdoing of the IDA 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 IDA, 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, and upon the application of such prohibition by the final judgment or decision of a competent court of law, the remaining provisions of these indemnities shall remain in full force and effect,
 
 
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(b)           Notwithstanding any other provisions of this Mortgage, the obligations of the Borrower pursuant to this section shall remain in full force and effect after the termination of this Mortgage 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 IDA, 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 IDA 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.

5.17.            Recordation of Mortgage.   The IDA covenants that it will record or cause this Mortgage to be duly recorded.

5.18.             Rate Management Transaction Agreements .  (a) The parties hereto agree that all sums that may or shall become due and payable by the Borrower   to the Mortgagee in accordance with the Rate Management Transaction Agreements entered into or to be entered into between the Borrower and the Mortgagee as the same may be modified or amended, shall be deemed to constitute additional interest on the indebtedness represented by, and shall be evidenced by, the Note, shall be secured by this Mortgage and the other collateral and shall constitute part of the Obligations.  The lien of this Mortgage, insofar as it secures payment of sums that may or shall become due and payable by the Borrower to the Mortgagee in accordance with the Rate Management Transaction Agreements, is and shall continue to be subordinate in lien to the lien of this Mortgage insofar as it secures the payment of the balance of the Indebtedness.  The parties hereto agree that, if the Note shall be declared to be immediately due and payable as the result of an occurrence of an Event of Default or because of a default under the Rate Management Transaction Agreements, or if the Note is not paid in full at maturity, then all sums that become available to the Mortgagee as the result of the foreclosure of this Mortgage shall not be applied to sums due under the Rate Management Transaction Agreements until such time as the balance of the Debt shall be paid in full. The terms, covenants and conditions of the Rate Management Transaction Agreements are incorporated herein by this reference with the same effect as if the same were fully set forth in this Mortgage.
 
 
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(b)           “Rate Management Transaction” means (i) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between Borrower and Mortgagee and/or its affiliates which is a rate swap, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap, floor, collar, currency swap, cross-currency rate swap, currency option, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, weather index transaction or forward purchase or sale of a security, commodity or other financial instrument or interest (including an option with respect to any of these transactions), or (ii) any type of transaction that is similar to any transaction referred to in clause (i) above that is currently, or in the future becomes, recurrently entered into in the financial markets and which is a forward, swap, future, option or other derivative on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt instruments, economic indices or measures of economic risk or value, or other benchmarks against which payments or deliveries are to be made, or any combination of the foregoing transactions.

(d)           “Rate Management Transaction Agreements” means any agreement between the Borrower and the Mortgagee with respect to any Rate Management Transaction.

Section 5.19                        No Recourse Against FAE Holdings 411519R, LLC .   Notwithstanding anything to the contrary in this Mortgage, the Note, or any of the other Loan Documents, by acceptance of this instrument, Mortgagee hereby waives any right to obtain a money judgment or equitable relief against FAE Holdings 411519R, LLCand any and all members, shareholders, partners and employees of FAE Holdings 411519R, LLC, whether by an action brought upon this document or any other 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 Mortgaged Property, including policies of hazard insurance on the Mortgaged Property and any proceeds thereof and any award of damages on account of condemnation for public use of the Mortgaged Property, Mortgagee agreeing to look solely to FAE Holdings 411519R, LLC’s interest in the Mortgaged 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 Loan Document.  THE PROVISIONS OF THIS SECTION 5.19 SHALL BE APPLICABLE ONLY UNTIL, AND SHALL BE DEEMED DELETED FROM THIS MORTGAGE 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 MASTER LEASE, THE NOTE THE MORTGAGE AND THE OTHER LOAN DOCUMENTS PURSUANT TO THE TERMS OF THE ACCOMMODATION AGREEMENT OR OTHERWISE.
 
 
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PURSUANT TO THE TERMS OF THE ACCOMMODATION AGREEMENT OR OTHERWISE.

Section 5.20                       Subordination of Lease Agreement and Sublease .  Each of the Mortgagor and the Borrower agree that the Master Lease and the rights of each of the Borrower and the Mortgagor thereunder are now and shall at all times continue to be subject and subordinate to the lien of this Mortgage.  Each of the Borrower and CVD agree that the Sublease and the rights of each of the Borrower and CVD thereunder are now and shall at all times continue to be subject and subordinate to the lien of this Mortgage.

Section 5.21                       Exchange Transaction .  The Borrower has entered into the Master Lease with the Mortgagor in order to effectuate a reverse like-kind exchange under Section 1031 of the Internal Revenue Code and Revenue Procedure 2000-37, 2002-2 C.B. 308 being conducted at the request of and on behalf of CVD, as exchangor.  This arrangement is described in the Accommodation Agreement, pursuant to which the Borrower and CVD have certain rights and obligations to complete the (a) transfer of the membership interests in the Borrower to CVD or (b) the assignment and assumption of the tenant’s interest under the Master Lease from Borrower to CVD during the Parking Period (the “Exchange Purchase”).  In order to qualify for “like kind” treatment under Revenue Procedure 222-37, the disposition of the relinquished property and closing of the Exchange Purchase must occur on or before 180 days following the closing of the transactions contemplated by the Accommodation Agreement (the “Parking Period”).  Notwithstanding anything to the contrary set forth in this Mortgage or in the other Loan Documents, the Mortgagee hereby consents to the Exchange Purchase pursuant to the terms of the Accommodation Agreement, subject to the following conditions:

 
(a)
The closing of the Exchange Purchase pursuant to the terms of the Accommodation Agreement (the “Exchange Closing”) shall occur not later than six (6) months from the date hereof; and

 
(c)
if the Exchange Purchase is completed by the assignment and assumption of the tenant’s interest under the Master Lease from Borrower to CVD rather than the transfer of the membership interests in the Borrower to CVD, then CVD shall satisfy the following conditions:

 
(i)
CVD shall have duly executed and delivered an assumption agreement in form and substance satisfactory to the Mortgagee (the “Mortgage and Note Assumption Agreement ) pursuant to which CVD shall assume, on a fully recourse basis , the obligations of the Mortgagor hereunder, under the Note and under all of the Loan Documents and shall reaffirm all of the representations and warranties thereunder;

 
(ii)
CVD shall have delivered to the Mortgagee New York State and local UCC, judgment, lien, bankruptcy and patriot act searches against CVD, and any other searches and informational deliveries reasonably requested by CVD or its counsel, dated within 30 days of the Exchange Closing all of which shall be satisfactory to Mortgagee’s counsel;
 
 
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(iii)
CVD shall have caused to be delivered to the Mortgagee an endorsement of the title insurance policy insuring the lien of this Mortgage, satisfactory in form and substance to the Mortgagee and its counsel, which shall evidence the assumption, by CVD, of the leasehold estate in the Premises created pursuant to the Master Lease;

 
(iv)
CVD shall have delivered to the Mortgagee a certificate of resolutions, in form and substance satisfactory to the Mortgagee and its counsel, adopted by CVD’s board of directors, authorizing the transactions contemplated by the Mortgage and Note Assumption Agreement and the Loan Agreement; and

 
(v)
CVD shall have executed and/or delivered any other document or instrument, as may be reasonably requested by the Mortgagee or its counsel to effectuate the foregoing.


 
 
BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK
 
 
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IN WITNESS WHEREOF, Mortgagor and Mortgagee have caused this Mortgage to be duly executed by its duly authorized officers on the date 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


HSBC BANK USA, NATIONAL ASSOCIATION


By:         /s/ Robert Caruana
Name:    Robert Caruana
Title:           


 
CVD Equipment Corporation hereby affirms that all of the representations of the Mortgagor and the Borrower set forth in this Mortgage are true and correct as of the date hereof and agrees to perform all of its obligations under the Accommodation Agreement.  
 

CVD EQUIPMENT CORPORATION


By:            /s/ Glen Charles
Name:  Glen Charles
Title:  Chief Financial Officer
 
 
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STATE OF NEW YORK                     )
) ss.:
COUNTY OF SUFFOLK                     )

On this 15th day of March, 2012, before me, the undersigned notary public, personally appeared Robert Caruana 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.


/s/ Caren Rio Gouskos
Notary Public
My Commission Expires: April 12, 2015


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.


/s/ Kimberly A. Samuels
Notary Public
My Commission Expires: October 15, 2014


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

On this 15th day of March, 2012, before me, the undersigned notary public, personally appeared Glen Charles 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.

/s/ Caren Rio Gouskos
Notary Public
My Commission Expires: April 12, 2015
 
 
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[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
My Commission Expires: August 18, 2012
 
 
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EXHIBIT A

Legal Description
 
 
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EXHIBIT B

Existing Mortgages


Mortgage dated 6/16/2006 granted by SJA Industries LLC and Town of Islip Industrial Development Agency to Sun Life Assurance Company of Canada, in the original principal amount of $9,150,000.00, recorded in the Clerk’s Office for Suffolk County (the “ Clerk’s Office ”) on 6/26/2006 in Liber 21324, Page 658.

Assignment of Mortgage dated 12/29/2009 from Sun Life Assurance Company of Canada to SL Investment PAR Holdings 2008-1, LLC, recorded in the Clerk’s Office on 1/22/2010 in Liber 21910, Page 303.

Assignment of Mortgage dated 3/___/2012 from SL Investment PAR Holdings 2008-1, LLC to HSB Bank USA, National Association, to be recorded in the Clerk’s Office.
 
3
Exhibit 10.7
 
AMENDED AND RESTATED MORTGAGE NOTE

 
$6,000,000.00 Suffolk County, New York
  March 15, 2012

 
THIS AMENDED AND RESTATED MORTGAGE NOTE made as of March 15, 2012, between 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 (the “ Maker ”) and HSBC BANK USA, NATIONAL ASSOCIATION, a national banking association, having an office at 534 Broad Hollow Road, Melville, New York 11747 (the “ Payee ”).


R E C I T A L S

A.            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 (herein defined).

B.           It is a condition of the Exchange that Maker on behalf of CVD, obtain funds sufficient to acquire a leasehold interest in the Premises, for which purpose CVD has applied to Payee for a loan (the “ Loan ”) to the Borrower in the principal sum of $6,000,000.00.

D.           Maker and CVD have entered into a certain Qualified Exchange Accommodation Agreement, dated as of February 9, 2012  (the “ Accommodation Agreement ”) pursuant to which Maker 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 Maker.

E.           Pursuant to the Accommodation Agreement, CVD shall acquire a subleasehold estate in the Premises and, within the six (6) month period following the date hereof either (a) acquire all of the membership interests in Maker from First American Exchange Company, LLC or (b) assume Maker’s leasehold interest in the Premises, and thereupon assume Borrower’s obligations and liabilities hereunder  and under the Mortgage and all Other Security Documents (defined below).

F.           Payee is the present owner and holder of, and Maker is the current obligor under, that certain promissory note (the “ Existing Note ”) in the aggregate unpaid principal amount, as of the date hereof, of $6,000,000.00 (the “ Existing Indebtedness ”), secured by that certain mortgage (the “ Existing Mortgage ”) described on Schedule A attached hereto and made a part hereof.
 
 
 

 

G.            The Existing Mortgage now secures the principal amount of $6,000,000.00.

H.            On the date hereof, Maker and Payee are modifying, amending and restating the Existing Mortgage pursuant to a certain Amended and Restated Fee and Leasehold Mortgage dated as of the date hereof.

I.            Maker and Payee desire to amend and restate in its entirety the Existing Indebtedness evidenced by the Existing Note, all on the terms and conditions provided in this Note as hereinafter set forth, and Maker and Payee have agreed that this Note will constitute a promissory note to evidence the Existing Indebtedness in the principal amount of $6,000,000.00.

J.            Payee and Maker intend these Recitals to be a material part of this Note.

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.            Maker and Payee acknowledge and agree that the Existing Note constitutes a single indebtedness in the principal amount of SIX MILLION AND 00/100 DOLLARS ($6,000,000.00), as evidenced by this Note.

II.            From and after the date hereof, the terms, covenants and provisions of the Existing Note are hereby modified, amended and restated in their entirety so that, henceforth, the terms, covenants and provisions of this Note shall supersede the terms, covenants and provisions of the Existing Note.

III.            Neither this Note nor anything contained herein shall be construed as a substitution or novation of the Existing Indebtedness or of the Existing Note, which shall remain in full force and effect, as hereby confirmed, modified, amended and restated, in its entirety.

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:

FOR VALUE RECEIVED, the Maker hereby promises to pay on March ___, 2022 (the “Maturity Date”), to the order of the Payee at its offices at 534 Broad Hollow Road, Melville, New York 11747, or at such other place as the holder hereof may from time to time designate in writing, in immediately available funds, the principal amount of this Note or so much thereof as shall then be outstanding, together with interest on the principal amount of this Note at the Interest Rate, as hereinafter defined (computed on the basis of a 360 day year for actual days elapsed).  Maker shall make payments of interest monthly in arrears, together with principal payments in 120 consecutive equal monthly installments of $25,000.00 commencing (a) with respect to Variable Rate Advances, on the first day of the month next ensuing and on the first day of each month thereafter and (b) with respect to LIBOR Advances, on the first Banking Day following the expiration of the applicable Interest Period or, at the Bank’s option, on the first day of each month commencing the month following the date of this Note, in each case, through and including the Maturity Date.  T he entire principal balance then remaining unpaid, together with all interest accrued and unpaid thereon calculated in the manner herein set forth and all other sums due under this Note, shall be due and payable on the Maturity Date.   The Payee may charge any account of the Maker for all payments due under this Note.
 
 
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1.              The following terms as used in this Note shall have the following meanings:

(i)           The term “Debt” shall mean all principal, interest, additional interest and other sums of any nature whatsoever which may or shall become due to the Payee in accordance with the provisions of this Note, the Mortgage or Other Security Documents.

(ii)           The term “Loan” shall mean the loan in the principal sum of $6,000,000.00   made by the Payee to the Maker which is evidenced by this Note and secured by the Mortgage and the Other Security Documents.

(iii)           The term “Maker” shall mean CVD Equipment Corporation.

(iv)           The term “Mortgage” shall mean that certain Amended and Restated   Fee and Leasehold Mortgage dated the date hereof in the principal sum of $6,000,000.00   given by The Town of Islip Industrial Development Agency (the “Agency”) and Maker to the Payee covering the fee estate of the Agency and the leasehold estate of the Maker in certain premises located at 355 South Technology Drive, Central Islip, New York in the County of Suffolk which is more particularly described therein, and intended to be duly recorded in said county.

(v)           The term “Note” shall mean this Amended and Restated Note.

(vi)           The term “Other Security Documents” shall mean all and any of the documents, other than this Note or the Mortgage, now or hereafter executed by the Maker or others, and by or in favor of the Payee, which wholly or partially secure or guarantee payment of this Note, or which otherwise pertain to the Loan, including but not limited to the Guaranty executed by each of the Guarantors (as defined in the Mortgage) on the date hereof.

(vii)           The term “Payee” shall mean HSBC Bank USA, National Association, its successors and/or assigns.

(viii)           The term “Principal Balance” shall mean the outstanding principal balance of this Note from time to time.

(ix)           The term “Interest Rate” as used herein shall mean the rate of interest per annum in effect from time to time as set forth on the Interest Rate Election Rider attached hereto and made a part hereof.
 
 
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Notwithstanding anything herein to the contrary, in the event, for any reason, the Maker or any Guarantor (as defined in the Mortgage) does not maintain its primary operating account with the Payee (its successors and/or assigns), including its cash management services, the interest rate shall automatically, and without notice to Maker, increase by one (1%) percent.

2.             In the event that any change in applicable law or regulation, or in the interpretation thereof by any governmental authority charged with the administration thereof, shall impose on or deem applicable to the Payee any reserve requirements against this Note or impose upon the Payee any other costs or assessments, the Maker shall pay to the Payee on demand an amount sufficient to compensate the Payee for the additional cost resulting from the maintenance or imposition of such reserves, costs or assessments.   A certificate as to any additional amounts payable pursuant to this paragraph setting forth the basis and method of determining such amounts shall be conclusive, absent manifest error, as to the determination by the Payee set forth therein if made reasonably and in good faith.  The Maker shall pay any amounts so certified to it by the Payee within ten (10) days of receipt of any such certificate.

3.           This Note is secured by, among other things, the Mortgage, encumbering, among other things, the property more particularly described in the Mortgage, with all of the covenants, conditions and agreements of the Mortgage being made a part hereof by this reference.

It is expressly agreed that, upon the failure of the Maker timely to make any payment due hereunder following the passage of any applicable grace period or upon the happening of any other “Event of Default” under the Mortgage, the principal sum hereof, or so much thereof as may be outstanding, together with accrued interest and all other expenses, payable by Maker under the Mortgage, including, but not limited to, reasonable attorneys’ fees for legal services incurred by the holder hereof in collecting or enforcing payment hereof, whether or not suit is brought, and if suit is brought, then through all appellate actions, shall immediately become due and payable at the option of the holder of the Note, notwithstanding the Maturity Date set forth herein.  Upon the stated or accelerated maturity of this Note, and following any default hereunder or under the Mortgage which continues beyond any applicable grace period, the Maker agrees that this Note shall bear interest at a per annum rate of 5% in excess of the Prime Rate until the principal is fully paid or the default is cured.

4.           Notwithstanding anything to the contrary contained in this Note, the rate of interest payable on this Note shall never exceed the maximum rate of interest permitted under applicable law.  If at any time the rate of interest otherwise prescribed herein shall exceed such maximum rate, and such prescribed rate is thereafter below such maximum rate, the prescribed rate shall be increased to the maximum rate for such period of time as is required so that the total amount of interest received by the Payee is that which would have been received by the Payee, except for the operation of the first sentence hereof.

5.            Should the indebtedness represented by this Note or any part thereof be collected at law or in equity, or in bankruptcy, receivership or any other court proceedings (whether at the trial or appellate level), or should this Note be placed in the hands of attorneys for collection upon default, the Maker agrees to pay, in addition to the principal, premium and interest due and payable hereon, all costs of collection or attempting to collect this Note, including reasonable attorneys’ fees and expenses.
 
 
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6.           Time is of the essence as to all dates set forth herein, provided, however, that whenever any payment to be made under this Note shall be stated to be due on a Saturday, Sunday or a public holiday or the equivalent for banks generally under the laws of the State of New York (any other day being a “Business Day”), such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest; provided, however, that the term “Business Day” shall exclude any day on which dealings in dollar deposits are not carried on in the London interbank eurodollar market and banks are not open for business in London.

7.           It is hereby expressly agreed that the entire Debt shall become immediately due and payable at the option of the Payee on the happening of any default or event by which, under the terms of this Note, the Mortgage or the Other Security Documents, the Debt may or shall become due and payable, and that all of the terms, covenants and provisions contained in the Mortgage and the Other Security Documents which are to be kept and performed by the Maker are hereby made part of this Note to the same extent and with the same force and effect as if they were fully set forth herein.

8.           If any installment of principal, interest, additional interest or other sum payable under this Note is not paid within fifteen (15) days after the date on which it is due, the Maker shall pay to the Payee, upon demand, an amount equal to 5% of such unpaid installment as a late payment charge.

9.           In addition to any late payment charge which may be due under this Note, if the Debt is declared immediately due and payable by the Payee pursuant to the provisions of this Note, the Mortgage or the Other Security Documents, or if the Debt is not paid in full on the Maturity Date, the Maker shall thereafter pay interest on the Principal Balance from the date of such declaration or the Maturity Date, as the case may be, until the date the Principal Balance is paid in full at a rate per annum (calculated on the basis of actual number of days elapsed divided by 360 days) equal to  5% in excess of the Prime Rate; provided, however, that such interest rate shall in no event exceed the maximum interest rate which the Maker may, by law, pay.
 
10.               From and after, the date that CVD acquires all of the membership interests in FAE Holdings 411519R, LLC or assumes the obligations of FAE Holdings 411519R, LLC hereunder pursuant to the terms of the Accommodation Agreement, the Maker shall furnish to the Payee:

(a)           As soon as available and in any event within one hundred twenty (120) days (or such earlier date as may be required by the SEC, from time to time) of the end of the fiscal year of the Maker, (i) the audited consolidated and consolidating financial statements of the Maker and its Subsidiaries (as defined below) which shall include the consolidated and consolidating balance sheet of the Maker and its Subsidiaries as of the end of such fiscal year, together with the consolidated and consolidating statements of income, cash flow and retained earnings for the Maker and its Subsidiaries for such fiscal year and as of the end of and for the prior fiscal year, all prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the respective figures for the previous fiscal year end, and accompanied by an opinion thereon of independent certified public accountants of recognized standing selected by the Maker and satisfactory to the Payee (the “ Auditor ”) which opinion shall not include a going concern explanatory paragraph, or a qualification or exception as to the scope of the audit and (ii) Form 10 K for such fiscal year as filed with the SEC;
 
 
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(b)           as soon as available and in any event within sixty (60) days (or such earlier date as may be required by the SEC, from time to time) after the end of each of the first, second and third quarterly period of each fiscal year of the Maker, a copy of (i) the unaudited consolidated and consolidating financial statements of the Maker and its Subsidiaries, which shall include the unaudited consolidated and consolidating balance sheet of the Maker and its Subsidiaries as of the end of each such quarter, together with the consolidated and consolidating statements of income, cash flow and retained earnings of the Maker and its Subsidiaries for each such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year, all prepared by or under the supervision of the Chief Financial Officer of the Maker in accordance with generally accepted accounting principles applied on a consistent basis and (ii) Form 10 Q for such fiscal quarter as filed with the SEC;
 
(c)           promptly, after filing thereof, copies of all regular and periodic financial information, proxy materials and other information and reports which the Maker or any of its Subsidiaries shall file with the SEC;

(d)           promptly after submission to any government or regulatory agency, all documents and information furnished to such government or regulatory agency other than such documents and information prepared in the normal course of business and which would not reasonably be expected to result in any adverse action to be taken by such agency; and

(e)           promptly, from time to time, such other information regarding the operations, business affairs and condition, financial or otherwise, of the Maker or any of its Subsidiaries as the Payee may reasonably request.
 
(f)           As used herein, the term “Subsidiaries” shall mean with respect to any entity or person, any corporation, association or other business entity more than 50% of the voting stock or other ownership interest of which is at the time owned or controlled, directly or indirectly, by such entity or person or one or more of its Subsidiaries or a combination thereof.

11.           The Maker hereby waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note.  If any payment under this Note is not made when due, the Maker agrees to pay all costs of collection when incurred, including attorneys’ fees (which costs shall be added to the amount due under this Note and shall be receivable therewith).  The Maker agrees to perform and comply with each of the terms, covenants and provisions contained in this Note, the Mortgage and the Other Security Documents on the part of the Maker, or any other party thereto, to be observed or performed.  No release of any security for the payment of this Note or extension of time for payment of this Note, or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Mortgage or the Other Security Documents made by agreement between the Payee and any other person or party, shall release, discharge, modify, change or affect the liability of the Maker under this Note, the Mortgage or the Other Security Documents.
 
 
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12.           This Note is subject to the express condition that at no time shall the Maker be obligated or required to pay interest on the Principal Balance at a rate which could subject the Payee to either civil or criminal liability as a result of being in excess of the maximum rate which the Maker is permitted by law to contract or agree to pay.  If, by the terms of this Note, the Maker is at any time required or obligated to pay interest on the Principal Balance at a rate in excess of such maximum rate, the rate of interest under this Note shall be deemed to be immediately reduced to such maximum rate, and interest payable hereunder shall be computed at such maximum rate, and the portion of all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the Principal Balance.

13.           If the Maker consists of more than one person or party, the obligations and liabilities of each such person or party hereunder shall be joint and several.

14.           This Note is secured by the Mortgage and the Other Security Documents.

15.           This Note is and shall be deemed entered into in the State of New York and shall be governed by and construed in accordance with the laws of the State of New York, and no defense given or allowed by the laws of any state or country shall be interposed in any action or proceeding hereon unless such defense is either given or allowed by the laws of the State of New York.  The Maker acknowledges and agrees that this Note is, and is intended to be, an instrument for the payment of money only, as such phrase is used in §3213 of the Civil Practice Law and Rules of the State of New York, and that the Maker has been fully advised by its counsel of the Payee’s rights and remedies pursuant to said §3213; and the Maker expressly waives any right, and hereby agrees not, to assert that this Note is not such an instrument.

16.           This Note may only be modified, amended, changed or terminated by an agreement in writing signed by the Payee and the Maker.  No waiver of any term, covenant or provision of this Note shall be effective unless given in writing by the Payee and, if so given by the Payee, shall only be effective in the specific instance in which given.

17.           The Maker acknowledges that this Note and the Maker’s obligations under this Note are and shall at all times continue to be absolute 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 Note and the obligations of the Maker under this Note or the obligations of any other person or party relating to this Note or the obligations of the Maker hereunder or otherwise with respect to the Loan.

18.           This Note sets forth the entire agreement and understanding of the Payee and the Maker, and the Maker absolutely, unconditionally and irrevocably waives any and all right to assert any defense, setoff, counterclaim or crossclaim of any nature whatsoever with respect to this Note or the obligations of the Maker under this Note or the obligations of any other person or party relating to this Note or the obligations of the Maker hereunder or otherwise with respect to the Loan in any action or proceeding brought by the Payee to collect the Debt, or any portion thereof, or to enforce, foreclose and realize upon the liens and security interests created by the Mortgage and the Other Security Documents.  The Maker acknowledges that no oral or other agreements, understandings, representations or warranties exist with respect to this Note or with respect to the obligations of the Maker under this Note, except those specifically set forth in this Note.
 
 
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19.           No delay on the part of the Payee in exercising any right or remedy under this Note, the Mortgage or the Other Security Documents, 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 Maker shall be deemed to be a waiver of the obligation of the Maker or of the right of the Payee to take further action without further notice or demand as provided in this Note, the Mortgage and Other Security Documents.

20.           The Maker agrees to submit to personal jurisdiction in the State of New York in any action or proceeding arising out of this Note, and, in furtherance of such agreement, the Maker hereby agrees and consents that, without limiting other methods of obtaining jurisdiction, personal jurisdiction over the Maker in any such action or proceeding may be obtained within or without the jurisdiction of any court located in New York 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 Maker by registered or certified mail to or by personal service at the last known address of the Maker, whether such address be within or without the jurisdiction of any such court.

21.           The Maker (and the undersigned representative of the Maker, if any) represents that the Maker has full power, authority and legal right to execute and deliver this Note and that the debt hereunder constitutes a valid and binding obligation of the Maker.

22.           Whenever used, the singular number shall include the plural, the plural the singular, and the words “Payee” and “Maker” shall include their respective successors and assigns; provided, however, that the Maker shall in no event or under any circumstance have the right, without obtaining the prior written consent of the Payee, to assign or transfer its obligations under this Note, the Mortgage or the Other Security Documents, in whole or in part, to any other person, party or entity.

23.           Any notice, demand or request relating to any matter set forth herein shall be delivered in accordance with the provisions of Section 5.2 of the Mortgage.

24.           The Maker hereby irrevocably and unconditionally waives, any and all right to trial by jury in any action, suit or counterclaim arising in connection with, out of or otherwise relating to the Loan, this Note, the Mortgage or the Other Security Documents.

25.           The general credit of FAE Holdings 411519R, LLC is not obligated or available for the payment of the Debt.  The Payee will not look to FAE Holdings 411519R, LLC or any principal, member, director, officer or employee of FAE Holdings 411519R, LLC with respect to the Debt or any covenant, stipulation, promise, agreement or obligation contained herein.  In enforcing its rights and remedies under this Note, the Payee will look solely to the Premises and/or to the Guarantors (as defined in the Mortgage) for the payment of the Debt and for the performance of the provisions hereof.  The Payee will not seek a deficiency or other money judgment against FAE Holdings 411519R, LLC or any principal, member, director, officer or employee of FAE Holdings 411519R, LLC , and will not institute any separate action against FAE Holdings 411519R, LLC by reason of any default that may occur in the performance of any of the terms and conditions of this Note or the Other Security Documents.  This agreement on the part of the Payee shall not be construed in any way so as to affect or impair the lien of the Mortgage or the Payee’s right to foreclose under the terms of the Mortgage as provided by law or construed in any way so as to limit or restrict any of the rights or remedies of the Payee in any foreclosure proceedings or other enforcement of payment of the Debt out of and from the security given therefor, including, without limitation, any Guaranty (as defined in the Mortgage).  THE PROVISIONS OF THIS PARAGRAPH 25 SHALL BE APPLICABLE ONLY UNTIL, AND SHALL BE DEEMED DELETED FROM THIS NOTE AND OF NO FURTHER FORCE OR EFFECT FROM AND AFTER, THE DATE THAT CVD EQUIPMENT CORPORATION ACQUIRES ALL OF THE MEMBERSHIP INTERESTS IN FAE HOLDINGS 411519R, LLC OR ASSUMES THE OBLIGATIONS OF FAE HOLDINGS 411519R, LLC   UNDER THE LEASE AGREEMENT, THIS NOTE, THE MORTGAGE AND THE OTHER SECURITY DOCUMENTS PURSUANT TO THE TERMS OF THE ACCOMMODATION AGREEMENT OR OTHERWISE.

 
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IN WITNESS WHEREOF, Maker and Payee have duly executed this Note on the day and year first above written.



 
FAE HOLDINGS 411519R, LLC
 

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



HSBC BANK USA, NATIONAL ASSOCIATION


By:           /s/ Robert Caruana
Name:      Robert Caruana
Title:        VP HSBC
 
 
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STATE OF NEW YORK                      )
) ss.:
COUNTY OF                                         )

On the 15th day of March in the year 2012 before me, the undersigned, personally appeared Robert Caruana  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.

/s/ Caren Rio Gouskos
Notary Public




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

 
[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

 
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INTEREST RATE ELECTION RIDER
1.            INTEREST RATE(S); PAYMENTS AND PREPAYMENTS.
 
1.1             Interest Rates .  So long as no Event of Default shall have occurred and be continuing, and subject to the other terms of this Note, the outstanding principal balance shall bear interest at a rate per annum for the Interest Periods (as hereinafter defined) which the Maker selects in accordance with this paragraph and the other provisions of this Note equal to:  (a) One and and Three-Quarters Percent (1.75%) above the LIBOR Rate (as hereinafter defined) for Interest Periods of 30, 90 or 180 days, but not longer than the remainder of the term of this Note (a " LIBOR Advance") ; or (b) a variable rate (the “Variable Rate”) equal to One-Half (0.50%) below the Payee’s Prime Rate (as hereinafter defined) (a “Variable Rate Advance”) (a LIBOR Advance and a Variable Rate Advance may be collectively referred to as an “Advance”).
 
1.2             Rate Selection .  When the Maker desires to select an interest rate, the Maker shall give the Payee prior notice in a form satisfactory to the Payee specifying the effective date thereof (which shall be a Banking Day (as hereinafter defined), the type of interest rate, the amount to which the interest rate shall apply and the duration of the first Interest Period therefor.  With respect to a LIBOR Advance, such notice shall be given three (3) days prior to the conversion date, which shall be the first Banking Day following the expiration of the then applicable Interest Period.  Any such notice shall be irrevocable and shall be subject to other terms and conditions set forth in this Note.  If the Payee does not receive timely notice of a requested LIBOR Advance, the Maker shall, at the Payee's discretion, be deemed to have selected a Variable Rate Advance.   Each LIBOR Advance may only be requested in minimum amounts of $500,000 and each Variable Advance may only be requested in minimum amounts of $100,000, and in either case in increments of One Hundred Thousand Dollars ($100,000.00).   When each interest rate is selected, the Payee shall record on the books and records of the Payee an appropriate notation evidencing such selection, each repayment on account of the principal thereof and the amount of interest paid, and the Maker authorizes the Payee to maintain such records and make such notations and agrees that the amount shown on the books and records as outstanding from time to time shall constitute the amount owing to the Payee pursuant to this Note, absent manifest error.
 
1.3             Payment of Interest .  Interest on all amounts outstanding (except for LIBOR Advances) shall be payable monthly in arrears on the 1st day of each month commencing the month following the date of this Note , and continuing thereafter on the same day of each succeeding month until the principal balance shall be paid in full .  Interest on all LIBOR Advances shall be payable, in arrears, on the first Banking Day following the expiration of the applicable Interest Period or, at the Payee’s option, on the 1st day of each month commencing the month following the date of this Note and on the day LIBOR advances are paid in full .
 
1.4             Interest Periods .   Each Interest Period for a Variable Rate Advance or a LIBOR Advance shall commence on the date selected and shall end on the date the Maker shall elect (except that each Interest Period for a LIBOR Advance shall be 30, 90 or 180 days), in each case as set forth in Paragraph 1.1 hereof; provided, however, that (a) any Interest Period for a LIBOR Advance that would otherwise end on a day which is not a Banking Day shall be extended to the next Banking Day and (b) any Interest Period that would otherwise extend beyond the Maturity Date shall end on the Maturity Date.  There shall be no more than five (5) Interest Periods outstanding at any one time.
 
 
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1.5             Conversion of Outstanding Amounts .  So long as no Event of Default shall have occurred and be continuing, the Maker may (a) on any Banking Day, convert any outstanding Variable Rate Advance to a LIBOR Advance in the same aggregate principal amount, (b) on the date which is three Business Days prior to the last day of the then current Interest Period applicable to a LIBOR Advance, convert such LIBOR Advance to a Variable Rate Advance in the same aggregate principal amount or select a new Interest Period for such LIBOR Advance.  If the Maker desires to convert an advance as set forth in the prior sentence, it shall give the Payee prior notice in a form satisfactory to the Payee, specifying the date of such conversion, the amount to be converted and if the conversion is to a LIBOR Advance, the duration of the Interest Period.
 
1.6             End of Interest Period .  Subject to all of the terms and conditions applicable to a request that a new interest rate selected be a LIBOR Advance, the Maker may elect to continue a LIBOR Advance as of the last day of the applicable Interest Period to a new LIBOR Advance.  If the Maker fails to notify the Payee of the Interest Period for a subsequent LIBOR Advance prior to the last day of the then current Interest Period, then, at the Payee's discretion, such outstanding LIBOR Advance shall become a Variable Rate Advance at the end of the current Interest Period for such outstanding LIBOR Advance and shall accrue interest in accordance with the provisions regarding Variable Rate Advances described herein.
 
1.7             Basis for Determining LIBOR Inadequate or Unfair .  In the event that the Payee shall determine that by reason of circumstances affecting the interbank Eurodollar market, adequate and reasonable means do not exist for determining the LIBOR Rate, or Eurodollar deposits in the relevant amount and for the relevant maturity are not available to the Payee in the interbank Eurodollar market, with respect to a proposed LIBOR Advance or a proposed conversion of any Variable Rate Advance to a LIBOR Advance, the Payee shall give the Maker prompt notice of such determination.  If such notice is given, then:  (a) any requested LIBOR Advance shall be made as a Variable Rate Advance; (b) any advance which was to have been converted to a LIBOR Advance shall be continued as a Variable Rate Advance; and (c) any outstanding LIBOR Advance shall be converted to a Variable Rate Advance on the last Banking Day of the then current Interest Period for such LIBOR Advance.  Until such notice has been withdrawn, the Payee shall have no obligation to make LIBOR Advances or maintain outstanding LIBOR Advances and the Maker shall not have the right to request LIBOR Advances or convert advances to LIBOR Advances.
 
1.8             Illegality of LIBOR Rate .  Notwithstanding any other provision of this Note, if, after the date of this Note, any applicable law, treaty, regulation or directive, or any change therein or in the interpretation or application thereof, shall make it unlawful for the Payee to make or maintain any LIBOR Advance, the obligation of the Payee hereunder to make or maintain such LIBOR Advance shall forthwith be suspended for the duration of such illegality and the Maker shall, if any such LIBOR Advance is outstanding, promptly upon request from the Payee, prepay such LIBOR Advance or convert such LIBOR Advance to a Variable Rate Advance.  If any such payment is made on a day that is not the last Banking Day of the then current Interest Period applicable to such advance, the Maker shall pay the Payee, upon the Payee's request, any amount required under Paragraph 2.10 of this Note.
 
1.9             Termination of Pricing Option .  After the occurrence of an Event of Default, the Maker’s right to select pricing options, if applicable, shall cease, and, if the Maker would, but for the application of the preceding clause, have had the right to elect among interest rate options, notwithstanding anything to the contrary in this Note, interest shall accrue at a rate per annum equal to 5.0% plus the Prime Rate.
 
 
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1.10             Optional Prepayment .
 
 
(a)
The Maker has the right to pay before due the unpaid balance of any Variable Rate Advance or any part thereof (in multiples of $100,000) without penalty or premium, but with accrued interest on the principal being prepaid to the date of such repayment.
 
 
(b)
At its option and upon prior written notice to the Payee, the Maker may prepay any LIBOR Advance in whole or in part (in multiples of $250,000) from time to time without premium or penalty but with accrued interest on the principal being prepaid to the date of such repayment; provided, however, that such LIBOR Advance may only be prepaid on the last Banking Day of the then current Interest Period applicable thereto.
 
 
(c)
In the event that any prepayment of a LIBOR Advance is required or permitted on a date other than the last Banking Day of the then current Interest Period applicable thereto, then so long as this Note has not become due and payable in accordance with its terms, the Maker shall have the right to prepay such LIBOR Advance in whole (but not in part), provided that the Maker shall pay to the Payee concurrently with such prepayment a Yield Maintenance Fee in an amount computed as follows:  The current rate for United States Treasury securities (bills on a discounted basis shall be converted to a bond equivalent) with a maturity date closest to the maturity date of the term chosen pursuant to the Interest Period as to which the prepayment is made, shall be subtracted from the "cost of funds" component of the LIBOR Advance in effect at the time of prepayment.  If the result is zero or a negative number, there shall be no Yield Maintenance Fee payable.  If the result is a positive number, then the resulting percentage shall be multiplied by the amount of the principal balance being prepaid.  The resulting amount shall be divided by 360 and multiplied by the number of days remaining in the term chosen pursuant to the Interest Period as to which the prepayment is made.  Said amount shall be reduced to present value calculated by using the number of days remaining in the designated term and using the above-referenced United States Treasury security rate and the number of days remaining in the designated term chosen pursuant to the Interest Period as to which the prepayment is made.  The resulting amount shall be the Yield Maintenance Fee due to the Payee upon prepayment of the LIBOR Advance.  If this Note shall become due and payable for any reason, then any Yield Maintenance Fee with respect to the Note shall become due and payable in the same manner as though the Maker had exercised its right of prepayment.  The Maker recognizes that the Payee will incur substantial additional costs and expenses including loss of yield and anticipated profitability in the event of prepayment of all or part of this Note and that the Yield Maintenance Fee compensates the Payee for such costs and expenses.  The Maker acknowledges that the Yield Maintenance Fee is bargained-for consideration and not a penalty.
 
 
(d)
All prepayments of any LIBOR Advance shall be applied first to fees and expenses then due hereunder, then to interest on the unpaid principal balance accrued to the date of prepayment and last to the principal balance then due hereunder.
 
 
(e)
[Intentionally Omitted.]
 
 
13

 
 
2.            DEFINITIONS.
 
2.1             Definitions .  The following definitions are applicable to this Interest Rate Election Rider:
 
 
(a)
" Banking Day " shall mean with respect to LIBOR Advances, a London Banking Day and with respect to all other advances, any day other than a day on which commercial banks in New York are required or permitted by law to close.
 
 
(b)
" Interest Period " shall mean a duration of, (i) with respect to any LIBOR Advance, a 30, 90 or 180 day period and (ii) with respect to any Variable Rate Advance, the period of duration, if any, selected by the Maker pursuant to Paragraph 1.1 respecting such advance.  No Interest Period shall extend beyond the Maturity Date or earlier  termination of this Note.
 
 
(c)
"LIBOR Advance " shall have the meaning set forth in Paragraph 1.1 above.
 
 
(d)
" LIBOR Rate " shall mean the rate of interest (rounded upwards if necessary to the next 100th of one percent) determined by the Payee to be the prevailing rate per annum at which deposits in United States dollars for an applicable period, determined by the Payee in its sole discretion, are offered to the Payee by first class banks in the London Interbank Market in which the Payee regularly participates at any such time, or, in the discretion of the Payee, the base, reference or other rate then designated by the Payee for general commercial loan reference purposes, it being understood that such rate is a reference rate, not necessarily the lowest, established from time to time, which serves as the basis upon which effective interest rates are calculated for loans making reference thereto .
 
 
(e)
" London Banking Day " shall mean with respect to LIBOR Advances, any day on which commercial banks are open for international business (including dealings in U.S. Dollar ($) deposits) in London, England and New York .
 
 
(f)
Prime Rate ” shall mean the rate per annum publicly announced by the Payee from time to time as its prime rate in effect at its principal office, each change in the Prime Rate shall be effective on the date such change is announced to become effective.
 
 
(g)
" Variable Rate Advance " shall have the meaning set forth in Paragraph 1.1 above.
 
2.2             Other Terms .  Terms set forth in this Note which are defined in the Note shall have the meanings set forth in the Note.
 
 
14

 

SCHEDULE A

Existing Mortgage


Mortgage dated 6/16/2006 granted by SJA Industries LLC and Town of Islip Industrial Development Agency to Sun Life Assurance Company of Canada, in the original principal amount of $9,150,000.00, recorded in the Clerk’s Office for Suffolk County (the “ Clerk’s Office ”) on 6/26/2006 in Liber 21324, Page 658.

Assignment of Mortgage dated 12/29/2009 from Sun Life Assurance Company of Canada to SL Investment PAR Holdings 2008-1, LLC, recorded in the Clerk’s Office on 1/22/2010 in Liber 21910, Page 303.

Assignment of Mortgage dated 3/___/2012 from SL Investment PAR Holdings 2008-1, LLC to HSB Bank USA, National Association, to be recorded in the Clerk’s Office.

 
15
Exhibit 10.8

________________________________________________

HSBC BANK USA, NATIONAL ASSOCIATION

and

SJA INDUSTRIES, LLC

and

THE TOWN OF ISLIP INDUSTRIAL DEVELOPMENT AGENCY

and

FAE HOLDINGS 411519R, LLC

_________________________________________________

NOTE AND MORTGAGE

ASSUMPTION AGREEMENT

Dated:  March 15, 2012

_________________________________________________


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 Reckson Plaza
Uniondale, New York 11556-1320

_________________________________________________

 
 

 
 
AGREEMENT , made the 15 th day of March, 2012, by and among HSBC BANK USA, NATIONAL ASSOCIATION, a national banking association, having an address at 534 Broad Hollow Road, Melville, New York 11747 (being hereinafter called “Mortgagee”), SJA INDUSTRIES, LLC, a New York limited liability company, having an address at 355 South Technology Drive, Central Islip, New York 11722 (being hereinafter called the “Original Borrower”), 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 (being hereinafter called “New Borrower”), and THE TOWN OF ISLIP INDUSTRIAL DEVELOPMENT AGENCY, a corporate governmental agency, having an address at 40 Nassau Avenue, Islip, New York 11751 (being hereinafter called the “IDA”).


RECITALS


A.            The IDA acquired record title to the property known as 355 South Technology Drive, Central Islip, New York, as more particularly described on Exhibit A attached hereto (hereinafter referred to as the “Real Property”) to provide certain benefits to the Original Borrower.  The Original Borrower and the IDA entered into a certain Installment Sale Agreement, dated as of December 1, 2000, a memorandum of which was recorded on January 18, 2001, in the Clerk’s Office in Liber 12097, at Page 529 (as the same may  have been amended, the “Sale Agreement”) .   The Original Borrower occupies the Real Property pursuant to a certain lease agreement dated as of December 1, 2000 (the “Master Lease”), between the IDA and the Original Borrower.

B.            Original Borrower and CVD Equipment Corporation (“CVD”) are parties to a certain Contract of Sale dated September 2, 2011, pursuant to which CVD agreed to purchase Original Borrower’s right, title and interest in the Master Lease.

C.            New Borrower and CVD have entered into a certain Qualified Exchange Accommodation Agreement dated as of February 9, 2012 (the “Accommodation Agreement”), pursuant to which New Borrower agreed to acquire the leasehold interest under the Master Lease and sublease the same to CVD,  in order to facilitate CVD’s intended property exchange pursuant to Internal Revenue Code Section 1031 and Revenue Procedure 2000-37.  It is a condition of the Accommodation Agreement that New Borrower, on behalf of CVD, obtain funds sufficient to acquire Original Borrower’s interest under the Master Lease;

D.            CVD has applied to Mortgagee for a loan (the “Loan”) to New Borrower in the principal sum of SIX MILLION and 00/100 DOLLARS ($6,000,000.00), which loan is being funded on the date hereof.

E.            The Original Borrower is the maker under a certain mortgage note dated June 16, 2006, in the original principal amount of $9,150,000.00, executed by the Original Borrower in favor of SL Investment PAR Holdings 2008-1, LLC (the “Note”) which Note is secured by the mortgage described on Exhibit B attached hereto and made a part hereof (the “Mortgage”), encumbering the Real Property.
 
 
 

 

F.            In connection with the Loan being made by Mortgagee to New Borrower, the Note and Mortgage are this date being assigned to Mortgagee pursuant to a certain Assignment of Mortgage dated the date hereof from SL Investment PAR Holdings 2008-1, LLC to the Mortgagee, to be recorded in the Clerk’s Office.

G.            In consideration for the assignment of the Master Lease by Original Borrower to New Borrower, New Borrower is willing to assume all of the obligations of Original Borrower under the Note and the Mortgage.

Accordingly, the parties hereto hereby agree as follows:

1.           New Borrower hereby covenants, promises and agrees (a) to pay the indebtedness evidenced by the Note, on which there remains unpaid as of the date hereof the principal amount of $6,000,000.00, on the terms, in the manner and in all respects as therein provided, without offset, deduction, or counterclaim, (b) to perform each and all of the covenants, agreements and obligations in the Note and the Mortgage to be performed by Original Borrower, at the time, in the manner and in all respects as therein provided, and (c) to be bound by each and all of the terms and provisions of the Note and the Mortgage as though the Note and the Mortgage had originally been made, executed and delivered by New Borrower.

2.           All of the Real Property described in the Mortgage shall remain in all respects subject to the lien and encumbrance of the Mortgage, and nothing herein contained shall affect or be construed to affect the lien or encumbrance of said Mortgage, or the priority thereof over other liens or encumbrances, or, except as expressly provided herein, to release or affect the liability of any party or parties who may now or hereafter be liable under or on account of the Note or the Mortgage; nor shall anything herein contained affect or be construed to affect any other security, if any, held by Mortgagee as security for the Note.

3.           The IDA is executing this Agreement solely to consent to the terms hereof and incurs no obligations hereunder.

4.           This Agreement shall be construed and interpreted in accordance with and governed by the laws of the State of New York.

5.           This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original, but all of which together shall constitute one and the same instrument.

6.           New Borrower’s obligations under this Agreement, the Note and the Mortgage are absolute and unconditional and are valid irrespective of any other agreement or circumstance which might otherwise constitute a defense to the obligations under this Agreement, the Note or the Mortgage or to the obligations of others related to it.  New Borrower acknowledges that no oral or other agreements, conditions, promises, understandings, representations or warranties exist in regard to the obligations under this Agreement, the Note, or the Mortgage, except those specifically set forth herein and therein.
 
 
 

 

7.           Neither this Agreement nor any provision hereof may be modified, amended, changed or terminated orally, but only by an agreement in writing signed by the party against whom the enforcement of the modification, amendment, change or termination is sought.

8.           This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

9.           Nothing in this Agreement is intended to or shall be deemed to create any rights or obligations of partnership, joint venture, or similar association among the parties hereto.

10.           If any term, covenant, provision or condition of this Agreement shall be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such term, covenant, provision or condition.

11.            New Borrower, Original Borrower and the Mortgagee hereby irrevocably and unconditionally waive any and all rights to trial by jury in any action, suit or counterclaim arising in connection with, out of or otherwise related to this Agreement. .

12.           The general credit of New Borrower is not obligated or available for the payment of the indebtedness evidenced by the Note (the “Debt”).  Mortgagee will not look to New Borrower or any principal, member, director, officer or employee of New Borrower with respect to the Debt or any covenant, stipulation, promise, agreement or obligation contained herein or in the Note.  In enforcing its rights and remedies under this Agreement or the Note, Mortgagee will look solely to the Real Property and/or to the Guarantors (as defined in the Mortgage) for the payment of the Debt and for the performance of the provisions hereof or thereof.  Mortgagee will not seek a deficiency or other money judgment against New Borrower or any principal, member, director, officer or employee of New Borrower , and will not institute any separate action against New Borrower by reason of any default that may occur in the performance of any of the terms and conditions of this Agreement or the Note.  This agreement on the part of Mortgagee shall not be construed in any way so as to affect or impair the lien of the Mortgage or Mortgagee’s right to foreclose under the terms of the Mortgage as provided by law or construed in any way so as to limit or restrict any of the rights or remedies of the Mortgagee in any foreclosure proceedings or other enforcement of payment of the Debt out of and from the security given therefor, including, without limitation, any Guaranty (as defined in the Mortgage).  THE PROVISIONS OF THIS PARAGRAPH 12 SHALL BE APPLICABLE ONLY UNTIL, AND SHALL BE DEEMED DELETED FROM THIS AGREEMENT AND OF NO FURTHER FORCE OR EFFECT FROM AND AFTER, THE DATE THAT CVD ACQUIRES ALL OF THE MEMBERSHIP INTERESTS IN NEW BORROWER OR ASSUMES THE OBLIGATIONS OF NEW BORROWER UNDER THE MASTER LEASE, THE NOTE OR THE MORTGAGE PURSUANT TO THE TERMS OF THE ACCOMMODATION AGREEMENT OR OTHERWISE.
 
 
 

 
 
IN WITNESS WHEREOF , this Agreement has been executed by the parties hereto as of the day and year above first written.


 

 
SJA INDUSTRIES, LLC

 

By:           /s/ Fran Austrian
Name:       Fran Austrian
Title:         Member

 

 
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


HSBC BANK USA, NATIONAL ASSOCIATION


By:           /s/ Robert Caruana
Name:  Robert Caruana
Title:           VP

CVD Equipment Corporation hereby
acknowledges and agrees to the terms hereof.

CVD EQUIPMENT CORPORATION


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

 

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

On the 15th day of March in the year 2012 before me, the undersigned, personally appeared Fran Austrian 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.

/s/ Caren Rio Gouskos
Notary Public



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

On the 15th day of March in the year 2012 before me, the undersigned, personally appeared William G. Mannix 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.

/s/ Caren Rio Gouskos
Notary Public



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

On the 15th day of March in the year 2012 before me, the undersigned, personally appeared Robert Caruana 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.

/s/ Caren Rio Gouskos
Notary Public
 
 
 

 

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



[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 A

DESCRIPTION OF REAL PROPERTY

 
 

 

EXHIBIT B

DESCRIPTION OF MORTGAGE


Mortgage dated 6/16/2006 granted by SJA Industries LLC and Town of Islip Industrial Development Agency to Sun Life Assurance Company of Canada, in the original principal amount of $9,150,000.00, recorded in the Clerk’s Office for Suffolk County (the “ Clerk’s Office ”) on 6/26/2006 in Liber 21324, Page 658.

Assignment of Mortgage dated 12/29/2009 from Sun Life Assurance Company of Canada to SL Investment PAR Holdings 2008-1, LLC, recorded in the Clerk’s Office on 1/22/2010 in Liber 21910, Page 303.
Exhibit 10.9
GUARANTY OF PAYMENT


 March 15, 2012
Melville, New York

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 annexed hereto);

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 ”), with offices at 534 Broad Hollow Road, Melville, New York 11747 , 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 February 9, 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 expiration of the Parking Period (as defined in the Accommodation Agreement), 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, Lender is willing to make the Loan to the Borrower only if the undersigned executes and delivers this Guaranty and guarantees payment to Lender of the Debt (as herein defined) in the manner hereinafter provided; and

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.
 
 
 

 
 
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 the Lender to make the Loan to the Borrower, the undersigned hereby acknowledges, agrees and confirms that all of the above recitals are true, correct and complete and hereby covenants and agrees with the Lender as follows:

1.           The undersigned guarantees, absolutely, irrevocably and unconditionally, to the Lender the payment of the Debt.  The term “Debt” as used in this Guaranty shall mean all liabilities of the Borrower to the Lender of whatever nature, whether now existing or hereafter incurred, whether created directly or acquired by the Lender, by assignment or otherwise, whether matured or unmatured and whether absolute or contingent, including, without limitation,   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 the 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 agrees that the undersigned shall indemnify and hold the Lender harmless and defend the Lender at the undersigned’s sole cost and expense against any loss or liability, cost or expense (including, but not limited to, reasonable attorneys’ fees and disbursements of the 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:

(a)           any ongoing matters arising out of the transaction contemplated hereby, this Guaranty, the Debt, the Mortgage, the Note or any other Loan Document, including, but not limited to, all costs of appraisals and reappraisals of the property encumbered by the Mortgage or any part thereof;

(b)           any amendment to, or restructuring of, this Guaranty, the Debt and the Mortgage, the Note or any of the other Loan Documents; and

(c)           any and all lawful action that may be taken by the Lender in connection with the enforcement of the provisions of this Guaranty, the Note, the Mortgage or any of the other Loan Documents, whether or not suit is filed in connection with the same, or in connection with the undersigned, 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 the Lender shall be payable on demand and, until reimbursed by the Borrower or by the undersigned pursuant hereto, shall bear interest at the default interest rate as set forth in the Note.

3.           The undersigned hereby represents and warrants that all financial statements of the undersigned heretofore delivered to the Lender by or on behalf of the undersigned are true and correct in all material respects and fairly present the financial condition of the undersigned as of the respective dates thereof, and no material adverse change has occurred in the financial conditions reflected therein since the respective dates thereof.  The undersigned agrees to comply with all financial reporting terms of the Mortgage as they apply to the undersigned.
 
 
 

 

4.           In addition to any right available to the Lender under applicable law or any other agreement, the undersigned hereby gives to the 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 the 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 the 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, the Lender at any time existing, as collateral security for the payment of the Debt and all of the other obligations of the undersigned under this Guaranty, including fees, contracted with or acquired by the Lender, whether joint, several, absolute, contingent, secured, matured or unmatured (for the purposes of this paragraph 4 and paragraphs 6, 8 and 16 below, collectively, the “Liabilities” ), hereby authorizing the 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 any of the undersigned.  The 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 the Lender in any capacity to any of the undersigned, whether or not due, and the 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 the Lender subsequent to those events.

5.           All moneys available to the Lender for application in payment or reduction of the Debt may be applied by the Lender in such manner and in such amounts and at such time or times and in such order, priority and proportions as the Lender may see fit to the payment or reduction of such portion of the Debt as the Lender may elect.

6.           The undersigned hereby expressly agrees that this Guaranty 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, with or without further notice to or assent from the undersigned:

(a)           any security at any time held by or available to the Lender for any obligation of the Borrower, or any security at any time held by or available to the 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 the Lender, under any of the Loan Documents ( “Other Obligations” ), including any guarantor of the Debt and/or any of such Other Obligations, may be accelerated, settled, exchanged, surrendered or released and the 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 of 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)           The 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 the Lender may see fit;

and the undersigned shall remain bound in all respects under this Guaranty, without any loss of any rights by the 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 the Lender for application in payment or reduction of the Debt and/or any Other Obligations may be applied by the Lender in such manner and in such amounts and at such time or times and in such order, priority and proportions as the Lender may see fit.

7.           The undersigned hereby waives:

(a)           notice of acceptance of this Guaranty and of the making of the Loan or any advance thereof by the Lender to the Borrower;

(b)           presentment and demand for payment of the Debt or any portion thereof;

(c)           protest and notice of dishonor or default to any of the undersigned or to any other person or party with respect to the Debt or any portion thereof;

(d)           all other notices to which any of the undersigned might otherwise be entitled; and

(e)           any demand under this Guaranty.

8.           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 periods therein contained;

(b)           any of the undersigned violates any provision of this Guaranty;

(c)           any of the undersigned terminates or dissolves or suspends its usual business activities or conveys, sells, leases, transfers or otherwise disposes of all or a substantial part of its property, business or assets other than in the ordinary course of business;

then, and in such event, the Lender may declare the Liabilities to be, and the same shall become, immediately due and payable.

9.           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 the 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, shall be deemed to be made on behalf of the undersigned and shall serve to start anew the statutory period of limitations applicable to the Debt.
 
 
 

 

10.           Each reference herein to the Lender shall be deemed to include its successors and assigns, in whose favor the provisions of this Guaranty 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, provided, however, that the undersigned shall in no event nor under any circumstance have the right, without obtaining the prior written consent of the Lender, to assign or transfer the undersigned’s obligations and liabilities under this Guaranty, in whole or in part, to any other person, party or entity.

11.           The term “undersigned” as used herein shall, if this Guaranty 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 this Guaranty is signed by more than one party, all singular references to the undersigned shall be deemed to be plural.  If this Guaranty is signed by more than one party, the Bank 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.

12.           No delay on the part of the Lender in exercising any right or remedy under this Guaranty 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 any of the undersigned shall be deemed to be a waiver of the obligations of any of the undersigned or of the right of the Lender to take further action without notice or demand as provided in this Guaranty.  No course of dealing between any of the undersigned and the Lender shall change, modify or discharge, in whole or in part, this Guaranty or any obligations of the undersigned hereunder.

13.           This Guaranty may only be modified, amended, changed or terminated by an agreement in writing signed by the Lender and the undersigned.  No waiver of any term, covenant or provision of this Guaranty shall be effective unless given in writing by the Lender and if so given by the Lender shall only be effective in the specific instance in which given.  The execution and delivery hereafter to the Lender by any of 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 the Lender hereunder or under any instrument of guaranty hereafter executed and delivered to the Lender by any of the undersigned shall be cumulative and may be exercised singly or concurrently.
 
 
 

 

14.           The undersigned acknowledges that this Guaranty and the undersigned’s obligations under this Guaranty 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 the obligations of any of the undersigned under this Guaranty or the obligations of any other person or party (including, without limitation, the Borrower) relating to this Guaranty or the obligations of any 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 any of the undersigned, or the commencement of an action or proceeding for the benefit of the creditors of the Borrower or the undersigned, or the obtaining by the Lender of title to, respectively, the premises encumbered by the Mortgage or any other 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 sets forth the entire agreement and understanding of the Lender and the undersigned with respect to the matters covered by this Guaranty and the undersigned acknowledges that no oral or other agreements, understandings, representations or warranties exist with respect to this Guaranty or with respect to the obligations of the undersigned under this Guaranty, except those specifically set forth in this Guaranty.

15.           The undersigned represents and warrants to the Lender that:

(a)           neither the execution and delivery of this Guaranty 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;

(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, 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, have been obtained and are in full force and effect; and

(c)           all of the representations and warranties made by the Borrower in the Note, the Mortgage and the other Loan Documents are true and correct.

16.           Notwithstanding any payments made by any of the undersigned pursuant to the provisions of this Guaranty, 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 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 the commencement of an action or proceeding for the benefit of the creditors of the Borrower, this Guaranty shall at all times thereafter remain effective in regard to any payments or other transfers of assets to the Lender received from or on behalf of the Borrower prior to notice of termination of this Guaranty 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.  The provisions of this paragraph 16 shall survive the term of this Guaranty and the payment in full of the Debt and all other Liabilities.

 
 

 
 
17.          The undersigned shall furnish to the Lender:

(a)           As soon as available and in any event within one hundred twenty (120) days (or such earlier date as may be required by the SEC, from time to time) of the end of the fiscal year of the undersigned, (i) the audited consolidated and consolidating financial statements of the undersigned  and its Subsidiaries (as defined in the Note) which shall include the consolidated and consolidating balance sheet of the undersigned and its Subsidiaries as of the end of such fiscal year, together with the consolidated and consolidating statements of income, cash flow and retained earnings for the undersigned and its Subsidiaries for such fiscal year and as of the end of and for the prior fiscal year, all prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the respective figures for the previous fiscal year end, and accompanied by an opinion thereon of independent certified public accountants of recognized standing selected by the undersigned and satisfactory to the Lender (the “ Auditor ”) which opinion shall not include a going concern explanatory paragraph, or a qualification or exception as to the scope of the audit and (ii) Form 10 K for such fiscal year as filed with the SEC;

(b)           as soon as available and in any event within sixty (60) days (or such earlier date as may be required by the SEC, from time to time) after the end of each of the first, second and third quarterly period of each fiscal year of the undersigned, a copy of (i) the unaudited consolidated and consolidating financial statements of the undersigned and its Subsidiaries, which shall include the unaudited consolidated and consolidating balance sheet of the undersigned and its Subsidiaries as of the end of each such quarter, together with the consolidated and consolidating statements of income, cash flow and retained earnings of the undersigned and its Subsidiaries for each such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year, all prepared by or under the supervision of the Chief Financial Officer of the undersigned  in accordance with generally accepted accounting principles applied on a consistent basis and (ii) Form 10 Q for such fiscal quarter as filed with the SEC;
(c)           promptly, after filing thereof, copies of all regular and periodic financial information, proxy materials and other information and reports which the undersigned or any of its Subsidiaries shall file with the SEC;

(d)           promptly after submission to any government or regulatory agency, all documents and information furnished to such government or regulatory agency other than such documents and information prepared in the normal course of business and which would not reasonably be expected to result in any adverse action to be taken by such agency; and

(e)           promptly, from time to time, such other information regarding the operations, business affairs and condition, financial or otherwise, of the undersigned or any of its Subsidiaries as the Lender may reasonably request.
 
 
 

 
 
18.           Any notice, request or demand given or made under this Guaranty 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 the 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:

CVD Equipment Corporation
1860 Smithtown Avenue
Ronkonkoma, New York 11779

Attention:                      Glen Charles
        Chief Financial Officer
 
 
 

 
 
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 any of the undersigned or the Lender.  Each party to this Guaranty 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.

19.           This Guaranty 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.  The undersigned acknowledges and agrees that this Guaranty is, and is intended to be, an instrument for the payment of money only, as such phrase is used in §3213 of the Civil Practice Law and Rules of the State of New York, and the undersigned has been fully advised by its counsel of the Lender’s rights and remedies pursuant to said §3213.

20.           The undersigned agrees to submit to personal jurisdiction in the State of New York in any action or proceeding arising out of this Guaranty.  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 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, shall, to the extent permitted by law, be in New York County.  Nothing in this paragraph shall limit the right of the Lender to bring an action or proceeding arising out of the Guaranty in any other jurisdiction.

21.           The undersigned absolutely, unconditionally and irrevocably waives any and all right to assert or interpose any defense (other than the final and indefeasible payment in full of the Debt), setoff, counterclaim or crossclaim of any nature whatsoever with respect to this Guaranty or the obligations of the undersigned under this Guaranty, or the obligations of any other person or party (including without limitation, the Borrower) relating to this Guaranty, or the obligations of the undersigned hereunder or otherwise with respect to the Loan in any action or proceeding brought by the Lender to collect the Debt, or any portion thereof, or to enforce the obligations of the undersigned under this Guaranty (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 the 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.
 
 
 

 

22.           No exculpatory provisions which may be contained in the Note, the Mortgage or in any other 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.

23.           The obligations and liabilities of the undersigned under this Guaranty 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.  Conversely, the discharge of any of the undersigned’s obligations and liabilities under this Guaranty 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) now or hereafter executed and delivered by any of the undersigned to the Lender in connection with the Loan.

24.           This Guaranty 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, or any counterpart hereof, or the ineffectiveness for any reason of any such execution, shall not relieve the other signatories from their obligations hereunder nor shall any implication arise from the failure of any of the original guarantors to sign this Guaranty that such non-signing guarantor, or any other guarantor, is released from any of his/her/its respective obligations under the original guaranty.

[END OF PAGE]
 
 
 

 

25.           The undersigned hereby irrevocably and unconditionally waives, and the Lender by its acceptance of this Guaranty irrevocably and unconditionally waives, 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.

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

CVD EQUIPMENT CORPORATION

 

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



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

On the 15th 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.


/s/ Caren Rio Gouskos
Notary Public

 
 

 
 
EXHIBIT A


Note :   The term “Note” as used in this Guaranty shall mean a certain Amended and Restated Mortgage Note, dated the date hereof, in the principal sum of $6,000,000, 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 shall mean a certain Amended and Restated Fee and Leasehold Mortgage, dated the date hereof, in the principal sum of $6,000,000, to be given by the Borrower to the Lender covering the fee simple estate of the IDA and the leasehold 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.
 
Exhibit 31.1
Certifications of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Leonard A. Rosenbaum, certify that:

 
1.
I have reviewed this quarterly report on Form 10-Q  of  CVD Equipment Corporation;

 
2.
Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.
Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b.
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 Dated: May 15, 2012
 
/s/ Leonard A. Rosenbaum    
     President, Chief Executive Officer and Director    
 
Exhibit 31.2
 
Certifications of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Glen R. Charles, certify that:

 
1.
I have reviewed this quarterly report on Form 10-Q  of  CVD Equipment Corporation;

 
2.
Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.
Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b.
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting  which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

  Dated: May 15, 2012
 
/s/ Glen R. Charles    
     Chief Financial Officer    
Exhibit 32.1

Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002



I, Leonard A. Rosenbaum, President and Chief Executive Officer of CVD Equipment Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge, the quarterly report on Form 10-Q for the period ending March 31, 2012 of CVD Equipment Corporation (the “Form 10-Q") fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of CVD Equipment Corporation.
 

 
Dated: May 15, 2012 
By:
/s/ Leonard A. Rosenbaum  
    Leonard A. Rosenbaum   
    Chief Executive Officer  
    (Principal Executive Officer)   
Exhibit 32.2

Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002



I, Glen R. Charles, Chief Financial Officer of CVD Equipment Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge, the quarterly report on Form 10-Q for the period ending March 31, 2012 of CVD Equipment Corporation (the “Form 10-Q") fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of CVD Equipment Corporation.

 
Dated: May 15, 2012 
By:
/s/  Glen R. Charles  
   
Glen R. Charles
 
   
Chief Financial Officer
 
   
(Principal Financial Officer)